The following discussion of financial condition and results of operations should be read in conjunction with the consolidated financial statements and the notes to the consolidated financial statements, which are included elsewhere in this report.

The factors that most significantly affect the Company's results of operations are (i) the sale prices of crude oil and natural gas, (ii) the amount of production sales, (iii) the amount of lease operating expenses, and (iv) the level of interest rates on, and amount of, borrowings. Sales of production and level of borrowings are significantly impacted by the Company's ability to maintain or increase its production from existing oil and gas properties through its exploration and development activities. The following table reflects the average prices received by the Company for oil and gas, the average production cost per BOE, and the amount of oil and gas produced for the periods presented:

                                    Year Ended January 31,
                                ------------------------------
Production Data:                2007        2008         2009
                                ----        ----         ----
   Production -
      Oil (Bbls)               1,417       1,499         1,147
      Gas (Mcf)               97,836      59,491        28,157
   Average sales price -
      Oil (Bbls)           $   47.67    $  56.48       $ 81.02
      Gas (Mcf)            $    6.04    $   5.88       $  6.35
   Average production
       costs per MCFE      $    2.43    $   2.90       $  1.38

Prices received by the Company for sales of crude oil and natural gas have fluctuated significantly from period to period. The fluctuations in oil prices during these periods reflect market uncertainty regarding the inability of the Organization of Petroleum Exporting Countries ("OPEC") to control the production of its member countries, as well as concerns related to the global supply and demand for crude oil. Gas prices received by the Company fluctuate with changes in the spot market price for gas.

Changes in natural gas and crude oil prices will significantly affect the revenues and cash flow of the wells and the value of the oil and gas properties. Declines in the prices of crude oil and natural gas could have a material adverse effect on the success of the Company's operations and activities, recoupment of the costs of acquiring, developing and producing the wells and profitability. The Company is unable to predict whether the prices of crude oil and natural gas will rise, stabilize or decline in the future.

In January 2007 the Company entered into an agreement with an unrelated third party for the sale of all its Pulaski County, Kentucky properties, gathering systems and equipment for $1,735,000. As of January 31, 2007 the Company had received cash payments of $557,000 from the third party of which $200,000 was for the sale of certain royalty rights held by the Company and $357,000 represented a deposit on the sale of the remainder of properties, gathering systems, and equipment. The sale of the royalties was completed on January 25, 2007 and the sale was treated as a reduction in the carrying amount of the oil and gas properties in accordance with the full cost method of accounting for oil and gas properties. The remainder of the sale closed on June 1, 2007 and the $357,000 received was recorded as a deposit as of January 31, 2007.

On January 1, 2008 the Company sold its remaining oil and gas properties in Kentucky, as well as its gathering systems, pipelines and equipment, for $2,300,000. For the sale of these assets, the Company received a $100,000 deposit and a non-recourse promissory note for $2,200,000.

At the time of the transaction, current production levels indicated that significant funds would need to be invested in the properties to fully develop anticipated reserves and thereby generate revenues sufficient to repay the promissory note. Due to this uncertainty, management determined to characterize the promissory note as `properties held for resale' on the balance sheet. Accordingly, the $100,000 payment was treated as a deposit. During the quarter

ended October 31, 2008 management determined, based on more current information, that the transaction should be re-characterized as a note receivable and all payments received since the transaction date characterized as principal and interest payments in accordance with the debt instrument. At the same time, an evaluation of collectibility led management to record an allowance for doubtful collection of $1,162,020.

The Company collected another $236,000 in note payments before December, 2008.

In December 2008 the maker of the non-recourse note filed a petition for reorganization under Chapter 11 of the U.S. Bankruptcy Code. On February 27, 2009 the Company sold the non-recourse note to an unrelated third party for $950,000.

In April 2008 the Company sold its interest in the Ainsworth #1-33 well, located in Pittsburgh County, OK, for $615,000 and incurred sales expenses of $24,600.

During the year ended January 31, 2009 the Company advanced $660,826 to a third party for drilling and completing a well in Niobrara County, Wyoming. As of April 30, 2009 this well was temporarily abandoned.

In November 2008 the Company entered into an agreement with Excalibur, Inc., an unrelated third party, for the exploration and development of oil and gas leases covering 1,560 acres in Callahan County, Texas. The Agreement provides that the Company will pay the costs to drill and complete five wells on the leased acreage.

If any of the five wells are completed as a producing well, Excalibur will receive a 12.5% working interest in the well. When Energas has received net proceeds from the sale of production from a completed well equal to the cost of drilling, completing, equipping, testing and operating the well, as well as leasehold costs of $39,000, Excalibur will receive and additional 12.5% working interest in the well.

The Company has drilled one well on the leases (the Maurice Snyder #1-141) which as of April 30, 2009 was in the process of completion.

In March 2009 the Company acquired a 2% overriding royalty interests in the leases held by an unrelated third party for $161,000, subject to the retention by the third party of a 2% overriding royalty interest in the Maurice Snyder #1-141 well.

The Company does not know of any trends, events or uncertainties that have had or are reasonably expected to have a material impact on the Company's net sales, revenues or expenses.

RESULTS OF OPERATIONS

YEAR ENDED JANUARY 31, 2009

      Material changes of certain items in the Company's Statement of Operations
for the year ended January 31, 2009, as compared to the year ended January 31,
2008, are discussed below:



                        Increase (I)
Item                   or Decrease (D) Reason
----                   --------------- ------

Oil and gas sales            D         Sale of Company's  Kentucky  oil and gas  properties,
                                       sale  of  Ainsworth   #1-33  well,  and  decrease  in
                                       production.

General and administrative   D         Sale of Kentucky oil and gas properties
     Expense                           and decrease in staff.


Bad debt expense             I         Sale of non-recourse  note,  which had an outstanding
                                       principal  balance at the time of sale of $2,112,020,
                                       for $950,000.


                                       17

Property impairment          I         The  Company   recorded  an  impairment   expense  in
                                       connection  with the January 2008 sale of its oil and
                                       gas    properties   in   Kentucky.    An   additional
                                       impairment  charge of $1,225,455 was recorded against
                                       the  Kentucky   properties   during  the  year  ended
                                       January 31, 2009.

Depreciation, depletion      D         Sale of Company's Kentucky oil and gas
     and amortization                  properties and sale of Ainsworth #1-33 well.

YEAR ENDED JANUARY 31, 2008

      Material changes of certain items in the Company's Statement of Operations
for the year ended January 31, 2008, as compared to the year ended January 31,
2007, are discussed below:

                        Increase (I)
Item                   or Decrease (D) Reason
----                   --------------- ------

Oil and Gas Sales             D        Sale of Company's Kentucky oil and gas
                                       properties and decrease of production.

Lease Operating Expense       D        Sale of Company's Kentucky oil and gas
                                       properties.
Property                               Impairment I The Company recorded an
                                       impairment expense of $701,691 in
                                       connection with the January 2008 sale of
                                       its oil and gas properties in Kentucky.

Depreciation, Depletion       D        Sale of Company's Kentucky oil and gas
     and Amortization                  properties.

OIL AND GAS PRICE FLUCTUATIONS

Fluctuations in crude oil and natural gas prices have significantly affected the Company's operations and the value of its assets. As a result of the instability and volatility of crude oil and natural gas prices and at times the market conditions within the oil and gas industry, financial institutions are selective in the energy lending area and have reduced the percentage of existing reserves that may qualify for the borrowing base to support energy loans.

The Company's principal source of cash flow is the production and sale of its crude oil and natural gas reserves which are depleting assets. Cash flow from oil and gas production sales depends upon the quantity of production and the price obtained for such production. An increase in prices permits the Company to finance its operations to a greater extent with internally generated funds, may allow the Company to obtain equity financing more easily or on better terms, and lessens the difficulty of attracting financing from industry partners

and non-industry investors. However, price increases heighten the competition for Leases and Prospects, increase the costs of exploration and development activities, and, because of potential price declines, increase the risks associated with the purchase of Producing Properties during times that prices are at higher levels.

A decline in oil and gas prices (i) reduces the cash flow internally generated by the Company which in turn reduces the funds available for servicing debt and exploring for and replacing oil and gas reserves, (ii) increases the difficulty of obtaining equity and debt financing and worsens the terms on which such financing may be obtained, (iii) reduces the number of Leases and Prospects which have reasonable economic terms, (iv) may cause the Company to permit Leases to expire based upon the value of potential oil and gas reserves in relation to the costs of exploration, (v) results in marginally productive oil and gas wells being abandoned as non-commercial, and (vi) increases the difficulty of attracting financing from industry partners and non-industry investors. However, price declines reduce the competition for Leases and Prospects and correspondingly reduce the prices paid for Leases and Prospects. Furthermore, exploration and production costs generally decline, although the decline may not be at the same rate as that of oil and gas prices.

The Company's results of operations are somewhat seasonal due to seasonal fluctuations in the sales prices for natural gas. Although in recent years crude oil prices have been generally higher in the third and fourth fiscal quarters, these fluctuations are not believed to be seasonal. Natural gas prices have been generally higher in the fourth fiscal quarter.

CAPITAL RESOURCES AND LIQUIDITY

The Company's material sources and (uses) of cash during the year ended January 31, 2009 were:

      Cash used in operations                                 $  (74,048)
      Acquisition and development of oil and gas properties     (692,948)
      Cash resulting from purchase of subsidiaries                71,297
      Investment in partnership                                  (39,000)
      Collections on note receivable                              87,980
      Sale of oil and gas properties                             590,400
      Loans from related parties                                  96,327
      Advances (net of repayments) on capital lease                7,164

The Company's material sources and (uses) of cash during the year ended January 31, 2008 were:

      Cash used in operations                                $  (362,848)
      Acquisition and development of oil and gas properties     (575,367)
      Sale of oil and gas properties                           1,178,000
      Loans from related parties                                 (40,650)
      Repayment of notes                                        (699,853)

As a result of the Company's continued losses and lack of cash there is substantial doubt as to the Company's ability to continue operations. The Company plans to generate profits by drilling productive oil or gas wells. However, the Company will need to raise the funds required to drill new wells from third parties willing to pay the Company's share of drilling and completing the wells. The Company may also attempt to raise needed capital through the private sale of its securities or by borrowing from third parties. The Company may not be successful in raising the capital needed to drill oil or gas wells. In addition, any future wells which may be drilled by the Company may not be productive of oil or gas. The inability of the Company to generate profits may force the Company to curtail or cease operations.

On July 27, 2006 Energas borrowed $500,000 from Dutchess Private Equities. In consideration for the loan Energas agreed to pay Dutchess $650,000 no later than July 26, 2007. The $150,000 difference between the amount borrowed and the amount Energas was required to repay was treated as loan discount which will be amortized to interest expense over the life of the loan. As further consideration for the loan, Energas issued 800,000 shares of its common stock to Dutchess. The 800,000 shares were valued at $116,000 and treated as an additional loan discount that will be amortized to interest expense over the term of the loan. Prior to April 30, 2007 Energas used the amounts received from sales of common stock under the Equity Line of Credit to repay this loan. In June 2007 the loan to Dutchess Private Equities was paid in full.

Contractual Obligations

Except as shown in the following table, as of January 31, 2009, the Company did not have any material capital commitments, other than funding its operating losses and repaying outstanding debt. It is anticipated that any capital commitments that may occur will be financed principally through borrowings from institutional and private lenders (although such additional financing has not been arranged) and the sale of shares of the Company's common stock or other equity securities. However, there can be no assurance that additional capital resources and financings will be available to the Company on a timely basis, or if available, on acceptable terms.

Future payments due on the Company's contractual obligations as of January 31, 2009 are as follows:

                         Total     2009     2010     2011     2012    Thereafter
                         -----     ----     ----     ----     ----    ----------

Office equipment leases $12,010   $5,382   $2,655   $2,108   $1,865         --

Critical Accounting Policies

See Note 3 to the financial statements included as part of this report.