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


                                   FORM 10-Q/A


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

                For the quarterly period ended September 30, 2010

                                       OR

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

      For the transition period from _____________ to ___________________.

                        Commission file number: 000-51425

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


Nevada                                                      98-0422451
------------                                             ----------------
(State or other jurisdiction                        (IRS Employer Identification
of incorporation or organization)                    No.)

                          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
wasrequired  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]


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 15 ,2010 119,316,723 shares of Rancher Energy Corp. common stock,
$.00001 par value, were outstanding.


                                       2
<PAGE>

<TABLE>
<CAPTION>


                              Rancher Energy Corp.

                                Table of Contents

                         PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

<S>                                                                                                      <C>

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

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

        Unaudited Statement of Changes in Stockholders' Equity for the Six Months ended
            September 30, 2010..........................................................................  8

        Unaudited Statements of Cash Flows for the SixMonths ended
            September 30, 2010 and 2009.................................................................  9

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

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

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

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

                           PART II - OTHER INFORMATION

Item 1.  Legal Proceedings.............................................................................. 30

Item 1A.  Risk Factors.................................................................................. 31

Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds.................................... 31

Item 3.  Defaults Upon Senior Securities................................................................ 31

Item 4.  Rescinded and Reserved......................................................................... 31

Item 5.  Other Information ............................................................................. 31

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

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



                                       3
<PAGE>

                         Part I. Financial Information.


<TABLE>
<CAPTION>

Item 1.   Financial Statements

                              Rancher Energy Corp.
                              Debtor in Possession
                                 Balance Sheets
                                    Unaudited



                                                                    ASSETS


                                                                                             September 30,
                                                                                                  2010          March 31, 2010
<S>                                                                                          <C>                <C>

Current assets:
  Cash and cash equivalents                                                                        $673,594
                                                                                                                       $372,286
  Accounts receivable and prepaid expenses                                                          521,479
                                                                                                                        615,602
                                                                                             ----------------- -------------------
    Total current assets                                                                          1,195,073
                                                                                                                        987,888
                                                                                             ----------------- -------------------

Oil and gas properties at cost (successful efforts method):
  Unproved                                                                                       53,066,137
                                                                                                                     53,030,814
  Proved                                                                                         19,550,196
                                                                                                                     19,432,703
  Less:  Accumulated depletion, depreciation, amortization and impairment                      (57,000,097)
                                                                                                                   (56,355,224)
                                                                                             ----------------- -------------------
    Net oil and gas properties                                                                   15,616,236
                                                                                                                     16,108,293
                                                                                             ----------------- -------------------

Other assets:
Furniture and equipment net of accumulated depreciation of $644,293 and $568,529
   respectively                                                                                     501,060             574,938
Other assets                                                                                        876,430
                                                                                                                        914,097
                                                                                             ----------------- -------------------
   Total other assets                                                                             1,377,490
                                                                                                                      1,489,035
                                                                                             ----------------- -------------------

    Total assets                                                                                $18,188,799
                                                                                                                    $18,585,216
                                                                                             ================= ===================


                                   (Continued)


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



                                       4
<PAGE>

<TABLE>
<CAPTION>

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


                                                   LIABILITIES AND STOCKHOLDERS' EQUITY

                                                                                     September 30, 2010         March 31, 2010
                                                                                     ------------------         --------------
<S>                                                                                 <C>                        <C>

Current liabilities:

  Accounts payable and accrued liabilities - post petition                                      $3,752,771            $1,698,488

  Asset retirement obligation                                                                      120,613               174,332

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

    Total current liabilities                                                                   13,963,371            11,962,807
                                                                                   -------------------------- ---------------------

Long-term liabilities:

  Asset retirement obligation                                                                    1,332,700             1,255,497
                                                                                   -------------------------- ---------------------

    Total long-term liabilities                                                                  1,332,700             1,255,497

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

Total liabilities not subject to compromise                                                     15,296,071            13,218,304

Liabilities subject to compromise                                                                1,701,304

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

Total liabilities                                                                               16,997,375            14,554,437
                                                                                   -------------------------- ---------------------


Contingencies (Notes 2, 4, 7 and 8)
  Common stock, $0.00001 par value, 275,000,000 shares authorized September
  30, 2010 and March 31, 2010; 119,316,700 shares issued and outstanding at
  September 30, 2010 and March 31, 2010                                                              1,194

Additional paid-in capital                                                                      93,171,341            93,025,876

Accumulated deficit                                                                           (91,981,111)          (88,996,291)
                                                                                   -------------------------- ---------------------

Total stockholders' equity                                                                       1,191,424             4,030,779
                                                                                   -------------------------- ---------------------

Total liabilities and stockholders' equity                                                     $18,188,799           $18,585,216
                                                                                   ========================== =====================

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







                                       5
<PAGE>

<TABLE>
<CAPTION>

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



                                                                                      Three Months Ended September 30,

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

   Oil & gas sales                                                                        $1,148,240                    $831,579
   Derivative losses                                                                               -                    (34,364)
                                                                            --------------------------- ---------------------------
                                                                                           1,148,240                     797,215
                                                                            --------------------------- ---------------------------
Operating expenses:
   Production taxes                                                                          141,269                     105,934
   Lease operating                                                                           735,112                     323,863
   Depreciation, depletion and amortization                                                  367,684                     289,877
  Accretion                                                                                   44,472                      44,156
  Exploration                                                                                 10,656                       9,328
  General and administrative                                                                 811,166                     715,663
                                                                            --------------------------- ---------------------------
    Total operating expenses                                                               2,110,359                   1,488,821
                                                                            --------------------------- ---------------------------

Loss from operations                                                                       (962,119)                   (691,606)
                                                                            --------------------------- ---------------------------

Other income (expense):
  Amortization of deferred finance costs and discount on note payable                              -                   (825,335)
  Interest expense                                                                         (483,573)                   (419,124)
  Interest and other income                                                                      224                         518
                                                                            --------------------------- ---------------------------
Total other expense                                                                        (483,349)                 (1,243,941)
                                                                            --------------------------- ---------------------------
   Loss before reorganization items                                                      (1,445,468)                 (1,935,547)
Reorganization items
  Professional and legal fees                                                                579,061                           -

                                                                            --------------------------- ---------------------------
Net loss                                                                                $(2,024,529)                $(1,935,547)
                                                                            =========================== ===========================

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

Basic and diluted weighted average shares outstanding                                    119,357,246                 119,514,516
                                                                            =========================== ===========================



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



                                       6
<PAGE>


<TABLE>
<CAPTION>

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



                                                                                        Six Months Ended September 30,

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

   Oil & gas sales                                                                         $2,325,290                  $1,527,874
   Derivative losses                                                                                -                   (350,773)
                                                                             --------------------------- ---------------------------
                                                                                            2,325,290                   1,177,101
                                                                             --------------------------- ---------------------------
Operating expenses:
  Production taxes                                                                            295,009                     194,778
  Lease operating                                                                           1,292,117                     677,013
  Depreciation, depletion and amortization                                                    726,747                     569,079
  Accretion                                                                                    86,557                      80,658
  Exploration                                                                                  19,087                      11,832
  General and administrative                                                                1,235,568                   1,497,510
                                                                             --------------------------- ---------------------------
    Total operating expenses                                                                3,655,085                   3,030,870
                                                                             --------------------------- ---------------------------

 Loss from operations                                                                     (1,329,795)                 (1,853,769)
                                                                             --------------------------- ---------------------------

Other income (expense):
  Amortization of deferred finance costs and discount on note payable                               -                 (1,531,683)
  Interest expense                                                                          (947,054)                   (790,693)
  Interest and other income                                                                    11,565                         723
                                                                             --------------------------- ---------------------------
    Total other expense                                                                     (935,489)                 (2,321,653)
                                                                             --------------------------- ---------------------------

Loss before reorganization items                                                          (2,265,284)                 (4,175,422)
Reorganization items
  Professional and legal fees                                                                 719,536                           -

                                                                             --------------------------- ---------------------------
Net loss                                                                                 $(2,984,820)                $(4,175,422)
                                                                             =========================== ===========================

Basic and diluted net loss per share                                                          $(0.02)                     $(0.03)
                                                                             =========================== ===========================

Basic and diluted weighted average shares outstanding                                     119,357,246                 119,377,629
                                                                             =========================== ===========================



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





                                       7
<PAGE>


<TABLE>
<CAPTION>


                                      Rancher Energy Corp.
                                      Debtor In Possession
                          Statement of Changes in Stockholders' Equity
                           For the Six Months Ended September 30, 2010
                                           (Unaudited)


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

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


  Stock-based compensation                                  -          -         145,465                 -           145,465


  Net loss                                                  -          -               -       (2,984,820)       (2,984,820)


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

Balance, September 30, 2010                       119,316,700     $1,194     $93,171,341     $(91,981,111)        $1,191,424
                                                ================ ========== =============== ================= =================


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

</TABLE>







                                       8
<PAGE>


<TABLE>
<CAPTION>

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



                                                                                Six Months Ended September 30,

                                                                                2010
                                                                                                        2009
<S>                                                                      <C>                   <C>

Cash flows from operating activities:

   Net loss                                                                    $(2,984,820)              $(4,175,422)

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


    Depreciation, depletion, and amortization                                       726,747                   569,079



    Reorganization items, net                                                       719,536                         -

    Accretion expense                                                                86,558                    80,659

    Interest expense converted to short-term debt                                         -                   171,160
    Amortization of deferred financing costs and discount on note
    payable                                                                               -                 1,531,683

  Unrealized (gains) losses on derivative activities                                      -                   449,151

  Stock-based compensation expense                                                  145,465                   126,763

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


 Changes in operating assets and liabilities:


  Accounts receivable and prepaid expenses                                           94,123                   199,835

  Other assets                                                                       33,469                    19,365

  Accounts payable and accrued liabilities                                        1,850,740                   210,914

  Asset retirement obligation settlements                                           (63,074)                        -

                                                                         --------------------- -------------------------
Net cash from (used for) operating activities, before reorganization                608,744                 (765,113)

  Cash effect of reorganization items                                             (208,857)                         -
                                                                         --------------------- -------------------------

Net cash from (used for) operating activities                                       399,887                 (765,113)
                                                                         --------------------- -------------------------
Cash flows from investing activities:

  Capital expenditures for oil and gas properties                                  (94,808)                         -

  Proceeds from sale of other assets                                                      -                    10,466

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

Net cash used for investing activities                                             (98,578)                    10,466
                                                                         --------------------- -------------------------

Cash flows from financing activities:

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

    Net cash used for financing activities                                                -                         5
                                                                         --------------------- -------------------------

Increase (decrease)in cash and cash equivalents                                     301,309                 (754,642)

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

Cash and cash equivalents, end of period                                           $673,594                  $162,518
                                                                         ===================== =========================
Supplemental Statement of Cash Flow Information:

Cash paid for interest                                                                    -                  $784,368
                                                                         ===================== =========================
Non-cash investing and financing activities:

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






                                       9
<PAGE>

                              Rancher Energy Corp.
                              Debtor in Possession
                          Notes to Financial Statements
                   For the Six Months Ended September 30, 2010
                                   (Unaudited)

Note 1 - Organization and Summary of Significant Accounting Policies

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

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

Basis of Presentation
---------------------

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

Bankruptcy Filing
-----------------

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

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

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

                                       10
<PAGE>

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

Use of Estimates in the Preparation of Financial Statements
-----------------------------------------------------------

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

Oil and Gas Producing Activities
--------------------------------

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

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

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

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

                                       11
<PAGE>

Capitalized Interest
--------------------

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

Commodity Derivatives
---------------------

         As of September 30, 2010, the Company has no hedges or other derivative
positions in place.

Net Profits Interest
--------------------

         The Company  assigned a 10% Net Profits  Interest  (NPI) to its Lender,
under the terms of the Eighth Amendment to the Term Credit Agreement (see NOTE 6
- Short-Term  Note  Payable).  Net profit is defined as the excess of the sum of
crude oil  proceeds  plus hedge  settlements,  over the sum of lease  operating,
marketing,  transportation and production tax expenses. The Company is obligated
to pay to the Lender 10% of such excess,  if any, on a monthly basis, so long as
the NPI  remains in effect.  The  Company  records  amounts due under the NPI as
operating  expense.  For the six months  ended  September  30, 2010 and 2009 the
Company recognized $83,203 and $52,302,  respectively as NPI expense,  including
such amount as lease operating expense in its Statement of Operations.

Net Loss Per Share
------------------

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

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

                                       For the Six Months Ended September 30,
                                       -------------------------------------
                                       2010                           2009
                                       ----                           ----

        Dilutive                         -                             -
        Anti-dilutive               66,523,564                     55,203,564

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

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

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

         Other accounting policies followed by the Company are set forth in Note
1 to the Financial Statements included in its Annual Report on Form 10-K for the
year  ended  March 31,  2010,  and are  supplemented  in the Notes to  Financial
Statements  in this  Quarterly  Report  on Form  10-Q for the six  months  ended
September 30, 2010.  These  unaudited  financial  statements and notes should be
read in  conjunction  with the financial  statements  and notes  included in the
Annual Report on Form 10-K for the year ended March 31, 2010.


                                       12
<PAGE>

Recent Accounting Pronouncement
-------------------------------

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

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

Note 2 - Proceedings Under Chapter 11 of the Bankruptcy Code

         As  discussed  in Note 1 above,  on  October  28,  2009 (the  "Petition
Date"),  the Company  filed a voluntary  petition for relief under Chapter 11 of
the Bankruptcy Code with the Bankruptcy  Court.  The petition was filed in order
to enable the Company to pursue  reorganization  efforts under Chapter 11 of the
Bankruptcy   Code.   The  Company   continues   to  operate   its   business  as
debtor-in-possession  under  the  jurisdiction  of the  Bankruptcy  Court and in
accordance  with the applicable  provisions of the Bankruptcy Code and orders of
the  Bankruptcy  Court.  In  general,  as  debtor-in-possession,  the Company is
authorized under Chapter 11 to continue to operate as an ongoing  business,  but
may not  engage in  transactions  outside  of the  ordinary  course of  business
without the prior approval of the Bankruptcy Court.

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

         Subject to certain exceptions under the Bankruptcy Code, the Bankruptcy
Filing  automatically  enjoins,  or stays,  the  continuation of any judicial or
administrative  proceedings or other actions against the Company or its property
to recover on,  collect or secure a claim  arising  prior to the Petition  Date.
Thus, for example,  creditor  actions to obtain  possession of property from the
Company,  or to create,  perfect or enforce any lien against the property of the
Company,  or to collect on or otherwise exercise rights or remedies with respect
to a pre-petition claim are enjoined unless and until the Bankruptcy Court lifts
the automatic stay with respect thereto.

         In order to successfully  exit Chapter 11 bankruptcy,  the Company will
need  to  propose,  and  obtain  Bankruptcy  Court  confirmation  of,  a plan of
reorganization that satisfies the requirements of the Bankruptcy Code. A plan of
reorganization  would,  among other  things,  resolve the Debtors'  pre-petition
obligations,  set forth the revised capital  structure of the newly  reorganized
entity and provide for corporate governance  subsequent to exit from bankruptcy.
The Company had the exclusive right for 120 days after the Petition Date to file
a plan of reorganization and 60 additional days to obtain necessary acceptances.
On May 26, 2010, the Company filed its second motion to extend  exclusive period
to file a  reorganization  plan through August 24, 2010 and the exclusive period
to solicit  acceptance of a plan through  October 22, 2010. On October 15, 2010,
the Company filed with the Court its proposed  Debtor's  Plan of  Reorganization
("Proposed Plan of  Reorganization").  A proposed Disclosure Statement was filed
simultaneously with the Plan. The Disclosure Statement must be first approved by
the Bankruptcy  Court before it may be sent to creditors along with the proposed
Plan for voting on the Plan.  Prior to  confirmation  and approval by the Court,
the Proposed Plan of Reorganization is subject to amendment.

         In  addition  to  the  need  for  Bankruptcy  Court   confirmation  and
satisfaction of Bankruptcy Code requirements,  a plan of reorganization  must be
accepted as described below by holders of impaired  claims and equity  interests
in order to become  effective.  The Company's  Chapter 11 plan of reorganization
must be  accepted  by holders of claims  against  and  equity  interests  in the

                                       13
<PAGE>

Company if (i) at least  one-half in number and  two-thirds  in dollar amount of
claims actually voting in each impaired class of claims have voted to accept the
plan and (ii) at least two-thirds in amount of equity interests  actually voting
in each impaired class of equity  interests has voted to accept the plan.  Under
circumstances  specified  in the  so-called  "cramdown"  provisions  of  section
1129(b) of the Bankruptcy  Code, the Bankruptcy Court may confirm a plan even if
such plan has not been  accepted  by all  impaired  classes of claims and equity
interests.  A class of claims or an equity  interest  that does not  receive  or
retain any  property  under the plan on account of such claims or  interests  is
deemed  to  have  voted  to  reject  the  plan.  The  precise  requirements  and
evidentiary  showing for confirming a plan  notwithstanding its rejection by one
or more impaired classes of claims or equity interests  depends upon a number of
factors, including the status and seniority of the claims or equity interests in
the rejecting class -- i.e., secured claims or unsecured claims, subordinated or
senior claims, preferred or common stock.

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

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

         The ability of the  Company to  continue as a going  concern may depend
upon, among other things, (i) the Company's ability to comply with the terms and
conditions of the cash  collateral  orders  entered by the  Bankruptcy  Court in
connection with the Bankruptcy Case; (ii) the ability of the Company to generate
cash from operations; (iii) the ability of the Company to maintain adequate cash
on hand;  (iv) the  ability  of the  Company  to obtain  confirmation  of and to
consummate a plan of  reorganization  under the  Bankruptcy  Code;  and, (v) the
cost, duration and outcome of the reorganization process.  Uncertainty as to the
outcome of these factors raises substantial doubt about the Company's ability to
continue as a going  concern.  We are currently  evaluating  various  courses of
action to address the  operational  and liquidity  issues the Company is facing.
There can be no  assurance  that any of these  efforts will be  successful.  The
accompanying  unaudited financial statements do not include any adjustments that
might  result  should the  Company  be unable to  continue  as a going  concern.
Preparing the  accompanying  unaudited  financial  statements on a going concern
basis contemplates the realization of assets and the discharge of liabilities in
the normal course of business for the foreseeable future.

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

                                       14
<PAGE>

         The  uncertainty  resulting  from the  Chapter 11 filing may hinder the
Company's  ongoing  business  activities  and its ability to  operate,  fund and
execute its  business  plan by  impairing  relations  with  property  owners and
potential lessees, vendors and service providers;  negatively impact the ability
of the Company to attract,  retain and  compensate  key executives and employees
and to retain employees  generally;  limit the Company's ability to obtain trade
credit;  and limit the  Company's  ability  to  maintain  and  exploit  existing
properties and acquire and develop new properties.

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

Reorganization Items
--------------------

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

Liabilities Subject to Compromise
---------------------------------

         Liabilities  subject to  compromise at September 30, 2010 and March 31,
2010 include the following pre-petition liabilities:

<TABLE>
<CAPTION>

                                                                September 30, 2010     March 31, 2010
     ------------------------------------------------------------------------------------------------------
<S>                                                             <C>                          <C>

        Accounts payable, trade                                          $  193,289             $164,390
        Damages pursuant to claim settlements                               375,000                    -
        Other payables and accrued liabilities                              226,738              265,516
        Property and ad valorem taxes payable                               766,277              766,227
        Convertible notes payable                                           140,000              140,000
                                                                -------------------------------------------

                  Total liabilities subject to compromise                $1,701,304           $1,336,133
                                                                ===========================================
</TABLE>

Note 3--Oil and Gas Properties

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

<TABLE>
<CAPTION>

                                                                         September 30,       March 31, 2010
                                                                              2010
<S>                                                                     <C>                 <C>

    Proved properties                                                        $19,550,197         $19,432,703
    Unproved properties excluded from DD&A                                    52,733,682          52,716,480
    Equipment and other                                                          332,455             314,334
                                                                        ------------------- -------------------
         Total oil and gas properties                                         72,616,334          72,463,517
    Less accumulated depletion, depreciation, amortization and
         impairment                                                          (57,000,097)       (56,355,224)
                                                                        ------------------- -------------------
                                                                             $15,616,237         $16,108,293
                                                                        =================== ===================
</TABLE>

                                       15
<PAGE>

Note 4 - Asset Retirement Obligations

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

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

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

                                             2010                  2009
                                             ----                  ----
Beginning asset retirement obligations         $1,429,829          $1,280,681
  Liabilities incurred                                  -                   -
  Liabilities settled                            (63,074)                   -
  Changes in estimates                                  -                   -
  Accretion expense                                86,558              80,658
                                          ------------------ -------------------
Ending asset retirement obligation             $1,453,313          $1,361,339
                                          ------------------ -------------------

Current                                          $120,613            $117,215
Long-term                                       1,332,700           1,244,124
                                          ------------------ -------------------
                                               $1,453,313          $1,361,339
                                          ================== ===================

Note 5 -- Fair Value Measurements

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

o    Level 1: Quoted prices are available in active markets for identical assets
     or liabilities;

o    Level 2: Quoted prices in active markets for similar assets and liabilities
     that are observable for the asset or liability; or

o    Level 3:  Unobservable  pricing inputs that are generally  less  observable
     from objective sources, such as discounted cash flow models or valuations.

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

                                       16
<PAGE>

         As of September 30, 2010, the Company has no hedge or other  derivative
positions in place.

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

<TABLE>
<CAPTION>

                                                              2010           2009
                                                           --------------- ---------------
<S>                                                        <C>             <C>

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

                                                           --------------- ---------------
Balance as of September 30                                       $    -          $6,809
                                                           =============== ===============

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

Note 6- Short-Term Note Payable

         On October 16, 2007,  the Company issued a Note Payable (the "Note") in
the amount of $12,240,000  pursuant to a Term Credit  Agreement with a financial
institution  (the  "Lender").  All  amounts  outstanding  under  the  Note  were
originally  due and payable on October 31, 2008 (the  "Maturity  Date") and bore
interest  at a rate  equal  to the  greater  of (a)  12% per  annum  and (b) the
one-month  LIBOR rate plus 6% per  annum.  The Note was  amended on October  22,
2008,  (the "First  Amendment"),  to extend the Maturity Date by six months from
October 31, 2008 to April 30, 2009. In  consideration of the six month extension
andother 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  September  30,  2009  the  Note  was  again  amended  (the  "Eighth
Amendment")  to among other things  extend the maturity  date until  October 15,
2009. The Company did not make payment of the principal and accrued  interest on
the maturity date, October 15, 2009.

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


                                       17
<PAGE>

Lender.  The Company estimated the fair value of the 10% NPI to be approximately
$1,500,000. This amount was recorded as deferred finance costs and was amortized
over the term of the Note, as amended.

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

         On October 16, 2009, the Lender gave instructions to the Company's bank
(the  "Instruction")  that  under  the  terms  of  the  Restricted  Account  and
Securities  Control  Agreement  executed  in  conjunction  with the Term  Credit
Agreement,  that as of the date of the Instruction,  the Company shall no longer
have  access to any funds held in  identified  accounts,  and the Lender now had
exclusive right to direct the disposition of such funds. On October 21, 2009 the
Company's bank transferred the all remaining funds,  $98,415, from the Company's
account to the Lender.

         As  discussed  in Note 1 and Note 2 above,  on October  28,  2009,  the
Company  filed a voluntary  petition (the  "petition")  for relief in the United
States  Bankruptcy  Court,  District of Colorado under Chapter 11 of Title 11 of
the  U.S.  Bankruptcy  Code.  (the  "Bankruptcy  Court").   Subject  to  certain
exceptions  under the  Bankruptcy  Code,  the  Bankruptcy  Filing  automatically
enjoins,   or  stays,  the  continuation  of  any  judicial  or   administrative
proceedings or other actions  against the Company or its property to recover on,
collect or secure a claim arising prior to the Petition Date. Thus, for example,
creditor  actions to obtain  possession  of  property  from the  Company,  or to
create,  perfect or enforce any lien against the property of the Company,  or to
collect  on  or  otherwise  exercise  rights  or  remedies  with  respect  to  a
pre-petition  claim are enjoined unless and until the Bankruptcy Court lifts the
automatic stay.

Note 7- Convertible Promissory Notes Payable

            On October 27, 2009, the Company issued Convertible Promissory Notes
(the "Promissory  Notes") totaling $140,000 in consideration for money loaned to
the Company of equal  amount.  One hundred  thousand  dollars of the  Promissory
Notes  were  issued  to four  officers  and/or  directors  ($25,000  each).  The
remainder  of the  Promissory  Notes was issued to  existing  shareholders.  The
Promissory  Notes bear  interest  at an annual  rate equal to the greater of (i)
12%, or (ii) the prime rate (as  published in the Wall Street  Journal) plus 3%.
The  Promissory  Notes  mature on  November  1, 2010,  and all  obligations  and
payments due under the Promissory  Notes are subordinate to the Company's senior
debt. Principal and accrued interest is due on the maturity date. The Promissory
Notes are  convertible,  at the holder's  option,  into shares of the  Company's
common  stock at a conversion  price of $0.02 per share,  at any time during the
term of the Promissory Notes.

Note 8 - Contingencies

Pending Litigation
------------------

         On February 12,  2010,  the Company  filed an  adversary  action in the
Bankruptcy Court against the holder of the senior secured note payable (see NOTE
6 - Short  Term Note  Payable)  seeking  to avoid  certain  ownership  interests
assigned  to the  Lender  in  connection  with the  Term  Credit  Agreement  and
amendments  thereto. On March 18, 2010, the Lender filed a motion with the Court
to dismiss the complaint.  On October 21, 2010, the Court issued an order on the
Motion to  Dismiss  denying  dismissal  for six of the nine  claims  made in the
adversary action. The Company plans to pursue the six allowed claims.

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

                                       18
<PAGE>

Pending Claims
--------------

         Prior to filing of Chapter 11 reorganization,  the Company entered into
agreements with suppliers. The Company has been in negotiations to resolve these
matters in the favor of the Company. One of the suppliers filed a proof of claim
with the bankruptcy  court  asserting  liquidated  damages in an amount not less
than  $54.75  million.  The  Company  disputed  the amount of claim and filed an
objection with the bankruptcy court. The Company and the supplier have agreed to
resolve the dispute by allowing the claim as a non-priority,  unsecured claim in
the  bankruptcy  in the amount of $375,000.  The  $375,000  claim is included in
general  and  administrative  expenses  in  the  statement  of  operations.  The
settlement is subject to approval by the bankruptcy court, which the Company has
not yet  requested.  This  amount  has been  included  as part of the  Company's
pre-petition  unsecured liabilities subject to compromise in the current Chapter
11  reorganization  proceedings and recognized  damages pursuant to the contract
settlement as an expense in determining net loss.

Threatened Litigation
---------------------

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

Other
-----

         Under the terms of the Term  Credit  Agreement,  see Note 6- Short Term
Note Payable, the Company is obligated to reimburse the Lender for all expenses,
including  reasonable legal fees incurred in connection with the administration,
amendment,  enforcement  of the Agreement or Lender's  rights and remedies under
the Loan Documents. In connection with the Company's bankruptcy proceedings, the
Lender has incurred  legal fees and other  expenses that could be covered by the
above provisions. As of September 30, 2010 the Company had received two invoices
from the  Lender  requesting  reimbursement  of  $468,120.  These  expenses  are
reported  in  reorganization  expense  for  professional  and legal  fees in the
consolidated statement of operations,  although they are disputed by the Company
and if allowed by the  Bankruptcy  Court,  may be a part of the secured claim of
the Lender or may be an unsecured claim of the Lender.  The Company has received
no formal  notification  of additional  amounts,  nor can we estimate a range of
possible future amounts to be reimbursed under the provisions.  Accordingly, the
Company has not recorded a loss contingency relating to this issue.

Note 9 - Income Taxes

         As of September 30, 2010,  because the Company believes that it is more
likely than not that its net  deferred tax assets,  consisting  primarily of net
operating  losses,  will not be utilized  in the  future,  the Company has fully
provided for a valuation of its net deferred tax assets.

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



                                       19
<PAGE>

Note 10--Share-Based Compensation

Grant of Options to Directors
-----------------------------

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

         The Company recognized stock based compensation expense relating to the
Director's  options of $114,538 for the six months ended  September 30, 2010 and
expects to recognize the remaining  compensation  expense of $19,090 relating to
the unvested options over the next month.

2006 Stock Incentive Plan
-------------------------

         As of September  30, 2010,  there were  1,441,000  options  outstanding
under the 2006 Stock  Incentive  Plan and  8,559,000  options are  available for
issuance.  Total estimated  unrecognized  compensation  cost from unvested stock
options issues under the Plan as of September 30, 2010 was approximately $2,577,
which the Company expects to recognize over the next month. Note  11--Subsequent
Events

         On October 15,  2010,  the Company  filed with  the  Court its proposed
Debtor's Plan of Reorganization ("Proposed Plan of Reorganization").  A proposed
Disclosure  Statement was filed  simultaneously  with the Plan.  The  Disclosure
Statement must be first  approved by the Bankruptcy  Court before it may be sent
to  creditors  along with the  proposed  Plan for  voting on the Plan.  Prior to
confirmation and approval by the Court, the Proposed Plan of  Reorganization  is
subject to amendment.  In addition to the need for Bankruptcy Court confirmation
and satisfaction of Bankruptcy Code requirements,  a plan of reorganization must
be  accepted  by holders of  impaired  claims and equity  interests  in order to
become effective.























                                       20
<PAGE>

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

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

     o    business strategy;
     o    ability to raise debtor in possession financing and the terms thereof;
     o    ability  to  develop  a  plan  of  reorganization  acceptable  to  the
          Bankruptcy Court and to emerge from bankruptcy;
     o    ability  to  complete  a sale  of the  Company,  all or a  significant
          portion of its assets or financing or other strategic alternatives;
     o    ability to obtain the financial resources to continue  operations,  to
          repay secured debt, to enhance  current  production and to conduct the
          EOR projects;
     o    water availability and waterflood production targets;
     o    carbon  dioxide  (CO2)  availability,   deliverability,  and  tertiary
          production targets;
     o    construction  of surface  facilities for waterflood and CO2 operations
          and a CO2pipeline;
     o    inventories, projects, and programs;
     o    other anticipated capital expenditures and budgets;
     o    future cash flows and borrowings;
     o    the availability and terms of financing;
     o    oil reserves;
     o    reservoir response to water and CO2 injection;
     o    ability to obtain permits and governmental approvals;
     o    technology;
     o    financial strategy;
     o    realized oil prices;
     o    production;
     o    lease  operating  expenses,  general  and  administrative  costs,  and
          finding and development costs;
     o    availability and costs of drilling rigs and field services;
     o    future operating results;
     o    plans, objectives, expectations, and intentions; and

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

                                       21
<PAGE>

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

Proceedings under Chapter 11
----------------------------

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

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

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

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

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

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

                                       22
<PAGE>

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

         We did not repay our short term debt on its maturity date,  October 15,
2009  resulting  in an event of  default  and the  commencement  of  foreclosure
proceedings  by GasRock  Capital,  the Lender.  On October 28, 2009,  we filed a
voluntary petition for relief in the United States Bankruptcy Court, District of
Colorado under Chapter 11 of Title 11 of the U.S.  Bankruptcy Code (the "Code").
We have reached a Bankruptcy Court approved agreement with the Lender for use of
cash  collateral  and we  intend  to  continue  to  operate  our  business  as a
"debtor-in-possession"  in accordance with the applicable provisions of the Code
and orders of the Bankruptcy  Court We are actively  engaged in discussions with
potential DIP finance providers that, if successful, would enable us to submit a
plan  of  reorganization  and,  with  Bankruptcy  Court  approval,  emerge  from
bankruptcy and pursue our business plan.

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

     o    Minimize operating and  administrative  expenses to ensure that within
          the  short  term  we are  able  to  continue  to  operate  within  the
          constraints of the use of cash collateral agreement;

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

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


Results of Operations

Three months ended  September  30, 2010  Compared to Three Months  September 30,
2009.

<TABLE>
<CAPTION>

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

                                                                                             Three Months Ended
                                                                                                September 30,
                                                                                        2010                      2009
                                                                                        ----                      ----
<S>                                                                             <C>                      <C>

Revenues:
Oil production (in barrels)                                                                     17,310                    13,858
Net oil price (per barrel)                                                      $                66.33   $                 60.01
Oil sales                                                                       $            1,148,240   $               831,579
Derivative gains (losses)                                                                            -                  (34,364)
                                                                                 ------------------------------------------------
Total revenues                                                                               1,148,240                   797,215
                                                                                 ------------------------------------------------

Operating expenses:
Production taxes                                                                               141,269                   105,934
Lease operating                                                                                735,112                   323,863
Depreciation, depletion, amortization and accretion                                            412,156                   334,033
Exploration                                                                                     10,656                     9,328
General and administrative                                                                     811,166                   715,663

                                                                                 ------------------------------------------------
Total operating expenses                                                                     2,110,359                 1,488,821
                                                                                 ------------------------------------------------

Loss from operations                                                                          (962,119)                (691,606)
                                                                                 ------------------------------------------------

                                       23
<PAGE>

Other income (expense):
Interest expense and financing costs                                                          (483,573)              (1,244,459)
Interest and other income                                                                          224                       518
                                                                                 ------------------------------------------------
Total other income (expense)                                                                  (483,349)              (1,243,941)
                                                                                 ------------------------------------------------

Loss before  reorganization items                                                           (1,445,468)              (1,935,547)

Reorganization items                                                                         (579,061)                         -
                                                                                 ----------------------   -----------------------
Net loss                                                                      $             (2,024,529)  $           (1,935,547)
                                                                              ===================================================
</TABLE>


         Overview.  For the three months ended September 30, 2010, we reported a
net loss of $2,024,529,  or $0.02 per basic and fully-diluted share, compared to
a net loss of $1,935,547  or $0.02 per basic and  fully-diluted  share,  for the
corresponding  three months of 2009.  Discussions  of  individually  significant
period to period variances follow.

         Revenue,  production taxes, and lease operating expenses. For the three
months ended  September 30, 2010,  we recorded  crude oil sales of $1,148,240 on
17,310 barrels of oil at an average price of $66.33,  as compared to revenues of
$831,579  on 13,858  barrels of oil at an average  price of $60.01 per barrel in
2009. The  year-to-year  variance  reflects a volume  variance of $207,144 and a
price variance of $109,517.  The increased  volume in 2010 reflects the positive
results  of repair  and  remediation  work  performed  on  non-productive  wells
following the bankruptcy  filing and reaching  agreement with our secured lender
for the use of cash.  Production taxes (including ad valorem and property taxes)
of  $141,269  in 2010 as  compared  to  $105,934  in 2009  remained  constant at
approximately  12.5% of crude  oil  sales  revenues.  Lease  operating  expenses
increased to $735,112  ($42.47/bbl) in 2010 as compared to $323,863 ($23.37/bbl)
in 2009. The year to year variance reflects a volume variance of $(80,673) and a
cost variance of  $(330,575).  The per barrel  increase in 2010 compared to 2009
reflects costs incurred in the  aforementioned  repair and  remediation  work to
increase production.

         Derivative losses. In connection with short term debt financing entered
into in October  2007, we entered into a crude oil  derivative  contract with an
unrelated  counterparty  to set a price  floor of $63 per  barrel for 75% of our
estimated  crude oil production  for the next two years,  and a price ceiling of
$83.50 for 45% of the same level of production.  A loss on derivative activities
of $34,364  consisting  of a realized  gain of $3,266 and  unrealized  losses of
$37,629  was  recorded  for the three  months  ended  September  30,  2009.  The
derivative contract expired in October 2009 and was not renewed.

         Depreciation,  depletion,  amortization  and  accretion.  For the three
months ended  September 30, 2010, we reflected  total  depreciation,  depletion,
amortization and accretion of $412,156 comprised of $327,497($18.92/bbl) related
to oil and gas properties,  $40,186 related to other assets and accretion of the
asset  retirement  obligation of $44,472.  The  comparable  amounts for the 2009
period were $334,033  comprised of  $241,924($17.46/bbl)  related to oil and gas
properties,  $47,953  related to other assets and accretion of asset  retirement
obligation  of $44,156.  The year to year  increase in DD&A per barrel  reflects
downward revisions to reserve estimates in 2010 compared to 2009.

         Reorganization items. The $579,061 of costs reflected as reorganization
items in the three months ended  September  30,  2010,  include,  those items of
expense  specifically  related  our  reorganization  following  the  filing of a
voluntary  petition for relief under Chapter 11 of the Bankruptcy  Code with the
Bankruptcy Court on October 28, 2009. These costs consist  primarily of $468,120
in reimbursable  lender fees and $110,941 of professional  fees to legal counsel
for assistance with the filing process and the  development of a  reorganization
plan.  We expect  these  expenses to continue to be  significant  as we progress
through the bankruptcy process.

         General  and  administrative   expense.  For  the  three  months  ended
September 30, 2010, we reflected general and administrative expenses of $436,166
as compared to $715,663 for the  corresponding  three months ended September 30,
2009.  Period to period  comparisons and  explanations of significant  variances
follow:

<TABLE>
<CAPTION>

                                        Three Months Ended
                                           September 30,
----------------------------------- ------------- -------------- -------------------------------------------------------------------
Expense Category                        2010          2009       Discussion
----------------------------------- ------------- -------------- -------------------------------------------------------------------
<S>                                 <C>           <C>            <C>

Salaries, payroll taxes and                                      Decrease in 2010 reflects reduced staff count and pay cuts for
benefits                                $197,529       $294,049  remaining employees following bankruptcy filing.
----------------------------------- ------------- -------------- -------------------------------------------------------------------

                                       24
<PAGE>

Consultants                               40,749         33,321  Increase in 2010 reflects costs associated with accounting and
                                                                 finance consultants to replace chief accounting officer and
                                                                 engineering consultants to review well files and identify
                                                                 production increase opportunities.
----------------------------------- ------------- -------------- -------------------------------------------------------------------
Travel & entertainment                    10,007          3,831  Increase in 2010 reflects travel costs of new board member from
                                                                 overseas residence to corporate office for reorganization
                                                                 strategy meetings.
----------------------------------- ------------- -------------- -------------------------------------------------------------------
IT                                        10,263         25,261  Decrease in 2010 primarily reflects lower maintenance and network
                                                                 management costs aswsociated with fewer employees.
----------------------------------- ------------- -------------- -------------------------------------------------------------------
Legal fees                                64,297        160,910  Dramatic decrease in 2010 reflects new management's efforts to
                                                                 curtail legal fees. 2009 amount includes costs to manage
                                                                 proxy and annual meeting process, not carried out in 2010.
----------------------------------- ------------- -------------- -------------------------------------------------------------------
Audit, SOX and tax compliance             30,282         49,609  Decrease in 2009 reflects lower level of activity to be reviewed
                                                                 by audit staff, coupled with increased efficiency in audit process
                                                                 in 4th year of audit, and lack of outside spending on SOX
                                                                 consultants in as compared to 2009.
----------------------------------- ------------- -------------- -------------------------------------------------------------------
Investor relations, shareholders             438          9,155  Decrease in 2010 reflects reduction in shareholder correspondence
meetings                                                         mailings due to bankruptcy period.
----------------------------------- ------------- -------------- -------------------------------------------------------------------
Office rent, communication  &            106,752        102,159  Increase in a result of $18,000 utility refund received in 2009 but
other office expenses                                            not receved in 2010.
----------------------------------- ------------- -------------- -------------------------------------------------------------------
Insurance                                 30,314         39,957  Decrease in 2010 reflects lower D&O premiums reflecting reduced
                                                                 coverage in 2010.
----------------------------------- ------------- -------------- -------------------------------------------------------------------
Stock based compensation                  70,406         36,294  Increase in 2010 reflects vesting on stock options issued to new
                                                                 officers and directors in October 2009.
----------------------------------- ------------- -------------- -------------------------------------------------------------------
Director fees                             15,000         76,817  Decrease in 2010 reflects changes to director compensation
                                                                 arrangements following election of new slate of directors in
                                                                 September 2009.
----------------------------------- ------------- -------------- -------------------------------------------------------------------
Damages pursuant to pending claim        375,000              -  Increase in 2010 reflects an expense for a pending claim settlement
settlement                                                       of $375,000. This amount results from a dispute from a supplier
                                                                 that has negotiated and pending settlement by allowing the claim as
                                                                 a non-priority, unsecured claim in the bankruptcy. The settlement
                                                                 is subject to approval by the bankruptcy court, which the Company
                                                                 has not yet requested.
----------------------------------- ------------- -------------- -------------------------------------------------------------------
Field overhead recoveries              (139,871)      (115,700)  Increased recoveries in 2010 reflect higher number of producing
                                                                 wells following repair and remediation work carried out.
----------------------------------- ------------- -------------- -------------------------------------------------------------------
                         TOTAL G&A      $811,166       $715,663
----------------------------------- ------------- -------------- -------------------------------------------------------------------
</TABLE>


         Interest  expense  and  financing  costs.  For the three  months  ended
September  30,  2010,  we  reflected  interest  expense and  financing  costs of
$483,573 as compared to  $1,244,459  for the  corresponding  three  months ended
September 30, 2009. The 2010 amount is comprised of interest accrued on the Note
Payable issued in October 2007, as amended. The 2009 amount consists of $419,124
of interest on the Note  Payable and  $825,335 of deferred  finance and discount
amortization.  The higher interest on Note Payable reflects the default interest
rate  (additional  2%) in effect since the occurrence of the event of default in
October 2009.





                                       25
<PAGE>

<TABLE>
<CAPTION>

Six months ended September 30, 2010 Compared to Six Months September 30, 2009.

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

                                                                                       Six Months Ended
                                                                                         September 30,
                                                                                 2010                      2009
                                                                                 ----                      ----
<S>                                                                      <C>                      <C>

Revenues:
Oil production (in barrels)                                                              34,367                    26,993
Net oil price (per barrel)                                               $                67.66   $                 56.60
Oil sales                                                                $            2,325,290   $             1,527,874
Derivative gains (losses)                                                                     -                 (350,773)
                                                                          ------------------------------------------------
Total revenues                                                                        2,325,290                 1,177,101

Operating expenses:
Production taxes                                                                        295,009                   194,778
Lease operating                                                                       1,292,117                   677,013
Depreciation, depletion, amortization and accretion                                     813,304                   649,737
Exploration                                                                              19,087                    11,832
General and administrative                                                            1,235,568                 1,497,510

                                                                          ------------------------------------------------
Total operating expenses                                                              3,655,085                 3,030,870
                                                                          ------------------------------------------------

Loss from operations                                                                 (1,329,795)              (1,853,769)
                                                                          ------------------------------------------------

Other income (expense):
Interest expense and financing costs                                                   (947,054)              (2,322,376)
Interest and other income                                                                11,565                       723
                                                                          ------------------------------------------------
Total other income (expense)                                                           (935,489)              (2,321,653)
                                                                          ------------------------------------------------

Loss before  reorganization items                                                    (2,265,284)              (4,175,422)

Reorganization items                                                                    719,536                         -
                                                                          ----------------------   -----------------------
Net loss                                                               $             (2,984,820)  $           (4,175,422)
                                                                       ===================================================
</TABLE>


         Overview.  For the six months ended  September  30, 2010, we reported a
net loss of $2,984,820,  or $0.02 per basic and fully-diluted share, compared to
a net loss of $4,175,422  or $0.03 per basic and  fully-diluted  share,  for the
corresponding six months of 2009. Discussions of individually significant period
to period variances follow.

         Revenue,  production taxes, and lease operating  expenses.  For the six
months ended  September 30, 2010,  we recorded  crude oil sales of $2,325,290 on
34,367 barrels of oil at an average price of $67.66,  as compared to revenues of
$1,527,874  on 26,993 of oil at an  average  price of $56.60 per barrel in 2009.
The  year-to-year  variance  reflects a volume  variance of $417,388 and a price
variance of $380,028. The increased volume in 2010 reflects the positive results
of repair and remediation work performed on  non-productive  wells following the
bankruptcy filing and reaching  agreement with our secured lender for the use of
cash.  Production taxes (including ad valorem and property taxes) of $295,009 in
2010 as compared to $194,778 in 2009 remained constant at approximately 12.7% of
crude oil sales  revenues.  Lease  operating  expenses  increased to  $1,292,117
($37.60/bbl)  in 2010 as compared to $677,013  ($25.08/bbl) in 2009. The year to
year variance  reflects a volume  variance of $(184,948)  and a cost variance of
$(430,156).  The per barrel  increase in 2010  compared to 2009  reflects  costs
incurred  in  the  aforementioned   repair  and  remediation  work  to  increase
production.

                                       26
<PAGE>

         Derivative losses. In connection with short term debt financing entered
into in October  2007, we entered into a crude oil  derivative  contract with an
unrelated  counterparty  to set a price  floor of $63 per  barrel for 75% of our
estimated  crude oil production  for the next two years,  and a price ceiling of
$83.50 for 45% of the same level of production.  A loss on derivative activities
of $316,409  consisting of a realized gain of $95,113 and  unrealized  losses of
$411,522  were  recorded  for the six  months  ended  September  30,  2009.  The
derivative contract expired in October 2009 and was not renewed.

         Depreciation, depletion, amortization and accretion. For the six months
ended   September  30,  2010,  we  reflected  total   depreciation,   depletion,
amortization  and  accretion  of $726,747  comprised  of  $644,873  ($18.76/bbl)
related to oil and gas properties, $81,874 related to other assets and accretion
of the asset retirement  obligation of $86,557.  The comparable  amounts for the
2009 period were $649,737 comprised of  $469,923($17.41/bbl)  related to oil and
gas  properties,  $99,157  related  to  other  assets  and  accretion  of  asset
retirement  obligation of $80,658.  The year to year increase in DD&A per barrel
reflects downward revisions to reserve estimates in 2010 compared to 2009.

         Reorganization items. The $719,536 of costs reflected as reorganization
items in the six months  ended  September  30,  2010,  include,  those  items of
expense  specifically  related  our  reorganization  following  the  filing of a
voluntary  petition for relief under Chapter 11 of the Bankruptcy  Code with the
Bankruptcy Court on October 28, 2009. These costs consist  primarily of $468,120
in reimbursable  lender fees and $251,416 of professional  fees to legal counsel
for assistance with the filing process and the  development of a  reorganization
plan.  We expect  these  expenses to continue to be  significant  as we progress
through the bankruptcy process.

         General and administrative  expense. For the six months ended September
30,  2010,  we  reflected  general  and  administrative  expenses of $860,568 as
compared to  $1,497,510  for the  corresponding  six months ended  September 30,
2009.  Period to period  comparisons and  explanations of significant  variances
follow:

<TABLE>
<CAPTION>

----------------------------------- ----------------------------- ------------------------------------------------------------------
                                     Six Months Ended September
                                                30,
----------------------------------- -------------- -------------- ------------------------------------------------------------------
Expense Category                        2010           2009       Discussion
----------------------------------- -------------- -------------- ------------------------------------------------------------------
<S>                                 <C>            <C>            <C>

Salaries, payroll taxes and                                       Decrease in 2010 reflects reduced staff count and pay cuts for
benefits                                 $422,328       $583,157  remaining employees following bankruptcy filing.
----------------------------------- -------------- -------------- ------------------------------------------------------------------
Consultants                               101,759         62,968  Increase in 2010 reflects costs associated with accounting and
                                                                  finance consultants to replace chief accounting officer of
                                                                  engineering consultants to review well files and identify
                                                                  production increase opportunities.
----------------------------------- -------------- -------------- ------------------------------------------------------------------
Travel & entertainment                     15,399          6,652  Increase in 2010 reflects travel costs of new board member from
                                                                  overseas residence to corporate office for reorganization strategy
                                                                  meetings.
----------------------------------- -------------- -------------- ------------------------------------------------------------------
IT                                         36,350         37,649  -
----------------------------------- -------------- -------------- ------------------------------------------------------------------
Legal fees                                 72,171        294,486  Dramatic decrease in 2010 reflects new management's efforts to
                                                                  curtail legal fees. 2009 amount includes cost to manage proxy and
                                                                  annual meeting process, not carried out in 2010.
----------------------------------- -------------- -------------- ------------------------------------------------------------------
Audit, SOX and tax compliance              45,282         84,430  Decrease in 2009 reflects lower level of activity to be reviewed
                                                                  by audit staff, coupled with increased efficiency in audit process
                                                                  in 4th year of audit, and lack of outside spending on SOX
                                                                  consultants in as compared to 2009.
----------------------------------- -------------- -------------- ------------------------------------------------------------------
Investor relations, shareholders            2,989         12,063  Decrease in 2010 reflects reduction in shareholder correspondence
meeting                                                           and mailings due to bankruptcy period.
----------------------------------- -------------- -------------- ------------------------------------------------------------------
Office rent, communication  &             215,362        228,914
other office expenses
----------------------------------- -------------- -------------- ------------------------------------------------------------------
Insurance                                  51,847         97,377  Decrease in 2010 reflects an $8,000 refund received from carrier
                                                                  on prior year general liability coverage, coupled with lower D&O
                                                                  premiums reflecting reduced coverage in 2010.
----------------------------------- -------------- -------------- ------------------------------------------------------------------
Stock based compensation                  145,465        178,463  Decrease in 2010 reflects lower stock price resulting in lower
                                                                  fair value for stock option, particularly for options granted to

                                       27
<PAGE>
                                                                  former President and CEO which were fully vested in prior year.
----------------------------------- -------------- -------------- ------------------------------------------------------------------
Director fees                              30,000        150,067  Decrease in 2010 reflects changes to director compensation
                                                                  arrangements following election of new slate of directors in
                                                                  September 2009.
----------------------------------- -------------- -------------- ------------------------------------------------------------------
Damages pursuant to pending claim         375,000              -  Increase in 2010 reflects an expense for a pending claim
settlement                                                        settlement of $375,000. This amount results from a dispute from a
                                                                  supplier that has negotiated and pending settlement by allowing
                                                                  the claim as a non-priority, unsecured claim in the bankruptcy
                                                                  court, which the Company has not yet requested.
----------------------------------- -------------- -------------- ------------------------------------------------------------------
Field overhead recoveries               (278,382)      (238,716)  Increased recoveries in 2010 reflect a higher number of producing
                                                                  wells following repair and remediation work carried out.
----------------------------------- -------------- -------------- ------------------------------------------------------------------
                         TOTAL G&A     $1,235,568     $1,497,510
----------------------------------- -------------- -------------- ------------------------------------------------------------------
</TABLE>

Interest  expense and financing  costs.  For the six months ended  September 30,
2010, we reflected  interest expense and financing costs of $947,054 as compared
to $2,322,376  for the  corresponding  six months ended  September 30, 2009. The
2010 amount is  comprised  of interest  accrued on the Notes  Payable.  The 2009
amount  consists of $790,693 of  interest  on Notes  Payable and  $1,531,683  of
deferred finance and discount amortization.  The higher interest on Note Payable
reflects  the  default  interest  rate  (additional  2%)  in  effect  since  the
occurrence of the event of default in October 2009.

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

         The report of our independent  registered public accounting firm on the
financial  statements  for the years ended  March 31, 2010 and 2009  includes an
explanatory  paragraph relating to the uncertainty of our ability to continue as
a going  concern.  We have incurred a cumulative net loss of $92 million for the
period from  inception  (February  4, 2004) to  September  30,  2010,  we have a
working  capital  deficit  of $12.7  million  and have  defaulted  on our senior
secured debt.

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

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

         On October 28,  2009,  we filed a voluntary  petition for relief in the
United States Bankruptcy  Court,  District of Colorado under Chapter 11 of Title
11 of the U.S.  Bankruptcy  Code.  (the  "Bankruptcy  Court").  We have  reached
agreement with GasRock,  and the Bankruptcy  Court has approved an order for use
of cash  collateral.  Under the terms of the order we receive the proceeds  from
crude oil  sales  and are able to pay  operating,  and  administrative  costs in
accordance  with the approved  cash  collateral  budget.  This  arrangement  has
enabled us to meet all allowable operating and administrative obligations and to
build an operating cash reserve totaling $673,594 as of September 30, 2010.

         We intend to continue to operate our business as "debtor-in-possession"
under  the  jurisdiction  of the  Bankruptcy  Court and in  accordance  with the
applicable  provisions  of the Code and  orders  of the  Bankruptcy  Court.  The
Company is currently holding discussions with a number of potential investors in

                                       28
<PAGE>

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

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

<TABLE>
<CAPTION>

                                                            For the Six Months Ended
                                                                 September 30,
                                                     -----------------------------------------
                                                                   2010                2009
                                                     --------------------- -------------------
<S>                                                  <C>                   <C>

  Cash flows from (used for):

  Operating activities, including reorganization
        items                                                  $399,887          $(765,113)
                                                               (98,578)
  Investing activities                                                               10,466
                                                                      -
  Financing activities                                                                    5
</TABLE>

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

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

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

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

Critical Accounting Policies and Estimates
------------------------------------------
         Critical  accounting  policies and  estimates  are provided in Part II,
Item 7, Management's  Discussion and Analysis of Financial Condition and Results
of Operations, to the Annual Report on Form 10-K for the fiscal year ended March
31, 2010.  Additional footnote disclosures are provided in Notes to Consolidated
Financial  Statements  in  Part I,  Financial  Information,  Item  1,  Financial
Statements  to this  Quarterly  Report on Form 10-Q for the three  months  ended
September 30, 2010.

Item 3. Quantitative and Qualitative Disclosure About Market Risk.

Commodity Price Risk
--------------------

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

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

                                       29
<PAGE>

Item 4. Controls and Procedures.

Disclosure Controls and Procedures
----------------------------------

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

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

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

Changes in Control over Financial Reporting

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

PART II. OTHER INFORMATION.

Item 1. Legal Proceedings

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

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

                                       30
<PAGE>

whole or in part.  On October 21, 2010,  the Court issued an order on the Motion
to Dismiss  denying  dismissal  for six of the nine claims made in the adversary
action. The Company plans to pursue the six allowed claims.

         See also Note 8 - Contingencies,  of Part 1 - Financial Information, of
this quarterly  filing for a description of threatened  litigation.

Item 1A. Risk Factors Not applicable to smaller reporting companies.

ITEM 2.  CHANGES IN SECURITIES

NONE.


ITEM 3.  DEFAULTS UPON SENIOR SECURITIES

NONE.


ITEM 4.  RESERVED AND RESCINDED.

NONE.

ITEM 5.  OTHER INFORMATION

  NONE.



ITEM 6.  EXHIBITS

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

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

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













                                       31
<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 19, 2010                 By: /s/ Jon C. Nicolyasen
                                              ----------------------------------
                                              Jon C. Nicolaysen, President,
                                              Chief Executive Officer, and
                                              Acting Chief Accounting Officer
























                                       32