**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**




**FORM
      10-K/A**


**Amendment
      No. 2**







R
            **ANNUAL
                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                ACT OF
                1934**
              
              For
                the fiscal year ended March 31,
                2007




or




£****
            **TRANSITION
                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                ACT OF
                1934**
              
              For
                the transition period from __________ to
                __________




Commission
      file number: **000-51425**




**RANCHER
      ENERGY CORP.**


(Exact
      name of registrant as specified in its charter)




Nevada
            98-0422451(State
                or other jurisdiction of
              incorporation
                or organization)
            (I.R.S.
                Employer
              Identification
                Number)





999-18th
                Street, Suite 3400
              Denver,
                Colorado 80202(Address
                of principal executive offices, including zip
                code)





(303)
                629-1125(Telephone
                number, including area code)





**Securities
      registered pursuant to Section 12(b) of the Act:**  **None.**




**Securities
      registered pursuant to Section 12(g) of the Act:**




Title
        of
        each class 
 Common
          Stock, par value $0.00001 per share


Indicate
      by check mark if the registrant is a well-known seasoned issuer, as defined
      in
      Rule 405 of the Securities Act.  Yes £ No R




Indicate
      by check mark if the registrant is not required to file reports pursuant to
      Section 13 or Section 15(d) of the Act.  Yes £ No R




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




Indicate
      by check mark if disclosure of delinquent filers pursuant to Item 405 of
      Regulation S-K (Section 229.405 of this chapter) is not contained herein, and
      will not be contained, to the best of registrant’s knowledge, in definitive
      proxy or information statements incorporated by reference in Part III of this
      Form 10-K or any amendment to this Form 10-K. £




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. (Check
      one):




Large
                accelerated filer £
            Accelerated
                filerR
            Non-accelerated
                filer £




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




The
      aggregate market value of the voting and non-voting common equity held by
      non-affiliates computed by reference to the price at which the common equity
      was
      last sold, or the average bid and asked price of such common equity, as of
      the
      last business day of the registrant’s most recently completed second fiscal
      quarter ended September 30, 2006 was $83,142,808.




The
      number of shares outstanding of the registrant’s common stock as of June
      28, 2007 was 105,528,852.




**DOCUMENTS
      INCORPORATED BY REFERENCE**




Not
      Applicable.












**EXPLANATORY
      NOTE**




This
      Amendment No. 2 on Form 10-K/A (this “Amendment”) amends our Form 10-K for the
      fiscal year ended March 31, 2007, originally filed on June 29, 2007 (the
“Original Annual Report”). This Amendment does not amend our Amendment No. 1 on
      Form 10-K/A for the fiscal year ended March 31, 2007 that was originally filed
      on July 27, 2007 to include the information required by Part III.




We
      are
      filing this Amendment to address matters that were raised by the Securities
      and
      Exchange Commission in their comment letter of August 17, 2007 as
      follows:




Item
      1A -
      Risk Factors provides additional disclosures of the risks associated with our
      plan to conduct CO 2 tertiary
      recovery operations on older fields that may be significantly depleted of oil,
      our plan to conduct 3-D seismic surveys to provide additional reservoir
      information on our fields, our failure to maintain effective internal control
      over financial reporting, and the removal of the reference to Daniel P. Foley
      as
      a member of our management team following his resignation as our Chief Financial
      Officer;




Item
      6 -
      Selected Financial Data previously provided certain financial information on
      a
      combined basis and has been revised to provide required information solely
      on a
      separate-entity basis;




Item
      7 -
      Management’s Discussion and Analysis of Financial Condition and Results of
      Operations previously provided certain financial information on a combined
      basis
      and has been revised to limit combined financial information to those items
      not
      affected by purchase adjustments (revenues, production taxes and lease operating
      expenses). In addition, discussion of remaining financial components has been
      limited to Rancher Energy Corp.  We
      have
      also provided additional disclosure of the material uncertainties that are
      associated with the methods, assumptions and estimates regarding our critical
      accounting policies and estimates. Where applicable, we have also updated
      forward-looking statements; and




Item
      9A -
      Controls and Procedures provides additional disclosure of the estimated overall
      costs of implementing corrective measures to address the described material
      weaknesses.




In
      addition, in connection with the filing of this Amendment, and pursuant to
      Rule
      12b-15 and 13a-14 under the Exchange Act, we are including with this Amendment
      currently dated certifications. As a result of the departure of Daniel P. Foley
      as our Chief Financial Officer, John Works, our Chief Executive Officer, has
      been appointed our interim Chief Financial Officer and thus has executed such
      certificates. **** Except
      as
      described above, no other changes have been made to the Original Annual Report.
      The Original Annual Report continues to speak as of the date of the Original
      Annual Report, and we have not updated the disclosures contained therein to
      reflect any events which occurred at a date subsequent to the filing of the
      Original Annual Report. The Original Annual Report also included a Cautionary
      Statement concerning forward-looking statements, which is also applicable to
      this Amendment.




i




**TABLE
      OF CONTENTS**




**PAGE
                  NO.**PART
                  I
              
              
              
              
              
              1Item
                  1A.
              
              
              Risk
                  Factors.
              
              
              1PART
                  II
              
              
              
              
              
              9Item
                  6.
              
              
              Selected
                  Financial Data.
              
              
              9Item
                  7.
              
              
              Management’s
                  Discussion and Analysis of Financial Condition and Results of
                  Operations.
              
              
              11Item
                  9A.
              
              
              Controls
                  and Procedures.
              
              
              28PART
                  IV
              
              
              
              
              
              35Item
                  15.
              
              
              Exhibits,
                  Financial Statement Schedules.
              
              
              35




As
      used
      in this document, references to “Rancher Energy”, “our company”, “the Company”,
“we”, “us”, and “our” refer to Rancher Energy Corp. and its wholly-owned
      subsidiary. In this Amendment, the “Cole Creek South Field” also is referred to
      as the “South Cole Creek Field”.




ii




**PART
      I**




**ITEM
      1A.**  **RISK
      FACTORS.**




You
      should carefully consider the risks described below, as well as the other
      information included or incorporated by reference in this Amendment and the
      Original Annual Report, before making an investment in our common stock. The
      risks described below are not the only ones we face in our business. Additional
      risks and uncertainties not presently known to us or that we currently believe
      to be immaterial may also impair our business operations. If any of the
      following risks occur, our business, financial condition, or operating results
      could be materially harmed. In such an event, our common stock could decline
      in
      price and you may lose all or part of your investment.




**Risks
      Related to our Industry, Business, and Strategy**




***We
      may not be able to develop the three Powder River Basin properties as we
      anticipate.***




Our
      plans
      to develop the properties are dependent on the construction of a CO 2 pipeline
      and a sufficient supply of CO 2 .
      We must
      arrange for the construction of a CO 2 pipeline
      on acceptable terms and build related infrastructure. The achievement of these
      objectives is subject to numerous uncertainties, including the raising of
      sufficient funding for the construction of key infrastructure and working
      capital, and our reliance on a third party to provide us the requisite
      CO 2 ,
      the
      supply of which is beyond our control. We may not be able to achieve these
      objectives on the schedule we anticipate or at all.




***Our
      production is dependent upon sufficient amounts of CO*** ***2*** ***and will decline if our access to sufficient amounts of
      CO*** ***2*** ***is limited.***




Our
      long-term growth strategy is focused on our CO 2 tertiary
      recovery operations. The crude oil production from our tertiary recovery
      projects depends on having access to sufficient amounts of CO 2 .
      Our
      ability to produce this oil would be hindered if our supply of CO 2 were
      limited due to problems with the supply, delivery, and quality of the supplied
      CO 2 ,
      problems with our facilities, including compression equipment, or catastrophic
      pipeline failure. Our agreement with our current sole supplier of CO 2 provides
      that before it delivers CO 2 to us,
      it may satisfy its own CO 2 needs.
      If we are not successful in obtaining the required amount of CO 2 to
      achieve crude oil production or the crude oil production in the future were to
      decline as a result of a decrease in delivered CO 2 supply,
      it could have a material adverse effect on our financial condition and results
      of operations and cash flows.




***We
      plan to conduct our CO*** ***2*** ***tertiary
      recovery operations on older fields that may be significantly depleted of oil,
      which could lead to an adverse impact on our future
      results.***




We
      operate three fields in the Powder River Basin, Wyoming. In all three fields
      oil
      was discovered years ago and production has been ongoing. Our strategy is to
      substantially increase production and reserves in these fields by using
      CO 2 injection
      and other EOR techniques. However, there is a risk that the properties may
      be
      significantly depleted of oil, and if so, our future results could be impacted
      negatively.




***We
      plan to conduct 3-D seismic surveys to provide additional reservoir information
      on our fields; however, there is no assurance those surveys will allow us to
      know conclusively if oil is present in economic quantities.***




We
      plan
      to do various work prior to initiating CO 2 ** injection
      in the oil fields that we have recently acquired. Among other things, we intend
      to conduct a 3-D seismic survey on the South Glenrock B and Big Muddy Fields
      in
      conjunction with our development program to better determine injection pattern
      locations and alignment. 3-D seismic surveys are used to provide additional
      information before undertaking oil operations. However, use of 3-D seismic
      is an
      interpretive tool and will not allow us to know conclusively if oil is present,
      and if present, if it is in economic quantities. Moreover, 3-D seismic survey
      data is frequently interpreted in different ways by different petroleum
      professionals. Other petroleum professionals may have materially different
      interpretations of the same seismic data than we do.




1




***If
      we are unable to obtain additional debt financing our business plans will not
      be
      achievable*** **.**




Our
      current cash position will not be sufficient to fund construction of the
      CO 2 pipeline, or the development of our three properties. We will require
      substantial additional funding. Our plan is to obtain debt financing. The terms
      of any debt financing may restrict our future business activities and
      expenditures. We do not know if additional financing will be available at all
      when needed or on acceptable terms. Insufficient funds will prevent us from
      implementing our tertiary recovery business strategy.




***Our
      development and tertiary recovery operations require substantial capital and
      we
      may be unable to obtain needed capital or financing on satisfactory terms,
      which
      could lead to a loss of properties and a decline in our oil reserves.***




The
      oil
      industry is capital intensive. We make and expect to continue to make
      substantial capital expenditures in our business and operations for the
      development, production, and acquisition of oil & gas reserves. To date, we
      have financed capital expenditures primarily with sales of our equity
      securities. We intend to finance our capital expenditures in the near term
      with
      debt financing. Our access to capital is subject to a number of variables,
      including:




·
            our
                proved reserves;


·
            the
                amount of oil we are able to produce from existing
                wells;


·
            the
                prices at which the oil is sold;
                and


·
            our
                ability to acquire, locate, and produce new
                reserves.




We
      may,
      from time to time, need to seek additional financing following our anticipated
      debt financing, either in the form of increased bank borrowings, sales of debt
      or equity securities or other forms of financing, and there can be no assurance
      as to the availability or terms of any additional financing. Additionally,
      we
      may not be able to obtain debt or equity financing on terms favorable to us,
      or
      at all. A failure to obtain additional financing to meet our capital
      requirements could result in a curtailment of our operations relating to our
      tertiary recovery operations and development of our fields, which in turn could
      lead to a possible loss of properties, through foreclosure, if we are unable
      to
      meet the terms of our anticipated debt financing and/or forfeiture of the
      properties pursuant to the terms of their respective leases, and a decline
      in
      our oil reserves.




***We
      have a limited operating history in the oil business, and we cannot predict
      our
      future operations with any certainty.***




We
      were
      organized in 2004 to explore a gold prospect and in 2006 changed our business
      focus to oil & gas development using CO 2 injection technology. Our future financial results depend primarily on (i)
      our
      ability to finance and complete development of the required infrastructure
      associated with our three properties in the Powder River Basin, including having
      a pipeline built to deliver CO 2 to our
      fields and the construction of surface facilities on our fields; (ii) the
      success of our CO 2 injection program; and (iii) the market price for oil. We cannot predict that
      our future operations will be profitable. In addition, our operating results
      may
      vary significantly during any financial period.




2




***Oil
      prices are volatile and a decline in oil prices can significantly affect our
      financial results and impede our growth.***




Our
      revenues, profitability, and liquidity are substantially dependent upon prices
      for oil, which can be extremely volatile, and even relatively modest drops
      in
      prices can significantly affect our financial results and impede our growth.
      Prices for oil may fluctuate widely in response to relatively minor changes
      in
      the supply of and demand for oil, market uncertainty, and a wide variety of
      additional factors that are beyond our control, such as the domestic and foreign
      supply of oil; the price of foreign imports; the ability of members of the
      Organization of Petroleum Exporting Countries to agree to and maintain oil
      price
      and production controls; technological advances affecting energy consumption;
      domestic and foreign governmental regulations; and the variations between
      product prices at sales points and applicable index prices.




***We
      have incurred losses from operations in the past and expect to do so in the
      future.***




We
      have
      never been profitable. We incurred net losses of $8,702,255 and $124,453 for
      the
      fiscal years ended March 31, 2007 and March 31, 2006, respectively. We
      do not expect to be profitable during the fiscal year ending March 31,
      2008. Our acquisition and development of prospects will require substantial
      additional capital expenditures in the future. The uncertainty and factors
      described throughout this section may impede our ability to economically
      acquire, develop, and exploit oil reserves. As a result, we may not be able
      to
      achieve or sustain profitability or positive cash flows from operating
      activities in the future.




***We
      could be adversely impacted by changes in the oil
      market.***




The
      marketability of our oil production will depend in part upon the availability,
      proximity, and capacity of pipelines, and surface and processing facilities.
      Federal and state regulation of oil production and transportation, general
      economic conditions, changes in supply and changes in demand all could adversely
      affect our ability to produce and market oil. If market factors were to change
      dramatically, the financial impact could be substantial because we would incur
      expenses without receiving revenues from the sale of production. The
      availability of markets is beyond our control.




***We
      may be unable to develop additional reserves.***




Our
      ability to develop future revenues will depend on whether we can successfully
      implement our planned CO 2 injection program. We have no experience using CO 2 technology, the properties we plan to acquire have not been injected with
      CO 2 in the
      past, and recovery factors cannot be estimated with precision. Our planned
      projects may not result in significant proved reserves or in the production
      levels we anticipate.




***We
      are dependent on our management team and the loss of any of these individuals
      would harm our business.***




Our
      success is dependent, in large part, on the continued services of John Works,
      our President & Chief Executive Officer, John Dobitz, our Senior Vice
      President, Engineering, and Andrew Casazza, our Chief Operating Officer. There
      is no guarantee that any of the members of our management team will remain
      employed by us. While we have employment agreements with them, their continued
      service cannot be assured. The loss of our senior executives could harm our
      business.




3




***Oil
      operations are inherently risky.***




The
      nature of the oil business involves a variety of risks, including the risks
      of
      operating hazards such as fires, explosions, cratering, blow-outs, encountering
      formations with abnormal pressure, pipeline ruptures and spills, and releases
      of
      toxic gas and other environmental hazards and pollution. The occurrence of
      any
      of these risks could result in losses. The occurrence of any one of these
      significant events, if it is not fully insured against, could have a material
      adverse effect on our financial position and results of operations.




***We
      are subject to extensive government regulations.***




Our
      business is affected by numerous federal, state, and local laws and regulations,
      including energy, environmental, conservation, tax and other laws and
      regulations relating to the oil industry. These include, but are not limited
      to:




·
            the
                prevention of waste;


·
            the
                discharge of materials into the
                environment;


·
            the
                conservation of oil;


·
            pollution;


·
            permits
                for drilling operations;


·
            underground
                gas injection permits;


·
            drilling
                bonds; and


·
            reports
                concerning operations, the spacing of wells, and the unitization
                and
                pooling of properties.




Failure
      to comply with any laws and regulations may result in the assessment of
      administrative, civil, and criminal penalties, the imposition of injunctive
      relief or both. Moreover, changes in any of these laws and regulations could
      have a material adverse effect on our business. In view of the many
      uncertainties with respect to current and future laws and regulations, including
      their applicability to us, we cannot predict the overall effect of such laws
      and
      regulations on our future operations.




***Government
      regulation and environmental risks could increase our
      costs.***




Many
      jurisdictions have at various times imposed limitations on the production of
      oil
      by restricting the rate of flow for oil wells below their actual capacity to
      produce. Our operations will be subject to stringent laws and regulations
      relating to environmental issues. These laws and regulations may require the
      acquisition of a permit before drilling commences, restrict the types,
      quantities, and concentration of materials that can be released into the
      environment in connection with drilling and production activities, limit or
      prohibit drilling activities in protected areas, and impose substantial
      liabilities for pollution resulting from our operations. Changes in
      environmental laws and regulations occur frequently, and changes could result
      in
      substantially increased costs. Because current regulations covering our
      operations are subject to change at any time, we may incur significant costs
      for
      compliance in the future.




***The
      properties we have acquired are located in the Powder River Basin in the Rocky
      Mountains, making us vulnerable to risks associated with operating in one major
      geographic area.***




Our
      activities are focused on the Powder River Basin in the Rocky Mountain region
      of
      the United States, which means our properties are geographically concentrated
      in
      that area. As a result, we may in the future be disproportionately exposed
      to
      the impact of delays or interruptions of production from these wells caused
      by
      significant governmental regulation, transportation capacity constraints,
      curtailment of production, or interruption of transportation of oil produced
      from the wells in this basin.




4




***Seasonal
      weather conditions adversely affect our ability to conduct drilling activities
      and tertiary recovery operations in some of the areas where we operate.***




Oil
&
      gas operations in the Rocky Mountains are adversely affected by seasonal weather
      conditions. In certain areas, drilling and other oil & gas activities can
      only be conducted during the spring and summer months. This limits our ability
      to operate in those areas and can intensify competition during those months
      for
      drilling rigs, oil field equipment, services, supplies, and qualified personnel,
      which may lead to periodic shortages. Resulting shortages or high costs could
      delay our operations and materially increase our operating and capital
      costs.




***Competition
      in the oil & gas industry is intense, which may adversely affect our ability
      to succeed.***




The
      oil
& gas industry is intensely competitive, and we compete with companies that
      are significantly larger and have greater resources. Many of these companies
      not
      only explore for and produce oil, but also carry on refining operations and
      market petroleum and other products on a regional, national, or worldwide basis.
      These companies may be able to pay more for oil properties and prospects or
      define, evaluate, bid for, and purchase a greater number of properties and
      prospects than our financial or human resources permit. Our larger competitors
      may be able to absorb the burden of present and future federal, state, local,
      and other laws and regulations more easily than we can, which would adversely
      affect our competitive position. Our ability to acquire additional properties
      and to increase reserves in the future will be dependent upon our ability to
      evaluate and select suitable properties and to consummate transactions in a
      highly competitive environment.




***Oil
      prices may be impacted adversely by new taxes.***




The
      federal, state, and local governments in which we operate impose taxes on the
      oil products we plan to sell. In the past, there has been a significant amount
      of discussion by legislators and presidential administrations concerning a
      variety of energy tax proposals. In addition, many states have raised state
      taxes on energy sources and additional increases may occur. We cannot predict
      whether any of these measures would have an adverse impact on oil
      prices.




***Shortages
      of equipment, supplies, and personnel, and delays in construction of the
      CO*** ***2***  ***pipeline,
      construction of surface facilities, and delivery of CO*** ***2***  ***could
      delay or otherwise adversely affect our cost of operations or our ability to
      operate according to our business plans.***




We
      may
      experience shortages of field equipment and qualified personnel and delays
      in
      the construction of the CO 2 pipeline, construction of surface facilities, and delivery of CO 2 ,
      which
      may cause delays in our ability to conduct tertiary recovery operations, and
      drill, complete, test, and connect wells to processing facilities. Additionally,
      these costs have sharply increased in various areas. The demand for and wage
      rates of qualified crews generally rise in response to the increased number
      of
      active rigs in service and could increase sharply in the event of a shortage.
      Shortages of field equipment or qualified personnel and delays in the
      construction of the CO 2 pipeline, construction of surface facilities, and delivery of CO 2 could
      delay, restrict, or curtail our exploration and development operations, which
      may materially adversely affect our business, financial condition, and results
      of operations.




5




***Shortages
      of transportation services and processing facilities may result in our receiving
      a discount in the price we receive for oil sales or may adversely affect our
      ability to sell our oil.***




We
      may
      experience limited access to transportation lines, trucks or rail cars in order
      to transport our oil to processing facilities. We may also experience limited
      processing capacity at our facilities. If either or both of these situations
      arise, we may not be able to sell our oil at prevailing market prices or we
      may
      be completely unable to sell our oil, which may materially adversely affect
      our
      business, financial condition, and results of operations.




***Estimating
      our reserves, production and future net cash flow is difficult to do with any
      certainty.***




Estimating
      quantities of proved oil & gas reserves is a complex process. It requires
      interpretations of available technical data and various assumptions, including
      assumptions relating to economic factors, such as future commodity prices,
      production costs, severance and excise taxes, capital expenditures and workover
      and remedial costs, and the assumed effect of governmental regulation. There
      are
      numerous uncertainties about when a property may have proved reserves as
      compared to potential or probable reserves, particularly relating to our
      tertiary recovery operations. Actual results most likely will vary from our
      estimates. Also, the use of a 10% discount factor for reporting purposes, as
      prescribed by the SEC, may not necessarily represent the most appropriate
      discount factor, given actual interest rates and risks to which our business
      or
      the oil & gas industry in general is subject. Any significant inaccuracies
      in these interpretations or assumptions or changes of conditions could result
      in
      a reduction of the quantities and net present value of our reserves.




Quantities
      of proved reserves are estimated based on economic conditions, including oil
      & gas prices in existence at the date of assessment. Our reserves and future
      cash flows may be subject to revisions based upon changes in economic
      conditions, including oil & gas prices, as well as due to production
      results, results of future development, operating and development costs, and
      other factors. Downward revisions of our reserves could have an adverse affect
      on our financial condition, operating results, and cash flows.




**Risks
      Related to our Common Stock**




***The
      trading market for our common stock is relatively new, so investors may have
      difficulty selling significant number of shares of our stock, and our stock
      price may decline.***




Our
      common stock is not traded on a national securities exchange. It has been traded
      on the OTC Bulletin Board since early 2006. The average daily trading volume
      of
      our common stock on the OTC Bulletin Board was approximately 219,000 shares
      per
      day over the three month period ended May 31, 2007. If there were only
      limited trading in our stock, the price of our common stock could be negatively
      affected and it could be difficult for investors to sell a significant number
      of
      shares in the public market.




Our
      capital raising activities are expected to involve the issuance of securities
      exercisable for or convertible into common stock, which would dilute the
      ownership of our existing stockholders and could result in a decline in the
      trading price of our common stock. We will need to obtain substantial additional
      financing, which may include sales of our securities, including common stock,
      warrants, and convertible debt securities, in order to fund our planned property
      acquisitions and development program. The issuance of such securities will
      result in the dilution of existing investors. Furthermore, we may enter into
      financing transactions at prices that represent a substantial discount to the
      market prices of our common stock. These transactions may have a negative impact
      on the trading price of our common stock.




6




***Sales
      of a substantial number of shares in the future may result in significant
      downward pressure on the price of our common stock and could affect the ability
      of our stockholders to realize the current trading price of our common stock.***




If
      our
      stockholders and new investors sell significant amounts of our stock, our stock
      price could drop. Even a perception by the market that the stockholders will
      sell in large amounts could place significant downward pressure on our stock
      price. In addition, the sale of these shares could impair our ability to raise
      capital through the sale of additional stock.




***Our
      stock price and trading volume may be volatile, which could result in losses
      for
      our stockholders.***




The
      equity trading markets may experience periods of volatility, which could result
      in highly variable and unpredictable pricing of equity securities. The market
      of
      our common stock could change in ways that may or may not be related to our
      business, our industry, or our operating performance and financial condition.
      In
      addition, the trading volume in our common stock may fluctuate and cause
      significant price variations to occur. Some of the factors that could negatively
      affect our share price or result in fluctuations in the price or trading volume
      of our common stock include:




·
            Actual
                or anticipated quarterly variations in our operating
                results;


·
            Changes
                in expectations as to our future financial performance or changes
                in
                financial estimates, if any;


·
            Announcements
                relating to our business or the business of our
                competitors;


·
            Conditions
                generally affecting the oil & gas
                industry;


·
            The
                success of our operating strategy;
                and


·
            The
                operating and stock performance of other comparable
                companies.




Many
      of
      these factors are beyond our control, and we cannot predict their potential
      effects on the price of our common stock. If the market price of our common
      stock declines significantly, you may be unable to resell your shares of common
      stock at or above the price you acquired those shares. We cannot assure you
      that
      the market price of our common stock will not fluctuate or decline
      significantly.




***There
      are risks associated with forward-looking statements made by us and actual
      results may differ.***




Some
      of
      the information in this Amendment and in the Original Annual Report contains
      forward-looking statements that involve substantial risks and uncertainties.
      These statements can be identified by the use of forward-looking words such
      as
“may”, “will”, “expect”, “anticipate”, “believe”, “estimate”, and “continue”, or
      similar words. Statements that contain these words should be read carefully
      because they:




·
            discuss
                our future expectations;


·
            contain
                projections of our future results of operations or of our financial
                condition; and


·
            state
                other “forward-looking”
information.




We
      believe it is important to communicate our expectations. However, there may
      be
      events in the future that we are not able to accurately predict and/or over
      which we have no control. The risk factors listed in this section, other risk
      factors about which we may not be aware, as well as any cautionary language
      in
      this Amendment and in the Original Annual Report, provide examples of risks,
      uncertainties, and events that may cause our actual results to differ materially
      from the expectations we describe in our forward-looking statements. The
      occurrence of the eve nts
      described in these risk factors could have an adverse effect on our business,
      results of operations, and financial condition.




7




***Our
      failure to maintain effective internal control over financial reporting may
      not
      allow us to accurately report our financial results, which could cause our
      financial statements to become materially misleading and adversely affect the
      trading price of our stock.***




In
      Item
      9A of this report, we report the determination of our management that we have
      material weaknesses in our internal control over financial reporting. The
      determination was made by management that: (a) our operating environment did
      not
      sufficiently promote effective internal control over financial reporting
      throughout the organization, (b) we did not have a sufficient complement of
      personnel with appropriate training and experience in generally accepted
      accounting principles (GAAP), and (c) we did not adequately segregate duties
      of
      different personnel in our accounting department due to an insufficient
      complement of staff and inadequate management oversight. We are taking steps
      to
      remediate the material weaknesses. If we fail to correct the material weaknesses
      in our internal control over financial reporting, our business could be harmed
      and the stock price of our common stock could be adversely
      affected.




***NASD
      sales practice requirements limit a stockholders' ability to buy and sell our
      stock.***




The
      National Association of Securities Dealers, Inc. (NASD) has adopted rules that
      require that in recommending an investment to a customer, a broker-dealer must
      have reasonable grounds for believing that the investment is suitable for that
      customer. Prior to recommending speculative low priced securities to their
      non-institutional customers, broker-dealers must make reasonable efforts to
      obtain information about the customer’s financial status, tax status, investment
      objectives, and other information. Under interpretations of these rules, the
      NASD believes that there is a high probability that speculative low priced
      securities will not be suitable for at least some customers. The NASD
      requirements make it more difficult for broker-dealers to recommend that their
      customers buy our common stock, which has the effect of reducing the level
      of
      trading activity and liquidity of our common stock. Further, many brokers charge
      higher transactional fees for penny stock transactions. As a result, fewer
      broker-dealers are willing to make a market in our common stock, reducing a
      stockholders' ability to resell shares of our common stock.




***We
      do not expect to pay dividends in the foreseeable future. As a result, holders
      of our common stock must rely on stock appreciation for any return on their
      investment.***




We
      do not
      anticipate paying cash dividends on our common stock in the foreseeable future.
      Any payment of cash dividends will also depend on our financial condition,
      results of operations, capital requirements, and other factors and will be
      at
      the discretion of our Board of Directors. We also expect that if we obtain
      debt
      financing, there will be contractual restrictions on, or prohibitions against,
      the payment of dividends. Accordingly, holders of our common stock will have
      to
      rely on capital appreciation, if any, to earn a return on their investment
      in
      our common stock.




***If
      we are required to continue to make penalty payments with respect to
      registration and other obligations incurred as part of our recent private
      placement financing, such payments could have an adverse effect on our financial
      condition and liquidity and operating plans.***




In
      connection with our December 2006 and January 2007 equity private placement
      we
      entered into various agreements that obligate us to make payments to the
      investors if we fail to meet filing and other deadlines relating to the
      registration for resale of the shares of common stock and shares of common
      stock
      underlying the warrants sold in the private placement and other matters. The
      potential payments are detailed in Note 6 - Sale of Common Stock and
      Warrants to the Notes to Financial Statements of our audited financial
      statements for the fiscal year ended March 31, 2007 in Part IV,
      Item 15, of the Original Annual Report. We have recently made two penalty
      payments in shares due to a failure to obtain effectiveness of the registration
      statement and more penalty payments may need to be made in the future. The
      issuances of shares to the investors in the equity private placement will result
      in a dilution of the percentage ownership of the common stock held by our other
      stockholders. If we are required to make substantial payments, our liquidity
      and
      capital resources could be adversely affected as well as our operating
      plans.




8




**PART
      II**




**ITEM
      6.**  **SELECTED
      FINANCIAL DATA.**




In
      addition to the GAAP presentation of Rancher Energy Corp.’s historical results
      for the years ended March 31, 2007, 2006, 2005, and 2004, we have provided
      the
      following results for its Predecessor (the Cole Creek South Field and the South
      Glenrock B Field) and its Predecessor’s Predecessor (Pre-Predecessor) because we
      believe such financial information may be useful in gaining an understanding
      of
      the impact of the acquisitions on Rancher Energy Corp.’s underlying historical
      performance and future financial results. The information is not presented
      on a
      GAAP basis and is not necessarily comparable between periods.




The
      following selected financial data reflects the following:




·
            Rancher
                Energy Corp. revenues, production taxes, lease operating expenses,
                loss
                from continuing operations, and loss from continuing operations per
                share
                for the years ended March 31, 2007, 2006, 2005, and
                2004;




·
            Rancher
                Energy Corp. total assets as of March 31, 2007, 2006, 2005, and
                2004;




·
            Predecessor
                revenues, production taxes, lease operating expenses, and income
                (loss)
                from continuing operations for the period from January 1, 2006
                through December 21, 2006 (the date of acquisition of the Predecessor
                by Rancher Energy Corp.), the year ended December 31, 2005, and for
                the period from September 1, 2004 (the date that the Predecessor was
                acquired from the Pre-Predecessor) through December 31,
                2004;




·
            Predecessor
                total assets as of December 21, 2006 and December 31, 2005;
                and




·
            Our
                Pre-Predecessor’s revenues, production taxes, lease operating expenses,
                and excess of revenues over expenses for the period from January
                1, 2004
                through August 31, 2004.




9




Year
                Ended March 31,2007
            
            2006
            
            2005
            
            2004(1)(2)Rancher
                Energy Corp.:Revenues
            
            $
            1,161,819
            
            $
            -
            
            $
            -
            
            $
            -Production
                taxes
            
            
            136,305
            
            
            -
            
            
            -
            
            
            -Lease
                operating expenses
            
            
            700,623
            
            
            -
            
            
            -
            
            
            -Loss
                from continuing operations
            
            
            (8,702,255
            )
            
            (124,453
            )
            
            (27,154
            )
            
            (375,000
            )Loss
                from continuing operations per share
            
            
            (0.16
            )
            
            (0.00
            )
            
            (0.00
            )
            
            (0.01
            )Weighted
                average shares outstanding
            
            
            53,782,291
            
            
            32,819,623
            
            
            70,000,000
            
            
            70,000,000Total
                assets (as of period end)
            
            
            81,478,031
            
            
            46,557
            
            
            4,749
            
            
            -For
                the Period from January 1, 2006 through December 21, 2006
            
            
            Year
                Ended December 31, 2005
            
            
            For
                the Period from September 1, 2004 through December 31,
                2004Predecessor:Revenues
            
            $
            4,488,315
            
            $
            3,713,973
            
            $
            772,449Production
                taxes
            
            
            493,956
            
            
            428,905
            
            
            81,868Lease
                operating expenses
            
            
            2,944,287
            
            
            1,537,992
            
            
            360,207Income
                (loss) from continuing operations
            
            
            (577,740
            )
            
            26,886
            
            
            (78,415
            )Total
                assets (as of period end)
            
            
            14,597,618
            
            
            13,058,437For
                the Period from
              January
                1,2004
                through August 31, 2004Pre-Predecessor:Revenues
            
            
            
            
            
            
            
            $
            440,383Production
                taxes
            
            
            
            
            
            
            
            
            204,454Lease
                operating expenses
            
            
            
            
            
            
            
            
            47,033Excess
                of revenues over expenses
            
            
            
            
            
            
            
            
            188,896




W e do not
      have long-term obligations or redeemable preferred stock, and we have not
      declared any cash dividends.





(1)  We
      completed our acquisition of the Cole Creek South and the South Glenrock B
      fields (Predecessor) on December 22, 2006.


(2)  We
      completed our acquisition of the Big Muddy Field on January 4,
      2007.




10




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






**Organization**




We
      are an
      independent energy company which explores for and develops, produces, and
      markets oil & gas in North America. Prior to April 2006, Rancher Energy
      Corp., formerly known as Metalex Resources, Inc. (Metalex), was engaged in
      the
      exploration of a gold prospect in British Columbia, Canada. Metalex found no
      commercially exploitable deposits or reserves of gold. During April 2006,
      stockholders voted to change the name to Rancher Energy Corp. Since
      April 2006, we have employed a new Chief Executive Officer, Chief Operating
      Officer, Chief Financial Officer, and Senior Vice President, Engineering, and
      are actively pursuing oil & gas prospects in the Rocky Mountain
      region.




**Oil
      & Gas Property Acquisitions**




The
      following is a summary of the property acquisitions we have recently
      completed:




Cole
      Creek South Field and South Glenrock B Field Acquisitions




On
      December 22, 2006, we purchased certain oil & gas properties for
      $46,750,000, before adjustments for the period from the effective date to the
      closing date, plus closing costs of $323,657. The oil & gas properties
      consisted of (i) a 100% working interest (79.3% net revenue interest) in the
      Cole Creek South Field, which is located in Wyoming’s Powder River Basin; and
      (ii) a 93.6% working interest (74.5% net revenue interest) in the South Glenrock
      B Field, which also is located in Wyoming’s Powder River Basin. In partial
      consideration for an extension of the closing date, we issued the seller of
      the
      oil & gas properties warrants to acquire 250,000 shares of our common stock
      for $1.50 per share for a period of five years. The estimated fair value of
      the
      warrants to purchase common stock of $616,140 was estimated as of the grant
      date
      using the Black-Scholes option pricing model, and is included in the acquisition
      cost.




The
      total
      adjusted purchase price was allocated as follows:




Acquisition
                costs:Cash
                consideration
            
            $
            46,750,000Direct
                acquisition costs
            
            
            323,657Estimated
                fair value of warrants to purchase common stock
            
            
            616,140Total
            
            $
            47,689,797Allocation
                of acquisition costs:Oil
                & gas properties:Unproved
            
            $
            31,569,778Proved
            
            
            16,682,101Other
                assets - long-term accounts receivable
            
            
            53,341Other
                assets - inventory
            
            
            227,220Asset
                retirement obligation
            
            
            (842,643
            )Total
            
            $
            47,689,797




The
      Cole
      Creek South Field is located in Converse County, Wyoming approximately six
      miles
      northwest of the town of Glenrock. The field was discovered in 1948 by the
      Phillips Petroleum Company. In March 2007, production from the Cole Creek South
      Field was approximately 84 BOPD gross, and 66 BOPD net to our interests, of
      primarily 34 degree API sweet crude oil.




11




The
      South
      Glenrock B Field is also located in Converse County, Wyoming. The field was
      discovered in 1950 by Conoco, Inc. Bisected by Interstate 25, the field produces
      from the Dakota and Muddy sandstone reservoirs that are draped over a structural
      nose with 2,000 feet of relief. Production is maintained by secondary recovery
      efforts that were initiated in 1961. In March 2007, production from the South
      Glenrock B Field was approximately 199 BOPD gross, and 152 BOPD net to our
      interests, of primarily 35 degree API sweet crude oil.




Big
      Muddy Field Acquisition




On
      January 4, 2007, we acquired the Big Muddy Field, which is located in the
      Powder River Basin east of Casper, Wyoming. The total purchase price was
      $25,000,000, and closing costs were $672,638. While the Big Muddy Field was
      discovered in 1916, future profitable operations are dependent on the
      application of tertiary recovery techniques requiring significant amounts of
      CO 2 .




The
      total
      adjusted purchase price was allocated as follows:




Acquisition
                costs:Cash
                consideration
            
            $
            25,000,000Direct
                acquisition costs
            
            
            672,638Total
            
            $
            25,672,638Allocation
                of acquisition costs:Oil
                & gas properties:Unproved
            
            $
            24,151,745Proved
            
            
            1,870,086Asset
                retirement obligation
            
            
            (349,193
            )Total
            
            $
            25,672,638




Water
      flooding was initiated in the Frontier formation in 1957 and later expanded
      to
      the Dakota and Lakota formations. Over 800 completions have occurred in the
      field. At the current time, only a few wells are active. Production in March
      2007 was approximately 18 BOPD gross, and 14 BOPD net to our interests, of
      primarily 36 degree API sweet crude oil.




**Outlook
      for the Coming Year**




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




·
            Borrow
                funds to implement our development plans;·
            Construct
                a CO2pipeline;·
            Initiate
                development activities in our fields; and·
            Pursue
                additional asset and project opportunities that are expected to be
                accretive to stockholder value.




12




Since
      late 2006 we have added operating staff and have engaged consultants to conduct
      field studies of tertiary development of the three Powder River Basin fields.
      To
      date, work has focused on field and engineering studies to prepare for
      development operations. We have also engaged an engineering firm to evaluate
      routes and undertake the required front end engineering and design for the
      required CO 2 pipeline, as well as another engineering firm to evaluate and design surface
      facilities appropriate for CO 2 injection .




Our
      plans
      for EOR development of our oil fields are dependent on our obtaining substantial
      additional funding. The raising of that funding is dependent on many factors,
      some of which are outside our control, and is not assured. One major factor
      is
      the level of and projected trends in oil prices, which we cannot protect against
      by using hedging at this time.




We
      plan
      to begin CO 2 development operations in the South Glenrock B Field, and preliminary
      development in the Big Muddy Field. We also plan to make capital expenditures
      relating to existing production in the three fields. If we obtain additional
      financing by October 2007, we plan to make capital expenditures for
      CO 2 pipeline
      construction, field development, and CO 2 purchases
      totaling approximately $90 million in the fiscal year ending March 31, 2008,
      and
      an additional $120 million in the fiscal year ending March 31, 2009. Of the
      fiscal year 2008 costs, about $65 million is projected for the South Glenrock
      B
      Field and Big Muddy Field projects, with about two-thirds of this cost for
      3-D
      seismic, and well drilling and conversion for CO 2 injection, and the remainder for compressors and facilities. Since the
      acquisition of the three fields, other than the agreement with Anadarko for
      supply of CO 2 ,
      we have
      made no major capital expenditures nor any firm commitments for future capital
      expenditures to date.




**Commitments**




As
      part
      of our CO 2 tertiary
      recovery strategy, on December 15, 2006, we entered into a Product Sale and
      Purchase Contract with Anadarko for the purchase of CO 2 (meeting
      certain quality specifications) from Anadarko. We intend to use the
      CO 2 for our
      EOR projects.




The
      primary term of the Purchase Contract commences upon the later of
      January 1, 2008, or the date of the first CO 2 delivery,
      and terminates upon the earlier of the day on which we have taken and paid
      for
      the Total Contract Quantity, as defined, or 10 years from the commencement
      date.
      We have the right to terminate the Purchase Contract at any time with notice
      to
      Anadarko, subject to a termination payment as specified in the Purchase
      Contract.




During
      the primary term the “Daily Contract Quantity” is 40 MMcf per day for a total of
      146 Bcf. CO 2 deliveries are subject to a 25 MMcf per day take-or-pay provision. Anadarko
      has
      the right to satisfy its own needs before sales to us, which reduces our
      take-or-pay obligation. In the event the CO 2 does not
      meet certain quality specifications, we have the right to refuse delivery of
      such CO 2 .




For
      CO 2 deliveries, we have agreed to pay $1.50 per thousand cubic feet, to be adjusted
      by a factor that is indexed to the price of Wyoming Sweet oil. From oil that
      is
      produced by CO 2 injection, we also agreed to convey to Anadarko an overriding royalty interest
      that increases over time, not to exceed 5%.




**Results
      of Operations, Including Combined Results**




In
      addition to the GAAP presentation of Rancher Energy Corp.’s historical results
      for the years ended March 31, 2007. 2006 and 2005, we have provided combined
      revenues, production taxes and lease operating expenses for Rancher Energy
      Corp., its Predecessor (the Cole Creek South Field and the South Glenrock B
      Field) and its Predecessor’s Predecessor (Pre-Predecessor) because we believe
      such financial information may be useful in gaining an understanding of the
      impact of the acquisitions on Rancher Energy Corp.’s underlying historical
      performance and future financial results. The combined information is not
      presented on a GAAP basis and is not necessarily comparable between
      periods.




13




The
      following data includes:




·
              Our
                  results of operations for the years ended March 31, 2007, 2006, and
                  2005;




·
              Our
                  Predecessor’s results of operations for the period from January 1,
                  2006 through December 21, 2006 (the date of acquisition of the
                  Predecessor by Rancher Energy Corp.), the year ended December 31,
                  2005, and for the period from September 1, 2004 (the date that the
                  Predecessor was acquired from the Pre-Predecessor) through
                  December 31, 2004;




·
              Our
                  Pre-Predecessor’s revenues, production taxes, and lease operating expenses
                  for the period from January 1, 2004 through August 31,
                  2004;




·
              Adjustments
                  to eliminate the Predecessor’s revenues, production taxes and lease
                  operating expenses for the three months ended March 31, 2006 from
                  the
                  Predecessor revenues, production taxes and lease operating expenses
                  for
                  the year ended December 31, 2006, so that the combined information
                  reflects the revenues, production taxes and lease operating expenses
                  for
                  the fiscal year ended March 31, 2007;
                  and




·
              Combined
                  revenues, production taxes and lease operating expenses for the
                  years
                  ended March 31, 2007, 2006 and
                  2005.




Year
                Ended March 31, 2007 (Unaudited)RancherEnergy
                Corp.
            
            Predecessor
            
            Adjustments
            
            CombinedRevenue:Oil
                production (in barrels)
            
            
            23,838
            
            
            73,076
            
            
            (18,631
            )
            
            78,283Oil
                price (per barrel)
            
            
            48.74
            
            
            61.42
            
            
            61.66
            
            
            57.50Oil
                & gas sales
            
            $
            1,161,819
            
            $
            4,488,315
            
            $
            (1,148,825
            )
            $
            4,501,309Operating
                expenses:Production
                taxes
            
            
            136,305
            
            
            493,956
            
            
            (120,313
            )
            
            509,948Lease
                operating expenses
            
            
            700,623
            
            
            2,944,287
            
            
            (574,756
            )
            
            3,070,154Depreciation,
                depletion, and amortization
            
            
            375,701
            
            
            952,784Impairment
                of unproved properties
            
            
            734,383
            
            
            -Accretion
                expense
            
            
            29,730
            
            
            107,504Exploration
                expense
            
            
            333,919
            
            
            -General
                and administrative
            
            
            4,501,737
            
            
            567,524Total
                operating expenses
            
            
            6,812,398
            
            
            5,066,055(5,650,579
            )
            
            (577,740
            )Other
                income (expense):Liquidated
                damages pursuant to registration rights agreement
            
            
            (2,705,531
            )
            
            -Interest
                expense
            
            
            (37,654
            )
            
            -Amortization
                of deferred financing costs
            
            
            (537,822
            )
            
            -Interest
                and other income
            
            
            229,331
            
            
            -Total
                other income (expense)
            
            
            (3,051,676
            )
            
            -$
            (8,702,255
            )
            $
            (577,740
            )




14




**Adjustments:**




·
            Revenue,
                production taxes, and lease operating expenses - represents oil production
                volumes, oil sales, production taxes, and lease operating expenses
                for the
                three months ended March 31, 2006 to derive combined oil production
                volumes, oil sales, production taxes, and lease operating expenses
                for the
                year ended March 31, 2007.




Year
                Ended March 31, 2006 (Unaudited)RancherEnergy
                Corp.
            
            Predecessor
            
            CombinedRevenue:Oil
                production (in barrels)
            
            
            -
            
            
            67,321
            
            
            67,321Oil
                price (per barrel)
            
            
            -
            
            
            55.17
            
            
            55.17Oil
                & gas sales
            
            $
            -
            
            $
            3,713,973
            
            $
            3,713,973Operating
                expenses:Production
                taxes
            
            
            -
            
            
            428,905
            
            
            428,905Lease
                operating expenses
            
            
            -
            
            
            1,537,992
            
            
            1,537,992Depreciation,
                depletion and amortization
            
            
            213
            
            
            567,345Accretion
                expense
            
            
            -
            
            
            107,712General
                and administrative
            
            
            74,240
            
            
            1,045,133Exploration
                expense - mining
            
            
            50,000
            
            
            -Total
                operating expenses
            
            
            124,453
            
            
            3,687,087$
            (124,453
            )
            $
            26,886




15




Year
                Ended March 31, 2005 (Unaudited)RancherEnergy
                Corp.
            
            Predecessor
            
            Pre-
              Predecessor
            
            CombinedRevenue:Oil
                production (in barrels)
            
            
            -
            
            
            16,234
            
            
            35,882
            
            
            52,116Oil
                price (per barrel)
            
            
            -
            
            
            44.50
            
            
            35.54
            
            
            38.33Oil
                & gas sales
            
            $
            -
            
            $
            722,449
            
            $
            1,275,214
            
            $
            1,997,663Operating
                expenses:Production
                taxes
            
            
            -
            
            
            81,868
            
            
            138,087
            
            
            219,955Lease
                operating expenses
            
            
            -
            
            
            360,207
            
            
            583,942
            
            
            944,149Depreciation,
                depletion and amortization
            
            
            201
            
            
            62,542Accretion
                expense
            
            
            -
            
            
            12,990General
                and administrative
            
            
            26,953
            
            
            283,257Total
                operating expenses
            
            
            27,154
            
            
            800,864$
            (27,154
            )
            $
            (78,415
            )





The
      following provides explanations of changes in revenues, production taxes and
      lease operating expenses on a combined basis.




**Rancher
      Energy Corp.**




*Year
      Ended March 31, 2007 Compared to Year Ended March 31,
      2006*




*Overview* .
      For the
      year ended March 31, 2007, we reflected a net loss of $8,702,255, or
      $(0.16) per basic and fully diluted share, as compared to a loss of $124,453,
      or
      $(0.00) per basic and fully diluted share, for the corresponding year ended
      March 31, 2006. During the year ended March 31, 2007, we completed our
      December 22, 2006 acquisition of the Cole Creek South Field and South
      Glenrock B Field, and our January 4, 2007 acquisition of the Big Muddy
      Field. We did not have any oil & gas properties during fiscal 2006. During
      fiscal year 2007 we directed our efforts to raising capital to finance the
      acquisitions, and to increase our operational and administrative
      infrastructure.




*Revenue,
      production taxes, and lease operating expenses* .
      For the
      year ended March 31, 2007, we reflected oil & gas sales of $1,161,819
      on 23,838 barrels of oil at $48.74 per barrel, production taxes (including
      ad
      valorem taxes) of $136,305 and lease operating expenses of $700,623, as compared
      to $0, $0 and $0, respectively, for the corresponding year ended March 31,
      2006. Lease operating expenses per barrel of production were $29.39 and
      production taxes were $5.72 per barrel for the fiscal year ended March 31,
      2007. Results for the year ended March 31, 2007 reflect ownership of the three
      fields from the acquisition dates in December 2006 and January 2007 through
      the
      end of the fiscal year.




*Depreciation,
      depletion, and amortization* .
      For the
      year ended March 31, 2007, we reflected depreciation, depletion, and
      amortization of $375,701 as compared to $213 for the corresponding year ended
      March 31, 2006. Depreciation, depletion, and amortization was $14.59 per
      barrel of production for the fiscal year ended March 31, 2007.




*Impairment
      of unproved properties* .
      For the
      year ended March 31, 2007, we reflected impairment of unproved properties
      of $734,383 as compared to $0 for the corresponding year ended March 31,
      2006. We determined we would not develop certain properties, and the carrying
      value would not be realized.




16




*Exploration
      expense* .
      For the
      year ended March 31, 2007, we reflected exploration expense of $333,919 as
      compared to $0 for the corresponding year ended March 31, 2006. Exploration
      expenses were for geological and geophysical analysis of certain projects,
      all
      of which we elected not to pursue.




*General
      and administrative expense* .
      For the
      year ended March 31, 2007, we reflected general and administrative expenses
      of $4,501,737 as compared to $74,240 for the corresponding year ended
      March 31, 2006. The increase is primarily attributed to focusing our
      efforts on building our oil & gas infrastructure. Included in general and
      administrative expenses for fiscal 2007 is stock-based compensation of
      $1,501,908. Other key elements comprising the increase include corporate
      promotion, Sarbanes-Oxley compliance, audit fees, legal, and reservoir
      engineering.




*Liquidated
      damages pursuant to registration rights agreement* .
      In
      connection with our equity private placement in December 2006 and
      January 2007, we entered into a registration rights agreement and agreed to
      file a registration statement to register for resale the shares of common stock.
      The agreement includes provisions for payment if the registration statement
      is
      not declared effective by May 20, 2007, and additional payments are due if
      there are additional delays in obtaining effectiveness. We have determined
      that
      the obligation to pay liquidated damages is both probable and can be estimated.
      Our estimate of $2,705,531 is equal to three months of damages. One month’s
      damages were paid on May 18, 2007 by the issuance of 933,458 shares, valued
      at $1.04 per share, with a present value of $953,431. The damages for the two
      additional months were estimated to have a present value of $876,050 per month,
      or a total for those months of $1,752,100. A second month’s damages were paid on
      June 19, 2007 by the issuance of 946,819 shares, and the present value
      approximated the previously established obligation.




*Amortization
      of deferred financing costs* .
      For the
      year ended March 31, 2007, we reflected amortization of deferred financing
      costs of $537,822 as compared to $0 for the corresponding year ended
      March 31, 2006. We incurred financing costs of $921,821 in connection with
      the private placement of convertible notes payable with a term of four months.
      The amortization of those costs was based on the period from the date of the
      notes through March 30, 2007, the date the notes automatically converted to
      shares of common stock. When converted, proceeds from the placement were
      reflected net of the unamortized deferred financing costs.




*Interest
      income* .
      For the
      year ended March 31, 2007, we reflected interest income of $229,331 as
      compared to $0 for the corresponding year ended March 31, 2006. The
      interest income was derived from earnings on excess cash derived from the
      private placement of units, consisting of common stock and warrants to acquire
      shares of common stock.




*Year
      Ended**March 31,
      2006 Compared to Year Ended March 31, 2005*




During
      the year ended March 31, 2006, we had a net loss of $124,453, which was an
      increase from a net loss of $27,154 for the year ended March 31, 2005.
      Legal and accounting fees increased to $47,809 from $8,795 in 2006 due to our
      increased activity. In addition, our increase in activity resulted in increased
      auditing and review fees. Mining exploration expenses of $50,000 were recognized
      in the year ended March 31, 2006 which related to expenditures on a mining
      project that we abandoned subsequent to year end.




17




**Rancher
      Energy Corp. Combined With Predecessor and
      Pre-Predecessor**




*Year
      Ended March 31, 2007 Compared to Year Ended March 31,
      2006*




*Revenue,
      production taxes, and lease operating expenses* .
      For the
      year ended March 31, 2007, oil & gas sales were $4,501,309 on 78,283
      barrels of oil at $57.50 per barrel, production taxes (including ad valorem
      taxes) were $509,948, or $6.51 per barrel, and lease operating expenses were
      $3,070,154, or $39.22 per barrel, as compared to oil & gas sales of
      $3,713,973 on 67,321 barrels of oil at $55.17 per barrel, production taxes
      (including ad valorem taxes) of $428,905, or $6.37 per barrel, and lease
      operating expenses of $1,537,992, or $22.85 per barrel, respectively, for the
      corresponding year ended March 31, 2006.




*Year
      Ended**March 31,
      2006 Compared to Year Ended March 31, 2005*




*Revenue,
      production taxes, and lease operating expenses* .
      For the
      year ended March 31, 2006, oil & gas sales were $3,713,973 on 67,321
      barrels of oil at $55.17 per barrel, production taxes (including ad valorem
      taxes) were $428,905, or $6.37 per barrel, and lease operating expenses were
      $1,537,992, or $22.85 per barrel, as compared to oil & gas sales of
      $1,997,663 on 52,116 barrels of oil at $38.33 per barrel, production taxes
      (including ad valorem taxes) of $219,955, or $4.22 per barrel, and lease
      operating expenses of $944,149, or $18.12 per barrel, respectively, for the
      corresponding year ended March 31, 2005.




**Liquidity
      and Capital Resources**




As
      of
      March 31, 2007, we had working capital of $889,221. Current liabilities
      included $2,705,531 for penalty payments pursuant to the Registration Rights
      Agreement, all of which was paid in stock.




We
      have
      revenue from production operations in our three fields.  However, we
      currently have negative cash flow from operating activities.  Monthly oil
& gas production revenue is adequate to cover monthly field operating costs
      and production taxes at the current time.  Only a portion of the remaining
      cash costs, which consist primarily of general and administrative expenses,
      are
      covered by cash flow.




Our
      currently available cash sources are not sufficient to fund our planned
      expenditures for the tertiary development of our three fields.  Essentially
      all of the necessary funding for their development is expected to come from,
      and
      is dependent on, successful completion of a debt financing.  As of June 30,
      2007, the Company was debt-free.




We
      are
      making plans to seek a debt financing (Debt Financing) in an amount sufficient
      to fund our expected expenditures in furtherance of our EOR plans. In the
      interim, we will likely seek a bridge debt financing (Bridge
      Financing).




Completion
      of the Bridge Financing and Debt Financing will be subject to market conditions
      and Company-specific factors.  Without receipt of proceeds from these
      facilities, the Company’s negative cash flow is projected to be covered by
      available cash through the third quarter of calendar year 2007.  However,
      in the event we are not successful in raising either the Bridge Financing or
      the
      Debt Financing, we do not plan to allow negative monthly cash flow to remain
      at
      current levels.  Rather, we plan to address the situation at that time by
      reducing staffing levels to reduce cash requirements and potentially, if
      available, by using proceeds of a senior revolving debt facility supported
      by
      our proved producing reserves to increase near-term production rates and cash
      flow.




18




Change
      in Financial Condition




We
      entered into a number of debt and equity transactions in fiscal year 2007,
      which
      dramatically increased our financial capability. The following is a summary
      of
      debt and equity transactions completed during fiscal 2007:




*Convertible
      Debt Transactions*




Venture
      Capital First LLC




On
      June 9, 2006, we borrowed $500,000 from Venture Capital First LLC (Venture
      Capital). Principal and interest at an annual rate of 6% were due
      December 9, 2006. The agreement provided that Venture Capital had the
      option to convert all or a portion of the loan into common stock and warrants
      to
      purchase common stock, either (i) at the closing price of our shares on the
      day
      preceding notice from Venture Capital of its intent to convert all or a portion
      of the loan into common stock or, (ii) in the event we conducted an offering
      of
      common stock, or units consisting of common stock and warrants to purchase
      stock, at the price of such shares or units in the offering.




On
      July 19, 2006, Venture Capital elected to convert its entire loan and
      accrued interest into 1,006,905 shares of common stock and warrants to purchase
      1,006,905 shares of common stock at a price of $0.50 per unit, the price per
      unit in the offering discussed in *Equity
      Transactions* below.
      The warrants are exercisable over a two-year period, at a price of $0.75 per
      share for the first year, and $1.00 per share for the second year. On
      December 21, 2006, the warrant holder agreed not to exercise its right to
      acquire shares of common stock until we received stockholder approval to
      increase the number of authorized shares, and the exercise price of $0.75 per
      share was extended by us through the second year.




Private
      Placement - Convertible Notes Payable




As
      part
      of the December 2006 and January 2007 equity private placement, which is further
      discussed below, in December 2006 and January 2007, we received
      $10,494,582 from certain investors, who received convertible notes payable.
      Upon
      stockholder approval of an amendment to the Articles of Incorporation increasing
      the authorized shares of our common stock, which occurred on March 30,
      2007, the notes automatically converted into shares of common stock. The number
      of shares issued upon conversion of the notes was equal to the face amount
      of
      the notes divided by $1.50 per share, which is the price that the shares were
      simultaneously sold in a private placement as discussed below, or 6,996,342
      shares. Had the notes not converted, the notes would have accrued interest
      at an
      annual rate of 12% beginning 120 days after issuance, which was the maturity
      date of the notes.




Consistent
      with the terms and conditions of the Units sold in the private placement (as
      further discussed below under the heading “Private Placement” and in Note 6 -
      Sale of Common Stock and Warrants to the Notes to Financial Statements of our
      audited financial statements for the fiscal year ended March 31, 2007 in
      Part IV, Item 15 of the Original Annual Report), the convertible notes payable
      were issued with warrants to acquire 6,996,322 shares of common stock at $1.50
      per share.




19
 
  *Equity
          Transactions*
  Units
          Issued Pursuant to Regulation S




For
      the
      period from June 2006 through October 2006, we sold 18,133,500 Units
      for $0.50 per Unit, totaling gross proceeds of $9,066,750, pursuant to the
      exemption from registration of securities under the Securities Act of 1933
      as
      provided by Regulation S. Each Unit consisted of one share of common stock
      and a
      warrant to purchase one additional share of common stock.




For
      8,850,000 Units, we paid no underwriting commissions. For 9,283,500 Units,
      we
      paid a cash commission of $232,088, equal to 5% of the proceeds from the units,
      and a stock-based commission of 464,175 shares of common stock, equal to 5%
      of
      the number of Units sold. The sum of the shares sold and the commission shares
      aggregated 18,597,675. All warrants were originally exercisable for a period
      of
      two years from the date of issuance. During the first year, the exercise price
      was $0.75 per share; during the second year, the exercise price was $1.00 per
      share. The warrants are redeemable by us for no consideration upon 30 days
      prior
      notice. A portion of these warrants were modified as discussed
      below.




Warrant
      Modification - Warrants Issued Pursuant to Regulation S




On
      December 21, 2006, holders of 13,192,000 warrants issued pursuant to
      Regulation S in a private placement from June through October 2006
      agreed not to exercise their right to acquire shares of common stock until
      we
      received stockholder approval, which was obtained on March 30, 2007, to
      increase the number of our authorized shares. Pursuant to this agreement, the
      exercise price of $0.75 per share was extended by us through the second year.
      Terms for the remaining 4,941,500 warrants were unchanged.




Private
      Placement




On
      December 21, 2006, we entered into a Securities Purchase Agreement, as
      amended, with institutional and individual accredited investors to effect a
      $79,500,000 private placement of shares of our common stock and other securities
      in multiple closings. As part of this private placement, we raised an aggregate
      of $79,405,418 and issued (i) 45,940,510 shares of common stock, (ii) promissory
      notes that were convertible into 6,996,342 shares of common stock, and (iii)
      warrants to purchase 52,936,832 shares of common stock. The warrants issued
      to
      investors in the private placement are exercisable during the five year period
      beginning on the date we amended and restated our Articles of Incorporation
      to
      increase our authorized shares of common stock, which was March 30, 2007.
      The notes issued in the private placement automatically converted into shares
      of
      common stock on March 30, 2007. In conjunction with the private placement,
      we also used the services of placement agents and have issued warrants to
      purchase 3,633,313 shares of common stock to these agents or their designees.
      The warrants issued to the placement agents or their designees are exercisable
      during the two year period (warrants to purchase 2,187,580 shares of common
      stock) or the five year period (warrants to purchase 1,445,733 shares of common
      stock) beginning on the date we amended and restated our Articles of
      Incorporation to increase our authorized shares of common stock, which was
      March 30, 2007. All of the warrants issued in conjunction with the private
      placement have an exercise price of $1.50 per share.




In
      connection with the private placement, we also entered into a Registration
      Rights Agreement with the investors in which we agreed to register for resale
      the shares of common stock issued in the private placement as well as the shares
      underlying the warrants and convertible notes issued in the private placement.
      There are liquidated damages payable pursuant to the Securities Purchase
      Agreement and Registration Rights Agreement relating to these registration
      provisions and other obligations, as described in Note 6 - Sale of Common
      Stock and Warrants to the Notes to Financial Statements of our audited financial
      statements for the fiscal year ended March 31, 2007 in Part IV,
      Item 15, of the Original Annual Report, which, if triggered, could result
      in substantial amounts to be due to the investors.




20




Summary
      of Warrants




We
      have
      19,140,405 warrants outstanding to acquire our common stock at an exercise
      price
      of $0.75 per share, all of which expire by October 18, 2008. The exercise
      of the full amount of these warrants, which is not assured, would add
      $14,355,304 to our liquidity. In the longer term, the exercise of the remaining
      56,820,165 warrants outstanding to acquire our common stock at an exercise
      price
      of $1.50 per share would add $85,230,247 to our liquidity, if all were
      exercised. These options expire by March 30, 2012.




The
      following is a summary of warrants as of March 31, 2007.




Warrants
            
            Exercise
                Price
            
            Expiration
                DateWarrants
                issued in connection with the following:Sale
                of common stock pursuant to Regulation S
            
            
            18,133,500
            
            $
            0.75-1.00
            
            
            July
                5, 2008
              to
                October 18, 2008Conversion
                of notes payable into common stock
            
            
            1,006,905
            
            $
            0.75
            
            
            July
                19, 2008Private
                placement of common stock
            
            
            45,940,510
            
            $
            1.50
            
            
            March
                30, 2012Private
                placement of convertible notes payable
            
            
            6,996,322
            
            $
            1.50
            
            
            March
                30, 2012Private
                placement agent commissions
            
            
            2,187,580
            
            $
            1.50
            
            
            March
                30, 2009Private
                placement agent commissions
            
            
            1,445,733
            
            $
            1.50
            
            
            March
                30, 2012Acquisition
                of oil & gas properties
            
            
            250,000
            
            $
            1.50
            
            
            December
                22, 2011Total
                warrants outstanding at March 31, 2007
            
            
            75,960,550




Cash
      Flows




The
      following is a summary of our comparative cash flows:




For
                the Years Ended March 31,2007
            
            2006
            
            2005Cash
                flows from:Operating
                activities
            
            $
            (2,285,430
            )
            $
            (124,073
            )
            $
            (25,050
            )Investing
                activities
            
            
            (74,357,306
            )
            
            -
            
            
            (890
            )Financing
                activities
            
            
            81,726,538
            
            
            166,094
            
            
            30,000





Analysis
      of Cash Flow Changes between 2007 and 2006




Cash
      flows used for operating activities increased primarily as a result of general
      and administrative expenses incurred in connection with the expansion of our
      oil
& gas operations.




21




Cash
      flows used for investing activities increased primarily as a result of expending
      $47,073,657 in connection with the acquisition of the Cole Creek South and
      South
      Glenrock B Fields, and $25,672,638 in connection with the acquisition of the
      Big
      Muddy Field. We expended $841,993 for other oil & gas property capital
      expenditures and $769,018 for other equipment.




Cash
      flows provided by financing activities increased primarily as a result of
      certain private placements of equity securities aggregating net proceeds of
      $71,653,937. In connection with the private placement of equity securities,
      we
      also received net proceeds of $10,494,582 from the issuance of convertible
      notes
      payable and warrants to acquire shares of our common stock. The notes payable
      were converted to equity on March 30, 2007.




Capital
      Expenditures




The
      following table sets forth certain historical information regarding costs
      incurred in oil & gas property acquisition, exploration and development
      activities, whether capitalized or expensed.




For
                the Year Ended March 31,2007
            
            2006
            
            2005Exploration
            
            $
            333,919
            
            $
            -
            
            $
            -Development
            
            
            -
            
            
            -
            
            
            -Acquisitions:Unproved
            
            
            56,813,516
            
            
            -
            
            
            -Proved
            
            
            18,552,188
            
            
            -
            
            
            -Total
            
            
            75,699,623
            
            
            -
            
            
            -Costs
                associated with asset retirement obligations
            
            $
            1,191,837
            
            $
            -
            
            $
            -




Schedule
      of Contractual Obligations




The
      following table summarizes our future estimated minimum lease payments for
      our
      office space for the periods specified.




Total
            
            Less
                than 1 year
            
            1
                -
                3 years
            
            3
                -
                5 years
            
            More
                than 5 yearsOperating
                lease
            
            $
            1,907,640
            
            $
            280,859
            
            $
            733,061
            
            $
            765,773
            
            $
            127,947




Off-Balance
      Sheet Arrangements




We
      do not
      have any off-balance sheet financing nor do we have any unconsolidated
      subsidiaries.




**Critical
      Accounting Policies and Estimates**




We
      are engaged in the exploration, exploitation, development, acquisition, and
      production of natural gas and crude oil. Our discussion of financial condition
      and results of operations is based upon the information reported in our
      financial statements. The preparation of these financial statements requires
      us
      to make assumptions and estimates that affect the reported amounts of assets,
      liabilities, revenues, and expenses as well as the disclosure of contingent
      assets and liabilities as of the date of our financial statements. We base
      our
      decisions, which affect the estimates we use, on historical experience and
      various other sources that are believed to be reasonable under the
      circumstances. Actual results may differ from the estimates we calculate due
      to
      changing business conditions or unexpected circumstances. Policies we believe
      are critical to understanding our business operations and results of operations
      are detailed below. For additional information on our significant accounting
      policies see Note 1—Organization and Summary of Significant Accounting Policies,
      Note 3—Asset Retirement Obligations, and Note 7—Disclosures About Oil & Gas
      Producing Activities to the Notes to Financial Statements of our audited
      financial statements for the fiscal year ended March 31, 2007, which are
      contained in the Original
      Annual Report .




22




*Oil
      & gas reserve quantities* *.* We
      recorded our first proved oil and gas reserves in the year ended March 31,
      2007.
      Our estimates of proved reserves are based on the quantities of oil and natural
      gas that engineering and geological analyses demonstrate, with reasonable
      certainty, to be recoverable from established reservoirs in the future under
      current operating and economic parameters. Ryder Scott Company L.P. (Ryder
      Scott), our independent reserve engineer, prepares a reserve and economic
      evaluation of all of our properties. Assumptions used by the independent reserve
      engineers in calculating reserves or regarding the future cash flows or fair
      value of our properties are subject to change in the future. The accuracy of
      reserve estimates is a function of:




•
            the
                quality and quantity of available
                data;


•
            the
                interpretation of that data;•
            the
                accuracy of various mandated economic
                assumptions; and•
            the
                judgment of the independent reserve
                engineer.




Future
      prices received for production and future production costs may vary, perhaps
      significantly, from the prices and costs assumed for purposes of calculating reserve estimates. We may not
      be
      able to develop proved reserves within the periods estimated. Furthermore,
      prices and costs will not remain constant. Actual production may not equal
      the
      estimated amounts used in the preparation of reserve projections. As these
      estimates change, the amount of calculated reserves changes. Any change in
      reserves directly impacts our estimate of future cash flows from the property,
      the property’s fair value and the depreciation, depletion and amortization
      (DD&A) rate.




*Successful
      efforts method.* We
      use the successful efforts method of accounting for our oil and natural gas
      properties under Statement of Financial Accounting Standards
      No. 19, *Financial Accounting and Reporting by Oil and Gas Producing
      Companies.* Under this method, all costs associated with productive and nonproductive
      development wells are capitalized. Exploration expenses, including geological
      and geophysical expenses and delay rentals, are charged to expense as incurred.
      Costs associated with drilling exploratory wells are initially capitalized
      pending determination of whether or not the well is economically productive
      or
      nonproductive.




If
      an exploratory well does not find reserves or does not find reserves in a
      sufficient quantity as to make them economically producible, the previously
      capitalized costs would be expensed in the Statement of Operations and shown
      as
      a non-cash adjustment to net income in the “Operating activities” section of the
      Statement of Cash Flows in the period in which the determination was made.
      If a
      determination cannot be made within one year of the exploration well being
      drilled and no other drilling or exploration activities to evaluate the
      discovery are firmly planned, all previously capitalized costs associated with
      the exploratory well would be expensed and shown as a non-cash adjustment to
      net
      income in the “Operating activities” section of the Statement of Cash Flows in
      the period in which the determination was made. Re-drilling or directional
      drilling in a previously abandoned well would be classified as development
      or
      exploratory based on whether it is in a proved or unproved reservoir for
      determination of capital or expense. Expenditures for repairs and maintenance
      to
      sustain or increase production from the existing producing reservoir are charged
      to expense as incurred. Expenditures to recomplete a current well in a different
      unproved reservoir are capitalized pending determination that economic reserves
      have been added. If the recompletion is not successful, the expenditures would
      be charged to expense.




23




DD&A
      expense is directly affected by our reserve estimates. Any change in reserves
      directly impacts the amount of DD&A expense that we recognize in a given
      period. Assuming no other changes, such as an increase in depreciable base,
      as
      our reserves increase, the amount of DD&A expense in a given period
      decreases and vice versa. Changes in future commodity prices would likely result
      in increases or decreases in estimated recoverable reserves. DD&A expense
      associated with lease and well equipment and intangible drilling costs are
      based
      upon only proved developed reserves, while DD&A expense for capitalized
      leasehold costs is based upon total proved reserves. As a result, changes in
      the
      classification of our reserves could have a material impact on our DD&A
      expense. Ryder Scott, our independent petroleum engineers, estimate our reserves
      once a year at March 31.




Significant
      tangible equipment added or replaced is capitalized. Expenditures to construct
      facilities or increase the productive capacity from existing reserves are
      capitalized. Capitalized costs are amortized on a unit-of-production basis
      over
      the remaining life of total proved developed reserves or proved reserves, as
      applicable. Natural gas volumes are converted to BOE at the rate of six Mcf
      to
      one barrel of oil. Significant revisions to reserve estimates can be and are
      made by our reserve engineers each year. Mostly these are the result of changes
      in price, but as reserve quantities are estimates, they can also change as
      more
      or better information is collected, especially in the case of estimates in
      newer
      fields. Downward revisions have the effect of increasing our DD&A rate,
      while upward revisions have the effect of decreasing our DD&A
      rate.




The
      costs of retired, sold or abandoned properties that constitute part of an
      amortization base are charged or credited, net of proceeds received, to the
      accumulated DD&A reserve. Gains or losses from the disposal of other
      properties are recognized in the current period.




*Valuation
      of long-lived and intangible assets.* In
      accordance with Statement of Financial Accounting Standards
      No. 144, *Accounting for the Impairment or Disposal of Long-Lived Assets,* an impairment of capitalized costs of long-lived assets to be held and used,
      including proved oil and natural gas properties, must be assessed whenever
      events and circumstances indicate that the carrying value of the asset may
      not
      be recoverable. If impairment is indicated based on a comparison of the asset’s
      carrying value to its undiscounted expected future net cash flows, then it
      is
      recognized to the extent that the carrying value exceeds fair value. Expected
      future net cash flows are based on existing proved reserve and production
      information and pricing assumptions that management believes are reasonable.
      Any
      impairment charge incurred is expensed and reduces our recorded basis in the
      asset pool. Management currently aggregates proved property for impairment
      testing for the Company using only one pool of assets due to the geologic
      similarity and proximity of the properties. The price assumptions used to
      calculate undiscounted cash flows are based on judgment. We use prices
      consistent with the prices used in bidding on acquisitions and/or assessing
      capital projects. These price assumptions are critical to the impairment
      analysis as lower prices could trigger impairment while higher prices would
      have
      the opposite effect.




*Revenue
      recognition.*  Our
      revenue recognition policy is significant because revenue is a key component
      of
      our results of operations and our forward-looking statements contained in our
      analyses of liquidity and capital resources. We derive our revenue primarily
      from the sale of produced crude oil. We report revenue as the gross amounts
      we
      receive for our net revenue interest before taking into account production
      taxes
      and transportation costs, which are reported as separate expenses. Revenue
      is
      recorded in the month our production is delivered to the purchaser, but payment
      is generally received between 30 and 90 days after the date of production.
      No
      revenue is recognized unless it is determined that title to the product has
      transferred to a purchaser. At the end of each month we make estimates of the
      amount of production delivered to the purchaser and the price we will receive.
      We use our knowledge of our properties, their historical performance, the
      anticipated effect of weather conditions during the month of production, NYMEX
      and local spot market prices, and other factors as the basis for these
      estimates. Variances  between
      our estimates and the actual amounts received are recorded in the month payment
      is received.




24




*Asset
      retirement obligations.* We
      are required to estimate our eventual obligations associated with the retirement
      of tangible long-lived assets that result from the acquisition, construction
      and
      development of our oil and natural gas wells and related facilities. We
      recognize the fair value of a liability for an asset retirement obligation
      in
      the period in which the liability is incurred. For oil and natural gas
      properties, this is the period in which an oil or natural gas property is
      acquired or a new well is drilled. An amount equal to and offsetting the
      liability is capitalized as part of the carrying amount of our oil and natural
      gas properties at its discounted fair value. The liability is then accreted
      up
      by recording expense each period until it is settled or the well is sold, at
      which time the liability is reversed.




The
      fair value of the liability associated with the asset retirement obligation
      is
      determined using significant assumptions, including current estimates of the
      plugging and abandonment costs, annual expected inflation of these costs, the
      productive life of the asset and our credit-adjusted risk-free interest rate
      used to discount the expected future cash flows. Changes in any of these
      assumptions can result in significant revisions to the estimated asset
      retirement obligation. Revisions to the obligation are recorded with an
      offsetting change to the carrying amount of the related oil and natural gas
      properties, resulting in prospective changes to DD&A and accretion expense.
      Because of the subjectivity of assumptions and the relatively long life of
      most
      of our oil and natural gas properties, the costs to ultimately retire these
      assets may vary significantly from our estimates.




*Income
      taxes.*  We
      provide for deferred income taxes on the difference between the tax basis of
      an
      asset or liability and its carrying amount in our financial statements in
      accordance with SFAS No. 109, *Accounting
      for Income Taxes* .
      This difference will result in taxable income or deductions in future years
      when
      the reported amount of the asset or liability is recovered or settled,
      respectively. Considerable judgment is required in determining when these events
      may occur and whether recovery of an asset is more likely than not.
      Additionally, our federal and state income tax returns are generally not filed
      before the financial statements are prepared, therefore we estimate the tax
      basis of our assets and liabilities at the end of each period as well as the
      effects of tax rate changes, tax credits, and net operating and capital loss
      carryforwards and carrybacks. Adjustments related to differences between the
      estimates we used and actual amounts we reported are recorded in the period
      in
      which we file our income tax returns. These adjustments and changes in our
      estimates of asset recovery could have an impact on our results of operations.
      Deferred tax assets are reduced by a valuation allowance when, in the opinion
      of
      management, it is more likely than not that some portion or all of the deferred
      tax assets will not be realized. To date, we have not recorded any deferred
      tax
      assets because of the historical losses that we have incurred.




*Stock-based
      compensation.* ** As
      of April 1, 2006, we adopted the provisions of SFAS No. 123(R), *Accounting
      for Stock-Based Compensation* ,
      which requires companies to recognize compensation cost for stock-based awards
      based on the estimated fair value of the award. Compensation cost is measured
      at
      the grant date based on the fair value of the award and is recognized as an
      expense over the service period, which generally represents the vesting period.
      The Company uses the Black-Scholes option valuation model to calculate the
      fair
      value disclosures under SFAS 123(R). This model requires the Company to estimate
      a risk free interest rate, the volatility of the Company’s common stock price
      and anticipated forfeitures of options on a going forward basis. The use of
      a
      different estimate for any one of these components could have a material impact
      on the amount of calculated compensation expense. As
      a result of adoption of SFAS No 123(R), we recorded compensation expense
      associated with stock options totaling $1,501,908 under the modified-prospective
      adoption method.




25




*Registration
      Payment Arrangements.* In
      connection with the sale of certain Units, the Company has entered into
      agreements that require the transfer of consideration under registration and
      other payment arrangements, if certain conditions are not met. The following
      is
      a description of the conditions and those that have not been met.




Under
      the
      terms of the Registration Rights Agreement, the Company must pay the holders
      of
      the registrable securities issued in the December 2006 and
      January 2007 equity private placement, liquidated damages if the
      registration statement that was filed in conjunction with the private placement
      has not been declared effective by the U.S. Securities and Exchange Commission
      (SEC) within 150 days of the closing of the private placement (December 21,
      2006). The liquidated damages are due on or before the day of the failure
      (May 20, 2007) and every 30 days thereafter, or three business days after
      the failure is cured, if earlier. The amount due is 1% of the aggregate purchase
      price, or $794,000 per month. If the Company fails to make the payments timely,
      interest accrues at a rate of 1.5% per month. All payments pursuant to the
      registration rights agreement and the private placement agreement cannot exceed
      24% of the aggregate purchase price, or $19,057,000 in total. The payment may
      be
      made in cash, notes, or shares of common stock, at the Company’s option, as long
      as the Company does not have an equity condition failure. The equity condition
      failures are described further below. Pursuant to the terms of the registration
      rights agreement, if the Company opts to pay the liquidated damages in shares
      of
      common stock, the number of shares issued is based on the payment amount of
      $794,000 divided by 90% of the volume weighted average price of the Company’s
      common stock for the 10 trading days immediately preceding the payment due
      date.




Once
      the
      SEC declares the Company’s registration statement effective, the Company must
      maintain effectiveness, provide the information necessary for sale of shares
      to
      be made, register a sufficient number of shares, and maintain the listing of
      the
      shares. Lack of compliance requires the Company to pay the holders of the
      registrable securities liquidated damages under the same terms discussed
      above.




It
      is
      possible that the SEC will object to and reduce the number of shares being
      registered. If that happens, the Company is obligated to pay liquidated damages
      to the holders of the registrable shares under the same terms discussed above.




Failure
      to maintain the equity conditions, a description of which follows, negates
      the
      Company’s ability to settle the liquidated damages in shares of common stock.
      The Company must ensure that:




o
            Common
                stock is designated for quotation on OTC Bulletin Board, the New
                York
                Stock Exchange, the NASDAQ Global Select Market, the NASDAQ Global
                Market,
                the NASDAQ Capital Market, or the American Stock
                Exchange;


§
            Common
                stock has not been suspended from trading, other than for two days
                due to
                business announcements; and


§
            Delisting
                or suspension has not been threatened, or is not
                pending.


o
            Shares
                of common stock have been delivered upon conversion of Notes and
                Warrants
                on a timely basis;


o
            Shares
                may be issued in full without violating the rules and regulations
                of the
                exchange or market upon which they are listed or
                quoted;


o
            Payments
                have been made within five business days of when due pursuant to
                the
                Securities Purchase Agreement, the Convertible Notes, the Registration
                Rights Agreement, the Transfer Agent Instructions, or the Warrants
                (Transaction Documents);


o
            There
                has not been a change in control of the company, a merger of the
                company
                or an event of default as defined in the Notes;
                and


o
            There
                is material compliance with the provisions, covenants, representations
                or
                warranties of all Transaction
                Documents.




26




There
      is
      an equity conditions failure if, on any day during the 10 trading days prior
      to
      when a registration-delay payment is due, the equity conditions have not been
      satisfied or waived.




Under
      the
      terms of the Securities Purchase Agreement, liquidated damages are due to the
      holders of the securities if the Company meets the applicable listing
      requirements on an approved exchange or market but the registrable shares are
      not listed by December 21, 2007 on an approved exchange or market. The
      liquidated damages are equal to 0.25% of the aggregate purchase price, or
      $198,000, payable in cash. The payments are due on the day of the listing
      failure.




Currently,
      there are no equity conditions failures.




Uncertainties
      involved in applying this principle, the variability that may result from its
      application, measurement methods, and the accuracy of estimates and underlying
      assumptions follow:




·
            Uncertainty
                exists as to when the registration statement filed with the SEC will
                be
                declared effective and, consequently, variability exists as to the
                amount
                of liquidated damages that may be ultimately required. We have had
                extensive discussions with the SEC, our Board of Directors, management,
                legal counsel and our independent registered public accounting firm
                in an
                effort to determine when effectiveness might occur. These discussions
                were
                the basis for derivation of the amount reflected as liquidated damages
                pursuant to registration rights arrangement in our financial statements.
                The amount of the actual expense is subject to the number of shares
                issued
                and the fair market value of those shares when
                issued.




·
            Uncertainty
                exists as to the Company’s ability to maintain effectiveness, provide the
                information necessary for sale of shares to be made, register a sufficient
                number of shares, and maintain the listing of the shares once the
                SEC
                declares the Company’s registration statement effective. We believe we
                have the ability to comply with these requirements and, consequently,
                have
                not reflected any impact in our financial
                statements.




·
            Uncertainty
                exists as to whether or not the SEC will object to and reduce the
                number
                of shares being registered. We are not aware of any matters that
                would
                lead us to believe that that could occur and, consequently, have
                not
                reflected any impact in our consolidated financial
                statements.




·
            Uncertainty
                exists as to whether or not the Company will meet the applicable
                listing
                requirements on an approved exchange or market, and that the registrable
                shares will be listed by December 21, 2007 on an approved exchange or
                market. We believe we have the ability to comply with these requirements
                and, consequently, have not reflected any impact in our financial
                statements.




27




**ITEM
      9A.**  **CONTROLS
      AND PROCEDURES.**




**Disclosure
      Controls and Procedures.**




We
      maintain controls and procedures designed to ensure that information required
      to
      be disclosed in the reports that we file or submit under the Securities Exchange
      Act of 1934 (Exchange Act) is recorded, processed, summarized, and reported
      within the time periods specified in the rules and forms of the SEC. Evaluations
      have been performed under the supervision and with the participation of our
      management, including the Chief Executive Officer and Chief Financial Officer,
      of the effectiveness of the design and operation of our disclosure controls
      and
      procedures (as such terms are defined in Rule 13a-15(e) and 15d-15(e) of the
      Exchange Act). We view internal control over financial reporting to be an
      integral part of our disclosure control over financial reporting. Based on
      the
      evaluation of our Chief Executive Officer and Chief Financial Officer that
      there
      are material weaknesses in our internal control over financial reporting, we
      concluded that our disclosure controls and procedures are not effective. The
      weaknesses and our remediation efforts are discussed below.




Our
      estimate of the overall cost of implementing corrective measures is
      approximately $300,000. The costs will be incurred in three main areas, (i)
      outside consultant assistance in design and documentation, (ii) increased human
      resources to maintain controls and updates, and (iii) increased GAAP expertise
      through training and consultants.




Our
      management does not expect that our disclosure controls and procedures will
      prevent all errors and all fraud. The design of a control system must reflect
      the fact that there are resource constraints, and the benefits of controls
      must
      be considered relative to their costs. Based on the inherent limitations in
      all
      control systems, no evaluation of controls can provide absolute assurance that
      all control issues and instances of fraud, if any, within the Company have
      been
      detected. These inherent limitations include the realties that judgments in
      decision-making can be faulty and that breakdowns can occur because of simple
      errors or mistakes. Additionally, controls can be circumvented by the individual
      acts of some persons, by collusion of two or more people, or by management
      override of the controls. The design of any system of controls also is based
      in
      part upon certain assumptions about the likelihood of future events. Therefore,
      a control system, no matter how well conceived and operated, can provide only
      reasonable, not absolute, assurance that the objectives of the control system
      are met.




**Management’s
      Annual Report on Internal Control over Financial Reporting**




Our
      management, including the Chief Executive Officer and Chief Financial Officer,
      are responsible for establishing and maintaining adequate internal control
      over
      financial reporting. Our internal control over financial reporting was designed
      to provide reasonable assurance regarding the fair presentation of our financial
      statements in accordance with accounting principles generally accepted in the
      United States (GAAP). Our internal control over financial reporting includes
      those policies and procedures that:




·
            Establish
                and maintain adequate internal control over financial
                reporting,




·
            Assess
                the effectiveness of internal control over financing
                reporting,




·
            Pertain
                to the maintenance of records that, in reasonable detail, accurately
                and
                fairly reflect the transactions and dispositions of our
                assets,




·
            Provide
                reasonable assurance that transactions are recorded as to permit
                preparation of financial statements in accordance with GAAP, and
                that our
                receipts and expenditures are being made only in accordance with
                authorization of our management and Board of Directors,
                and


·
              Provide
                  reasonable assurance regarding prevention or timely detection of
                  unauthorized acquisition, use, or disposition of our assets that
                  could
                  have a material effect on our financial statements.


28




Management
      has excluded from its assessment of internal control over financial reporting
      as
      of March 31, 2007, the internal control processes specifically related to the
      accounting for the acquisitions of the South Glenrock B, Cole Creek South,
      and
      Big Muddy oil & gas producing properties because they were acquired in the
      latter part of our third fiscal quarter and the early part of our fourth fiscal
      quarter of 2007. The acquisitions represented the first purchases of oil &
gas producing properties for the Company. The processes that were specifically
      excluded were the accounting for the acquisition purchase price, depletion,
      and
      depreciation of the properties, oil & gas sales and receivables, production
      taxes, lease operating expenses and receivables, and the FAS143 asset retirement
      obligation. The acquisitions represent approximately $74.7 million, or 92%,
      $1.2
      million, or 21%, and $1.2 million, or 100%, of the Company’s total assets, total
      liabilities, and total revenues, respectively, as of and for the year ended
      March 31, 2007.




Management
      assessed the effectiveness of our internal control over financial reporting
      as
      of March 31, 2007 based on criteria issued by the Committee of Sponsoring
      Organizations of the Treadway Commission (COSO) in its *Internal
      Control-Integrated Framework* .
      Management’s assessment included an evaluation of the design of our internal
      control over financial reporting and testing of the operational effectiveness
      of
      our internal control over financial reporting. Based on our assessment,
      management has concluded that our internal control over financial reporting
      as
      of March 31, 2007 is not effective due to the identification of the material
      weaknesses discussed below. It is reasonably possible that, if not remediated,
      one or more of the material weaknesses could result in a material misstatement
      in our reported financial statements in a future annual or interim period.




A
      material weakness in internal control over financial reporting is defined by
      the
      Public Company Accounting Oversight Board’s Audit Standard No. 2 as being a
      significant deficiency, or combination of significant deficiencies, that results
      in more than a remote likelihood that a material misstatement of the financial
      statements would not be prevented or detected. A significant deficiency is
      a
      control deficiency, or combination of control deficiencies, that adversely
      affects the company’s ability to initiate, authorize, record, process, or report
      external financial data reliably in accordance with GAAP such that there is
      more
      than a remote likelihood that a misstatement of the company’s annual or interim
      financial statements that is more than inconsequential will not be prevented
      or
      detected.




Management’s
      assessment of our internal control over financial reporting is not effective
      as
      of March 31, 2007 due to the identification of the following material
      weaknesses.




*(A)
      Our operating environment did not sufficiently promote effective internal
      control over financial reporting throughout the organization.*




During
      the year, the Company changed focus from one engaged in the exploration of
      a
      gold prospect in British Columbia, Canada which found no commercially
      exploitable deposits or reserves of gold, to an oil & gas company focused on
      using CO 2 enhanced
      oil recovery methods in the Powder River Basin, Wyoming.




29


The
        change in operating environment is evidenced by the
        following:




·
            the
                small amount of cash on hand in the Company totaling approximately
                $15,000
                one year ago as compared to over $89,300,000 of equity capital raised
                by
                the Company by mid-January 2007,




·
            the
                rapid asset growth of the Company from one small undeveloped oil
& gas
                property valued at approximately $250,000 one year ago to the acquisition
                of three large producing oil fields that we purchased for approximately
                $73,000,000 in December 2006 and January 2007,




·
            the
                rapid employee growth of the Company from two employees one year
                ago to
                over 25 employees as of the date of filing of the of the Original
                Annual
                Report, including the employment of a new Chief Executive Officer,
                Chief
                Operating Officer, Chief Financial Officer, and Senior Vice President,
                Engineering,




·
            the
                short operating period of the Company during which, beginning on
                September
                30, 2006, we became an accelerated filer for SEC purposes and became
                subject to Sarbanes-Oxley rules concerning our internal control over
                financial reporting,




·
            the
                short period within which to test our internal controls over financial
                reporting resulting in a small sample size upon which the internal
                controls and financial reporting could be tested,
                and




·
            the
                hiring of four additional members of our Board of Directors in April
                2007,
                which increased our Board to six members from the two members in
                place
                throughout most of the year, and the absence of the establishment
                of the
                Company’s Audit Committee until May 2007.




Because
      of the rapid change in our operating environment, we did not effectively
      implement a system of entity-level internal controls by March 31, 2007, as
      evidenced by the following deficiencies:




*We
      did not maintain sufficient auditable evidence of management’s review and
      analysis of the reports that we file or submit under the Exchange
      Act.* We have
      implemented measures to retain copies of comments from our personnel evidencing
      such review and analysis. We anticipate that this deficiency will be remediated
      December 31, 2007.




*We
      did not make available to management timely internal management reports, or
      to
      the extent available, we maintained insufficient auditable evidence of
      management’s review and analysis of those reports.* Management has directed that key performance indicators and other financial
      information be gathered and reported to our Chief Executive Officer and other
      appropriate senior managers on a monthly basis. We expect that the timing of
      this remediation effort will be partly dependent on the timing of our hiring
      of
      a Chief Accounting Officer and a Financial Controller. However, we anticipate
      that the steps necessary to address this deficiency will be fully implemented
      by
      December 31, 2007.




*We
      had no formal written policy governing delegation of approval authority levels
      for financial transactions.* While
      prior to March 2007 we had an informal policy governing delegation of approval
      authority levels for financial transactions, including contracts, expenditures,
      and payments, due to the low level of operations of the Company and its small
      size, we had no formal written policy governing delegation of approval authority
      levels for financial transactions. In March 2007 our policy governing such
      approval authority levels was adopted by our management and Board of Directors,
      and this policy was again reviewed and approved by our Board of Directors in
      May
      2007.




30




*We
      did not obtain attestations by management or our employees regarding their
      compliance with our Code of Business Conduct and Ethics.* While
      we
      did receive, by March 31, 2007, from all officers and employees attestations
      as
      to their understanding of and compliance with Company policies related to their
      employment, we did not obtain attestations regarding their compliance with
      our
      Code of Business Conduct and Ethics. We adopted a new Code of Business Conduct
      and Ethics in May 2007, and that policy has been posted on our website. We
      have
      distributed the policy document to all employees and Directors, and as of the
      date of filing of the Original Annual Report, we received from all employees
      and
      Directors attestations as to their understanding of and compliance with this
      policy.




*We
      did not conduct a full fraud assessment process prior to year end.* In
      May
      2007 we initiated a formal fraud assessment process. Our policies call for
      a
      quarterly fraud assessment as part of our financial closing procedures and
      an
      annual fraud assessment as part of the business planning process carried out
      by
      our management. We anticipate that the steps necessary to address this
      deficiency will be fully implemented by December 31, 2007.




*We
      did not obtain prescribed attestations by management regarding their compliance
      with an insider trading policy or attestations from our employees as to their
      understanding of and compliance with the company policies related to insider
      trading.* We
      adopted a formal Insider Trading Policy on May 31, 2007. This policy document
      has been posted on our website and we have distributed the policy document
      to
      all employees and Directors, and as of the date of filing of the Original Annual
      Report we received from all employees and Directors attestations as to their
      understanding of and compliance with this policy.




*(B)*  *We
      did not have a sufficient complement of personnel with appropriate training
      and
      experience in GAAP, as evidenced by the following deficiencies* :




The
      rapid
      employee growth of the Company from two employees one year ago to over 25
      employees as of the date of filing of the Original Annual Report resulted in
      the
      Company not having a sufficient complement of personnel with appropriate
      training and experience in GAAP during the past fiscal year. We did not have
      any
      significant properties or operations until we completed our equity private
      placement in mid-January 2007 and acquired our three properties in Wyoming.
      In
      January 2007 we hired a Chief Financial Officer with an M.B.A. in Finance from
      the Wharton School, University of Pennsylvania, and with B.S. and Master’s
      degrees in civil engineering from Rice University. He has over twenty years
      of
      experience in financial management and strategic planning in the energy
      industry, including serving most recently as treasurer and acting chief
      financial officer of a privately held energy and production company. Although
      both our Chief Executive Officer and Chief Financial Officer have substantial
      financial experience, they do not have significant experience in preparing
      financial statements of a publicly held company or in implementing internal
      control over financing reporting for a public company. As a result, during
      the
      year we relied primarily on consultants for preparation of our financial
      statements and for our internal control over financial reporting. For example,
      the reconciliation of payroll, among other items, to the general ledger was
      not
      performed throughout the year. Management, in coordination with the Audit
      Committee, has undertaken steps to reorganize our Accounting Department, and
      management is allocating significant additional resources to our Accounting
      Department, including retaining additional consultants and hiring new full-time
      personnel.




In
      June
      2007, our Financial Controller, who was hired in March 2007, announced her
      intention to leave the Company. Management, in coordination with the Audit
      Committee, has begun an executive search for a new Financial Controller. We
      expect this deficiency will be remediated by December 31, 2007.




31




In
      June
      2007, M anagement,
      in coordination with the Audit Committee, implemented the following remediation
      plans:




·
            retained
                a national executive services and consulting firm to provide immediate
                assistance to the Company with respect to our internal financial
                reporting, reports that we file or submit under the Exchange Act,
                and our
                internal control over financial reporting. They have supplied the
                Company
                with two senior-level executives experienced in financial reporting,
                Exchange Act reporting, and control over financial reporting. In
                addition
                they will assist the Company to strategically identify its requirements
                for additional full-time Accounting Department personnel, and locating
                and
                recruiting such personnel.




·
            began
                an executive search in June 2007 for a Chief Accounting Officer who
                would
                have the requisite GAAP training and experience to supplement our
                Chief
                Financial Officer’s other finance experience. We expect that this
                deficiency will be remediated by December 31,
                2007.




Management,
      in coordination with the Audit Committee, intends to provide our Operations
      Controller with additional training in GAAP. We anticipate that this deficiency
      will be remediated by December 31, 2007.




*(C)*  *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* .




Our
      Operations Controller performed all of the following functions: (i) operations
      accounting system set-up, (ii) administration, (iii) data input, and (iv)
      reporting. Activities that were not adequately segregated included (i)
      processing of deposits and making payments, and (ii) payroll calculation and
      payroll processing. We are addressing these segregation issues through revised
      desk procedures and management and staff training. We anticipate that this
      deficiency will be remediated by December 31, 2007.




Our
      Financial Controller, who was responsible for our financial reporting,
      established and maintained the internal controls over financial reporting,
      and
      also identified which tests should be performed over our internal control over
      financial reporting. We anticipate that this deficiency will be remediated
      by
      December 31, 2007.




*Changes
      in Internal Control over Financial Reporting*




The
      changes noted above are the only changes during our most recently completed
      fiscal year that have materially affected or are reasonably likely to materially
      affect our internal control over financial reporting.




Hein
      & Associates LLP, the independent registered public accounting firm that
      audited our financial statements included in the Original Annual Report, has
      also issued an attestation on our management’s assessment of the effectiveness
      of our internal control over financial reporting and the effectiveness of our
      internal control over financial reporting as of March 31, 2007, which follows.




32




**REPORT
      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**







To
      the Board of Directors


Rancher
      Energy Corp.


Denver,
      Colorado





We
      have audited management’s assessment, included in the accompanying Management’s
      Report on Internal Control, that Rancher Energy Corp. did not maintain effective
      internal control over financial reporting as of March 31, 2007, because of
      the
      effect of the material weaknesses identified in management’s assessment, based
      on criteria established in *Internal Control—Integrated Framework* issued
      by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
      Rancher Energy Corp.’s management is responsible for maintaining effective
      internal control over financial reporting and for its assessment of the
      effectiveness of internal control over financial reporting. Our responsibility
      is to express an opinion on management’s assessment and an opinion on the
      effectiveness of the company’s internal control over financial reporting based
      on our audit.





We
      conducted our audit in accordance with the standards of the Public Company
      Accounting Oversight Board (United States). Those standards require that we
      plan
      and perform the audit to obtain reasonable assurance about whether effective
      internal control over financial reporting was maintained in all material
      respects. Our audit included obtaining an understanding of internal control
      over
      financial reporting, evaluating management’s assessment, testing and evaluating
      the design and operating effectiveness of internal control, and performing
      such
      other procedures as we considered necessary in the circumstances. We believe
      that our audit provides a reasonable basis for our opinion.





A
      company’s internal control over financial reporting is a process designed to
      provide reasonable assurance regarding the reliability of financial reporting
      and the preparation of financial statements for external purposes in accordance
      with generally accepted accounting principles. A company’s internal control over
      financial reporting includes those policies and procedures that (1) pertain
      to
      the maintenance of records that, in reasonable detail, accurately and fairly
      reflect the transactions and dispositions of the assets of the company; (2)
      provide reasonable assurance that transactions are recorded as necessary to
      permit preparation of financial statements in accordance with generally accepted
      accounting principles, and that receipts and expenditures of the company are
      being made only in accordance with authorizations of management and directors
      of
      the company; and (3) provide reasonable assurance regarding prevention or timely
      detection of unauthorized acquisition, use, or disposition of the company’s
      assets that could have a material effect on the financial
      statements.





Because
      of its inherent limitations, internal control over financial reporting may
      not
      prevent or detect misstatements. Also, projections of any evaluation of
      effectiveness to future periods are subject to the risk that controls may become
      inadequate because of changes in conditions, or that the degree of compliance
      with the policies or procedures may deteriorate.





A
      material weakness is a control deficiency, or combination of control
      deficiencies, that results in more than a remote likelihood that a material
      misstatement of the annual or interim financial statements will not be prevented
      or detected. The following material weaknesses have been identified and included
      in management’s assessment as of March 31, 2007.





1)
            The
                Company’s control environment did not sufficiently promote effective
                internal control over financial reporting throughout the
                organization.




33




2)
            The
                Company did not have in place adequate competent accounting personnel
                with
                the appropriate training and expertise in generally accepted accounting
                principles (“GAAP”).




3)
            The
                Company did not adequately segregate the duties in the accounting
                department, due to an insufficient complement of personnel and inadequate
                management oversight.




These
      material weaknesses were considered in determining the nature, timing, and
      extent of audit tests applied in our audit of the 2007 financial statements,
      and
      this report does not affect our report dated June 28, 2007 on those
      financial statements.




In
      our opinion, management’s assessment that Rancher Energy Corp. did not maintain
      effective internal control over financial reporting as of March 31, 2007, is
      fairly stated, in all material respects, based on criteria established
      in *Internal Control—Integrated Framework* issued
      by COSO *.* Also, in our opinion, because of the effect of the material weaknesses described
      above on the achievement of the objectives of the control criteria, Rancher
      Energy Corp. did not maintain effective internal control over financial
      reporting as of March 31, 2007, based on criteria established in *Internal Control—Integrated Framework* issued
      by COSO.







*/s/
      HEIN* *&
      ASSOCIATES LLP*


Denver,
      Colorado


June
      28, 2007




34




**PART
      IV**




**ITEM
      15.**  **EXHIBITS** **,
      Financial Statement Schedules.**




(a)
      Documents filed as a part of the report:





(3)  Exhibits.
      The exhibits filed as part of this Amendment No. 2 on Form 10-K/A are
      reflected on the Exhibit Index following the signature page.




35




SIGNATURES





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




RANCHER
                ENERGY CORP.
              (Registrant)Date: September 7, 2007
            By:
            /s/ John WorksJohn
              WorksPresident,
                Chief Executive Officer, Principal Executive Officer, Chief Financial
                Officer, Principal Financial Officer, Director, Secretary, and
                Treasurer




36




**EXHIBIT
      INDEX**





**Exhibit**
            
            **Description**3.1
            
            Amended
                and Restated Articles of Incorporation(17)3.4
            
            Amended
                and Restated Bylaws(2)4.1
            
            Form
                of Stock Certificate for Fully Paid, Non-Assessable Common Stock
                of the
                Company(1)4.2
            
            Form
                of Unit Purchase Agreement(2)4.3
            
            Form
                of Warrant Certificate(2)4.4
            
            Form
                of Registration Rights Agreement, dated December 21, 2006(3)4.5
            
            Form
                of Warrant to Purchase Common Stock(3)10.1
            
            Burke
                Ranch Unit Purchase and Participation Agreement between Hot Springs
                Resources Ltd. and PIN Petroleum Partners Ltd., dated February 6,
                2006(4)10.2
            
            Employment
                Agreement between John Works and Rancher Energy Corp., dated June 1,
                2006(5)10.3
            
            Assignment
                Agreement between PIN Petroleum Partners Ltd. and Rancher Energy
                Corp.,
                dated June 6, 2006(5)10.4
            
            Loan
                Agreement between Enerex Capital, Corp. and Rancher Energy Corp.,
                dated
                June 6, 2006(5)10.5
            
            Letter
                Agreement between NITEC LLC and Rancher Energy Corp., dated June 7,
                2006(5)10.6
            
            Loan
                Agreement between Venture Capital First LLC and Rancher Energy Corp.,
                dated June 9, 2006(6)10.7
            
            Exploration
                and Development Agreement between Big Snowy Resources, LP and Rancher
                Energy Corp., dated June 15, 2006(5)10.8
            
            Assignment
                Agreement between PIN Petroleum Partners Ltd. and Rancher Energy
                Corp.,
                dated June 21, 2006(5)10.9
            
            Purchase
                and Sale Agreement between Wyoming Mineral Exploration, LLC and Rancher
                Energy Corp., dated August 10, 2006(4)10.10
            
            South
                Glenrock and South Cole Creek Purchase and Sale Agreement by and
                between
                Nielson & Associates, Inc. and Rancher Energy Corp., dated
                October 1, 2006(7)10.11
            
            Rancher
                Energy Corp. 2006 Stock Incentive Plan(7)10.12
            
            Rancher
                Energy Corp. 2006 Stock Incentive Plan Form of Option Agreement(7)10.13
            
            Employment
                Agreement by and between John Dobitz and Rancher Energy Corp., dated
                October 2, 2006(7)10.14
            
            Denver
                Place Office Lease between Rancher Energy Corp. and Denver Place
                Associates Limited Partnership, dated October 30, 2006(8)10.15
            
            Employment
                Agreement between Andrew Casazza and Rancher Energy Corp., dated
                October 23, 2006(9)10.16
            
            Finder’s
                Fee Agreement between Falcon Capital and Rancher Energy Corp.(10)10.17
            
            Amendment
                to Purchase and Sale Agreement between Wyoming Mineral Exploration,
                LLC
                and Rancher Energy Corp.(11)10.18
            
            Letter
                Agreement between Certain Unit Holders and Rancher Energy Corp.,
                dated
                December 8, 2006(2)10.19
            
            Letter
                Agreement between Certain Option Holders and Rancher Energy Corp.,
                dated
                December 13, 2006(2)10.20
            
            Product
                Sale and Purchase Contract by and between Rancher Energy Corp. and
                the
                Anadarko Petroleum Corporation, dated December 15, 2006(12)10.21
            
            Amendment
                to Purchase and Sale Agreement between Nielson & Associates, Inc. and
                Rancher Energy Corp.(13)10.22
            
            Securities
                Purchase Agreement by and among Rancher Energy Corp. and the Buyers
                identified therein, dated December 21, 2006(3)




E-1




**Exhibit**
            
            **Description**10.23
            
            Lock-Up
                Agreement between Rancher Energy Corp. and Stockholders identified
                therein, dated December 21, 2006(3)10.24
            
            Voting
                Agreement between Rancher Energy Corp. and Stockholders identified
                therein, dated as of December 13, 2006(3)10.25
            
            Form
                of Convertible Note(14)10.26
            
            Employment
                Agreement between Daniel Foley and Rancher Energy Corp., dated
                January 12, 2007(15)10.27
            
            First
                Amendment to Securities Purchase Agreement by and among Rancher Energy
                Corp. and the Buyers identified therein, dated as of January 18, 2007(16)10.28
            
            Rancher
                Energy Corp. 2006 Stock Incentive Plan Form of Restricted Stock Agreement(20)10.29
            
            First
                Amendment to Employment Agreement by and between John Works and Rancher
                Energy Corp., dated March 14, 2007(20)10.30
            
            Employment
                Agreement between Richard Kurtenbach and Rancher Energy Corp., dated
                August 3, 2007(22)14.1
            
            Code
                of Business Conduct and Ethics(18)16.1
            
            Letter
                from Williams & Webster, P.S. regarding change in certifying
                accountant(19)21.1
            
            List
                of Subsidiaries(21)23.1
            
            Consent
              of Ryder Scott Company, L. P., Independent Petroleum Engineers
              (23)31.1
            
            Certification
                Pursuant to Rule 13a-14(a)/15d-14(a) (Chief Executive Officer)(23)31.2
            
            Certification
                Pursuant to Rule 13a-14(a)/15d-14(a) (Chief Financial Officer)(23)32.1
            
            Certification
                pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
                906 of
                the Sarbanes-Oxley Act of 2002(23)





(1)
            Incorporated
                by reference from our Form SB-2 Registration Statement filed on
                June 9, 2004 (File No.
                333-116307).




(2)
            Incorporated
                by reference from our Current Report on Form 8-K filed on
                December 18, 2006 (File No.
                000-51425).




(3)
            Incorporated
                by reference from our Current Report on Form 8-K filed on
                December 27, 2006 (File No.
                000-51425).




(4)
            Incorporated
                by reference from our Quarterly Report on Form 10-Q/A filed on
                August 28, 2006 (File No.
                000-51425).




(5)
            Incorporated
                by reference from our Annual Report on Form 10-K filed on June 30,
                2006 (File No. 000-51425).




(6)
            Incorporated
                by reference from our Current Report on Form 8-K filed on June 21,
                2006 (File No. 000-51425).




(7)
            Incorporated
                by reference from our Current Report on Form 8-K filed on October 6,
                2006 (File No. 000-51425).




(8)
            Incorporated
                by reference from our Current Report on Form 8-K filed on November 9,
                2006 (File No. 000-51425).




(9)
            Incorporated
                by reference from our Current Report on Form 8-K filed on
                November 14,2006 (File No.
                000-51425).




E-2




(10)
            Incorporated
                by reference from our Current Report on Form 8-K/A filed on
                November 14, 2006 (File No.
                000-51425).




(11)
            Incorporated
                by reference from our Current Report on Form 8-K filed on December 4,
                2006 (File No. 000-51425).




(12)
            Incorporated
                by reference from our Current Report on Form 8-K filed on
                December 22, 2006 (File No.
                000-51425).




(13)
            Incorporated
                by reference from our Current Report on Form 8-K filed on
                December 27, 2006 (File No.
                000-51425).




(14)
            Incorporated
                by reference from our Current Report on Form 8-K filed on January 8,
                2007 (File No. 000-51425).




(15)
            Incorporated
                by reference from our Current Report on Form 8-K filed on January 16,
                2007 (File No. 000-51425).




(16)
            Incorporated
                by reference from our Current Report on Form 8-K filed on January 25,
                2007 (File No. 000-51425).




(17)
            Incorporated
                by reference from our Current Report on Form 8-K filed on April 3,
                2007 (File No. 000-51425).




(18)
            Incorporated
                by reference from our Current Report on Form 8-K filed on June 6,
                2007 (File No. 000-51425).




(19)
            Incorporated
                by reference from our Current Report on Form 8-K/A filed on August 9,
                2006 (File No. 000-51425).




(20)
            Incorporated
                by reference from our Current Report on Form 8-K filed on March 20,
                2007 (File No. 000-51425).




(21)
            Incorporated
                by reference from our Annual Report on Form 10-K filed on June 29,
                2007 (File No. 000-51425).




(22)
            Incorporated
                by reference from our Current Report on Form 8-K filed on August
                7, 2007
                (File No. 000-51425).




(23)
            Filed
                herewith.




E-3