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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D. C. 20549
 FORM 10-K
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended December 31, 2010
 or
 o
    
    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 001-34585
 GAS NATURAL INC.
 (Exact name of registrant as specified in its charter)
 Ohio(State or other jurisdiction of 
incorporation or organization)
    
    27-3003768(I.R.S. Employer
Identification No.)1 First Avenue South 
Great Falls, Montana(Address of principal executive office)
    
    59401(Zip Code)
 Registrants telephone number, including area code: ( 406) 791-7500
 Securities registered pursuant to Section 12(b) of the Act:
 Title of Each Class
    
    Name of Each Exchange on Which RegisteredCommon, par value $.15 per share
    
    NYSE Amex Equities
 Securities registered pursuant to Section 12(g) of the Act:
 Title of Each Class
    
    Name of Each Exchange on Which RegisteredNone
    
    None
 o þ
 o þ
 þ o
 o o
 o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer o
    
    Smaller Reporting Company þ(Do not check if a smaller reporting company)
 o þ
   DOCUMENTS INCORPORATED BY REFERENCE




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GLOSSARY OF TERMS
  AECO
 ASC
 Bangor Gas Company
 Brainard
 Bcf
 CIG
 Citizens.
 Clarion River
 Cut Bank Gas Energy West Properties.
 Dekatherm.
 EPA
 EWR
 Energy West
 Exchange Act
 FASB
 FERC.
 Frontier Natural Gas
 Frontier Utilities
 GNI Service Company
 GPL
 Great Plains
 Heating Degree Day (HDD):
 JDOG
 Kykuit
 Lightning Pipeline
 MMcf
 MRP
 MPSC
 MPUC
 NCUC
 NEO
 NGA
 OGCL
 Orwell
 Osborne Trust
 PaPUC
 PUCO
 Penobscot Natural Gas
 SEC
 Shelby.
 SunLife.
 Walker Gas
 WPSC
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##### 



TABLE OF CONTENTS
 PagePart IITEM 1. BUSINESS
    
    
    1Our Business
    
    
    1Recent Trends
    
    
    1Our Business Strategy
    
    
    2Competitive Strengths
    
    
    2Natural Gas Operations Segment
    
    
    3Marketing and Production Segment (Energy West Resources, Inc.)
    
    
    4Pipeline Operations Segment
    
    
    4Corporate Operations and Other
    
    
    5Acquisitions
    
    
    5Competition
    
    
    6Gas Supply and Marketers
    
    
    6Government Regulation
    
    
    7Environmental Matters
    
    
    10Seasonality
    
    
    11Employees
    
    
    11ITEM 1A. RISK FACTORS
    
    
    11ITEM 2. PROPERTIES
    
    
    18ITEM 3. LEGAL PROCEEDINGS
    
    
    19ITEM 4. [RESERVED]
    
    
    19Part IIITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
    
    
    20ITEM 6. SELECTED FINANCIAL DATA
    
    
    23ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
    
    
    24ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    
    
    38ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
    
    
    38ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
    
    
    38ITEM 9A CONTROLS AND PROCEDURES
    
    
    38ITEM 9B. OTHER INFORMATION
    
    
    39Part IIIITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
    
    
    39ITEM 11. EXECUTIVE COMPENSATION
    
    
    39ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS
    
    
    40ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
AND DIRECTOR INDEPENDENCE
    
    
    40ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
    
    
    40Part IVItem 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
    
    
    40Signatures
    
    
    47EX-10.52EX-10.53EX-10.54EX-10.55EX-10.56EX-10.57EX-10.58EX-10.59EX-21EX-23.1EX-31EX-32
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Forward-Looking Statements
 This Form 10-K contains forward-looking statements within the meaning of the federal
securities laws. Statements that are not historical facts, including statements about our beliefs
and expectations, are forward-looking statements. Forward-looking statements include statements
preceded by, followed by or that include the words may, could, would, should, believe,
expect, anticipate, plan, estimate, target, project, intend, or similar expressions.
These statements include, among others, statements regarding our current expectations, estimates
and projections about future events and financial trends affecting the financial condition and
operations of our business. Forward-looking statements are only predictions and not guarantees of
performance and speak only as of the date they are made. We undertake no obligation to update any
forward-looking statement in light of new information or future events.
 Although we believe that the expectations, estimates and projections reflected in the
forward-looking statements are based on reasonable assumptions when they are made, we can give no
assurance that these expectations, estimates and projections can be achieved. We believe the
forward-looking statements in this Form 10-K are reasonable; however, you should not place undue
reliance on any forward-looking statement, as they are based on current expectations. Future
events and actual results may differ materially from those discussed in the forward-looking
statements. Factors that could cause actual results to differ materially from our expectations
include, but are not limited to:
 
    
    fluctuating energy commodity prices,
    
    the possibility that regulators may not permit us to pass through all of our increased costs to our customers,
    
    the impact of the FERC and state public service commission statutes, regulations, and actions, including allowed rates of
return, and the resolution of other regulatory matters,
    
    the impact of weather conditions and alternative energy sources on our sales volumes,
    
    future utilization of pipeline capacity, which can depend on energy prices, competition from alternative fuels, the
general level of natural gas and propane demand, decisions by customers not to renew expiring natural gas contracts and
weather conditions,
    
    changes in federal or state laws and regulations to which we are subject, including tax, environmental, and employment
laws and regulations,
    
    the ability to meet financial covenants imposed by lenders,
    
    the effect of changes in accounting policies, if any,
    
    the ability to manage our growth,
    
    the ability to control costs,
    
    the ability of each business unit to successfully implement key systems, such as service delivery systems,
    
    our ability to develop expanded markets and product offerings and our ability to maintain existing markets,
    
    our ability to maintain effective internal controls in accordance with Section 404 of the Sarbanes-Oxley Act of 2002, and
    
    our ability to obtain governmental and regulatory approval of various expansion or other projects, including acquisitions.
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PART I
 
 Item 1. Business.
 
 OUR BUSINESS
  
    
    Natural Gas Operations.Representing the majority of our revenue, we
annually distribute approximately 30 Bcf of natural gas to
approximately 63,500 customers through regulated utilities operating
in Montana, Wyoming, Ohio, Pennsylvania, Maine and North Carolina.
Our natural gas utility subsidiaries include Energy West, Incorporated
(Montana and Wyoming), Cut Bank Gas Company (Montana), Northeast Ohio
Natural Gas Corporation (Ohio), Brainard Gas Corp. (Ohio), Orwell
Natural Gas Company (Ohio and Pennsylvania), Bangor Gas Company
(Maine) and Frontier Natural Gas (North Carolina). We acquired our
North Carolina and Maine operations in 2007, while Cut Bank Gas in
Montana was added in November 2009. Most recently, we closed the
acquisition of our Ohio and Pennsylvania operations on January 5,
2010.
    
    Pipeline Operations.We own the Shoshone interstate and the Glacier
gathering natural gas pipelines located in Montana and Wyoming through
our subsidiary Energy West Development, Inc.
    
    Marketing and Production.Annually, we market approximately 1.3 Bcf
of natural gas to commercial and industrial customers in Montana and
Wyoming and manage midstream supply and production assets for
transportation customers and utilities through our subsidiary, Energy
West Resources, Inc. EWR holds lease mineral rights to 20,000 acres
in Glacier and Toole Counties in Montana and owns an average 48% gross
working interest (average 42% net revenue interest) in 160 natural gas
producing wells and gas gathering assets located on this property.
 2010 Net Income by Operating Segment
  
  
 Recent Industry Trends
  1




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Business Strategy
  
    
    Invest in existing utilities to expand our distribution system, grow
our customer base and maintain reliable, high quality service.To
maintain our position as a respected natural gas utility, we have
invested, and will continue to invest, substantial capital and
resources in our core utility operations in order to meet or exceed
applicable regulatory requirements and maintain our infrastructure.
We are focused on prudently increasing our customer count and volumes,
and increasing our market penetration and market share in areas where
we have a competitive advantage on installed services, customer
service or pricing to ensure that new customers provide sufficient
margins for an appropriate return on the capital investments required
to serve those customers. These capital improvements and expansion
projects to our existing utilities enable us to continue to build rate
base throughout our service footprint.
    
    Continue Active Acquisition Strategy.We are actively pursuing
potential bolt-on acquisitions to increase our market penetration by
acquiring utility operations in or near our current service
territories with minimal corporate platform expansion. We also will
opportunistically explore transformational acquisition opportunities
that would provide significant operational and customer growth, as
well as assist in ensuring access to long-term sources of capital and
credit.
    
    Focus on Efficiency to Maximize Returns.We strive to quickly and
effectively respond to changing regulatory and public policy
initiatives, leverage new technology solutions that significantly
improve productivity and customer service and implement organizational
changes that improve our performance. By focusing on these critical
areas and continuous improvement of operational efficiencies, we
expect to be able to effectively control costs and provide reasonable
returns to stakeholders by attaining our regulated allowable return on
equity as established by our regulators.
 
 Competitive Strengths
  
    
    Growth-Oriented Utilities.Our core assets
consist of distribution facilities necessary
for the delivery of our customers natural
gas supply needs within our service
territories and regulatory assets related to
our regulated utility operations.
Approximately 91% of our 2010 revenue was
from regulated gas distribution operations,
providing a level of stability to our
earnings and cash flows. As we have invested
in our rate base, our earnings and cash flows
have grown with that investment. We operate
under a cost-of-service regulatory regime
that allows us to recover our reasonable
operating costs from customers and earn a
reasonable return on our invested capital.
We believe that there are significant
opportunities for us to expand operations
organically in some of our existing service
areas as there are currently relatively low
penetration rates of gas distribution among
potential customers.
    
    Focused Acquisition Strategy.We continue to
emphasize growth and have a successful track
record of executing on our acquisition
strategy. Since 2007, we have made
acquisitions in five states representing more
than 25,000 additional gas utility customers.
These recent acquisitions and our
integration of their operations, management,
infrastructure, technology and employees
provide us with the necessary platform and
experience to replicate these successes
through new acquisitions opportunities. We
believe our track record to date promotes
positive relationships and credibility with
regulators, municipalities, developers and
customers in both existing and prospective
service areas.
    
    Geographically Diverse Customer Base.As a result of our
recent acquisitions, we now have operations in six states
located in the West, Midwest, Northeast and Mid-Atlantic
regions of the country. We believe that this geographically
diverse customer base enhances stability of operations and
provide us with the opportunity to increase our market
penetration in various regions. Additionally, our customers
represent a mix of residential, commercial, industrial and
transportation and no single customer represented more than
1.3% of our natural gas revenue for 2010. Our sales to large
commercial and industrial customers are not concentrated in
one industry segment but vary across several industry
segments, reflecting the diverse nature of the communities we
serve.
    
    Experienced Management Team.Our senior management team is
highly experienced in the gas utility industry. Our senior
management team averages approximately 22 years experience in
the industry. We believe our management team is
well-equipped to lead the continued execution of the
Companys business strategy.
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Natural Gas Operations
  Montana
    Wyoming
    Ohio and Pennsylvania
    3




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Maine
   North Carolina
   
 Marketing and Production Operations (EWR)
    
 Pipeline Operations
  4




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Corporate and Other
  
 Acquisitions
    2007 Expansion into Maine and North Carolina
   2009 Acquisition of Additional Operations in Montana
  2010 Expansion into Ohio and Pennsylvania
  5




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Focused Acquisition Strategy
    
 Competition
    State
    
    CompetitionMontana
    
    Northwestern Energy, Montana-Dakota Utilities Co.Wyoming
    
    Various propane distributors, electric providersOhio
    
    Dominion East Ohio, Columbia Gas of Ohio, National Gas & Oil, various propane and fuel oil
distributors, electric providersPennsylvania
    
    Various propane and fuel oil distributors, electric providersMaine
    
    Northern Utilities Inc., Maine Natural Gas, various fuel oil distributors, electric providersNorth Carolina
    
    Various propane distributors, electric providers
  
 Gas Supply Marketers and Gas Supply Contracts
  6




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Governmental Regulation
 State Regulation
  Rate Regulation, Cost Recovery and Rate Cases
  Montana
    Wyoming
   7




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Ohio and Pennsylvania
     Maine
    North Carolina
  8




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Holding Company Reorganization and Ring-Fencing Measures
  Certificated Territories and Franchise Agreements
     Federal Regulations
  9




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Environmental Matters
 Environmental Laws and Regulations
   Remediation of Montana Manufactured Gas Plant
     10




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Seasonality
  
 Employees
  
 Item 1A. Risk Factors.
  Risks Related to Our Business
 We are subject to comprehensive regulation by federal, state and local regulatory agencies that
impact the rates we are able to charge, our costs and profitability.
  Our gas purchase practices are subject to annual reviews by state regulatory agencies which could
impact our earnings and cash flow.
   11




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Operational issues beyond our control could have an adverse effect on our business.
  Storing and transporting natural gas involves inherent risks that could cause us to incur
significant financial losses.
  Our earnings and cash flow are sensitive to decreases in customer consumption resulting from warmer
than normal temperatures and customer conservation.
   The increased cost of purchasing natural gas during periods in which natural gas prices are rising
significantly could adversely impact our earnings and cash flow.
  Volatility in the price of natural gas could result in customers switching to alternative energy
sources which could reduce our revenue, earnings and cash flow.
  The gas industry is intensely competitive and competition has increased in recent years as a result
of changes in the price negotiation process within the supply and distribution chain of the gas
industry, both of which could negatively impact earnings.
  Earnings and cash flow may be adversely affected by downturns in the economy.
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Changes in the market price and transportation costs of natural gas could result in financial
losses that would negatively impact our results of operations.
  Changes in current regulations, the regulatory environment and events in the energy markets that
are beyond our control may reduce our earnings and limit our access to capital markets.
  We acquired interests in our natural gas wells by quitclaim deed and cannot guarantee that we hold
clear title to our interests or that our interests will not be challenged in the future.
   Failure to maintain effective internal controls in accordance with Section 404 of the
Sarbanes-Oxley Act could have a material adverse effect on our business and stock price.
   13




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We are subject to numerous environmental laws and regulations that may increase our cost of
operations, impact our business plans and expose us to environmental liabilities.
    We
have a net deferred tax asset of $13.4 million and we cannot guarantee that we will be able to
generate sufficient future taxable income to realize a significant portion of this net deferred tax
asset, which could lead to a write-down (or even a loss) of the net deferred tax asset and
adversely affect our operating results and financial position.
  Our actual results of operations could differ from estimates used to prepare our financial
statements.
  Risks Related to Our Acquisition Strategy
 We face a variety of risks associated with acquiring and integrating new business operations.
  
    
    identify suitable acquisition candidates or opportunities,
    
    detect, through due diligence, investigation, all actual and potential problems that may exist in the
operations or financial condition of an acquisition candidate,
    
    acquire assets or business operations on commercially acceptable terms,
    
    effectively integrate the operations of any acquired assets or businesses with our existing operations,
 14




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
    
    manage effectively the combined operations of the acquired businesses,
    
    achieve our operating and growth strategies with respect to the acquired assets or businesses,
    
    reduce our overall selling, general, and administrative expenses associated with the acquired assets or businesses, or
    
    comply with the internal control requirements of Section 404 as a result of an acquisition.
  To the extent we are successful in making an acquisition, we may face a number of related risks.
  Subsequent to the consummation of an acquisition, we may be required to take write-downs or
write-offs, restructuring and impairment charges or other charges that could have a significant
negative impact on our financial condition, results of operations and our stock price.
  Risks Related to Our Common Stock
 Our ability to pay dividends on our common stock is limited.
  Like other small-cap companies, the price of our common stock can be volatile due to its
relatively low trading volume, and sales of shares by our directors and officers could cause
decreases in price. Our directors and officers own a significant interest in the Company and could
limit new shareholders influence on corporate decisions.
   15




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The possible issuance of future series of preferred stock could adversely affect the holders of our
common stock.
  Our charter documents and Ohio law, as well as certain utility laws and regulations, may discourage
a third party from attempting to acquire us by means of a tender offer, proxy contest or otherwise,
which could adversely affect the market price of our common shares.
  The value of our common stock may decline significantly if we do not maintain our listing on the
NYSE Amex Equities stock exchange.
  Organization, Structure and Management Risks
 Our credit facilities contain restrictive covenants that may reduce our flexibility, and adversely
affect our business, earnings, cash flow, liquidity and financial condition.
  
    
    requiring us to dedicate a substantial portion of our cash flow from
operations to the payment of principal and interest on our
indebtedness, thereby reducing the availability of cash flow for
working capital, capital expenditures and other business activities,
    
    requiring us to meet certain financial tests, which may affect our
flexibility in planning for, or reacting to, changes in our business
and the industries in which we operate,
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
    
    limiting our ability to sell assets, make investments or acquire assets of, or merge or consolidate with, other companies,
    
    limiting our ability to repurchase or redeem our stock or enter into transactions with our shareholders or affiliates, and
    
    limiting our ability to grant liens, incur additional indebtedness or contingent obligations or obtain additional
financing for working capital, capital expenditures, acquisitions and general corporate and other activities.
  Our primary assets are our operating subsidiaries, and there are limits on our ability to obtain
revenue from those subsidiaries, which may limit our ability to pay dividends to shareholders.
  
    
    We may cause our Montana, Wyoming, North Carolina and Maine operating
subsidiaries to pay a dividend only if the dividend, when combined
with dividends over the previous five years, would not exceed 75% of
their net income over those years,
    
    We may cause NEO, Great Plains and GPL to distribute dividends to us
only if their consolidated net worth, after payment of the dividend,
is no less than $1,815,000 as positively increased by 100% of net
income as of the end of each fiscal quarter and year.
   The Wyoming Public Service Commission may assert jurisdiction over Gas Naturals activities
unexpectedly, which could hinder, delay or prevent us from pursuing acquisitions and other
transactions that are important to our short term and long term financial condition and growth.
  In acquiring our Ohio operations, we guaranteed $20.5 million of their debt, $7.7 million of which
matured and was repaid in November 2010. The remaining debt could limit our flexibility with other
financial covenants and could materially adversely affect our business, earnings, cash flow,
liquidity and financial condition.
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
    
    we may be required to dedicate a substantial portion of our cash flow
from operations to required payments on debt, thereby reducing the
availability of cash flow for working capital, capital expenditures
and other general corporate activities, and
    
    covenants relating to our debt may limit our ability to obtain
additional financing for working capital, payment of dividends,
capital expenditures and other general corporate activities.
   Our performance depends substantially on the performance of our executive officers and other key
personnel and the ability of our management team to fully implement our business strategy.
  We have entered into a limited liability operating agreement with third parties to develop and
operate oil, gas and mineral leasehold estates, which exposes us to the risk associated with oil,
gas and mineral exploration as well as the risks inherent in relying upon third parties in business
ventures and we may enter into similar agreements in the future.
  We have entered into various transactions in which some of our directors have a financial interest,
and stockholders and potential investors in Gas Natural may not value these transactions in the
same manner as our board.
  
 Item 2. Properties.
 Montana and Wyoming
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North Carolina
  Maine
  Ohio and Western Pennsylvania
  
 Item 3. Legal Proceedings.
  
 Item 4. [RESERVED]
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PART II
 
 Item 5. Market for Registrants Common Equity, Related Stockholder Matters, and Issuer
Purchases of Equity Securities.
 Our Common Stock
   Year Ended 12/31/10
    
    High
    
    
    LowFirst Quarter
    
    $
    9.86
    
    
    $
    9.30Second Quarter
    
    $
    11.85
    
    
    $
    9.76Third Quarter
    
    $
    11.95
    
    
    $
    9.86Fourth Quarter
    
    $
    11.21
    
    
    $
    9.63
 Year Ended 12/31/09
    
    High
    
    
    LowFirst Quarter
    
    $
    8.39
    
    
    $
    6.61Second Quarter
    
    $
    8.65
    
    
    $
    7.24Third Quarter
    
    $
    8.55
    
    
    $
    7.74Fourth Quarter
    
    $
    10.61
    
    
    $
    8.12
 Holders of Record
  Dividend Policy
  January 30, 2009
    
    $
    0.040February 27, 2009
    
    $
    0.040March 31, 2009
    
    $
    0.040April 30, 2009
    
    $
    0.045May 29, 2009
    
    $
    0.045July 2, 2009
    
    $
    0.045July 31, 2009
    
    $
    0.045September 4, 2009
    
    $
    0.045September 30, 2009
    
    $
    0.045October 30, 2009
    
    $
    0.045November 30, 2009
    
    $
    0.045December 31, 2009
    
    $
    0.045January 13, 2010
    
    $
    0.045February 10, 2010
    
    $
    0.045March 11, 2010
    
    $
    0.045April 13, 2010
    
    $
    0.045May 12, 2010
    
    $
    0.045June 11, 2010
    
    $
    0.045July 13, 2010
    
    $
    0.045August 11, 2010
    
    $
    0.045September 13, 2010
    
    $
    0.045October 13, 2010
    
    $
    0.045November 10, 2010
    
    $
    0.045December 13, 2010
    
    $
    0.045
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Restrictions on Payment of Dividends
      -
 Performance Graph
  21




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Item 6. Selected Financial Data.
  Years ended December 31,
    
    
    Fiscal years ended June 30,2010
    
    
    2009
    
    
    2008
    
    
    2008
    
    
    2007
    
    
    2006($ in thousands, except per share)
    
    
    
    
    
    
    (unaudited)Summary of OperationsOperating revenues
    
    $
    91,500
    
    
    $
    71,454
    
    
    $
    87,278
    
    
    $
    76,833
    
    
    $
    59,373
    
    
    $
    74,696Operating expenses:Gas and electric purchases
    
    
    54,706
    
    
    
    46,699
    
    
    
    63,506
    
    
    
    56,170
    
    
    
    43,806
    
    
    
    60,398General and administrative
    
    
    17,382
    
    
    
    10,562
    
    
    
    11,777
    
    
    
    10,662
    
    
    
    6,198
    
    
    
    6,389Maintenance
    
    
    1,052
    
    
    
    667
    
    
    
    645
    
    
    
    650
    
    
    
    567
    
    
    
    505Depreciation and amortization
    
    
    4,119
    
    
    
    2,213
    
    
    
    1,999
    
    
    
    1,865
    
    
    
    1,692
    
    
    
    1,672Taxes other than income (1)
    
    
    3,162
    
    
    
    2,250
    
    
    
    2,501
    
    
    
    2,080
    
    
    
    1,697
    
    
    
    1,453Total operating expenses
    
    
    80,421
    
    
    
    62,391
    
    
    
    80,428
    
    
    
    71,427
    
    
    
    53,960
    
    
    
    70,417Operating income
    
    
    11,079
    
    
    
    9,063
    
    
    
    6,850
    
    
    
    5,406
    
    
    
    5,413
    
    
    
    4,279Other income (expense)
    
    
    385
    
    
    
    (976
    )
    
    
    (295
    )
    
    
    316
    
    
    
    241
    
    
    
    391Total interest expense (2)
    
    
    2,178
    
    
    
    1,241
    
    
    
    1,224
    
    
    
    1,077
    
    
    
    2,124
    
    
    
    1,649Income before taxes
    
    
    9,286
    
    
    
    6,846
    
    
    
    5,331
    
    
    
    4,645
    
    
    
    3,530
    
    
    
    3,021Income tax expense (benefit)
    
    
    3,489
    
    
    
    27
    
    
    
    1,985
    
    
    
    1,333
    
    
    
    1,273
    
    
    
    1,109Discontinued operations (net
of tax)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,955
    
    
    
    405Net Income (Loss) before
extraordinary item
    
    
    5,797
    
    
    
    6,819
    
    
    
    3,346
    
    
    
    3,312
    
    
    
    6,212
    
    
    
    2,317Extraordinary gain
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,819
    
    
    
    
    
    
    
    Net Income
    
    $
    5,797
    
    
    $
    6,819
    
    
    $
    3,346
    
    
    $
    10,131
    
    
    $
    6,212
    
    
    $
    2,317Basic earnings per common
share
    
    $
    0.92
    
    
    $
    1.58
    
    
    $
    0.77
    
    
    $
    2.35
    
    
    $
    1.40
    
    
    $
    0.53Diluted earnings per common
share
    
    $
    0.92
    
    
    $
    1.58
    
    
    $
    0.77
    
    
    $
    2.35
    
    
    $
    1.39
    
    
    $
    0.52Dividends per common share
    
    $
    0.56
    
    
    $
    0.55
    
    
    $
    0.46
    
    
    $
    0.47
    
    
    $
    0.34
    
    
    $
    0.11Weighted average common shares
Outstanding  diluted
    
    
    6,300,972
    
    
    
    4,313,098
    
    
    
    4,338,240
    
    
    
    4,316,244
    
    
    
    4,484,073
    
    
    
    4,422,069At Year End:Current assets
    
    $
    41,738
    
    
    $
    25,641
    
    
    $
    31,484
    
    
    $
    16,340
    
    
    $
    18,830
    
    
    $
    23,669Total assets
    
    $
    137,728
    
    
    $
    78,626
    
    
    $
    75,819
    
    
    $
    58,377
    
    
    $
    51,582
    
    
    $
    56,629Current liabilities
    
    $
    38,916
    
    
    $
    27,428
    
    
    $
    30,114
    
    
    $
    11,962
    
    
    $
    8,756
    
    
    $
    10,796Total long-term debt
    
    $
    21,959
    
    
    $
    13,000
    
    
    $
    13,000
    
    
    $
    13,000
    
    
    $
    13,000
    
    
    $
    17,605Total stockholders equity
    
    $
    73,702
    
    
    $
    35,688
    
    
    $
    30,082
    
    
    $
    30,649
    
    
    $
    22,296
    
    
    $
    19,165Total capitalization
    
    $
    95,661
    
    
    $
    48,688
    
    
    $
    43,082
    
    
    $
    43,649
    
    
    $
    35,296
    
    
    $
    36,770
 23




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##### Table of Contents



(1)
    
    Taxes other than income include $259,000 in fiscal 2007 for additional
personal property taxes assessed by the Montana Department of Revenue. The 2008 increase
results from personal property taxes on our acquired companies in Maine and North Carolina(2)
    
    Total interest charges include expenses in fiscal 2007 associated with refinancing
our long-term debt. We expensed $991,000 of debt issue costs related to the refinanced debt. 
 Item 7. Managements Discussion and Analysis of Financial Condition and Results of
Operations.
 Forward-Looking Statements
 Executive Overview
       24




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##### Table of Contents



Critical Accounting Policies and Estimates
  Regulatory Accounting
     .
   25




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##### Table of Contents



Accumulated Provisions for Doubtful Accounts
  Unbilled Revenue and Gas Costs
   Fair Value of Financial Instruments
  Recoverable/Refundable Costs of Gas
  Deferred Tax Asset and Income Tax Accruals
   26




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##### Table of Contents



Goodwill
  Results of Operations
  Earnings
 Year Ended December 31, 2010 Compared with Year Ended December 31, 2009
        27




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##### Table of Contents



NET INCOME BY SERVICE AREA
  Year Ended December 31,($ in thousands)
    
    2010
    
    
    2009Natural Gas OperationsEnergy West Montana (MT)
    
    $
    937
    
    
    $
    1,619Energy West Wyoming (WY)
    
    
    284
    
    
    
    379Frontier Natural Gas (NC)
    
    
    2,350
    
    
    
    1,437Bangor Gas (ME)
    
    
    1,210
    
    
    
    454Orwell Natural Gas (OH)
    
    
    (417
    )
    
    
    Northeast Ohio Natural Gas (OH)
    
    
    1,257
    
    
    
    Brainard Gas Corp. (OH)
    
    
    53
    
    
    
    Natural Gas Operations
    
    $
    5,674
    
    
    $
    3,889Marketing & Production
    
    
    116
    
    
    
    558Pipelines
    
    
    153
    
    
    
    1575,943
    
    
    
    4,604Corporate & Other
    
    
    (146
    )
    
    
    2,215Consolidated Net Income
    
    $
    5,797
    
    
    $
    6,819
 28




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##### Table of Contents



NATURAL GAS OPERATIONS
 Income Statement
 Year Ended December 31,($ in thousands)
    
    2010
    
    
    2009Natural Gas OperationsOperating revenues
    
    $
    83,608
    
    
    $
    58,766Gas Purchased
    
    
    48,877
    
    
    
    37,052Gross Margin
    
    
    34,731
    
    
    
    21,714Operating expenses
    
    
    24,682
    
    
    
    14,663Operating income
    
    
    10,049
    
    
    
    7,051Other income
    
    
    872
    
    
    
    254Income before interest and taxes
    
    
    10,921
    
    
    
    7,305Interest (expense)
    
    
    (2,086
    )
    
    
    (1,135
    )Income before income taxes
    
    
    8,835
    
    
    
    6,170Income tax (expense)
    
    
    (3,161
    )
    
    
    (2,281
    )Net Income
    
    $
    5,674
    
    
    $
    3,889
 Operating Revenues
 Year Ended December 31,($ in thousands)
    
    2010
    
    
    2009Full Service Distribution RevenuesResidential
    
    $
    40,087
    
    
    
    25,209Commercial
    
    
    32,713
    
    
    
    24,721Industrial
    
    
    712
    
    
    
    840Other
    
    
    262
    
    
    
    Total full service distribution
    
    
    73,774
    
    
    
    50,770Transportation
    
    
    8,683
    
    
    
    6,845Bucksport
    
    
    1,151
    
    
    
    1,151Total operating revenues
    
    $
    83,608
    
    
    
    58,766
 Utility Throughput
 Year Ended December 31,(in million cubic feet (MMcf))
    
    2010
    
    
    2009Full Service DistributionResidential
    
    
    4,401
    
    
    
    3,027Commercial
    
    
    3,885
    
    
    
    2,908Industrial
    
    
    129
    
    
    
    189Total full service
    
    
    8,415
    
    
    
    6,124Transportation
    
    
    7,334
    
    
    
    4,510Bucksport
    
    
    14,500
    
    
    
    14,127Total Volumes
    
    
    30,249
    
    
    
    24,761
 29




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##### Table of Contents



Degree Days
 Percent (Warmer) Colder2010 Compared toNormal
    
    
    2010
    
    
    2009
    
    
    Normal
    
    
    2009Great Falls, MT
    
    
    7,540
    
    
    
    7,611
    
    
    
    7,956
    
    
    
    0.94
    %
    
    
    (4.34
    %)Cody, WY
    
    
    6,925
    
    
    
    7,253
    
    
    
    7,672
    
    
    
    4.74
    %
    
    
    (5.46
    %)Bangor, ME
    
    
    7,676
    
    
    
    6,543
    
    
    
    8,046
    
    
    
    (14.76
    %)
    
    
    (18.68
    %)Elkin, NC
    
    
    3,963
    
    
    
    4,101
    
    
    
    3,554
    
    
    
    3.48
    %
    
    
    15.39
    %Youngstown, OH
    
    
    6,536
    
    
    
    5,988
    
    
    
    6,195
    
    
    
    (8.38
    %)
    
    
    (3.34
    %)
 Year Ended December 31, 2010 Compared with Year Ended December 31, 2009
 Revenues and Gross Margin
  1)
    
    We earned approximately $26.1 million in revenues from the Ohio Companies. This is
based on sales volumes of 2,627 MMcf and transportation volumes of 2,479 MMcf. The Ohio
Companies served approximately 24,000 customers at December 31, 2010.2)
    
    Revenue from our Maine and North Carolina markets increased by approximately $3.7
million on a volume increase of 1,325 MMcf in 2010 compared to 2009.3)
    
    Offsetting these is a decrease in revenue due to lower costs of gas passed through to
customers in 2010 compared to 2009 of approximately $5.0 million.
   Earnings
   30




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##### Table of Contents



Marketing and Production Operations (EWR)
 Income Statement
 Year Ended December 31,($ in thousands)
    
    2010
    
    
    2009Energy West ResourcesOperating revenues
    
    $
    7,466
    
    
    $
    12,239Gas Purchased
    
    
    5,829
    
    
    
    9,648Gross Margin
    
    
    1,637
    
    
    
    2,591Operating expenses
    
    
    780
    
    
    
    844Operating income
    
    
    857
    
    
    
    1,747Other income (expense)
    
    
    (635
    )
    
    
    (687
    )Income before interest and taxes
    
    
    222
    
    
    
    1,060Interest (expense)
    
    
    (67
    )
    
    
    (89
    )Income before income taxes
    
    
    155
    
    
    
    971Income tax (expense)
    
    
    (39
    )
    
    
    (413
    )Net Income
    
    $
    116
    
    
    $
    558
 Year Ended December 31, 2010 Compared with Year Ended December 31, 2009
 Revenues and Gross Margin
   Earnings
   31




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##### Table of Contents



Pipeline Operations
 Income Statement
 Year Ended December 31,($ in thousands)
    
    2010
    
    
    2009Pipeline OperationsOperating revenues
    
    $
    427
    
    
    $
    450Gas Purchased
    
    
    
    
    
    
    Gross Margin
    
    
    427
    
    
    
    450Operating expenses
    
    
    230
    
    
    
    177Operating income
    
    
    197
    
    
    
    273Other income
    
    
    
    
    
    
    Income before interest and taxes
    
    
    197
    
    
    
    273Interest (expense)
    
    
    (26
    )
    
    
    (17
    )Income before income taxes
    
    
    171
    
    
    
    256Income tax (expense)
    
    
    (18
    )
    
    
    (99
    )Net Income
    
    $
    153
    
    
    $
    157
 Year Ended December 31, 2010 Compared with Year Ended December 31, 2009
  32




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##### Table of Contents



Corporate and Other Operations
 Income Statement
 Year Ended December 31,($ in thousands)
    
    2010
    
    
    2009Corporate and OtherOperating revenues
    
    $
    
    
    
    $
    Gas Purchased
    
    
    
    
    
    
    Gross Margin
    
    
    
    
    
    
    Operating expenses
    
    
    23
    
    
    
    8Operating income
    
    
    (23
    )
    
    
    (8
    )Other income (expense)
    
    
    147
    
    
    
    (543
    )Income before interest and taxes
    
    
    124
    
    
    
    (551
    )Interest expense
    
    
    
    
    
    
    Income before income taxes
    
    
    124
    
    
    
    (551
    )Income tax benefit (expense)
    
    
    (270
    )
    
    
    2,766Net Income (loss)
    
    $
    (146
    )
    
    $
    2,215
 Year Ended December 31, 2010 Compared with Year Ended December 31, 2009
    Capital Sources and Liquidity
 Sources and Uses of Cash
   33




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##### Table of Contents



For the Year Ended December 31,2010
    
    
    2009Cash provided by Operating Activities
    
    $
    6,727,000
    
    
    $
    16,301,000Cash used in Investing Activities
    
    
    (4,424,000
    )
    
    
    (9,185,000
    )Cash provided by (used in) Financing Activities
    
    
    7,972,000
    
    
    
    (5,429,000
    )Increase in Cash
    
    $
    10,275,000
    
    
    $
    1,687,000
 OPERATING CASH FLOW
  INVESTING CASH FLOW
  Capital Expenditures
   Estimated Capital Expenditures
  34




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##### Table of Contents



Estimated FutureYear Ended December 31,
    
    
    Cash Requirements($ in thousands)
    
    2010
    
    
    2009
    
    
    2011Natural Gas Operations
    
    $
    8,490
    
    
    $
    8,649
    
    
    $
    15,023Marketing and Production
    
    
    
    
    
    
    191
    
    
    
    Pipeline Operations
    
    
    
    
    
    
    
    
    
    
    114Corporate and Other
    
    
    33
    
    
    
    14
    
    
    
    Total Capital Expenditures
    
    $
    8,523
    
    
    $
    8,854
    
    
    $
    15,137
 FINANCING CASH FLOW
       35




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##### Table of Contents



Bank of America Credit Facility
  First
    
    
    Second
    
    
    Third
    
    
    FourthQuarter
    
    
    Quarter
    
    
    Quarter
    
    
    QuarterTwelve Months Ended December 31, 2010Minimum Borrowing
    
    $
    7,798,000
    
    
    $
    9,448,000
    
    
    $
    9,900,000
    
    
    $
    14,600,000Maximum Borrowing
    
    $
    14,650,000
    
    
    $
    14,448,000
    
    
    $
    17,100,000
    
    
    $
    20,450,000Average Borrowing
    
    $
    10,630,000
    
    
    $
    7,431,000
    
    
    $
    11,990,000
    
    
    $
    16,641,000Twelve Months Ended December 31, 2009Minimum borrowing
    
    $
    5,595,000
    
    
    $
    
    
    
    $
    3,600,000
    
    
    $
    9,950,000Maximum borrowing
    
    $
    18,095,000
    
    
    $
    5,045,000
    
    
    $
    10,250,000
    
    
    $
    15,250,000Average borrowing
    
    $
    11,987,000
    
    
    $
    2,002,000
    
    
    $
    7,654,000
    
    
    $
    12,351,000
 Long-term Debt  $13.0 million 6.16% Senior Unsecured Notes
   Citizens Bank Credit Facility and Term Loans
  Long-term Debt  $10.3 million 5.00% Senior Secured Notes 
  36




---



##### Table of Contents



Huntington Bank Credit Facility and Term Loan
  Combined Term Loans and Credit Facilities
     OFF-BALANCE-SHEET ARRANGEMENTS
  NEW ACCOUNTING PRONOUNCEMENTS
 Recently Adopted
 ASU No. 2009-17, Consolidations (Topic 810) Improvements to Financial Reporting by Enterprises
Involved with Variable Interest Entities
  ASU No. 2010-06, Fair Value Measurements and Disclosures (Topic 820) Improving Disclosures
about Fair Value Measurements
  Recently Issued
 ASU No. 2010-28, Intangibles Goodwill and Other (Topic 350) When to Perform Step 2 of the
Goodwill Impairment Test for Reporting Units with Zero or Negative Carrying Amounts
  37




---



##### Table of Contents



ASU No. 2010-29, Business Combinations (Topic 805) Disclosure of Supplementary Pro Forma
Information for Business Combinations
  ASU No. 2011-01, Deferral of the Effective Date of Disclosures about Troubled Debt Restructurings
in Update No. 2010-20
  
 Item 7A. Quantitative and Qualitative Disclosures about Market Risk
  Commodity Price Risk
  Credit Risk
  
 Item 8. Financial Statements and Supplementary Data.
  
 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure.
  
 Item 9A. Controls and Procedures.
 Evaluation of Disclosure Controls and Procedures
 38




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##### Table of Contents



Managements Report on Internal Control over Financial Reporting
    Changes in Internal Control over Financial Reporting
  Attestation Report of Independent Registered Public Accounting Firm
  
 Item 9B. Other Information
  
 PART III
 
 Item 10. Directors, Executive Officers and Corporate Governance.
  
 Item 11. Executive Compensation.
  39




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##### Table of Contents



Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters.
  
 Item 13. Certain Relationships and Related Transactions and Director Independence.
  
 Item 14. Principal Accountant Fees and Services.
  
 PART IV
 
 Item 15. Exhibits and Financial Statement Schedules.
 Financial Statements:
 PageReport of Independent Registered Public Accounting Firm  Hein & Associates LLP
    
    
    F-2Consolidated Balance Sheets
    
    
    F-3Consolidated Statements of Income
    
    
    F-5Consolidated Statements of Stockholders Equity and Comprehensive Income
    
    
    F-6Consolidated Statements of Cash Flows
    
    
    F-7Notes to Consolidated Financial Statements
    
    
    F-9Schedule II  Valuation and Qualifying Accounts
 Exhibit Index.
 2.1
    
    Agreement and Plan of Merger, dated June 29, 2009, by and among
Energy West, Incorporated, Various Acquisition Subsidiaries,
Lightning Pipeline Co., Inc., Great Plains Natural Gas Company,
Brainard Gas Corp., Richard M. Osborne, Trustee, Rebecca Howell,
Stephen G. Rigo, Marty Whelan and Thomas J. Smith, incorporated by
reference to Exhibit 10.2 to Gas Natural Inc.s current report on
Form 8-K dated June 26, 2009 as filed with the Securities and
Exchange Commission2.2
    
    Agreement and Plan of Merger, dated June 29, 2009, by and among
Energy West, Incorporated, an Acquisition Subsidiary, Great Plains
Land Development Company, LTD. and Richard M. Osborne, Trustee,
incorporated by reference to Exhibit 10.3 to Gas Natural Inc.s
current report on Form 8-K as filed July 2, 2009 with the
Securities and Exchange Commission2.3
    
    Agreement and Plan of Merger by and among Energy Inc., Energy West,
Incorporated and Energy West Merger Sub, Inc., dated August 3,
2009, incorporated by reference to Exhibit 2.1 to Gas Natural
Inc.s current report on Form 8-K as filed August 4, 2009 with the
Securities and Exchange Commission2.4
    
    Assignment and Assumption Agreement, dated December 30, 2009, by
and between Energy West, Incorporated and Gas Natural Inc., filed
as Exhibit 2.3 to the Registrants Current Report on Form 8-K dated
January 5, 2010 and incorporated herein by reference2.5
    
    Assignment and Assumption Agreement, dated December 30, 2009, by
and between Energy West, Incorporated and Gas Natural Inc., filed
as Exhibit 2.4 to the Registrants Current Report on Form 8-K dated
January 5, 2010 and incorporated herein by reference2.6
    
    First Amendment to Agreement and Plan of Merger, dated as of
January 5, 2010, by and among Richard M. Osborne, Trustee, Rebecca
Howell, Stephen G. Rigo, Marty Whelan and Thomas J. Smith,
Lightning Pipeline Co., Inc., Great Plains Natural Gas Company, and
Brainard Gas Corp., Lightning Pipeline Acquisition Inc., Great
Plains Acquisition Inc. and Brainard Acquisition Inc. and Gas
Natural Inc., filed as Exhibit 2.5 to the Registrants Current
Report on Form 8-K dated January 5, 2010 and incorporated herein by
reference2.7
    
    First Amendment to Agreement and Plan of Merger, dated as of
January 5, 2010, by and among Richard M. Osborne, Trustee, Great
Plains Land Development Company, LTD. and GPL Acquisition LLC and
Gas Natural Inc., filed as Exhibit 2.6 to the Registrants Current
Report on Form 8-K dated January 5, 2010 and incorporated herein by
reference3.1(a)
    
    Restated Articles of Incorporation. Filed as Exhibit 3.1 to
Amendment No. 1 to the Registrants Annual Report on Form 10-K/A
for the year ended June 30, 1996 and incorporated herein by
reference3.1(b)
    
    Articles of Amendment to the Articles of Incorporation dated
January 28, 2008. Filed as Exhibit 3.1 to the Registrants Current
Report on Form 8-K dated February 1, 2008 and incorporated herein
by reference3.1(c)
    
    Articles of Amendment to the Articles of Incorporation dated
December 5, 2007. Filed as Exhibit 3.1(e) to the Registrants
Quarterly Report on Form 10-Q for the quarter ended December 31,
2007 and incorporated herein by reference3.1(d)
    
    Articles of Amendment to the Articles of Incorporation dated May
29, 2007. Filed as Exhibit 3.1 to the Registrants Current Report
on Form 8-K, filed on June 4, 2007, and incorporated herein by
reference3.2
    
    Amended and Restated Bylaws. Filed as Exhibit 3.2 to the
Registrants Current Report on Form 8-K on March 5, 2004 and
incorporated herein by reference3.2(a)
    
    Amendment No. 3 to Amended and Restated Bylaws dated August 12,
2008. Filed as Exhibit 3.1 to the Registrants Current Report on
Form 8-K dated August 12, 2008 and incorporated herein by reference
 40




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##### Table of Contents



3.2(b)
    
    Amendment No. 2 to Amended and Restated Bylaws dated April 10,
2008. Filed as Exhibit 3.1 to the Registrants Current Report on
Form 8-K dated April 10, 2008 and incorporated herein by reference3.2(c)
    
    Amendment No. 1 to Amended and Restated Bylaws dated November 14,
2007. Filed as Exhibit 3.1 to the Registrants Current Report on
Form 8-K dated November 14, 2007 and incorporated herein by
reference10.1
    
    Note Purchase Agreement dated June 29, 2007, between the Registrant
and various Purchasers relating to 6.16% Senior Unsecured Notes due
June 29, 2017. Filed as Exhibit 10.4 to the Registrants Current
Report on Form 8-K, filed July 5, 2007, and incorporated herein by
reference10.2
    
    Credit Agreement dated as of June 29, 2007, by and among the
Registrant and various financial institutions and LaSalle Bank
National Association. Filed as Exhibit 10.5 to the Registrants
Current Report on Form 8-K, filed July 5, 2007, and incorporated
herein by reference10.3
    
    Amendment dated October 22, 2007 to the Credit Agreement among the
Registrant, various financial institutions and LaSalle Bank
National Association, as agent. Filed as Exhibit 10.1 to the
Registrants Current Report on Form 8-K dated October 22, 2007 and
incorporated herein by reference10.4
    
    Gas Natural Inc. 2002 Stock Option Plan. Filed as Appendix A to the
Registrants Proxy Statement on Schedule 14A, filed on October 30,
2002, and incorporated herein by reference10.5
    
    First Amendment to Energy West Incorporated 2002 Stock Option Plan,
filed as Exhibit 10.8 to the Registrants Transition Report on
10-K/T for the transition period ended December 31, 2008 and
incorporated herein by reference10.6
    
    Employee Stock Ownership Plan Trust Agreement. Filed as Exhibit
10.2 to Registration Statement on Form S-1 (File No. 33-1672) and
incorporated herein by reference10.7
    
    Management Incentive Plan. Filed as Exhibit 10.12 to the
Registrants Annual Report on Form 10-K/A for the year ended June
30, 1996, filed on July 8, 1997, and incorporated herein by
reference10.8
    
    Energy West Senior Management Incentive Plan. Filed as Exhibit
10.19 to the Registrants Annual Report on Form 10-K for the year
ended June 30, 2002, filed on September 30, 2002, and incorporated
herein by reference10.9
    
    Energy West Incorporated Deferred Compensation Plan for Directors.
Filed as Exhibit 10.20 to the Registrants Annual Report on Form
10-K for the year ended June 30, 2002, filed on September 30, 2002,
and incorporated herein by reference10.10
    
    Amended and Restated Energy West Incorporated Deferred Compensation
Plan for Directors, filed as Exhibit 10.13 to the Registrants
Transition Report on 10-K/T for the transition period ended
December 31, 2008 and incorporated herein by reference10.11
    
    Lease Agreement dated February 25, 2008 between OsAir, Inc. and
Energy West, Incorporated. Filed as Exhibit 10.1 to the
Registrants Current Report on Form 8-K dated February 25, 2008 and
incorporated herein by reference10.12
    
    Natural Gas Transportation Service Agreement dated as of July 1,
2008 between Orwell-Trumbull Pipeline Co., LLC, Orwell Natural Gas
Company and Brainard Gas Corp. Filed as Exhibit 10.26 to the
Registrants Annual Report on 10-K for the year ended June 30, 2008
and incorporated herein by reference10.13
    
    Transportation Service Agreement dated as of July 1, 2008 between
Cobra Pipeline Co., Ltd., Northeast Ohio Natural Gas Company,
Orwell Natural Gas Company and Brainard Gas Corp. Filed as Exhibit
10.27 to the Registrants Annual Report on 10-K for the year ended
June 30, 2008 and incorporated herein by reference
 41




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##### Table of Contents



10.14
    
    First Amendment dated July 1, 2008 to the Orwell-Trumbull Pipeline
Co., LLC Operations Agreement between Orwell Natural Gas Company
and Orwell-Trumbull Pipeline Co., LLC. Filed as Exhibit 10.28 to
the Registrants Annual Report on 10-K for the year ended June 30,
2008 and incorporated herein by reference10.15
    
    Orwell-Trumbull Pipeline Co., LLC Operations Agreement dated
January 1, 2008 between Orwell Natural Gas Company and
Orwell-Trumbull Pipeline Co., LLC. Filed as Exhibit 10.29 to the
Registrants Annual Report on 10-K for the year ended June 30, 2008
and incorporated herein by reference10.16
    
    Triple Net Lease Agreement dated as of July 1, 2008 between Station
Street Partners, LLC and Orwell Natural Gas Company. Filed as
Exhibit 10.30 to the Registrants Annual Report on 10-K for the
year ended June 30, 2008 and incorporated herein by reference10.17
    
    Triple Net Lease Agreement dated as of July 1, 2008 between OsAir,
Inc. and Orwell Natural Gas Company. Filed as Exhibit 10.31 to the
Registrants Annual Report on 10-K for the year ended June 30, 2008
and incorporated herein by reference10.18
    
    Triple Net Lease Agreement dated as of July 1, 2008 between Richard
M. Osborne, Trustee and Orwell Natural Gas Company. Filed as
Exhibit 10.32 to the Registrants Annual Report on 10-K for the
year ended June 30, 2008 and incorporated herein by reference10.19
    
    Triple Net Lease Agreement dated as of July 1, 2008 between OsAir,
Inc. and Northeast Ohio Natural Gas Company. Filed as Exhibit 10.33
to the Registrants Annual Report on 10-K for the year ended June
30, 2008 and incorporated herein by reference10.20
    
    Employment Agreement dated August 25, 2006 between Gas Natural Inc.
and Kevin J. Degenstein, filed as Exhibit 10.1 to the Registrants
Current Report on Form 8-K dated September 18, 2006 and
incorporated herein by reference10.21
    
    First Amendment to Employment Agreement dated as of December 31,
2008, between Gas Natural Inc. and Kevin J. Degenstein, filed as
Exhibit 10.39 to the Registrants Transition Report on 10-K/T for
the transition period ended December 31, 2008 and incorporated
herein by reference10.22
    
    Employment Agreement dated April 13, 2007 between Gas Natural Inc.
and David C. Shipley, filed as Exhibit 10.40 to the Registrants
Transition Report on 10-K/T for the transition period ended
December 31, 2008 and incorporated herein by reference10.23
    
    Asset Management Agreement, dated January 3, 2010, by and between
Orwell Natural Gas Company and John D. Oil and Gas Marketing
Company, LLC, filed as Exhibit 10.1 to the Registrants Current
Report on Form 8-K dated January 5, 2010 and incorporated herein by
reference10.24
    
    Asset Management Agreement, dated January 3, 2010, by and between
Northeast Ohio Natural Gas and John D. Oil and Gas Marketing
Company, LLC, filed as Exhibit 10.2 to the Registrants Current
Report on Form 8-K dated January 5, 2010 and incorporated herein by
reference10.25
    
    Demand Promissory Note, dated December 1, 2008, to Richard M.
Osborne, Trustee from Lightning Pipeline Company, Inc.,
incorporated by reference to Exhibit 10.8 to Gas Natural Inc.s
current report on Form 8-K as filed July 2, 2009 with the
Securities and Exchange Commission10.26
    
    Amended and Restated Promissory Note, dated January 3, 2010, to
Richard M. Osborne, Trustee from Lightning Pipeline Company, Inc.,
filed as Exhibit 10.5(a) to the Registrants Current Report on Form
8-K dated January 5, 2010 and incorporated herein by reference10.27
    
    Demand Cognovit Note, dated August 6, 2008, to Richard M. Osborne
from Brainard Gas Corp., filed as Exhibit 10.5(b) to the
Registrants Current Report on Form 8-K dated January 5, 2010 and
incorporated herein by reference
 42




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##### Table of Contents



10.28
    
    Electronic Metering Service and Operation Agreement, as of April
15, 2009, by and between Orwell Trumbull Pipeline, LTD. and Orwell
Natural Gas Co., incorporated by reference to Exhibit 10.4 to Gas
Natural Inc.s current report on Form 8-K as filed July 2, 2009
with the Securities and Exchange Commission10.20
    
    Electronic Metering Service and Operation Agreement, as of April
15, 2009, by and between COBRA Pipeline Company, LTD. and Brainard
Gas Corporation, incorporated by reference to Exhibit 10.5 to Gas
Natural Inc.s current report on Form 8-K as filed July 2, 2009
with the Securities and Exchange Commission10.30
    
    Electronic Metering Service and Operation Agreement, as of April
15, 2009, by and between COBRA Pipeline Company, LTD. and Northeast
Ohio Natural Gas Corporation, Incorporated by reference to Exhibit
10.6 to Gas Natural Inc.s current report on Form 8-K as filed July
2, 2009 with the Securities and Exchange Commission10.31
    
    Electronic Metering Service and Operation Agreement, as of April
15, 2009, by and between COBRA Pipeline Company, LTD. and Orwell
Natural Gas Co., Incorporated by reference to Exhibit 10.7 to Gas
Natural Inc.s current report on Form 8-K as filed July 2, 2009
with the Securities and Exchange Commission10.32
    
    Guaranty, dated July 3, 2008, by Great Plains Natural Gas Company
in favor of Citizens Bank with respect to Northeast Ohio Natural
Gas Corp. as borrower, filed as Exhibit 10.24(a) to the
Registrants Current Report on Form 8-K dated January 5, 2010 and
incorporated herein by reference10.33
    
    Guaranty, dated July 3, 2008, by Richard M. Osborne, individually,
in favor of Citizens Bank with respect to Northeast Ohio Natural
Gas Corp. as borrower, filed as Exhibit 10.24(b) to the
Registrants Current Report on Form 8-K dated January 5, 2010 and
incorporated herein by reference10.34
    
    Guaranty, dated July 3, 2008, by Richard M. Osborne, Trustee UTA
January 13, 1995, in favor of Citizens Bank with respect to
Northeast Ohio Natural Gas Corp. as borrower, filed as Exhibit
10.24(c) to the Registrants Current Report on Form 8-K dated
January 5, 2010 and incorporated herein by reference10.35
    
    Credit Agreement, dated July 3, 2008, by and between Great Plains
Natural Gas Company, as borrower, and Citizens Bank, as lender,
filed as Exhibit 10.25 to the Registrants Current Report on Form
8-K dated January 5, 2010 and incorporated herein by reference10.36
    
    Term Note, dated July 3, 2008, by Great Plains Natural Gas Company,
as maker, to Citizens Bank, as holder, filed as Exhibit 10.26 to
the Registrants Current Report on Form 8-K dated January 5, 2010
and incorporated herein by reference10.37
    
    Security Agreement, dated July 3, 2008, by Great Plains Natural Gas
Company in favor of Citizens Bank, filed as Exhibit 10.27 to the
Registrants Current Report on Form 8-K dated January 5, 2010 and
incorporated herein by reference10.38
    
    Guaranty, dated July 3, 2008, by Richard M. Osborne, individually,
in favor of Citizens Bank with respect to Great Plains Natural Gas
Company as borrower, filed as Exhibit 10.28(a) to the Registrants
Current Report on Form 8-K dated January 5, 2010 and incorporated
herein by reference10.39
    
    Guaranty, dated July 3, 2008, by Richard M. Osborne, Trustee UTA
January 13, 1995, in favor of Citizens Bank with respect to Great
Plains Natural Gas Company as borrower, filed as Exhibit 10.28(b)
to the Registrants Current Report on Form 8-K dated January 5,
2010 and incorporated herein by reference10.40
    
    Credit Agreement, dated July 3, 2008, by and between Great Plains
Land Development Co., LTD., as borrower and Citizens Bank, N.A., as
lender, filed as Exhibit 10.29 to the Registrants Current Report
on Form 8-K dated January 5, 2010 and incorporated herein by
reference
 43




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##### Table of Contents



10.41
    
    Term Note, dated July 3, 2008, by Great Plains Land Development
Co., LTD., as maker, to Citizens Bank, N.A. as holder, filed as
Exhibit 10.30 to the Registrants Current Report on Form 8-K dated
January 5, 2010 and incorporated herein by reference10.42
    
    Security Agreement, dated July 3, 2008, by Great Plains Land
Development Co., LTD. in favor of Citizens Bank, filed as Exhibit
10.31 to the Registrants Current Report on Form 8-K dated January
5, 2010 and incorporated herein by reference10.43
    
    Guaranty, dated July 3, 2008, by Great Plains Natural Gas Company
in favor of Citizens Bank with respect to Great Plains Land
Development Co., LTD. as borrower, filed as Exhibit 10.32(a) to the
Registrants Current Report on Form 8-K dated January 5, 2010 and
incorporated herein by reference10.44
    
    Guaranty, dated July 3, 2008, by Richard M. Osborne, individually,
in favor of Citizens Bank with respect to Great Plains Land
Development Co., LTD. as borrower, filed as Exhibit 10.32(b) to the
Registrants Current Report on Form 8-K dated January 5, 2010 and
incorporated herein by reference10.45
    
    Guaranty, dated July 3, 2008, by Richard M. Osborne, Trustee UTA
January 13, 1995, in favor of Citizens Bank with respect to Great
Plains Land Development Co., LTD. as borrower, filed as Exhibit
10.32(c) to the Registrants Current Report on Form 8-K dated
January 5, 2010 and incorporated herein by reference10.46
    
    Loan Modification Agreement, effective as of December 1, 2009, by
and among Northeast Ohio Natural Gas Corp., as borrower, and
Richard M. Osborne, individually, Richard M. Osborne, Trustee UTA
January 13, 1995, and Great Plains Natural Gas Company, each as
guarantors, and Citizens Bank, filed as Exhibit 10.33 to the
Registrants Current Report on Form 8-K dated January 5, 2010 and
incorporated herein by reference10.47
    
    Loan Modification Agreement, effective as of December 1, 2009, by
and among Great Plains Natural Gas Company, as borrower, and
Richard M. Osborne, individually, and Richard M. Osborne, Trustee
UTA January 13, 1995, each as guarantors, and Citizens Bank, filed
as Exhibit 10.34 to the Registrants Current Report on Form 8-K
dated January 5, 2010 and incorporated herein by reference10.48
    
    Loan Modification Agreement, effective as of December 1, 2009, by
and among Great Plains Land Development Co., LTD., as borrower, and
Richard M. Osborne, individually, Richard M. Osborne, Trustee UTA
January 13, 1995, and Great Plains Natural Gas Company, each as
guarantors, and Citizens Bank, filed as Exhibit 10.35 to the
Registrants Current Report on Form 8-K dated January 5, 2010 and
incorporated herein by reference10.49
    
    Guaranty, dated January 5, 2010, by Gas Natural Inc. in favor of
Citizens Bank with respect to Northeast Ohio Natural Gas Corp. as
borrower, filed as Exhibit 10.36 to the Registrants Current Report
on Form 8-K dated January 5, 2010 and incorporated herein by
reference10.50
    
    Guaranty, dated January 5, 2010, by Gas Natural Inc. in favor of
Citizens Bank with respect to Great Plains Natural Gas Company as
borrower, filed as Exhibit 10.37 to the Registrants Current Report
on Form 8-K dated January 5, 2010 and incorporated herein by
reference10.51
    
    Guaranty, dated January 5, 2010, by Gas Natural Inc. in favor of
Citizens Bank with respect to Great Plains Land Development Co.,
LTD. as borrower, filed as Exhibit 10.38 to the Registrants
Current Report on Form 8-K dated January 5, 2010 and incorporated
herein by reference10.52*
    
    Base Contract for Sale and Purchase of Natural Gas, dated February
23, 2011, between John D. Oil & Gas Marketing, LLC and Gas Natural
Service Company, LLC (relating to interstate gas sales)10.53*
    
    Brokerage Contract for Interstate Natural Gas Sales, dated February
23, 2011, between Gas Natural Service Company, LLC and John D. Oil
& Gas Marketing, LLC (relating to interstate gas sales)
 44




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##### Table of Contents



10.54*
    
    Base Contract for Sale and Purchase of Natural Gas, dated February
23, 2011, between John D. Oil & Gas Marketing, LLC and Gas Natural
Service Company, LLC (relating to intrastate gas sales)10.55*
    
    Intrastate Natural Gas Sales Contract, dated February 23, 2011,
between Gas Natural Service Company, LLC and John D. Oil & Gas
Marketing, LLC10.56*
    
    Asset Management Agreement, dated February 24, 2011, between John
D. Oil and Gas Marketing, LLC and Gas Natural Service Company10.57*
    
    Asset Management Agreement, dated February 24, 2011, between John
D. Oil and Gas Marketing, LLC and Gas Natural Service Company
(relating to gas supplied to Northeast Ohio Natural Gas Corp.)10.58*
    
    Asset Management Agreement, dated February 24, 2011, between John
D. Oil and Gas Marketing, LLC and Gas Natural Service Company
(relating to gas supplied to Orwell Natural Gas Company)10.59*
    
    Gas Sales Agreement (ID: JOHND2008 -
Intrastate Sales - LDCs #1.1), dated July 1, 2008, as amended,
between John
D. Oil and Gas Marketing Co., LLC, Northeast Ohio Natural Gas Corp.,
Orwell Natural Gas Company and Brainard Gas Corp.10.60
    
    Credit Agreement, dated July 3, 2008, by and between Northeast
Ohio Natural Gas Corp., as borrower and Citizens Bank, as
lender, filed as Exhibit 10.20 to the Registrants Current
Report on Form 8-K dated January 5, 2010 and incorporated
herein by reference10.61
    
    Term Note, dated July 3, 2008, by Northeast Ohio Natural Gas
Corp., as maker, to Citizens Bank, as holder, filed as Exhibit
10.22 to the Registrants Current Report on Form 8-K dated
January 5, 2010 and incorporated herein by reference10.62
    
    Security Agreement, dated July 3, 2008, by Northeast Ohio
Natural Gas Corp. in favor of Citizens Bank, filed as Exhibit
10.23 to the Registrants Current Report on Form 8-K dated
January 5, 2010 and incorporated herein by reference14
    
    Code of Business Conduct, filed as Exhibit 14 to the Registrants
Annual Report on 10-K for the year ended June 30, 2006 and
incorporated herein by reference21*
    
    Company Subsidiaries23.1*
    
    Consent of Hein & Associates LLP31*
    
    Certifications pursuant to SEC Release No. 33-8238, as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 200232*
    
    Certifications pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 45




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##### Table of Contents




    
    Management agreement or compensatory plan or arrangement*
    
    Filed herewith (c)
    
    Financial Statement Schedules:
 
 Schedule II
 Valuation and Qualifying Accounts  Gas Natural Inc.  December 31, 2010
 Balance at
    
    
    
    
    
    
    Charged to
    
    
    Write-Offs
    
    
    BalanceBeginning
    
    
    Balances
    
    
    Costs &
    
    
    Net of
    
    
    at End ofDescription
    
    of Period
    
    
    Acquired
    
    
    Expenses
    
    
    Recoveries
    
    
    PeriodAllowance for bad debtsYear Ended December 31, 2009
    
    $
    207,942
    
    
    
    
    
    
    $
    139,512
    
    
    $
    (114,122
    )
    
    $
    233,332Year Ended December 31, 2010
    
    $
    233,332
    
    
    $
    103,169
    
    
    $
    484,824
    
    
    $
    (466,609
    )
    
    $
    354,719
  46




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##### Table of Contents



SIGNATURES
  GAS NATURAL INC./s/ Richard M. OsborneRichard M. OsborneChief Executive Officer
(principal executive officer)    /s/ Richard M. Osborne

Richard M. Osborne
    
    Chief Executive Officer
(Principal Executive Officer)
    
    April 4, 2011/s/ Thomas J. Smith

Thomas J. Smith
    
    Chief Financial Officer
(Principal Financial Officer
and Principal Accounting
Officer)
    
    April 4, 2011/s/ W.E. Argo

W.E. Argo
    
    Director
    
    April 4, 2011/s/ Nicholas U. Fedeli

Nicholas U. Fedeli
    
    Director
    
    April 4, 2011/s/ John R. Male

John R. Male
    
    Director
    
    April 4, 2011/s/ Michael T. Victor

Michael T. Victor
    
    Director
    
    April 4, 2011/s/ Wade F. Brooksby

Wade F. Brooksby
    
    Director
    
    April 4, 2011/s/ Gregory J. Osborne

Gregory J. Osborne
    
    Director
    
    April 4, 2011
 47




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##### Table of Contents



CONSOLIDATED FINANCIAL STATEMENTS OF
GAS NATURAL INC. AND SUBSIDIARIES
 TABLE OF CONTENTS
 PageReport of Independent Registered Public Accounting Firm
    
    
    F-2Consolidated Balance Sheets
    
    
    F-3Consolidated Statements of Income
    
    
    F-5Consolidated Statements of Changes in Stockholders Equity and Comprehensive Income
    
    
    F-6Consolidated Statements of Cash Flows
    
    
    F-7Notes to Consolidated Financial Statements
    
    
    F-9




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##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
    HEIN & ASSOCIATES LLP
 
 F-2




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##### Table of Contents



Gas Natural Inc. and Subsidiaries
 
 Consolidated Balance Sheets
 December 31,
    
    
    December 31,2010
    
    
    2009ASSETSCURRENT ASSETSCash and cash equivalents
    
    $
    13,026,585
    
    
    $
    2,752,168Marketable securities
    
    
    274,950
    
    
    
    4,411,171Accounts receivableTrade, less
allowance for doubtful accounts of $354,719 and $233,332,
respectively
    
    
    9,610,738
    
    
    
    7,579,974Related party
    
    
    542,486Unbilled gas
    
    
    5,724,346
    
    
    
    2,869,826Note receivable-related parties-current portion
    
    
    9,565
    
    
    
    InventoryNatural gas and propane
    
    
    5,876,710
    
    
    
    5,251,942Materials and supplies
    
    
    1,414,367
    
    
    
    1,018,673Prepaid income taxes
    
    
    1,601,798
    
    
    
    Prepayments and other
    
    
    912,959
    
    
    
    552,641Recoverable cost of gas purchases
    
    
    2,628,824
    
    
    
    641,755Deferred tax asset
    
    
    114,362
    
    
    
    562,936Total current assets
    
    
    41,737,690
    
    
    
    25,641,086PROPERTY, PLANT AND EQUIPMENT, net
    
    
    76,134,401
    
    
    
    41,203,668OTHER ASSETSNotes receivable  related parties, less current portion
    
    
    45,665
    
    
    
    Deferred tax assets, less current portion
    
    
    1,804,264
    
    
    
    7,550,970Deferred charges
    
    
    1,875,357
    
    
    
    2,094,468Goodwill
    
    
    14,607,952
    
    
    
    1,056,771Customer relationships
    
    
    662,167
    
    
    
    Investment in unconsolidated affiliate
    
    
    640,216
    
    
    
    784,363Other
    
    
    220,224
    
    
    
    294,356Total other assets
    
    
    19,855,845
    
    
    
    11,780,928TOTAL ASSETS
    
    $
    137,727,936
    
    
    $
    78,625,682
  F-3




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##### Table of Contents



Gas Natural Inc. and Subsidiaries
Consolidated Balance Sheets
 December 31,
    
    
    December 31,2010
    
    
    2009LIABILITIES AND STOCKHOLDERS EQUITYCURRENT LIABILITIESChecks in excess of amounts on deposit
    
    
    532,145
    
    
    
    663,777Line of credit
    
    
    18,149,999
    
    
    
    14,650,000Accounts payableTrade
    
    
    9,200,297
    
    
    
    5,530,645Related
party accounts payable
    
    
    417,543
    
    
    
    Notes payable, current portion
    
    
    910,917
    
    
    
    1,265Notes payable  related parties, current portion
    
    
    49,361
    
    
    
    Accrued
income taxes
    
    
    
    
    
    
    534,710Accrued and other current liabilities
    
    
    8,039,612
    
    
    
    4,594,883Accrued liabilities, related parties
    
    
    413,399
    
    
    
    Over-recovered gas purchases
    
    
    1,203,191
    
    
    
    1,452,580Total current liabilities
    
    
    38,916,464
    
    
    
    27,427,860LONG-TERM LIABILITIESDeferred investment tax credits
    
    
    197,441
    
    
    
    218,503Notes payable, less current portion
    
    
    21,958,616
    
    
    
    13,003,416Other long-term liabilities
    
    
    2,953,913
    
    
    
    2,288,095Total long-term liabilities
    
    
    25,109,970
    
    
    
    15,510,014Total liabilities
    
    
    64,026,434
    
    
    
    42,937,874COMMITMENTS AND CONTINGENCIES (NOTE 15)
    
    
    
    
    
    
    STOCKHOLDERS EQUITYPreferred stock; $.15 par value, 1,500,000 shares
authorized, no shares outstanding
    
    
    
    
    
    
    Common stock; $.15 par value, 15,000,000 shares
authorized, 8,149,801 and 4,361,869 shares outstanding, respectively
    
    
    1,222,470
    
    
    
    654,280Capital in excess of par value
    
    
    41,910,067
    
    
    
    6,514,851Capital in excess of par value  non-controlling interest
    
    
    
    
    
    
    100,989Accumulated other comprehensive income
    
    
    46,590
    
    
    
    146,701Retained earnings
    
    
    30,522,375
    
    
    
    28,270,987Total stockholders equity
    
    
    73,701,502
    
    
    
    35,687,808TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
    
    $
    137,727,936
    
    
    $
    78,625,682
  F-4




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##### Table of Contents



Gas Natural Inc. and Subsidiaries
 
 Consolidated Statements of Income
 For the Year Ended December 31,2010
    
    
    2009REVENUESNatural gas operations
    
    $
    83,607,356
    
    
    $
    58,765,618Marketing and production
    
    
    7,466,057
    
    
    
    12,238,906Pipeline operations
    
    
    426,644
    
    
    
    449,757Total revenues
    
    
    91,500,057
    
    
    
    71,454,281COST OF SALESGas purchased
    
    
    48,876,837
    
    
    
    37,051,852Marketing and production
    
    
    5,829,103
    
    
    
    9,647,693Total cost of sales
    
    
    54,705,940
    
    
    
    46,699,545GROSS MARGIN
    
    
    36,794,117
    
    
    
    24,754,736GENERAL AND ADMINISTRATIVE EXPENSESDistribution, general, and administrative
    
    
    17,381,468
    
    
    
    10,562,069Maintenance
    
    
    1,051,766
    
    
    
    666,477Depreciation and amortization
    
    
    4,119,381
    
    
    
    2,212,553Taxes other than income
    
    
    3,162,200
    
    
    
    2,250,298Total general and administrative expenses
    
    
    25,714,815
    
    
    
    15,691,397INCOME FROM OPERATIONS
    
    
    11,079,302
    
    
    
    9,063,339LOSS FROM INVESTMENT IN UNCONSOLIDATED AFFILIATE
    
    
    (193,951
    )
    
    
    (686,771
    )OTHER INCOME (EXPENSE)
    
    
    578,368
    
    
    
    (289,563
    )INTEREST (EXPENSE)
    
    
    (2,178,222
    )
    
    
    (1,241,226
    )INCOME FROM OPERATIONS BEFORE INCOME TAXES
    
    
    9,285,497
    
    
    
    6,845,779INCOME TAX EXPENSE
    
    
    3,488,996
    
    
    
    27,242NET INCOME
    
    $
    5,796,501
    
    
    $
    6,818,537EARNINGS PER SHARE  BASIC
    
    $
    0.92
    
    
    $
    1.58EARNINGS PER SHARE  DILUTED
    
    $
    0.92
    
    
    $
    1.58DIVIDENDS DECLARED PER SHARE
    
    $
    0.56
    
    
    $
    0.55WEIGHTED AVERAGE SHARES OUTSTANDING  BASIC
    
    
    6,292,717
    
    
    
    4,309,852WEIGHTED AVERAGE SHARES OUTSTANDING  DILUTED
    
    
    6,300,972
    
    
    
    4,313,098
 F-5




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##### Table of Contents



Gas Natural Inc. and Subsidiaries
 
 Consolidated Statements of Changes in Stockholders Equity and Comprehensive Income
 OtherCapital In
    
    
    Compre -
    
    
    Non-Common
    
    
    Treasury
    
    
    Excess Of
    
    
    hensive
    
    
    Controlling
    
    
    RetainedShares
    
    
    Stock
    
    
    Shares
    
    
    Stock
    
    
    Par Value
    
    
    Income (Loss)
    
    
    Interest
    
    
    Earnings
    
    
    TotalBALANCE AT DECEMBER 31, 2008
    
    
    4,296,603
    
    
    $
    652,503
    
    
    
    53,416
    
    
    $
    (8,012
    )
    
    $
    5,926,028
    
    
    $
    (319,147
    )
    
    $
    
    
    
    $
    23,830,766
    
    
    $
    30,082,138Comprehensive Income:Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,818,537
    
    
    
    6,818,537Net unrealized gains on available for sale
securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    465,848
    
    
    
    
    
    
    
    
    
    
    
    465,848Total Comprehensive Income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,284,385Stock based compensation
    
    
    8,366
    
    
    
    1,255
    
    
    
    
    
    
    
    
    
    
    
    98,345
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    99,600Reissue treasury stock
    
    
    53,416
    
    
    
    
    
    
    
    (53,416
    )
    
    
    8,012
    
    
    
    (8,012
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Cut Bank acquisition
    
    
    3,484
    
    
    
    522
    
    
    
    
    
    
    
    
    
    
    
    498,490
    
    
    
    
    
    
    
    100,989
    
    
    
    
    
    
    
    600,001Dividends declared
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,378,316
    )
    
    
    (2,378,316
    )BALANCE AT DECEMBER 31, 2009
    
    
    4,361,869
    
    
    
    654,280
    
    
    
    
    
    
    
    
    
    
    
    6,514,851
    
    
    
    146,701
    
    
    
    100,989
    
    
    
    28,270,987
    
    
    
    35,687,808Comprehensive Income:Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,796,501
    
    
    
    5,796,501Net unrealized losses on available for
sale securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (100,111
    )
    
    
    
    
    
    
    
    
    
    
    (100,111
    )Total Comprehensive Income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,696,390Stock based compensation
    
    
    5,624
    
    
    
    844
    
    
    
    
    
    
    
    
    
    
    
    82,492
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    83,336Equity Offering, net of offering costs of $598,014
    
    
    2,075,000
    
    
    
    311,250
    
    
    
    
    
    
    
    
    
    
    
    18,495,736
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    18,806,986Acquisition of Ohio Companies
    
    
    1,707,308
    
    
    
    256,096
    
    
    
    
    
    
    
    
    
    
    
    16,816,988
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    17,073,084Purchase of remaining shares in Cut Bank Gas
Company
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (100,989
    )
    
    
    
    
    
    
    (100,989
    )Dividends declared
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,545,113
    )
    
    
    (3,545,113
    )BALANCE AT DECEMBER 31, 2010
    
    
    8,149,801
    
    
    $
    1,222,470
    
    
    
    
    
    
    $
    
    
    
    $
    41,910,067
    
    
    $
    46,590
    
    
    $
    
    
    
    $
    30,522,375
    
    
    $
    73,701,502
 F-6




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##### Table of Contents



GAS NATURAL INC. AND SUBSIDIARIES
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 For the year endedDecember 312010
    
    
    2009CASH FLOWS FROM OPERATING ACTIVITIES:Net income
    
    $
    5,796,501
    
    
    $
    6,818,537Adjustments to reconcile net income to
net cash provided by operating activities:Depreciation, amortization, and accretion including
deferred charges and financing costs
    
    
    4,119,381
    
    
    
    2,583,322Stock-based compensation
    
    
    83,336
    
    
    
    99,600Gain on sale of securities
    
    
    (159,520
    )
    
    
    (96,888
    )Investment tax credit
    
    
    (21,062
    )
    
    
    (21,062
    )Deferred income taxes
    
    
    2,426,479
    
    
    
    (2,545,742
    )Impairment of other investments
    
    
    
    
    
    
    620,789Changes in assets and liabilities:Accounts receivable and unbilled gas
    
    
    2,671,102
    
    
    
    1,938,979Accounts and notes receivable  related parties
    
    
    309,236
    
    
    
    Natural gas and propane inventories
    
    
    6,810
    
    
    
    4,641,344Accounts payable
    
    
    (4,213,097
    )
    
    
    (238,499
    )Accounts payable  related parties
    
    
    1,187,080
    
    
    
    Accrued liabilities  related parties
    
    
    413,399
    
    
    
    Recoverable/refundable cost of gas purchases
    
    
    (2,944,969
    )
    
    
    1,750,042Prepayments and other
    
    
    (94,112
    )
    
    
    (123,454
    )Equity in income of Kykuit  unconsolidated affiliate
    
    
    193,951
    
    
    
    65,982Accrued interest  related parties
    
    
    (262,495
    )
    
    
    Other assets
    
    
    32,250
    
    
    
    314,051Other liabilities
    
    
    (2,817,364
    )
    
    
    493,998Net cash provided by operating activities
    
    
    6,726,906
    
    
    
    16,300,999CASH FLOWS FROM INVESTING ACTIVITIES:Construction expenditures
    
    
    (8,522,517
    )
    
    
    (8,854,010
    )Purchase of available-for-sale securities
    
    
    (52,948
    )
    
    
    (1,392,275
    )Proceeds from sale of available-for-sale securities
    
    
    4,185,867
    
    
    
    1,211,740Purchase of Cut Bank shares
    
    
    (100,989
    )
    
    
    Purchase of Kidron investment
    
    
    (105,078
    )
    
    
    Cash acquired in acquisitions
    
    
    144,203
    
    
    
    48,020Other investments
    
    
    (62,581
    )
    
    
    (386,888
    )Customer advances received for construction
    
    
    149,184
    
    
    
    (70,851
    )Change from contributions in aid of construction
    
    
    (59,536
    )
    
    
    259,090Net cash used in investing activities
    
    
    (4,424,395
    )
    
    
    (9,185,174
    )CASH FLOWS FROM FINANCING ACTIVITIES:Proceeds from lines of credit
    
    
    20,800,000
    
    
    
    19,550,000Repayment of notes payable and lines of credit
    
    
    (20,899,170
    )
    
    
    (22,645,000
    )Proceeds from other notes payable
    
    
    57,336
    
    
    
    Repayments of long-term debt
    
    
    (5,255,578
    )
    
    
    Repayments of other short-term borrowings
    
    
    
    
    
    
    (54,967
    )Repayments
of related party notes payable
    
    
    (2,086,167
    )
    
    
    Net proceeds from the sale of Common Stock
    
    
    18,806,986
    
    
    
    (17
    )Dividends paid
    
    
    (3,451,501
    )
    
    
    (2,279,202
    )Net cash provided by (used in) financing activities
    
    
    7,971,906
    
    
    
    (5,429,186
    )NET INCREASE IN CASH AND CASH EQUIVALENTS
    
    
    10,274,417
    
    
    
    1,686,639CASH AND CASH EQUIVALENTS:Beginning of year
    
    
    2,752,168
    
    
    
    1,065,529End of year
    
    $
    13,026,585
    
    
    $
    2,752,168
  F-7




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##### Table of Contents



GAS NATURAL INC. AND SUBSIDIARIES
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 For the year endedDecember 312010
    
    
    2009SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATIONCash paid for interest
    
    $
    2,029,757
    
    
    $
    1,107,269Cash paid for income taxes
    
    
    1,678,896
    
    
    
    1,053,830SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND
FINANCING ACTIVITIESShares issued to purchase Cut Bank Gas
    
    
    
    
    
    
    499,013Shares issued to purchase Ohio Companies
    
    
    17,073,084
    
    
    
    Construction expenditures included in accounts payable
    
    
    191,457
    
    
    
    44,928Capitalized interest
    
    
    4,009
    
    
    
    14,231Accrued dividends
    
    
    366,725
    
    
    
    273,114
  F-8




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##### Table of Contents



GAS NATURAL INC. AND SUBSIDIARIES
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Note 1  Summary of Business and Significant Accounting Policies
 Nature of Business
      Natural Gas Operations
    
    Annually distribute
approximately 30 billion
cubic feet of natural gas
to approximately 63,500
customers through regulated
utilities operating in
Montana, Wyoming, Maine,
North Carolina, Ohio and
Pennsylvania. The Maine
and North Carolina
operations were acquired in
2007, while Cut Bank Gas in
Montana was added in
November 2009 and the Ohio
and Pennsylvania operations
were acquired in January
2010.     Marketing and Production
      Operations (EWR)
    
    Annually market
approximately 1.3 billion
cubic feet of natural gas
to commercial and
industrial customers in
Montana and Wyoming and
manage midstream supply and
production assets for
transportation customers
and utilities through the
subsidiary, Energy West
Resources, Inc. (EWR). EWR
owns an average 48% gross
working interest (an
average 42% net revenue
interest) in 160 natural
gas producing wells and gas
gathering assets.     Pipeline Operations (EWD)
    
    The Shoshone interstate and
Glacier gathering natural
gas pipelines located in
Montana and Wyoming are
owned through the
subsidiary Energy West
Development, Inc. (EWD).
Certain natural gas
producing wells owned by
the Companys pipeline
operations are being
managed and reported under
the marketing and
production operations.     Corporate and Other
    
    Corporate and other
encompasses the results of
corporate acquisitions and
other equity transactions.
Included in corporate and
other are costs associated
with business development
and acquisitions, dividend
income and recognized gains
from the sale of marketable
securities.
   Basis of Presentation FASB Accounting
 F-9




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##### Table of Contents



GAS NATURAL INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Standards Codification
 Principles of Consolidation
 Use of Estimates
  Credit Risk
 Effects of Regulation
 Cash and Cash Equivalents
 Financial Instruments
 Receivables
 F-10




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##### Table of Contents



GAS NATURAL INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
   Natural Gas Inventory
 Recoverable/Refundable Costs of Gas Purchases
   Property, Plant, and Equipment
  Contributions in Aid and Advances Received for Construction
 Goodwill
 F-11




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##### Table of Contents



GAS NATURAL INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  2010
    
    
    2009Balance,
beginning of year
    
    $
    1,056,771
    
    
    $
    Acquisition of Cut Bank Gas Company
    
    
    
    
    
    
    1,056,771Acquisition of Ohio Companies
    
    
    13,551,181Impairments
    
    
    
    
    
    
    Balance, end
of year
    
    $
    14,607,952
    
    
    $
    1,056,771
  Investment in Unconsolidated Affiliate
   Impairment of Long-Lived Assets
 Debt Issuance Costs
 Asset Retirement Obligations
 F-12




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##### Table of Contents



GAS NATURAL INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
   Percent of Asset CostOrwell
    
    
    BrainardMains
    
    
    20
    %
    
    
    15
    %Meter/regulator stations
    
    
    10
    %
    
    
    10
    %Service lines
    
    
    75
    %
    
    
    75
    %
  2010
    
    
    2009Balance, beginning of year
    
    $
    787,233
    
    
    $
    746,199Liabilities incurred or acquired
    
    
    631,340
    
    
    
    Liabilities settled
    
    
    
    
    
    
    Accretion expense
    
    
    128,294
    
    
    
    41,034Balance, end of year
    
    $
    1,546,867
    
    
    $
    787,233
 Revenue Recognition
 Stock-Based Compensation
 Comprehensive Income
 F-13




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##### Table of Contents



GAS NATURAL INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Years ended December 31,2010
    
    
    2009Net Income
    
    $
    5,796,501
    
    
    $
    6,818,537Other comprehensive incomeChange in unrealized gain/loss on
available-for-sale securities, net
of $62,621 and ($291,025) of
income tax
    
    
    (100,111
    )
    
    
    465,848Comprehensive Income
    
    $
    5,696,390
    
    
    $
    7,284,385
 Earnings Per Share
 December 31,2010
    
    
    2009Weighted average number of common shares outstanding
used in the basic earnings per common share
calculations
    
    
    6,292,717
    
    
    
    4,309,852Dilutive effect of stock options
    
    
    8,255
    
    
    
    3,246Weighted
average number of common shares outstanding
adjusted for effective of dilutive options and warrants
    
    
    6,300,972
    
    
    
    4,313,098
 Income Taxes
    Reclassifications
 New Accounting Pronouncements
 Recently Adopted
 ASU No. 2009-17, Consolidations (Topic 810) Improvements to Financial Reporting by Enterprises
Involved with Variable Interest Entities
  ASU No. 2010-06, Fair Value Measurements and Disclosures (Topic 820) Improving Disclosures
about Fair Value Measurements
  F-14




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##### Table of Contents



GAS NATURAL INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  Recently Issued
 ASU No. 2010-28, Intangibles Goodwill and Other (Topic 350) When to Perform Step 2 of the
Goodwill Impairment Test for Reporting Units with Zero or Negative Carrying Amounts
  ASU No. 2010-29, Business Combinations (Topic 805) Disclosure of Supplementary Pro Forma
Information for Business Combinations
  ASU No. 2011-01, Deferral of the Effective Date of Disclosures about Troubled Debt Restructurings
in Update No. 2010-20
  Note 2  Acquisitions
    F-15




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##### Table of Contents



GAS NATURAL INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Merger Agreements
 Merger Consideration Issuance of Shares
     F-16




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##### Table of Contents



GAS NATURAL INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 TotalOhio
    
    
    
    
    
    
    LightningCompanies
    
    
    Great Plains
    
    
    Pipeline
    
    
    BrainardCurrent assets
    
    $
    11,475,899
    
    
    $
    7,343,431
    
    
    $
    4,012,843
    
    
    $
    119,625Property and equipment
    
    
    29,530,636
    
    
    
    18,290,612
    
    
    
    10,818,923
    
    
    
    421,101Deferred Tax Assets
    
    
    76,772
    
    
    
    
    
    
    
    11,535
    
    
    
    65,237Other Noncurrent assets
    
    
    152,585
    
    
    
    1,000
    
    
    
    140,002
    
    
    
    11,583Customer Relationships
    
    
    685,000
    
    
    
    640,000
    
    
    
    45,000
    
    
    
    Goodwill
    
    
    13,551,181
    
    
    
    9,112,901
    
    
    
    4,312,007
    
    
    
    126,273Total assets acquired
    
    
    55,472,073
    
    
    
    35,387,944
    
    
    
    19,340,310
    
    
    
    743,819Current liabilities
    
    
    13,836,123
    
    
    
    7,589,554
    
    
    
    5,842,518
    
    
    
    404,051Asset Retirement Obligation
    
    
    487,447
    
    
    
    
    
    
    
    477,939
    
    
    
    9,508Deferred Tax Liability
    
    
    3,279,164
    
    
    
    1,483,525
    
    
    
    1,651,769
    
    
    
    143,870Total liabilities assumed
    
    
    17,602,734
    
    
    
    9,073,079
    
    
    
    7,972,226
    
    
    
    557,429Net assets acquired:
    
    $
    37,869,339
    
    
    $
    26,314,865
    
    
    $
    11,368,084
    
    
    $
    186,390
   Year EndedDecember 31,2009(in thousands)Revenues
    
    $
    102,708Operating income
    
    
    11,918Net income
    
    
    8,403Earnings per share  basic
    
    $
    1.400Earnings per share  diluted
    
    $
    1.400
  F-17




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##### Table of Contents



GAS NATURAL INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Note 3  Marketable Securities
   December 31, 2010Investment
    
    
    Unrealized
    
    
    Estimatedat cost
    
    
    Gains
    
    
    Fair ValueCommon Stock
    
    $
    199,500
    
    
    $
    75,450
    
    
    $
    274,950
 December 31, 2009Investment
    
    
    Unrealized
    
    
    Estimatedat cost
    
    
    Losses
    
    
    Fair ValueCommon Stock
    
    $
    4,172,899
    
    
    $
    238,272
    
    
    $
    4,411,171
   GrossYears Ended
    
    Sales
    
    
    
    
    
    
    RealizedDecember 31,
    
    Proceeds
    
    
    Cost
    
    
    Gains2010
    
    $
    4,185,867
    
    
    $
    4,026,347
    
    
    $
    159,5202009
    
    $
    1,211,735
    
    
    $
    1,114,846
    
    
    $
    96,889
  Note 4  Fair Value Measurements
  F-18




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##### Table of Contents



GAS NATURAL INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Valuation Hierarchy
   December 31, 2010Level 1
    
    
    Level 2
    
    
    Level 3
    
    
    TOTALAvailable-for-sale securities
    
    $
    274,950
    
    
    
    
    
    
    
    
    
    
    $
    274,950
 December 31, 2009Level 1
    
    
    Level 2
    
    
    Level 3
    
    
    TOTALAvailable-for-sale securities
    
    $
    4,411,171
    
    
    
    
    
    
    
    
    
    
    $
    4,411,171
 Note 5  Property, Plant and Equipment
  2010
    
    
    2009Gas transmission and distribution
facilities
    
    $
    89,094,495
    
    
    $
    56,346,112Land
    
    
    1,663,759
    
    
    
    164,903Buildings and leasehold improvements
    
    
    4,775,954
    
    
    
    2,967,108Transportation equipment
    
    
    2,104,664
    
    
    
    1,985,805Computer equipment
    
    
    3,408,189
    
    
    
    3,165,260Other equipment
    
    
    5,457,504
    
    
    
    3,984,996Construction work-in-progress
    
    
    3,260,004
    
    
    
    2,639,507Producing natural gas properties
    
    
    3,911,404
    
    
    
    3,911,404Gross Assets
    
    $
    113,675,973
    
    
    $
    75,165,095Accumulated depreciation, depletion,
and amortization
    
    
    (37,541,572
    )
    
    
    (33,961,427
    )Total Property, Plant and Equipment, net
    
    $
    76,134,401
    
    
    $
    41,203,668
  Producing Natural Gas Properties
  F-19




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##### Table of Contents



GAS NATURAL INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
     Note 6  Deferred Charges
  2010
    
    
    2009Regulatory asset for property tax
    
    $
    873,197
    
    
    $
    1,247,993Regulatory asset for income taxes
    
    
    452,645
    
    
    
    452,646Regulatory assets for deferred environmental
remediation costs
    
    
    
    
    
    
    22,042Rate case costs
    
    
    64,271
    
    
    
    15,448Unamortized debt issue costs
    
    
    485,244
    
    
    
    356,339Total
    
    $
    1,875,357
    
    
    $
    2,094,468
   F-20




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##### Table of Contents



GAS NATURAL INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Note 7  Accrued and Other Current Liabilities
  2010
    
    
    2009Property tax settlement, current portion
    
    $
    242,120
    
    
    $
    242,120Payable to employee benefit plans
    
    
    103,257
    
    
    
    81,045Accrued vacation
    
    
    86,194
    
    
    
    55,416Customer deposits
    
    
    679,237
    
    
    
    521,535Accrued interest
    
    
    29,810
    
    
    
    31,900Accrued taxes other than income
    
    
    2,961,853
    
    
    
    640,801Deferred payments from levelized billing
    
    
    2,916,408
    
    
    
    2,176,671Other regulatory liabilities
    
    
    18,272
    
    
    
    59,996Other
    
    
    1,002,462
    
    
    
    785,399Total
    
    $
    8,039,613
    
    
    $
    4,594,883
 Note 8  Other Long-Term Liabilities
  2010
    
    
    2009Asset retirement obligation
    
    $
    1,546,867
    
    
    $
    787,233Customer advances for construction
    
    
    949,434
    
    
    
    800,250Regulatory liability for income taxes
    
    
    83,161
    
    
    
    83,161Regulatory liability for gas costs
    
    
    131,443
    
    
    
    131,443Property tax settlement
    
    
    243,008
    
    
    
    486,008Total
    
    $
    2,953,913
    
    
    $
    2,288,095
 Note 9  Credit Facilities and Long-Term Debt
 Bank of America
  Senior Unsecured Notes
  F-21




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##### Table of Contents



GAS NATURAL INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  Citizens Bank
     Huntington Bank
    Combined Term Loans and Credit Facilities
   Debt Covenants
  F-22




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##### Table of Contents



GAS NATURAL INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
     2011
    
    $
    910,9172012
    
    
    873,4632013
    
    
    8,075,0782014
    
    
    5,3192015
    
    
    4,756Thereafter
    
    
    13,000,000Total
    
    $
    22,869,533
  2010
    
    
    2009GAS NATURALBank of America  Senior unsecured notes
    
    $
    13,000,000
    
    
    $
    13,000,000Auto and Equipment loans  various lenders
    
    
    320,079
    
    
    
    4,681Citizens Bank Term Loan  Great Plains Land
Development
    
    
    752,917
    
    
    
    Citizens Bank Term Loan  Great Plains Natural Gas
    
    
    2,231,835
    
    
    
    Citizens Bank Term Loan  Northeast Ohio
    
    
    6,564,702
    
    
    
    Less: Current portion
    
    
    (910,917
    )
    
    
    (1,265
    )Total
    
    $
    21,958,616
    
    
    $
    13,003,416
 Note 10  Stockholders Equity
   2002 Stock Option Plan
   F-23




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##### Table of Contents



GAS NATURAL INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 For the years endedDecember 31,2010
    
    
    2009Expected dividend rate
    
    
    5.13
    %
    
    
    5.24
    %Risk free interest rate
    
    
    2.71
    %
    
    
    3.39
    %Weighted average expected lives, in years
    
    
    10.00
    
    
    
    8.33Price volatility
    
    
    26.91
    %
    
    
    42.23
    %Total intrinsic value of options exercised
    
    $
    
    
    
    $
    Total cash received from options exercised
    
    $
    
    
    
    $
    
  Weighted
    
    
    AggregateNumber of
    
    
    Average
    
    
    IntrinsicShares
    
    
    Exercise Price
    
    
    ValueOutstanding December 31, 2008
    
    
    29,500
    
    
    $
    9.10Granted
    
    
    15,000
    
    
    $
    8.71Exercised
    
    
    
    
    
    $
    Expired
    
    
    
    
    
    $
    Outstanding December 31, 2009
    
    
    44,500
    
    
    $
    8.52Granted
    
    
    10,000
    
    
    $
    10.15Exercised
    
    
    
    
    
    $
    Expired
    
    
    (15,000
    )
    
    $
    9.93Outstanding December 31, 2010
    
    
    39,500
    
    
    $
    8.40
    
    
    $
    83,780Exerciseable December 31, 2010
    
    
    17,500
    
    
    $
    8.23
    
    
    $
    40,125
   F-24




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##### Table of Contents



GAS NATURAL INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 WeightedAverageWeighted
    
    
    Remaining
    
    
    
    
    
    
    WeightedAverage
    
    
    Contractual
    
    
    
    
    
    
    AverageGrant
    
    Exercise
    
    
    Number
    
    
    Exercise
    
    
    Life
    
    
    Number
    
    
    ExerciseDate
    
    Price
    
    
    Outstanding
    
    
    Price
    
    
    (Years)
    
    
    Exercisable
    
    
    Price1/6/2006
    
    $
    6.35
    
    
    
    4,500
    
    
    $
    6.35
    
    
    
    0.01
    
    
    
    
    
    
    $
    6.3512/1/2008
    
    $
    7.10
    
    
    
    10,000
    
    
    $
    7.10
    
    
    
    7.92
    
    
    
    7,500
    
    
    $
    7.106/3/2009
    
    $
    8.44
    
    
    
    5,000
    
    
    $
    8.44
    
    
    
    3.42
    
    
    
    2,500
    
    
    $
    8.4412/1/2009
    
    $
    8.85
    
    
    
    10,000
    
    
    $
    8.85
    
    
    
    8.92
    
    
    
    5,000
    
    
    $
    8.8512/1/2010
    
    $
    10.15
    
    
    
    10,000
    
    
    $
    10.15
    
    
    
    9.92
    
    
    
    2,500
    
    
    $
    10.1539,500
    
    
    
    
    
    
    
    
    
    
    
    17,500
   Note 11  Employee Benefit Plans
    F-25




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##### Table of Contents



GAS NATURAL INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Note 12  Income Taxes
  December 31,2010
    
    
    2009Current
    
    
    Long-Term
    
    
    Current
    
    
    Long-TermDeferred tax asset:Allowances for doubtful accounts
    
    $
    134,236
    
    
    $
    
    
    
    $
    84,150
    
    
    $
    Contributions in aid of construction
    
    
    
    
    
    
    607,562
    
    
    
    
    
    
    
    635,484Property, Plant and Equipment
    
    
    
    
    
    
    2,861,764
    
    
    
    
    
    
    
    8,652,601Other nondeductible accruals
    
    
    30,172
    
    
    
    
    
    
    
    38,071
    
    
    
    37,153Recoverable purchase gas costs
    
    
    104,934
    
    
    
    
    
    
    
    487,653
    
    
    
    Unrealized (loss) gain on securities held
for sale
    
    
    
    
    
    
    
    
    
    
    (91,571
    )
    
    
    Net operating loss (NOL) carryforwards
    
    
    
    
    
    
    2,929,738
    
    
    
    
    
    
    
    3,243,317Other
    
    
    191,138
    
    
    
    928,687
    
    
    
    291,452
    
    
    
    995,952Total
    
    $
    460,480
    
    
    $
    7,327,751
    
    
    $
    809,755
    
    
    $
    13,564,507Deferred tax liabilities:Recoverable purchase gas costs
    
    $
    317,539
    
    
    $
    
    
    
    $
    246,819
    
    
    $
    Property tax liability
    
    
    
    
    
    
    331,377
    
    
    
    
    
    
    
    450,594Unrealized loss on securities held for sale
    
    
    28,579
    
    
    
    
    
    
    
    
    
    
    
    Amortization of intangibles
    
    
    
    
    
    
    79,639
    
    
    
    
    
    
    
    113,545Other
    
    
    
    
    
    
    528,310
    
    
    
    
    
    
    
    272,928Total Deferred Tax Liabilities
    
    $
    346,118
    
    
    $
    939,326
    
    
    $
    246,819
    
    
    $
    837,067Net deferred tax asset (liability)
    
    $
    114,362
    
    
    $
    6,388,425
    
    
    $
    562,936
    
    
    $
    12,727,440Less: valuation allowance
    
    
    
    
    
    
    (4,584,161
    )
    
    
    
    
    
    
    (5,176,470
    )Net deferred tax asset (liability)
    
    $
    114,362
    
    
    $
    1,804,264
    
    
    $
    562,936
    
    
    $
    7,550,970
 F-26




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##### Table of Contents



GAS NATURAL INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  2010
    
    
    2009Current income taxes:Federal
    
    $
    365,046
    
    
    $
    2,218,263State
    
    
    94,150
    
    
    
    392,196Total current income taxes
    
    $
    459,196
    
    
    $
    2,610,459Deferred income taxes:Federal
    
    $
    3,008,000
    
    
    $
    (2,100,967
    )State
    
    
    42,862
    
    
    
    (461,188
    )Total deferred income taxes
    
    $
    3,050,862
    
    
    $
    (2,562,155
    )Total income taxes before credits
    
    $
    3,510,058
    
    
    $
    48,304Investment tax credit, net
    
    
    (21,062
    )
    
    
    (21,062
    )Total income tax expense
    
    $
    3,488,996
    
    
    $
    27,242
  2010
    
    
    2009Tax expense at statutory rate of 34%
    
    $
    3,157,069
    
    
    $
    2,327,565State income tax, net of federal tax benefit
    
    
    305,434
    
    
    
    314,906Amortization of deferred investment tax credits
    
    
    (21,062
    )
    
    
    (21,062
    )Decrease in valuation allowance
    
    
    (626,618
    )
    
    
    (2,781,334
    )Other
    
    
    674,173
    
    
    
    187,167Total
    
    $
    3,488,996
    
    
    $
    27,242
   F-27




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##### Table of Contents



GAS NATURAL INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
     F-28




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##### Table of Contents



GAS NATURAL INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Note 13  Related Party Transactions
  Notes Payable to Mr. Osborne
  Gas Supply, Pipeline Transport and Gas Sales
  Natural Gas PurchasedAccounts
    
    
    and Imbalance ActivityPayable
    
    
    For the Year EndedDecember 31, 2010
    
    
    December 31, 2010John D. Oil and Gas Marketing
    
    $
    247,430
    
    
    $
    4,432,412Cobra Pipeline
    
    
    84,597
    
    
    
    438,429Orwell Trumbell Pipeline
    
    
    77,325
    
    
    
    (411,640
    )Great Plains Exploration
    
    
    
    
    
    
    31,358
   Accounts
    
    
    Natural Gas Sold ForReceivable
    
    
    the Year EndedDecember 31, 2010
    
    
    December 31, 2010John D. Oil and Gas Marketing
    
    $
    40,750
    
    
    $
    49,824Great Plains Exploration
    
    
    110,732
    
    
    
    1,953,052
 F-29




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##### Table of Contents



GAS NATURAL INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Administrative and Other
      F-30




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##### Table of Contents



GAS NATURAL INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Note 14  Segments of Operations
  Twelve Months Ended December 31, 2010
 MarketingNatural Gas
    
    
    and
    
    
    Pipeline
    
    
    Corporate andOperations
    
    
    Production
    
    
    Operations
    
    
    Other
    
    
    Eliminations
    
    
    ConsolidatedOperating RevenueNatural Gas Operations
    
    $
    83,926,733
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    (319,377
    )
    
    $
    83,607,356Marketing and Production
    
    
    
    
    
    
    15,116,196
    
    
    
    
    
    
    
    
    
    
    
    (7,650,139
    )
    
    
    7,466,057Pipeline Operations
    
    
    
    
    
    
    
    
    
    
    426,644
    
    
    
    
    
    
    
    
    
    
    
    426,644Total Operating Revenue
    
    $
    83,926,733
    
    
    $
    15,116,196
    
    
    $
    426,644
    
    
    $
    
    
    
    $
    (7,969,516
    )
    
    $
    91,500,057Gas Purchased
    
    $
    49,196,214
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    (319,377
    )
    
    $
    48,876,837Gas  Wholesale
    
    
    
    
    
    
    13,479,242
    
    
    
    
    
    
    
    
    
    
    
    (7,650,139
    )
    
    
    5,829,103Distribution, general, and administrative
    
    
    16,774,046
    
    
    
    455,111
    
    
    
    132,529
    
    
    
    19,782
    
    
    
    
    
    
    
    17,381,468Maintenance
    
    
    1,036,836
    
    
    
    627
    
    
    
    14,303
    
    
    
    
    
    
    
    
    
    
    
    1,051,766Depreciation and Amortization
    
    
    3,764,145
    
    
    
    299,649
    
    
    
    55,587
    
    
    
    
    
    
    
    
    
    
    
    4,119,381Taxes other than income
    
    
    3,106,991
    
    
    
    24,285
    
    
    
    27,641
    
    
    
    3,283
    
    
    
    
    
    
    
    3,162,200Operating expenses
    
    $
    73,878,232
    
    
    $
    14,258,914
    
    
    $
    230,060
    
    
    $
    23,065
    
    
    $
    (7,969,516
    )
    
    $
    80,420,755Operating income (expense)
    
    $
    10,048,501
    
    
    $
    857,282
    
    
    $
    196,584
    
    
    $
    (23,065
    )
    
    $
    
    
    
    $
    11,079,302Other income (expense)
    
    
    872,221
    
    
    
    (635,328
    )
    
    
    
    
    
    
    196,659
    
    
    
    (49,135
    )
    
    
    384,417Interest (expense) benefit
    
    
    (2,134,869
    )
    
    
    (67,070
    )
    
    
    (25,418
    )
    
    
    
    
    
    
    49,135
    
    
    
    (2,178,222
    )Income from continuing operations
    
    $
    8,785,853
    
    
    $
    154,884
    
    
    $
    171,166
    
    
    $
    173,594
    
    
    $
    
    
    
    $
    9,285,497Income taxes expense (benefit)
    
    
    3,161,630
    
    
    
    39,280
    
    
    
    18,383
    
    
    
    269,703
    
    
    
    
    
    
    
    3,488,996Net Income
    
    $
    5,624,223
    
    
    $
    115,604
    
    
    $
    152,783
    
    
    $
    (96,109
    )
    
    $
    
    
    
    $
    5,796,501Capital expenditures and natural gas properties
    
    $
    8,489,529
    
    
    $
    
    
    
    $
    
    
    
    $
    32,988
    
    
    $
    
    
    
    $
    8,522,517Total assets
    
    $
    118,954,130
    
    
    $
    5,733,857
    
    
    $
    705,817
    
    
    $
    77,157,019
    
    
    $
    (64,822,887
    )
    
    $
    137,727,936Equity Method investments
    
    $
    
    
    
    $
    640,216
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    640,216Goodwill
    
    $
    14,607,952
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    14,607,952
 F-31




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##### Table of Contents



GAS NATURAL INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Twelve Months Ended December 31, 2009
 MarketingNatural Gas
    
    
    and
    
    
    Pipeline
    
    
    Corporate andOperations
    
    
    Production
    
    
    Operations
    
    
    Other
    
    
    Eliminations
    
    
    ConsolidatedOperating RevenueNatural Gas Operations
    
    $
    59,301,564
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    (535,946
    )
    
    $
    58,765,618Marketing and Wholesale
    
    
    
    
    
    
    19,656,795
    
    
    
    
    
    
    
    
    
    
    
    (7,417,889
    )
    
    
    12,238,906Pipeline Operations
    
    
    
    
    
    
    
    
    
    
    449,757
    
    
    
    
    
    
    
    
    
    
    
    449,757Total Operating Revenue
    
    $
    59,301,564
    
    
    $
    19,656,795
    
    
    $
    449,757
    
    
    $
    
    
    
    $
    (7,953,835
    )
    
    $
    71,454,281Gas Purchased
    
    $
    37,587,798
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    (535,946
    )
    
    $
    37,051,852Gas  Wholesale
    
    
    
    
    
    
    17,065,582
    
    
    
    
    
    
    
    
    
    
    
    (7,417,889
    )
    
    
    9,647,693Distribution, general, and administrative
    
    
    9,942,220
    
    
    
    526,305
    
    
    
    85,573
    
    
    
    7,971
    
    
    
    
    
    
    
    10,562,069Maintenance
    
    
    654,281
    
    
    
    641
    
    
    
    11,555
    
    
    
    
    
    
    
    
    
    
    
    666,477Depreciation and Amortization
    
    
    1,865,941
    
    
    
    290,872
    
    
    
    55,740
    
    
    
    
    
    
    
    
    
    
    
    2,212,553Taxes other than income
    
    
    2,200,487
    
    
    
    26,112
    
    
    
    23,699
    
    
    
    
    
    
    
    
    
    
    
    2,250,298Operating expenses
    
    $
    52,250,727
    
    
    $
    17,909,512
    
    
    $
    176,567
    
    
    $
    7,971
    
    
    $
    (7,953,835
    )
    
    $
    62,390,942Operating income (expense)
    
    $
    7,050,837
    
    
    $
    1,747,283
    
    
    $
    273,190
    
    
    $
    (7,971
    )
    
    $
    
    
    
    $
    9,063,339Other income (expense)
    
    
    254,326
    
    
    
    (686,771
    )
    
    
    
    
    
    
    (543,889
    )
    
    
    
    
    
    
    (976,334
    )Interest (expense)
    
    
    (1,134,858
    )
    
    
    (89,151
    )
    
    
    (16,841
    )
    
    
    (376
    )
    
    
    
    
    
    
    (1,241,226
    )Income (loss) from continuing operations
    
    $
    6,170,305
    
    
    $
    971,361
    
    
    $
    256,349
    
    
    $
    (552,236
    )
    
    $
    
    
    
    $
    6,845,779Income taxes expense (benefit)
    
    
    2,281,053
    
    
    
    413,017
    
    
    
    100,115
    
    
    
    (2,766,943
    )
    
    
    
    
    
    
    27,242Net Income
    
    $
    3,889,252
    
    
    $
    558,344
    
    
    $
    156,234
    
    
    $
    2,214,707
    
    
    $
    
    
    
    $
    6,818,537Capital expenditures and natural gas properties
    
    $
    8,648,035
    
    
    $
    191,608
    
    
    $
    
    
    
    $
    14,367
    
    
    $
    
    
    
    $
    8,854,010Total assets
    
    $
    62,610,159
    
    
    $
    6,589,064
    
    
    $
    733,070
    
    
    $
    44,022,556
    
    
    $
    (35,329,167
    )
    
    $
    78,625,682Equity Method investments
    
    $
    
    
    
    $
    784,363
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    784,363Goodwill
    
    $
    1,056,771
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    1,056,771
 F-32




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##### Table of Contents



GAS NATURAL INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Note 15  Commitments and Contingencies
 Commitments
  NorthwesternEnergy
    
    
    Trans-Canada2011
    
    $
    1,498,000
    
    
    $
    920,0002012
    
    
    1,498,000
    
    
    
    920,0002013
    
    
    1,498,000
    
    
    
    920,0002014
    
    
    1,498,000
    
    
    
    920,0002015
    
    
    1,498,000
    
    
    
    828,000Thereafter
    
    
    1,331,000
    
    
    
    1,073,000Total
    
    $
    8,821,000
    
    
    $
    5,581,000
  2011
    
    $
    500,8742012
    
    
    500,8742013
    
    
    500,8742014
    
    
    500,8742015
    
    
    500,874Thereafter
    
    
    1,091,600Total
    
    $
    3,595,970
   Environmental Contingency
  F-33




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##### Table of Contents



GAS NATURAL INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    Litigation
   Operating Leases
  2011
    
    $
    327,1642012
    
    
    268,7432013
    
    
    254,4952014
    
    
    253,1512015
    
    
    239,351Thereafter
    
    
    1,315,444$
    2,658,348
  Note 16  Financial Instruments and Risk Management
 Management of Risks Related to Fixed Contracts
  F-34




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##### Table of Contents



GAS NATURAL INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
     Note 17  Quarterly Information (Unaudited)
  Year Ended December 31, 2010
 For the quarters endedMarch 31,
    
    
    June 30,
    
    
    September 30,
    
    
    December 31,($ in thousands except per share amounts)
    
    2010
    
    
    2010
    
    
    2010
    
    
    2010Revenues
    
    $
    34,733
    
    
    $
    16,656
    
    
    $
    10,902
    
    
    $
    29,209Gross margin
    
    
    12,521
    
    
    
    7,274
    
    
    
    5,718
    
    
    
    11,281Operating income
    
    
    6,340
    
    
    
    867
    
    
    
    (556
    )
    
    
    4,429Income (loss) before extraordinary items
    
    $
    3,663
    
    
    $
    466
    
    
    $
    (45
    )
    
    $
    1,713Extraordinary gain
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net income (loss)
    
    $
    3,663
    
    
    $
    466
    
    
    $
    (45
    )
    
    $
    1,713Basic earnings (loss) per
common share
    
    $
    0.61
    
    
    $
    0.08
    
    
    $
    (0.01
    )
    
    $
    0.24Diluted earnings (loss) per share
    
    $
    0.61
    
    
    $
    0.08
    
    
    $
    (0.01
    )
    
    $
    0.24
 F-35




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##### Table of Contents



GAS
NATURAL INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Year Ended December 31, 2009
 For the quarters endedMarch 31,
    
    
    June 30,
    
    
    September 30,
    
    
    December 31,($ in thousands except per share amounts)
    
    2009
    
    
    2009
    
    
    2009
    
    
    2009Revenues
    
    $
    31,334
    
    
    $
    12,238
    
    
    $
    8,326
    
    
    $
    19,556Gross margin
    
    
    7,774
    
    
    
    5,248
    
    
    
    4,190
    
    
    
    7,543Operating income
    
    
    3,564
    
    
    
    1,523
    
    
    
    245
    
    
    
    3,731Income (loss) before extraordinary items
    
    $
    1,963
    
    
    $
    686
    
    
    $
    (172
    )
    
    $
    4,342Extraordinary gain
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net income (loss)
    
    $
    1,963
    
    
    $
    686
    
    
    $
    (172
    )
    
    $
    4,342Basic
earnings (loss) per
common share
    
    $
    0.46
    
    
    $
    0.16
    
    
    $
    (0.04
    )
    
    $
    1.00Diluted earnings (loss) per share
    
    $
    0.46
    
    
    $
    0.16
    
    
    $
    (0.04
    )
    
    $
    1.00
 F-36