Note 1 – Summary of Business and Basis of Presentation

Nature of Business

Gas Natural Inc. (the “Company”) is a natural gas company with operations in six states. The Company’s primary operations are natural gas utility companies located throughout these states. The Company’s operations also include the marketing and production of natural gas. Along with its corporate level operations, these areas of operation represent the Company’s three main operating segments and are described below.

·	Natural Gas Operations	Annually distributes approximately 35 Bcf of natural gas to approximately 67,000 customers. The Company’s natural gas utility subsidiaries are Public Gas Company (Kentucky), Bangor Gas (Maine), Cut Bank Gas Company (Montana), Energy West Montana (Montana), Frontier Natural Gas (North Carolina), Brainard Gas Corp. (Ohio), Northeast Ohio Natural Gas Corporation (Ohio), and Orwell Natural Gas Company (Ohio and Pennsylvania).
·	Marketing & Production	Annually markets approximately 1.5 Bcf of natural gas to commercial and industrial customers in Montana, Wyoming, Ohio, and Pennsylvania through the Company’s EWR and GNR subsidiaries. The EWR subsidiary also manages midstream supply and production assets for transportation customers and utilities. EWR owns an average 51% gross working interest (average 43% net revenue interest) in 160 natural gas producing wells and gas gathering assets located in Glacier and Toole Counties in Montana.
·	Corporate & Other	Encompasses costs associated with business development and acquisitions, dispositions of subsidiary entities, results of discontinued operations, dividend income, recognized gains or losses from the sale of marketable securities, and activity from Lone Wolfe which serves as an insurance agent for the Company and other businesses in the energy industry.

Energy West was originally incorporated in Montana in 1909 and was reorganized as a holding company in 2009 to facilitate future acquisitions and corporate-level financing to support the Company’s growth strategy. On July 9, 2010, the Company changed its name to Gas Natural Inc. and reincorporated from Montana to Ohio. Moving the incorporation to Ohio enhanced the Company’s flexibility and provided a more efficient platform from which to operate and grow.

Basis of Presentation

The accompanying Condensed Consolidated Balance Sheet as of December 31, 2013, which has been derived from audited financial statements, and the unaudited interim condensed consolidated financial statements of Gas Natural Inc. have been prepared in accordance with generally accepted accounting principles for interim financial information, the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not contain all disclosures required by generally accepted accounting principles. In the opinion of the Company, all normal recurring adjustments have been made, that are necessary to fairly present the results of operations for the interim periods. Certain reclassifications have been made to prior period amounts to conform to current period presentation. Such reclassifications have no effect on net income as previously reported.

Operating results for the three and nine months ended September 30, 2014 are not necessarily indicative of the results that may be expected for the year ending December 31, 2014. A majority of the Company’s revenues are derived from its natural gas utility operations, making its revenue seasonal in nature. Therefore, the largest portion of the Company’s operating revenue is generated during the colder months when its sales volume increases considerably. Reference should be made to the Company’s Annual Report on Form 10-K for the year ended December 31, 2013.

The effect of restricted stock awards equivalent to 322 and 14 shares for the three and nine months ended September 30, 2014 would have been anti-dilutive and therefore, were excluded from the computation of diluted earnings per share. The effect of stock options equivalent to 1,012 shares for the three months ended September 30, 2013 would have been anti-dilutive and therefore, were excluded from the computation of diluted earnings per share. There were no stock options that would have been anti-dilutive for the nine months ended September 30, 2013.

Change in Accounting Principle

In the second quarter of 2014, the Company changed the timing of its annual goodwill impairment testing. This change in accounting principle is viewed as preferable due to the Company’s accelerated filing status for it 2014 Annual Report on Form 10-K. Historically, the Company has used December 31^st as its annual testing date. This has directly resulted in the Company filing its Annual Report on the 90^th day of its fiscal year, the deadline for non-accelerated filers. Starting in 2014, the Company will use a testing date of October 1^st. The Company believes that this change should provide the Company sufficient time to meet its new 75 day filing deadline for its 2014 Annual Report. The Company believes that retrospective application of this change in accounting policy would be impracticable because it requires: (1) assumptions about management's intentions over the last several years related to the business units being tested which cannot be independently substantiated and (2) significant estimates which cannot be distinguished objectively from those estimates that would have existed on the prior test dates and would have been available to the Company’s management at that time. Due to these factors, the Company will recognize this change in accounting principle on a prospective basis.

There have been no other material changes in the Company’s significant accounting policies during the nine months ended September 30, 2014 as compared to the significant accounting policies described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013.

Recent Accounting Pronouncements

In May 2014, the FASB issued ASU 2014-09 Revenue from Contracts with Customers, which supersedes nearly all existing revenue recognition guidance under U.S. GAAP. The core principle of ASU 2014-09 is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration to which an entity expects to be entitled for those goods or services. ASU 2014-09 defines a five step process to achieve this core principle and, in doing so, more judgment and estimates may be required within the revenue recognition process than are required under existing U.S. GAAP. This pronouncement is effective for annual reporting periods beginning after December 15, 2016 and is to be applied using one of two retrospective application methods, with early application not permitted. The Company is currently evaluating the impact of the pending adoption of ASU 2014-09 on the consolidated financial statements.

Recently Adopted Accounting Pronouncements

In April 2014, the FASB issued ASU 2014-08 Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity, which amends the prior guidance of the reclassification of components of an entity to discontinued operations under U.S. GAAP. Under the amended guidance, a disposal of a component of an entity or a group of components of an entity is required to be reported in discontinued operations if the disposal represents a strategic shift that has or will have a major effect on an entity’s operations and financial results. The amendment also removes requirements relating to the cessation of operations, cash flows and significant continuing involvement with the discontinued component. This pronouncement is effective for annual and interim periods beginning after December 15, 2014 with early adoption permitted. This update it to be applied prospectively on components classified as held for after the adoption date. The Company has chosen to early adopt ASU 2014-08 effective September 30, 2014.