What changed in this filing

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Item 1. Financial Statements

2023-05-10 compared with 2022-11-04 · 374 added, 358 removed, 540 unchanged (58% of the section changed)

3 unchanged sentences

(In thousands)

September 30, 2022

March 31, 2023

December 31, 2022

48 unchanged sentences

(In thousands, except per share amounts)

For the Three Months Ended

September 30,

For the Nine Months Ended

September 30,

For the Three Months Ended March 31,

Operating revenues

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Operating income

Other income, net

Allowance for funds used during construction (AFUDC)

Miscellaneous (expense) income

Miscellaneous income

Income before interest charges

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(In thousands)

For the Nine Months

Ended September 30,

For the Three Months

Ended March 31,

CASH FLOWS FROM OPERATING ACTIVITIES

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CASH FLOWS FROM FINANCING ACTIVITIES

Net (repayments) borrowings under lines of credit agreements

Net borrowings under lines of credit agreements

Increase in overdraft payable

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NET CASH PROVIDED BY FINANCING ACTIVITIES

NET INCREASE IN CASH AND CASH EQUIVALENTS

NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS

CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR

5 unchanged sentences

Utility plant received as construction advances and contributions

Dividends declared but not paid

Change in amounts included in accounts payable and accrued payables related to capital expenditures

Change in amounts included in accounts payable, accrued payables and other related to capital expenditures

Supplemental Disclosures of Cash Flow Information:

1 unchanged sentence

Income taxes paid

Preliminary purchase price allocation of investment in acquisitions:

Purchase price allocation of investment in acquisitions:

Utility plant

Future contractual obligation payable to seller

Contributions in aid of construction

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Balance as of March 31, 2022

Cash dividends declared

Issuance of common stock

Dividend reinvestment plan

Employee stock options and awards (4)

Employee Retirement Plan (3)

Balance as of June 30, 2021

Cash dividends declared

Issuance of common stock

Dividend reinvestment plan

Employee stock options and awards (4)

Employee Retirement Plan (3)

Balance as of September 30, 2021

Common Shares Outstanding Class A Non-Voting (1) (3) (4)

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Balance as of March 31, 2023

Cash dividends declared

Issuance of common stock

Dividend reinvestment plan

Employee stock options and awards (4)

Employee Retirement Plan (3)

Balance as of June 30, 2022

Cash dividends declared

Issuance of common stock

Dividend reinvestment plan

Employee stock options and awards (4)

Employee Retirement Plan (3)

Balance as of September 30, 2022

At September 30, 2022 and September 30, 2021, Class A Common Stock had 15,000,000 shares

For the same periods, shares issued, inclusive of treasury shares, were 8,638,474 and 8,553,070 , respectively.

At September 30, 2022 and September 30, 2021, Class B Common Stock had 1,040,000 shares authorized

and 881,452 shares issued.

Artesian Resources Corporation registered 200,000 shares of Class A Common Stock,

subsequently adjusted for stock splits, available for purchase through the Company’s 401(k) retirement plan.

Under the Equity Compensation Plan, effective December 9, 2015, or the 2015 Plan, Artesian Resources Corporation authorized up to 331,500 shares of Class A Common Stock for issuance of grants in the form of stock options, stock units, dividend equivalents and other stock-based awards, subject to adjustment in

certain circumstances as discussed in the 2015 Plan.

Includes stock compensation expense for September 30, 2022, and September 30, 2021, see Note 6-Stock Compensation Plans.

At March 31, 2023, and March 31, 2022, Class A Common Stock had 15,000,000 shares authorized.

For the same periods,

shares issued, inclusive of treasury shares, were 8,651,976 and 8,585,947 , respectively.

At March 31, 2023, and March 31, 2022, Class B Common Stock had 1,040,000 shares authorized and 881,452 shares issued.

Artesian Resources Corporation registered 200,000 shares of Class A Common Stock, subsequently adjusted

for stock splits, available for purchase through the Company’s 401(k) retirement plan.

discussed in the 2015 Plan.

Includes stock compensation expense for March 31, 2023 and March 31, 2022, see Note 6-Stock Compensation Plans.

See notes to the condensed consolidated financial statements.

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"Artesian" and the "Company" as used herein refer to Artesian Resources and its subsidiaries.

DELAWARE REGULATED SUBSIDIARIES

Artesian Water Company, Inc., or Artesian Water, our principal subsidiary, distributes and sells water to residential, commercial, industrial, governmental,

municipal and utility customers throughout the State of Delaware.

In addition, Artesian Water provides services to other water utilities, including operations and billing functions, and has contract operation agreements with private, municipal and

state water providers.

DELAWARE REGULATED UTILITY SUBSIDIARIES

Artesian Water Company, Inc., or Artesian Water, distributes and sells water to residential, commercial, industrial, governmental, municipal and utility

customers throughout the State of Delaware.

In addition, Artesian Water provides services to other water utilities, including operations and billing functions, and has contract operation agreements with private, municipal and state water providers.

Artesian Water also provides water for public and private fire protection to customers in our service territories.

On May 26, 2022, Artesian Water completed its purchase of substantially all of the water operating assets from the Town of Clayton, or Clayton, a Delaware

municipality located in Kent County, Delaware, including Clayton’s exclusive franchise territory and the right to provide water service to Clayton’s existing customers, or the Clayton Water System.

The total purchase price was $ 5.0 million, less the current payoff amount of secured debt or debt associated with the Clayton Water System.

In May 2022, Artesian Water completed its purchase of substantially all of the water operating assets from the Town of Clayton, or Clayton, a Delaware

municipality located in Kent County, Delaware.

This purchase agreement is discussed further in the “Strategic Direction and Recent Developments” section.

Artesian Wastewater Management, Inc., or Artesian Wastewater, began providing wastewater services in Sussex County, Delaware in July 2005.

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This acquisition more than doubled the

number of wastewater customers served by Artesian’s Delaware wastewater subsidiaries in Sussex County, Delaware and included all residents within the Town of Milton.

MARYLAND REGULATED SUBSIDIARIES

number of wastewater customers served by Artesian’s Delaware wastewater subsidiaries in Sussex County, Delaware and included all residents within the Town of Milton, Delaware.

MARYLAND REGULATED UTILITY SUBSIDIARIES

Artesian Water Maryland, Inc., or Artesian Water Maryland, began operations in August 2007.

Artesian Water Maryland distributes and sells water to residential, commercial, industrial and municipal customers in Cecil County, Maryland.

Artesian Wastewater Maryland, Inc., or Artesian Wastewater Maryland, was incorporated on June 3, 2008 and is able to provide regulated wastewater services to customers in the State of Maryland.

Artesian Wastewater Maryland, Inc., or Artesian Wastewater Maryland, was incorporated on June 3, 2008 and is authorized and able to provide regulated wastewater services to customers in the State of Maryland.

It is currently not providing these services.

PENNSYLVANIA REGULATED SUBSIDIARY

PENNSYLVANIA REGULATED UTILITY SUBSIDIARY

Artesian Water Pennsylvania, Inc., or Artesian Water Pennsylvania, began operations in 2002.

It provides water service to a residential community in Chester County, Pennsylvania.

OTHER SUBSIDIARIES

OTHER NON-UTILITY SUBSIDIARIES

Our three other subsidiaries, none of which are

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infrastructure throughout the Delmarva Peninsula.

In addition, as further discussed below, Artesian Utility operates the Water Service Line Protection Plan, or WSLP Plan, the Sewer Service Line Protection Plan, or SSLP Plan, and the Internal Service

Line Protection Plan, or ISLP Plan (collectively, SLP Plans).

Artesian Utility currently operates wastewater treatment facilities for the Town of Middletown, in southern New Castle County, Delaware, or Middletown, under

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Artesian Utility also offers three protection

plans to customers, the WSLP Plan, the SSLP Plan and the ISLP Plan.

The WSLP Plan covers all parts, material and labor required to repair or replace participating

customers' leaking water service lines up to an annual limit.

The SSLP Plan covers all parts, material and labor required to repair or replace participating customers'

leaking or clogged sewer lines up to an annual limit.

plans to customers, the Water Service Line Protection Plan, or WSLP Plan, the Sewer Service Line Protection Plan, or SSLP Plan, and the Internal Service Line Protection Plan, or ISLP Plan (collectively, SLP Plans).

The WSLP Plan covers all parts,

material and labor required to repair or replace participating customers' leaking water service lines up to an annual limit.

The SSLP Plan covers all parts, material and labor required to repair or replace participating customers' leaking or clogged

sewer lines up to an annual limit.

The ISLP Plan enhances available coverage to include water and wastewater lines within customers' residences up to an annual limit.

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wastewater facility, as well as property for current operations, including an office facility in Sussex County, Delaware.

The facility consists of approximately 10,000 square feet of office space along with nearly 10,000 square feet of warehouse

The office facility consists of approximately 10,000 square feet of office space along with nearly 10,000 square feet of warehouse space.

Artesian Storm Water, incorporated in 2017, was formed to provide design, installation, maintenance and repair

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In the opinion of the Company, the accompanying unaudited condensed consolidated financial statements reflect all normal recurring

adjustments (unless otherwise noted) necessary to present fairly the Company's balance sheet position as of September 30, 2022, the results of its operations for the three and nine -month periods ended September 30, 2022 and September 30, 2021 , its cash flows for the nine -month periods ended September 30, 2022 and September 30, 2021 and the changes in stockholders’ equity for the three and nine -month periods ended September 30, 2022 and September 30, 2021 .

The December 31, 2021 Condensed Consolidated Balance Sheet was derived from the Company’s

December 31, 2021 audited consolidated financial statements, but does not include all disclosures and notes normally provided in annual financial statements.

adjustments (unless otherwise noted) necessary to present fairly the Company's balance sheet position as of March 31, 2023 , the results of its operations for the three -month periods ended March 31, 2023 and March 31, 2022 , its cash flows for the three -month periods ended March 31, 2023 and March 31, 2022 and the changes in stockholders’ equity for the three -month periods ended March 31, 2023 and March 31, 2022 .

The December 31 , 2022 Condensed Consolidated Balance

Sheet was derived from the Company’s December 31 , 2022 audited consolidated financial statements, but does not include all disclosures and notes normally provided in annual financial statements.

The results of operations for the interim periods presented are not necessarily indicative of the results for the full year or for future periods.

Regulated Utility Accounting

The accounting records of Artesian Water, Artesian Wastewater, and, effective January 14, 2022, TESI are maintained in accordance with the uniform system of

accounts as prescribed by the Delaware Public Service Commission, or the DEPSC.

The accounting records of Artesian Water Pennsylvania are maintained in accordance with the uniform system of accounts as prescribed by the Pennsylvania Public Utility

Commission, or the PAPUC.

The accounting records of Artesian Water Maryland and Artesian Wastewater Maryland are maintained in accordance with the uniform system of accounts as prescribed by the Maryland Public Service Commission, or the MDPSC.

of these subsidiaries follow the provisions of Financial Accounting Standards Board, or FASB, ASC Topic 980, which provide guidance for companies in regulated industries.

These regulated subsidiaries account for the majority of our operating revenue.

See Note 16 to our Condensed Consolidated Financial Statements for a full description of our segment information.

Use of Estimates

The condensed consolidated financial statements were prepared in conformity with generally accepted accounting principles in the U.S., which require

management to make certain estimates and assumptions regarding the reported amounts of assets and liabilities including unbilled revenues, credit losses and reserves for bad debt, regulatory asset recovery, lease agreements and contingent assets and

liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period.

assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period.

Actual results could differ from management's estimates.

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Clayton in May 2022.

As of September 30, 2022, the fair value determination for TESI is finalized, with the exception of deferred income taxes, which is still preliminary but expected to be complete by December 31, 2022.

The fair value for deferred

income taxes affects both goodwill and deferred income taxes.

As of September 30, 2022, The town of Clayton transaction is preliminary.

Management’s preliminary determination of fair value of the tangible assets acquired using the cost method

requires management to make significant estimates and assumptions related to economic lives of the assets, replacement costs, and physical characteristics of the tangible assets acquired.

A third-party valuation specialist is assisting with the

valuation of the assets acquired.

The purchase price allocation for the Town of Clayton is expected to be finalized once the valuation of assets acquired has been completed, no later than one year after the acquisition date.

As of December 31, 2022, the fair value determination for TESI and the town of Clayton is finalized.

A third-party valuation specialist assisted with the valuation of the assets acquired.

Reclassification

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NOTE 3 – REVENUE RECOGNITION

Artesian’s operating revenues are primarily attributable to contract services based upon tariff rates approved by the Delaware Public Service Commission, or

DEPSC, the Maryland Public Service Commission, or MDPSC, and the Pennsylvania Public Utility Commission, or PAPUC.

Tariff contract service revenues consist of water consumption, industrial wastewater services, fixed fees for water and wastewater

services including customer and fire protection fees, service charges and Distribution System Improvement Charges, or DSIC, billed to customers at rates outlined in our tariffs that represent stand-alone selling prices.

Our non-tariff contract

revenues consist of Service Line Protection Plan, or SLP Plan, fees, water and wastewater contract operations, design and installation contract services, and wastewater inspection fees.

Other operating revenue primarily consists of developer guarantee

contributions for wastewater and rental income for antenna agreements, which are not considered in the scope of Accounting Standards Codification 606, Revenue from Contracts with Customers.

Artesian’s operating revenues are primarily attributable to contract services based upon regulated tariff rates approved by the DEPSC, the MDPSC, and the

Regulated tariff contract service revenues consist of water consumption, industrial wastewater services, fixed fees for water and wastewater services including customer and fire protection fees, service charges and Distribution System

Improvement Charges, or DSIC, billed to customers at rates outlined in our tariffs that represent stand-alone selling prices.

Our non-tariff contract revenues, which are primarily non-utility revenues, consist of SLP Plan fees, water and wastewater

contract operations, design and installation contract services, and wastewater inspection fees.

Other regulated operating revenue primarily consists of developer guarantee contributions for wastewater and rental income for antenna agreements, which

are not considered in the scope of Accounting Standards Codification 606, Revenue from Contracts with Customers.

Tariff Contract Revenues

Artesian generates revenue from the sale of water to customers in Delaware, Cecil County, Maryland, and Southern Chester County, Pennsylvania once a customer

requests service in our territory.

We recognize water consumption revenue at tariff rates on a cycle basis for the volume of water transferred to customers based upon meter readings for actual gallons of water consumed as well as unbilled amounts for

estimated usage from the date of the last meter reading to the end of the accounting period.

As actual usage amounts are known based on recurring meter readings, adjustments are made to the unbilled estimates in the next billing cycle based on the

actual results.

Artesian generates revenue from the sale of water to customers in Delaware, Cecil County, Maryland, and Southern

Chester County, Pennsylvania once a customer requests service in our territory.

We recognize water consumption revenue at tariff rates on a cycle basis for the volume of water transferred to customers based upon meter readings for actual gallons of

water consumed as well as unbilled amounts for estimated usage from the date of the last meter reading to the end of the accounting period.

As actual usage amounts are known based on recurring meter readings, adjustments are made to the unbilled

estimates in the next billing cycle based on the actual results.

Estimates are made on an individual customer basis, based on one of three methods:

the previous year’s consumption in the same period, the previous billing period’s consumption, or averaging.

While actual usage for individual customers

may differ materially from the estimate based on management judgments described above, we believe the overall total estimate of consumption and revenue for the fiscal period will not differ materially from actual billed consumption.

The majority of

our water customers are billed for water consumed on a monthly basis, while the remaining customers are billed on a quarterly basis.

As a result, we record unbilled operating revenue (contract asset) for any estimated usage through the end of the

accounting period that will be billed in the next monthly or quarterly billing cycle.

the previous year’s consumption in the same period, the previous billing period’s consumption, or

While actual usage for individual customers may differ materially from the estimate based on management judgments described above, we believe the overall total estimate of consumption and revenue for the fiscal period will not differ

materially from actual billed consumption.

The majority of our water customers are billed for water consumed on a monthly basis, while the remaining customers are billed on a quarterly basis.

As a result, we record unbilled operating revenue

(contract asset) for any estimated usage through the end of the accounting period that will be billed in the next monthly or quarterly billing cycle.

Artesian generates revenue from industrial wastewater services provided to a customer in Sussex County, Delaware.

We recognize industrial wastewater service

revenue at a contract rate on a monthly basis for the volume of wastewater transferred to Artesian’s wastewater facilities based upon meter readings for actual gallons of wastewater transferred.

These services are invoiced at the end of every month

based on the actual meter readings for that month, and therefore there is no contract asset or liability associated with this revenue.

The contract also provides for a minimum required volume of wastewater flow to our facility.

At each year end, any

shortfall of the actual volume from the required minimum volume is billed to the industrial customer and recorded as revenue.

Additionally, if during the course of the year it is probable that the actual volume will not meet the minimum required

volume, estimated revenue amounts would be recorded for the pro rata minimum volume, constrained for potential flow capacity that could occur in the remainder of the year.

Pursuant to a settlement agreement, the minimum required volume was prorated on

a seven month basis beginning June 1, 2021 and ending December 31, 2021.

Artesian generates revenue from metered wastewater services provided to customers in Sussex County, Delaware.

We recognize metered wastewater services at

tariff rates on a cycle basis for the volume of wastewater transferred to Artesian’s wastewater facilities based upon meter readings for actual gallons of water transferred, as well as unbilled amounts for estimated volume from the date of the last

meter reading to the end of the accounting period.

As actual volume amounts are known based on recurring meter readings, adjustments are made to the unbilled estimates in the next billing cycle based on the actual results.

Estimates are made on an

individual customer basis, based on one of three methods:

We recognize industrial wastewater service revenue at a contract rate on a monthly basis for the volume of wastewater transferred to Artesian’s wastewater facilities based upon meter readings for actual gallons of wastewater transferred.

services are invoiced at the end of every month based on the actual meter readings for that month, and therefore there is no contract asset or liability associated with this revenue.

The contract also provides for a minimum required volume of

wastewater flow to our facility.

At each year end, any shortfall of the actual volume from the required minimum volume is billed to the industrial customer and recorded as revenue.

Additionally, if during the course of the year it is probable that

the actual volume will not meet the minimum required volume, estimated revenue amounts would be recorded for the pro rata minimum volume, constrained for potential flow capacity that could occur in the remainder of the year.

Artesian generates revenue from metered wastewater services provided to certain customers in Sussex County,

We recognize metered wastewater services at tariff rates on a cycle basis for the volume of wastewater transferred to Artesian’s wastewater facilities based upon meter readings for actual gallons of water transferred, as well as unbilled

amounts for estimated volume from the date of the last meter reading to the end of the accounting period.

As actual volume amounts are known based on recurring meter readings, adjustments are made to the unbilled estimates in the next billing cycle

based on the actual results.

Estimates are made on an individual customer basis, based on one of three methods:

the previous year’s volume in the same period, the previous billing period’s volume, or averaging.

While actual usage for individual customers may differ materially from the estimate based on

management judgments described above, we believe the overall total estimate of volume and revenue for the fiscal period will not differ materially from actual billed consumption.

The majority of these wastewater customers are billed for the volume of

water transferred on a quarterly basis.

As a result, we record unbilled operating revenue (contract asset) for any estimated volume through the end of the accounting period that will be billed in the next monthly cycle.

Artesian generates fixed-fee revenue for water and wastewater services provided to customers once a customer requests service in our territory.

wastewater territory is located in Sussex County, Delaware.

We recognize revenue from these services on a ratable basis over time as the customer simultaneously receives and consumes all the benefits of the Company remaining ready to provide them

water and wastewater service.

While actual usage for individual

customers may differ materially from the estimate based on management judgments described above, we believe the overall total estimate of volume and revenue for the fiscal period will not differ materially from actual billed consumption.

of these wastewater customers are billed for the volume of water transferred on a quarterly basis.

As a result, we record unbilled operating revenue (contract asset) for any estimated volume through the end of the accounting period that will be billed

in the next quarterly cycle.

Artesian generates fixed-fee revenue for water and wastewater services provided to customers once a customer

requests service in our territory.

Our wastewater territory is located in Sussex County, Delaware.

We recognize revenue from these services on a ratable basis over time as the customer simultaneously receives and consumes all the benefits of the

Company remaining ready to provide them water and wastewater service.

These contract services are billed either in advance or arrears at tariff rates on a monthly, quarterly or semi-annual basis.

For contract services billed in arrears, we record unbilled operating revenue (contract asset)

for any services through the end of the accounting period that will be billed in the next monthly or quarterly cycle.

For contract services billed in advance, we record deferred revenue (contract liability) and accounts receivable for any amounts for

which we have a right to invoice but for which services have not been provided.

For contract services billed in arrears, we record

unbilled operating revenue (contract asset) for any services through the end of the accounting period that will be billed in the next monthly or quarterly cycle.

For contract services billed in advance, we record deferred revenue (contract liability)

and accounts receivable for any amounts for which we have a right to invoice but for which services have not been provided.

This deferred revenue is netted with unbilled operating revenue on the Condensed Consolidated Balance Sheet.

Artesian generates service charges primarily from non-payment fees, such as water shut-off and reconnection fees and finance charges.

These fees are billed

and recognized as revenue at the point in time when our tariffs indicate the Company has the right to payment such as days past due have been reached or shut-offs and reconnections have been performed.

There is no contract asset or liability

associated with these fees.

Artesian generates revenue from DSIC, which are surcharges applied to water customer tariff rates in Delaware related to specific types of water distribution

system improvements.

Artesian generates service charges primarily from non-payment fees, such as water shut-off and reconnection fees and

finance charges.

These fees are billed and recognized as revenue at the point in time when our tariffs indicate the Company has the right to payment such as days past due have been reached or shut-offs and reconnections have been performed.

no contract asset or liability associated with these fees.

Artesian generates revenue from DSIC, which are surcharges applied to water customer tariff rates in Delaware

related to specific types of water distribution system improvements.

This rate is calculated on a semi-annual basis based on an approved projected revenue requirement over the following six-month period.

This rate is adjusted up or down at the next DSIC filing to account for any differences

between actual earned revenue and the projected revenue requirement.

Since DSIC revenue is a surcharge applied to tariff rates, we recognize DSIC revenue based on the same guidelines as noted above depending on whether the surcharge was applied to

consumption revenue or fixed-fee revenue.

This rate is adjusted up or down at the next

DSIC filing to account for any differences between actual earned revenue and the projected revenue requirement.

Since DSIC revenue is a surcharge applied to tariff rates, we recognize DSIC revenue based on the same guidelines as noted above depending

on whether the surcharge was applied to consumption revenue or fixed-fee revenue.

Accounts receivable related to tariff contract revenues are typically due within 25 days of invoicing.

An allowance for doubtful accounts is calculated as a percentage of total associated revenues based upon historical trends and adjusted for current conditions.

our exposure to credit losses by discontinuing services in the event of non-payment;

An allowance for doubtful accounts is calculated as a percentage of total associated revenues based upon historical trends and adjusted for current

We mitigate our exposure to credit losses by discontinuing services in the event of non-payment;

accordingly, the related allowance for doubtful accounts and associated bad debt expense has not been significant.

However, due to the COVID-19 pandemic causing

hardships for many utility customers, the Company experienced longer receivable cycles throughout 2020 and into 2021 and made an adjustment to increase the reserve for bad debt by $ 0.5 million in 2020.

In June 2021 we made an adjustment to reduce the reserve by $ 0.3

We will continue to monitor factors that affect the reserve for bad debt.

Non-tariff Contract Revenues

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and are typically due within 30 days, and therefore there is no contract asset or liability associated with most of these revenues.

operation contract that was paid in advance resulting in a contract liability for services that have not yet been provided.

An allowance for doubtful accounts is provided based on a periodic analysis of individual account balances, including an

evaluation of days outstanding, payment history, recent payment trends, and our assessment of our customers’ creditworthiness.

The related allowance for doubtful accounts and associated bad debt expense has not been significant.

We have one operation contract that was paid in advance resulting in a contract liability for services that have not yet been provided.

An allowance for doubtful

accounts is provided based on a periodic analysis of individual account balances, including an evaluation of days outstanding, payment history, recent payment trends, and our assessment of our customers’ creditworthiness.

The related allowance for

doubtful accounts and associated bad debt expense has not been significant.

Artesian generates design and installation revenue for services related to the design and construction of wastewater infrastructure for a state agency under

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incurred costs to date.

As of September 30, 2022, there is no associated contract asset or liability.

As of March 31, 2023, there is no associated contract asset or liability.

There is no allowance for doubtful accounts or bad debt expense associated with this revenue.

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(in thousands)

Three months ended

September 30, 2022

Three months ended

September 30, 2021

Nine months ended

September 30, 2022

Nine months ended

September 30, 2021

Three months ended March 31, 2023

Three months ended March 31, 2022

Tariff Revenue

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(in thousands)

September 30, 2022

March 31, 2023

December 31, 2022

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Total Deferred Revenue

For the nine months ended September 30, 2022, the Company recognized revenue of $ 1.2

For the three months ended March 31, 2023, the Company recognized revenue of $ 1.2

million from amounts that were included in Deferred Revenue – Tariff at the beginning of the year and revenue of $ 0.3 million from amounts that

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Remaining Performance Obligations

As of September 30, 2022 and December 31, 2021, Deferred Revenue – Tariff is recorded net of contract assets within Unbilled operating revenues and represents our remaining

As of March 31, 2023 and December 31, 2022, Deferred Revenue – Tariff is recorded net of contract assets within Unbilled operating revenues and represents our remaining

performance obligations for our fixed fee water and wastewater services, all of which are expected to be satisfied and associated revenue recognized in the next three months.

As of September 30, 2022 and December 31, 2021, Deferred Revenue – Non-Tariff is recorded within Other current liabilities and represents our remaining performance obligations for our

SLP Plan services, wastewater inspections and one operation contract, which are expected to be satisfied and associated revenue recognized within the next three months, one year and seven years for the SLP Plan revenue, inspection fee revenue and

contract operations revenue, respectively.

As of March 31, 2023 and December 31, 2022, Deferred Revenue – Non-Tariff is recorded within Other current liabilities and represents our remaining performance obligations for our

SLP Plan services, contract water operation services and wastewater inspections, which are expected to be satisfied and associated revenue recognized within the next three months for the SLP revenue, approximately seven years for the contract service

revenue and one year for the inspection fee revenue.

NOTE 4 – ACCOUNTS RECEIVABLE

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million is due in three equal installments no later than August of each year from 2023 through 2025.

An allowance for doubtful accounts is

calculated as a percentage of total associated revenues based upon historical trends and adjusted for current conditions.

An allowance for doubtful accounts is calculated as a percentage of total associated revenues based upon historical trends and adjusted for current

We mitigate our exposure to credit losses by discontinuing services in the event of non-payment;

accordingly, the related

allowance for doubtful accounts and associated bad debt expense has not been significant.

The following table summarizes the changes in the Company’s accounts receivable balance:

September 30,

accordingly, the related allowance for doubtful accounts and associated bad debt expense has not been significant.

The following table summarizes the

changes in the Company’s accounts receivable balance:

(in thousands)

Customer accounts receivable – water

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Developer receivable

Long-term portion of settlement agreement receivable (included in other deferred assets)

Less allowance for doubtful accounts

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Our leases have remaining lease terms of 5 years to 74 years, some of which include

options to automatically extend the leases for up to 66 years.

Payments made under operating leases are recognized in the consolidated

statement of operations on a straight-line basis over the period of the lease.

The annual lease payments for the land operating leases increase each year either by the most recent increase in the Consumer Price Index or by 3 %, as applicable based on the lease agreements.

Periodically, the annual lease payment for one operating land lease is determined based on the fair market

value of the applicable parcel of land.

options to automatically extend the leases for up to 66 years and are included as part of the lease liability and right of use assets as we

expect to exercise the options.

Payments made under operating leases are recognized in the consolidated statement of operations on a straight-line basis over the period of the lease.

The annual lease payments for the land operating leases increase

each year either by the most recent increase in the Consumer Price Index or by 3 %, as applicable based on the lease agreements.

Periodically,

the annual lease payment for one operating land lease is determined based on the fair market value of the applicable parcel of land.

None of the operating leases contain contingent rent provisions.

The commencement date of all the operating leases is the earlier of the date we become legally obligated to make rent payments or the date we may

exercise control over the use of the land or equipment.

The Company currently does not have any financing leases and does not have any lessor leases that require disclosure.

The commencement date of all the operating leases is

the earlier of the date we become legally obligated to make rent payments or the date we may exercise control over the use of the land or equipment.

The Company currently does not have any financing leases and does not have any lessor leases that

require disclosure.

Management made certain assumptions related to the separation of lease and nonlease components and to the discount rate used when calculating the right of

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Three Months Ended

Nine Months Ended

September 30,

Three Months Ended

March 31, 2023

March 31, 2022

Minimum rentals

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(in thousands)

Nine Months Ended

September 30, 2022

September 30, 2021

Three Months Ended

March 31, 2023

March 31, 2022

Cash paid for amounts included in the measurement of lease liabilities:

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except lease term and discount rate)

September 30, 2022

March 31, 2023

December 31, 2022

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Operating leases

Maturities of operating lease liabilities that have initial or remaining non-cancelable lease terms in excess of one year as of September 30, 2022 are as follows:

Maturities of operating lease liabilities that have initial or remaining non-cancelable lease terms in excess of one year as of March 31, 2023 are as follows:

(in thousands)

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Total lease liabilities recognized

As of September 30, 2022, we have not entered into

As of March 31, 2023, we have not entered into

operating or finance leases that will commence at a future date.

NOTE 6 – STOCK COMPENSATION PLANS

On December 9, 2015, the Company's stockholders approved the 2015 Equity Compensation Plan, or the 2015 Plan.

The 2015 Plan provides that grants may be in

any of the following forms:

incentive stock options, nonqualified stock options, stock units, stock awards, dividend equivalents and other stock-based awards.

The 2015 Plan is administered and interpreted by the Compensation Committee, or the

Committee, of the Board of Directors of the Company, or the Board.

The Committee has the authority to determine the individuals to whom grants will be made under the 2015 Plan, the type, size and terms of the grants, the time when grants will be made

and the duration of any applicable exercise or restriction period (subject to the limitations of the 2015 Plan), and deal with any other matters arising under the 2015 Plan.

On December 9, 2015, the Company’s stockholders approved the 2015 Equity Compensation Plan, or the 2015 Plan, that replaced the 2005 Equity Compensation

Plan, or the 2005 Plan, which expired on May 24, 2015.

The 2015 Plan provides that grants may be in any of the following forms:

incentive stock options, nonqualified stock options, stock units, stock awards, dividend equivalents and other stock-based

The 2015 Plan is administered and interpreted by the Compensation Committee of the Board of Directors, or the Committee.

The Committee has the authority to determine the individuals to whom grants will be made under the 2015 Plan, determine

the type, size and terms of the grants, determine the time when grants will be made and the duration of any applicable exercise or restriction period (subject to the limitations of the 2015 Plan) and deal with any other matters arising under the 2015

The Committee presently consists of three directors, each of whom is a non-employee director of the Company.

All of the employees of the Company and its subsidiaries and non-employee directors of the Company are

eligible for grants under the 2015 Plan.

Compensation expense, for the three and nine months ended September 30, 2022 of approximately $ 57,000 and

$ 162,000 , respectively, was recorded for restricted stock awards issued in May 2021 and May 2022.

Compensation expense, for the three and nine months ended September 30, 2021 of

approximately $ 51,000 and $ 142,000 ,

respectively, was recorded for restricted stock awards issued in May 2020 and May 2021.

All of the employees of the Company and its subsidiaries are eligible for grants under the 2015

Non-employee directors of the Company are also eligible to receive grants under the 2015 Plan.

Compensation expense of $ 56,000 , related to the

May 2022 issue of restricted stock awards, was recorded for the three months ended March 31, 2023.

Compensation expense of $ 49,000 was recorded

for the three months ended March 31, 2022 for restricted stock awards issued in May 2021.

Costs were determined based on the fair value on the dates of the awards and those costs were charged to income over the service periods associated with the

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Prior to their release date, these restricted stock awards may be subject to forfeiture in the event of the recipient’s termination of service.

On May 4, 2021, 5,000 shares of Class A Common

Stock, or Class A Stock, were granted as restricted stock awards.

The fair value per share was $ 40.11 , the closing price of the Class A Stock as

recorded on the Nasdaq Global Select Market on May 4, 2021.

Prior to their release date, these restricted stock awards may be subject to forfeiture in the event of the recipient’s termination of service.

The following summary reflects changes in the shares of Class A Stock underlying options and

restricted stock awards for the nine months ended September 30, 2022:

The following summary reflects changes in the shares of Class A Stock underlying options and restricted stock awards for

the three months ended March 31, 2023:

Restricted Awards

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Expired/cancelled

Outstanding at September 30, 2022

Exercisable/vested at September 30, 2022

The total intrinsic value of options exercised during the nine months ended September 30, 2022 was approximately $ 1,894,000 .

There were no unvested option shares outstanding under the 2015 Plan during the nine months ended September 30, 2022.

As of September 30, 2022, there were no unrecognized expenses related to non-vested option shares granted under the 2015 Plan.

As of September 30, 2022, there was $ 134,000 total unrecognized expenses related to non-vested awards of restricted shares awarded under the 2015 Plan.

Outstanding at March 31, 2023

Exercisable/vested at March 31, 2023

There were no options exercised during the three months ended March 31, 2023.

There were no unvested option shares outstanding under the 2015 Plan during the three months ended March 31, 2023.

As of March 31, 2023, there were no unrecognized expenses related to non-vested option shares granted under the 2015 Plan.

As of March 31, 2023, there was $ 20,000 total unrecognized expenses related to non-vested awards of restricted shares awarded under the 2015 Plan.

The cost will be recognized over 0.09 years, the remaining vesting period for the restricted stock awards.

NOTE 7 – OTHER DEFERRED ASSETS

The investment in CoBank, which is a cooperative bank, is related to certain outstanding First Mortgage Bonds and is a required investment in the bank based on the

underlying long-term debt agreements.

The investment in CoBank, which is a cooperative bank, is related to certain outstanding First Mortgage Bonds and is a required investment in the bank based on the underlying long-term debt

The settlement agreement receivable is related to the long-term portion of reimbursements due in years 2024 and 2025 as further discussed in Note 4-Accounts Receivable.

September 30, 2022

(in thousands)

March 31, 2023

December 31, 2022

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Debt issuance costs and other debt related expenses are reviewed during Artesian Water’s rate applications as part of its cost of capital calculations.

Affiliated interest agreement deferred costs relate to the regulatory and administrative costs resulting from

efforts necessary to secure water allocations in Artesian Water Pennsylvania’s territory for the provision of service to the surrounding area and interconnection to Artesian Water Pennsylvania’s affiliate regulated water utility Artesian Water.

costs were specifically included for cost recovery pursuant to an Affiliated Interest Agreement between Artesian Water and Artesian Water Pennsylvania and were approved for recovery by the PAPUC and were reclassed from deferred costs to a regulatory

asset in 2022.

Regulatory expenses amortized on a straight-line basis are noted below:

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15 to 30 (based on term of related debt)

Deferred costs affiliated interest agreement

Goodwill (resulting from acquisition of Mountain Hill Water Company in 2008)

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(in thousands)

September 30, 2022

March 31, 2023

December 31, 2022

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Debt related costs

Rate case studies

Deferred costs affiliated interest agreement

Deferred acquisition and franchise costs

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reimbursements for past capital and operating costs.

The refund for the reimbursements will be applied to current and future customer bills in annual installments, with the first refund occurring in October 2022, and future customer refunds occurring

no later than August of each year from 2023 through 2025.

The refund for the reimbursements will be applied to current and future customer bills in annual installments.

The first refund occurred in October 2022, and future customer refunds will occur no

later than August of each year from 2023 through 2025.

The amount of the credit will be calculated by dividing the amount of the reimbursement by the number of eligible customers.

Artesian Water will record 2022 and future recovery of capital

expenditures as Contributions in Aid of Construction and will record expense recovery as an offset to operations and maintenance expense, with the intention that those recoveries will then be available for inclusion and consideration in any future rate

applications.

For a full discussion of the Settlement Agreement, refer to Part II – Other Information – Item 1 – Legal Proceedings.

Beginning in 2022, Artesian Water will record 2022 and future recovery

of capital expenditures as Contributions in Aid of Construction and will record expense recovery as an offset to operations and maintenance expense, with the intention that those recoveries will then be available for inclusion and consideration in any

future rate applications.

For a full discussion of the Settlement Agreement, refer to Note 17 - Legal Proceedings.

Pursuant to the enactment of the Tax Cuts and Jobs Act, or TCJA, on December 22, 2017, the Company adjusted its existing deferred income tax balances to

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(in thousands)

September 30, 2022

March 31, 2023

December 31, 2022

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Deferred income taxes (related to TCJA)

NET INCOME PER COMMON SHARE AND EQUITY PER COMMON SHARE

NOTE 10 - NET INCOME PER COMMON

SHARE AND EQUITY PER COMMON SHARE

Basic net income per share is based on the weighted average number of common shares outstanding.

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average number of common shares outstanding, the potentially dilutive effect of employee stock options and restricted stock awards.

The following table summarizes the shares used in computing basic and diluted net income

For the Three Months Ended

September 30,

For the Nine Months Ended

September 30,

The following table summarizes the shares used in computing basic and diluted net income per share:

For the Three Months Ended March 31,

(in thousands)

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Weighted average common shares outstanding during the period for Diluted computation

For the three and nine months ended September 30, 2022

and 2021, no shares of

restricted stock awards were excluded from the calculations of diluted net income per share.

For the three months ended March 31, 2023 and 2022, no shares of restricted stock awards

were excluded from the calculations of diluted net income per share.

The Company has 15,000,000 authorized shares of

Class A Stock and 1,040,000 authorized shares of Class B Common Stock, or Class B Stock.

As of September 30, 2022, 8,609,497 shares of Class A Stock and 881,452 shares of Class B Stock were issued and outstanding.

As of September 30, 2021 , 8,524,093 shares of Class A Stock and 881,452 shares of Class B Stock were issued

and outstanding.

As of March 31, 2023, 8,622,999 shares of Class A Stock and 881,452 shares of Class B Stock were issued and outstanding.

As of March 31, 2022 , 8,556,970

shares of Class A Stock and 881,452 shares of Class B Stock were issued and outstanding.

The par value for both classes is $ 1.00 per share.

Equity per common share was $ 19.88 and $ 18.94 at September 30, 2022 and December 31, 2021 , respectively.

These amounts were computed by dividing common stockholders' equity by the number of weighted average shares of common stock outstanding on September 30, 2022 and December 31, 2021 ,

respectively.

Equity per common share was $ 19.90 and $ 19.16 at March 31, 2023 and December 31, 2022 , respectively.

These amounts were computed by dividing common stockholders' equity by the number of weighted average shares of common stock outstanding on March 31, 2023

and December 31, 2022 , respectively.

N OTE 11 - REGULATO RY PROCEEDINGS

Our water and wastewater utilities generate operating revenue from customers based on rates that are established by state public service commissions through

a rate-setting process that may include public hearings, evidentiary hearings and the submission of evidence and testimony in support of the Company's requested level of rates.

Our water and wastewater utilities generate operating revenue from customers based on rates that are established by state public service

commissions through a rate-setting process that may include public hearings, evidentiary hearings and the submission of evidence and testimony in support of the Company’s requested level of rates.

We are subject to regulation by the following state regulatory commissions:

The DEPSC, regulates both Artesian Water and Artesian Wastewater.

• The DEPSC, regulates Artesian Water, Artesian Wastewater, and TESI.

• The MDPSC, regulates both Artesian Water Maryland and Artesian Wastewater Maryland.

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Water and Wastewater Rates

Our regulated utilities periodically seek rate increases to cover the cost of increased operating expenses, increased financing expenses due to additional

Our regulated subsidiaries periodically seek rate increases to cover the cost of increased operating expenses, increased financing expenses due to additional

investments in utility plant and other costs of doing business.

Artesian Water provided notice to the DEPSC of its intent to file a request in the second quarter of 2023 to implement new rates to support Artesian Water’s ongoing capital improvement

program and to cover increased costs of operations.

In Delaware, utilities are permitted by law to place rates into effect, under bond, on a temporary basis pending completion of a rate increase proceeding.

The first temporary increase may

be up to the lesser of $ 2.5 million on an annual basis or 15 % of gross water sales.

Should the rate case not be

completed within seven months , by law, the utility may put the entire requested rate relief, up to 15 % of gross water sales, in effect under bond until a final resolution is ordered and placed into effect.

If any such rates are found to be in excess of rates the DEPSC finds to

be appropriate, the utility must refund customers the portion found to be in excess with interest.

The timing of our rate increase requests is therefore dependent upon the estimated cost of the administrative process in relation to the investments and

expenses that we hope to recover through the rate increase.

We can provide no assurances that rate increase requests will be approved by applicable regulatory agencies and, if approved, we cannot guarantee that these rate increases will be granted in

a timely or sufficient manner to cover the investments and expenses for which we initially sought the rate increase.

Any DSIC rate in effect will be reset to

zero upon implementation of a temporary increase in base rates charged to customers.

The first temporary increase may be up to the lesser of $ 2.5 million on an annual basis or 15 % of gross water sales.

Should the rate case not be completed within seven months , by law, the utility may put the entire requested rate relief, up

to 15 % of gross water sales, in effect under bond until a

final resolution is ordered and placed into effect.

If any such rates are found to be in excess of rates the DEPSC finds to be appropriate, the utility must refund customers the portion found to be in excess with interest.

The timing of our rate

increase requests is therefore dependent upon the estimated cost of the administrative process in relation to the investments and expenses that we hope to recover through the rate increase.

We can provide no assurances that rate increase requests

will be approved by applicable regulatory agencies and, if approved, we cannot guarantee that these rate increases will be granted in a timely or sufficient manner to cover the investments and expenses for which we initially sought the rate increase.

See Note 19 – Subsequent Events.

Other Proceedings

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customers under otherwise applicable rates and charges, and the DSIC rate increase applied cannot exceed 5.0 % within an y 12-month period.

The following table summarizes (1) Artesian Water’s applications with the DEPSC to collect DSIC rates and (2) the rates upon which eligible plant

improvements are based:

The following table summarizes (1) Artesian Water’s application with the DEPSC to collect DSIC rates and (2) the rate upon which eligible plant improvements are based:

Application Date

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The rate reflects the eligible plant improvements installed through April 30, 2019.

The January 1, 2021 rate currently remains in effect and is subject to periodic audit by the DEPSC.

For the three and nine months ended September 30, 2022, we earned approximately $ 1.4

million and $ 3.9 million in DSIC revenue, respectively.

For the three and nine months ended September 30, 2021, we earned approximately $ 1.4 million and $ 3.9 million in DSIC revenue,

respectively.

The January 1, 2021 rate currently remains in effect and is subject to

periodic audit by the DEPSC.

For each of the three months ended March 31, 2023 and March 31, 2022, we earned approximately $ 1.2 million in DSIC revenue.

NOTE 12 – INCOME TAXES

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at which they are carried in the consolidated financial statements based on the enacted tax rates expected to be in effect when such temporary differences are expected to reverse.

The Company’s rate regulated utilities recognize regulatory liabilities,

to the extent considered in ratemaking, for deferred taxes provided in excess of the current statutory tax rate and regulatory assets for deferred taxes provided at rates less than the current statutory rate.

Such tax-related regulatory assets and

liabilities are reported at the revenue requirement level and amortized to income as the related temporary differences reverse, generally over the lives of the related properties.

The Company’s rate regulated subsidiaries recognize regulatory

liabilities, to the extent considered in ratemaking, for deferred taxes provided in excess of the current statutory tax rate and regulatory assets for deferred taxes provided at rates less than the current statutory rate.

Such tax-related regulatory

assets and liabilities are reported at the revenue requirement level and amortized to income as the related temporary differences reverse, generally over the lives of the related properties.

Under FASB ASC Topic 740, an uncertain tax position represents our expected

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would then adjust its tax reserves or unrecognized tax benefits in the period that this information becomes known.

The statute of limitations for the 2017 tax returns lapsed during the fourth quarter of 2021, which resulted in the reversal

The statute of limitations for the 2018 tax returns lapsed during the third quarter of 2022, which resulted in the reversal

of the reserve in the amount of approximately $ 212,000 .

The statute of limitations for the 2018 tax returns lapsed during the third quarter of

2022, which resulted in the reversal of the reserve in the amount of approximately $ 212,000 .

The Company has elected to recognize accrued interest (net of related tax benefits) and penalties related to uncertain tax positions as a component of its income tax expense.

During the third quarter, the Company has

reversed approximately $ 10,000 in penalties and interest

for the nine months ended September 30, 2022 leaving a zero balance.

The Company remains subject to examination by federal and state

authorities for the tax years 2019 through 2021 .

Company has elected to recognize accrued interest (net of related tax benefits) and penalties related to uncertain tax positions as a component of its income tax expense.

During the third quarter of 2022 , the Company reversed approximately $ 10,000 in penalties and interest leaving a zero balance.

The Company remains subject to examination by federal and state authorities for the tax years 2019 through 2022 .

Investment tax credits were deferred through 1986 and are recognized as a reduction of deferred income tax expense over the estimated economic useful lives

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of those instruments.

All of Artesian Resources’ outstanding lo ng-term

debt as of September 30, 2022 and December 31, 2021 was fixed-rate.

The fair value of the Company’s

long-term debt is determined by discounting their future cash flows using current market interest rates on similar instruments with comparable maturities consistent with FASB ASC 825.

Under the fair value hierarchy, the fair value of the long-term

debt in the table below is classified as Level 2 measurements.

Long-term Financial Liabilities

All of Artesian Resources’ outstanding lo ng-term debt as of March 31, 2023 and December 31, 2022 was fixed-rate.

The fair value of the Company’s long-term debt is

determined by discounting their future cash flows using current market interest rates on similar instruments with comparable maturities consistent with FASB ASC 825.

Under the fair value hierarchy, the fair value of the long-term debt in the table

below is classified as Level 2 measurements.

Level 2 is valued using observable inputs other than quoted prices.

The fair values for long-term debt differ from the carrying values primarily due to interest rates that differ from the

current market interest rates.

The fair values for long-term debt differ from the carrying values primarily due to interest rates that differ from the current market

interest rates.

The carrying amount and fair value of Artesian Resources' long-term debt (including current portion) are shown below:

September 30, 2022

(in thousands)

March 31, 2023

December 31, 2022

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because these financial instruments are non-interest bearing.

NOTE 14 – RELATED PARTY TRANSACTIONS

Michael Houghton currently serves as a director.

During 2021, Mr.

Houghton was a Partner in the law firm of Morris, Nichols, Arsht & Tunnell LLP, or

MNAT, in Wilmington, Delaware.

Houghton retired from MNAT as a Partner, effective January 1, 2022, however, Mr.

Houghton continues to perform legal services for MNAT as an independent contractor and non-partner.

In the normal course of business,

the Company utilized the services of MNAT in 2021 for various regulatory, real estate and public policy matters.

Approximately $ 89,000 and $ 160,000 was paid to MNAT during the three and nine months ended September 30, 2021, respectively, for legal services and director related services.

As set forth in the Charter of the Audit Committee of the Board, the Audit Committee is responsible for reviewing and, if appropriate, approving all related

party transactions between us and any officer, any director, any person known to be the beneficial owner of more than 5 % of any class of the

Company's voting securities or any other related person that would potentially require disclosure.

In its review and approval of the related party transactions with MNAT, the Audit Committee considered the nature of the related person's interest in

the transactions;

the satisfactory performance of work contracted with the related party prior to the election of Mr.

Houghton as a director;

and the material terms of the transactions, including, without limitation, the amount and type of

transactions, the importance of the transactions to the related person, the importance of the transactions to the Company and whether the transactions would impair the judgment of a director or officer to act in the best interest of the Company.

Audit Committee approves only those related person transactions that are in, or are consistent with, the best interests of the Company and its stockholders.

NOTE 14 – BUSINESS COMBINATIONS

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acquire TESI, which provides regulated wastewater services in Delaware.

Artesian Wastewater purchased all of the stock of TESI from Middlesex Water Company for $ 6.4 million in cash and other consideration, including forgiveness of a $ 2.1 million

note due from Middlesex, consisting of $ 3.1 million paid at closing.

This acquisition more than doubled the number of wastewater customers served by Artesian in Sussex County, Delaware.

The acquisition is being accounted for as a business combination under ASC Topic 805, “Business Combinations.” The

purchase price allocation is primarily attributed to intangible assets and utility plant assets acquired and liabilities assumed based on their respective estimated fair values.

The acquisition method of accounting requires, among other things, that

assets acquired, and liabilities assumed in a business purchase combination be recognized at their fair values as of the acquisition date.

Artesian Wastewater purchased all of the stock of TESI from Middlesex Water Company for $ 6.4 million in cash and other consideration, including forgiveness of a $ 2.1 million note due from Middlesex,

consisting of $ 3.1 million paid at closing.

This acquisition more

than doubled the number of wastewater customers served by Artesian in Sussex County, Delaware.

The acquisition is being accounted for as a business combination under ASC Topic 805, “Business Combinations.” The purchase price allocation is

primarily attributed to intangible assets and utility plant assets acquired and liabilities assumed based on their respective estimated fair values.

The acquisition method of accounting requires, among other things, that assets acquired, and

liabilities assumed in a business purchase combination be recognized at their fair values as of the acquisition date.

The Company utilized a third-party valuation firm to assist with the fair value of the assets acquired.

fair value determination is now finalized, with the exception of deferred income taxes, which is still preliminary but expected to be complete by December 31, 2022.

The fair value for deferred income taxes affects both goodwill and deferred income

A combination of methods was used to determine the reasonableness of the purchase price:

A combination of methods

was used to determine the reasonableness of the purchase price:

the cost approach and the comparative sales (market) approach.

Given the majority of the net assets acquired were tangible utility plant assets and

related contributions in aid of construction, the Company primarily utilized the cost approach to record the fair value of the assets as well as some of the assumed liabilities.

This approach values the underlying assets to derive market value based

on the estimated replacement cost, adjusted for depreciation.

Given the majority of the net assets acquired were tangible utility plant assets and related contributions in aid of

construction, the Company primarily utilized the cost approach to record the fair value of the assets as well as some of the assumed liabilities.

This approach values the underlying assets to derive market value based on the estimated replacement

cost, adjusted for depreciation.

Real property was valued using the comparative sales approach.

Goodwill was recognized primarily as a result of expected synergies of operations and interconnections to our existing

utility plant infrastructure.

Goodwill was recognized primarily as a result of expected synergies of operations and interconnections to our existing utility plant infrastructure.

Any goodwill as a result of the transaction is not expected to be deductible for tax purposes.

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treatment of the acquisition price and the assets acquired in Artesian Wastewater’s next base rate case.

The Company reflected revenue of $ 0.8 million and $ 2.2 million for the three and nine months ended September 30, 2022, respectively, in its

condensed consolidated statement of operations related to the acquisition.

The pro forma revenue for the three and nine months ended September 30, 2022 is estimated to be approximately $ 0.8

million and $ 2.2 million, respectively.

The Company anticipates the pro forma effects of revenue for the three and nine months ended September 30, 2021 to be

approximately the same given there has not been any changes in the rates.

The pro forma information is not necessarily indicative of the Company’s future results.

Any pro forma effects of earnings is not practicable, as we continue to integrate

TESI operations and adjust the operating cost structure as it relates to operating expenses reflective of synergies of the combined operations, and therefore would not present an accurate comparison.

The table below sets forth the purchase price allocation of this acquisition as of September 30, 2022.

The fair value determination is now finalized, with the exception of deferred income taxes, which is still

preliminary but expected to be complete by December 31, 2022.

The fair value for deferred income taxes affects both goodwill and deferred income taxes, which is included in the liability amount below.

The results of operations for the three months ended March 31, 2023 and March 31, 2022 related to the business

acquired are included in the Company’s condensed consolidated statements of operations.

The table below sets forth the final purchase price allocation of this acquisition as of December 31, 2022.

(in thousands)

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Additionally, as part of the Company’s growth strategy, on May 26, 2022,

Artesian Water completed its purchase of substantially all of the water system operating assets from the Town of Clayton, or Clayton, a Delaware municipality located in Kent County, Delaware, including Clayton’s exclusive franchise territory and

the right to provide water service to Clayton’s existing customers, or the Clayton Water System.

right to provide water service to Clayton’s existing customers, or the Clayton Water System.

The total purchase price was $ 5.0 million, less the current payoff amount of secured debt or debt associated with the Clayton Water System.

At closing, Artesian Water paid approximately $ 3.4 million of the total purchase price.

The remaining $ 1.6 million is payable in five equal annual installments on the anniversary date of the closing date.

Each annual installment

is payable with interest at an annual rate of 2.0 % .

The remaining $ 1.6 million is payable in five equal annual installments on the anniversary date of the closing.

Each annual installment is

payable with interest at an annual rate of 2.0 % .

acquisition was accounted for as a business combination under ASC Topic 805.

The preliminary purchase price allocation is $ 8.9

million of utility plant assets offset by $ 3.8 million of CIAC.

This preliminary purchase price allocation will be finalized once the

valuation of assets acquired has been completed, no later than one year after the acquisition date.

The purchase price allocation is $ 7.9 million of utility

plant assets offset by $ 2.9 million of CIAC.

The Company utilized similar valuation methodologies to those described above.

This transfer of Clayton’s exclusive franchise territory was approved by the

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the Company’s financial position or results of operations based on estimated annual revenue of approximately $ 0.5 million related to customers acquired.

As of December 31, 2022, the fair value determination for TESI and the town of Clayton is finalized.

NOTE 15 – GEOGRAPHIC CONCENTRATION OF CUSTOMERS

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MDPSC and the PAPUC.

As of September 30, 2022, Artesian Water was serving approximately 94,400 customers, Artesian Water Maryland was serving approximately 2,600 customers

and Artesian Water Pennsylvania was serving approximately 40 customers.

As of March 31, 2023, Artesian Water was serving approximately 95,000 customers, Artesian Water Maryland was serving approximately 2,600

customers and Artesian Water Pennsylvania was serving approximately 40 customers.

Artesian Wastewater and TESI provide wastewater utility service to customers within their established service territory in Sussex County, Delaware pursuant

to rates filed with and approved by the DEPSC.

The number of wastewater customers served more than doubled following the acquisition of TESI in January 2022.

As of September 30, 2022, Artesian Wastewater combined with TESI were serving approximately 7,400

customers, including one large industrial customer.

As of March 31, 2023, the number of wastewater customers served was approximately 7,700 , including one large industrial customer.

NOTE 16 – BUSINESS SEGMENT INFORMATION

The Company’s operating segments are comprised of its businesses which generate revenues and incur expenses, for which separate operational financial

information is available and is regularly evaluated by management for the purpose of making operating decisions, assessing performance, and allocating resources.

The Company operates its businesses primarily through one reportable segment, the Regulated Utility segment.

The Regulated Utility segment is the largest component of the Company’s business and includes an

aggregation of our five regulated utility subsidiaries that are in the business of providing regulated water and wastewater services on the

Delmarva Peninsula.

Our regulated water utility services include treating, distributing, and selling water to residential, commercial, industrial, governmental, municipal and utility customers throughout the State of Delaware and in Cecil County,

Maryland and to a residential community in Chester County, Pennsylvania.

Our regulated wastewater utility services include the treatment and disposal of wastewater for customers in Sussex County, Delaware.

The Company is subject to regulations as to its rates, services, and other matters by the states of Delaware, Maryland and Pennsylvania with respect to utility service within these states.

The Company also operates other non-utility businesses, primarily comprised of:

Service Line Protection Plan services for water, sewer and internal plumbing;

design, construction and engineering services;

and contract services for the operation and maintenance of water and wastewater systems in Delaware and Maryland.

These non-utility businesses do not individually or in the aggregate meet the criteria for

disclosure of a reportable segment in accordance with generally accepted accounting principles and are collectively presented throughout this Quarterly Report on Form 10-Q within “Other” or “Non-utility”, which is consistent with how management

assesses the results of these businesses.

The accounting policies of the operating segments are the same as those described in Note 2 – Basis of Presentation.

The Regulated Utility segment includes

inter-segment costs related to leased office space provided by one non-utility business, calculated on the lower of cost or market method, which

are eliminated to reconcile to the Consolidated Statements of Operations.

The Regulated Utility segment also allocates certain corporate costs to the non-utility businesses.

The measurement of depreciation, interest, and capital expenditures are

predominately related to our Regulated Utility segment.

These amounts in our non-utility business are negligible and account for approximately less than 1% of consolidated amounts as of March 31, 2023 and March 31, 2022.

(in thousands)

Three Months Ended March 31,

Regulated Utility

Other (non-utility)

Inter-segment elimination

Consolidated Revenues

Operating Income:

Regulated Utility

Other (non-utility)

Consolidated Operating Income

Income Taxes:

Regulated Utility

Other (non-utility)

Consolidated Income Taxes

Regulated Utility

Other (non-utility)

Consolidated Assets

NOTE 17 – LEGAL PROCEEDINGS

Periodically, we are involved in other proceedings or litigation arising in the ordinary course of business.

We do not believe that the ultimate resolution

of these matters will materially affect our business, financial position or results of operations.

However, we cannot ensure that we will prevail in any litigation and, regardless of the outcome, may incur significant litigation expense and may have

significant diversion of management attention.

On July 19, 2022, final judgment was entered by the United States District Court, or Court, for a Consent Decree

between the Delaware Sand and Gravel Remedial Trust, or Trust, and the United States Environmental Protection Agency, or USEPA, that governs the implementation of Amendment No 2 to the USEPA’s 1988 Record of Decision for the Delaware Sand & Gravel

Landfill Superfund Site, or Site, located in New Castle County, Delaware, issued on December 12, 2017, or ROD Amendment No.

2, confirming, among other things, the terms and conditions set forth in a Settlement Agreement upon which The Chemours Company

FC, LLC, Hercules, LLC, Waste Management of Delaware, Inc., SC Holdings, Inc., Cytec Industries, Inc., Zeneca Inc., and Bayer CropScience Inc., collectively the Percentage Settlors, and the Trust, on one hand, and Artesian Water, on the other hand,

have agreed to resolve certain of Artesian Water’s claims and issues relating to releases of contaminants from the Site.

ROD Amendment No.

2 sets forth the remedy for the contamination existing at and emanating from the Site, or the

Remedy, to address a release of contaminants of concern and of emerging concern, or COC’s, from the Site into groundwater.

Artesian Water has found in groundwater that Artesian Water uses for public potable water supply certain COC’s that the Remedy

is designed to address, as a result of which Artesian has incurred, and potentially will incur additional, capital and operating costs to treat the groundwater to meet applicable drinking water standards.

The Remedy includes requirements that are

directly linked to Artesian’s continued operation of the treatment plant associated with groundwater around the Site.

As set forth in the Settlement Agreement, Artesian Water shall have access to financial assurances that the Percentage Settlors have provided, or will

provide, to the USEPA in connection with the Consent Decree governing the implementation of the Remedy.

In addition, the Trust shall reimburse Artesian Water for past capital and operating costs, totaling approximately $ 10.0 million.

Approximately $ 2.5 million was

paid in August 2022, and the remaining $ 7.5 million will be payable in three equal installments annually on the anniversary date of the Court’s approval of the Consent Decree.

In addition, the Trust shall reimburse Artesian Water for documented

reasonable and necessary capital and operating costs after July 1, 2021 that Artesian Water incurs to treat Site-related COC’s.

Any reimbursements Artesian Water receives from the Trust shall be subject to final determination by the DEPSC as to the

appropriate regulatory rate-making treatment.

Artesian Water received approval from the DEPSC in October 2022 to refund the reimbursements for past capital and operating costs to its customers.

The refund for the reimbursements will be applied to

current and future customer bills in annual installments.

The first refund occurred in October 2022, and future customer refunds will occur no later than August of each year from 2023 through 2025.

The amount of the credit is calculated by dividing

the amount of the reimbursement by the number of eligible customers.

Artesian Water will record 2022 and future recovery of capital expenditures as Contributions in Aid of Construction and will record expense recovery as an offset to operations and

maintenance expense, with the intention that those recoveries will then be available for inclusion and consideration in any future rate applications.

The Trust’s reimbursement of such costs shall end if and when, based upon testing information from

the Trust’s Remedy facilities and Artesian Water’s facilities, treatment of Site-related COC’s is no longer necessary for Artesian Water to meet the treatment levels that Artesian Water chooses to not exceed in water it distributes to the general

public throughout its service territory to provide a margin of safety in complying with applicable drinking water standards.

NOTE 18 – IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS

There was no new guidance issued by the FASB during the nine months ended September 30, 2022 that is applicable to the Company.

There was no new guidance issued by the FASB during the three months ended March 31, 2023 that is applicable to the Company.

NOTE 19 – SUBSEQUENT EVENTS

On April 28, 2023, Artesian Water Company, Inc.

(“Artesian Water”), the principal subsidiary of Artesian Resources

Corporation, filed a request with the Delaware Public Service Commission to implement new rates to meet a requested increase in revenue of 23.84 %,

or approximately $ 17.5 million, on an annualized basis.

The actual effective increase is less than 23.84 % since Artesian Water has been permitted to recover specific investments made in infrastructure through the assessment of a 7.50 % Distribution System Infrastructure Charge (“DSIC”).

Since the DSIC rate is set to zero when temporary rates are placed into effect, customers would experience an incremental

increase of 16.34 %, the net of the overall 23.84 %

increase less the DSIC rate of 7.50 % currently in effect, if the requested increase is granted in full by the Delaware Public Service

The new rates are designed to support Artesian Water’s ongoing capital improvement program and to cover increased costs of operations, including chemicals and electricity for water treatment, water quality testing, fuel, taxes, interest,

labor and benefits.

In accordance with applicable Delaware law, Artesian Water is permitted to implement temporary rates of 15 % or $ 2.5 million, whichever is lower, 60 days after

the application is accepted.

Since Artesian Water has DSIC surcharges in excess of the allowable temporary increase and imposing the temporary increase would require DSIC to be reset to zero, Artesian Water has elected not to request the initial

temporary rate increase.

However, should the application not be resolved within the seven-months statutory timeframe, Artesian Water would be

permitted to place into effect temporary rates of up to 15 % of gross water sales on an annual basis, subject to refund, until permanent rates

are determined by the Delaware Public Service Commission.

Artesian Water’s last comprehensive application for an increase in base rate charges was filed in April 2014.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements