What changed in this filing

/stocks — the workspaceLOADING

Item 8. Financial Statements and Supplementary Data

2024-03-18 compared with 2023-03-10 · 579 added, 596 removed, 753 unchanged (61% of the section changed)

7 unchanged sentences

Cash and cash equivalents

Accounts receivable (less allowance for doubtful accounts 2022 - $ 416 ;

Accounts and other receivables (less provision for expected credit loss 2023 - $ 328 ;

2022 - $ 416 )

60 unchanged sentences

Net income applicable to common stock

Income per common share:

Net income per common share:

Weighted average common shares outstanding:

4 unchanged sentences

CASH FLOWS FROM OPERATING ACTIVITIES

Adjustments to reconcile net income to net cash provided by operating activities:

Adjustments to reconcile net income to net cash provided by (used in) operating activities:

Depreciation and amortization

Amortization of debt expense

Provision for bad debt expense

Deferred income taxes, net

2 unchanged sentences

Changes in assets and liabilities, net of acquisitions:

Accounts receivable, net of allowance for doubtful accounts

Accounts and other receivables

Income tax receivable

19 unchanged sentences

CASH FLOWS FROM FINANCING ACTIVITIES

Net (repayments) borrowings under lines of credit agreements

Increase (decrease) in overdraft payable

Net advances and contributions in aid of construction

Repayments under lines of credit agreements

Borrowings under lines of credit agreements

(Decrease) increase in overdraft payable

Proceeds from contributions in aid of construction and advances

Payouts for contributions in aid of construction and advances

Net proceeds from issuance of common stock

Equity issuance cost

Issuance of long-term debt

3 unchanged sentences

NET CASH PROVIDED BY FINANCING ACTIVITIES

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

NET INCREASE IN CASH AND CASH EQUIVALENTS

CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR

6 unchanged sentences

Change in amounts included in accounts payable and accrued

payables related to capital expenditures

payables related to capital

Supplemental Cash Flow Information:

7 unchanged sentences

Cash received from acquisitions

Net cash paid for acquisitions

Investment in acquisitions, net of cash acquired

The notes are an integral part of the consolidated financial statements.

21 unchanged sentences

Issuance of common stock

Public offering, net of costs

Dividend reinvestment plan

2 unchanged sentences

Balance as of December 31, 2023

At December 31, 2022, 2021, and 2020, Class A Common Stock had 15,000,000

shares authorized.

For the same periods, shares issued, inclusive of treasury shares, were 8,650,392 , 8,561,772 and 8,504,429 , respectively.

At December 31, 2022, 2021, and 2020, Class B Common Stock had 1,040,000

shares authorized and 882,000 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, Artesian Resources Corporation authorized up to 331,500 shares of Class A Common Stock for issuance of

grants in forms of stock options, stock units, dividend equivalents and other stock-based awards, subject to adjustment in certain circumstances as discussed in the Plan.

Includes stock compensation expense for the years ended December 31, 2022, 2021, and 2020, see Note 1-Stock Compensation Plans.

At December 31, 2023, 2022, and 2021, Class A Stock had 15,000,000 shares authorized.

the same periods, shares issued, inclusive of treasury shares, were 9,433,288 , 8,650,392 and 8,561,772 , respectively.

At December 31, 2023, 2022, and 2021, Class B Stock had 1,040,000 shares authorized and 881,452 shares issued.

Artesian Resources Corporation registered 200,000 shares of Class A 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, Artesian Resources Corporation authorized up to 331,500 shares of Class A Stock for issuance of grants in forms of

stock options, stock units, dividend equivalents and other stock-based awards, subject to adjustment in certain circumstances as discussed in the Plan.

Includes stock compensation expense for the years ended December 31, 2023, 2022, and 2021, See Notes to Consolidated Financial Statements - Note 9-Stock Compensation Plans.

The notes are an integral part of the consolidated financial statements.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

3 unchanged sentences

Resources Corporation and its subsidiaries and all intercompany balances and transactions between subsidiaries have been eliminated.

Reclassification

Certain accounts in the prior year financial statements have been reclassified for comparative purposes to conform with the presentation in the current year

financial statements.

These reclassifications had no effect on net income or stockholders’ equity.

Regulated Utility Accounting

8 unchanged sentences

These regulated subsidiaries account for the majority of our operating

See Note 18 to our Consolidated Financial Statements for a full description of our segment information.

See Note 18 (Business Segment Information) to our Consolidated Financial Statements for a full description of our segment information.

Use of Estimates in the Preparation of Consolidated Financial Statements

The 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, goodwill and contingent 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.

All additions to utility plant are recorded at cost.

Business combinations pursuant to ASC Topic 805 may result in a purchase price

allocation and the acquired assets are required to be evaluated by the applicable regulatory agency.

Artesian Wastewater acquired TESI in January 2022 and Artesian Water purchased substantially all of the water operating assets from the Town of

Clayton in May 2022.

On December 31, 2022, the fair value determinations for TESI and the water operating assets acquired from the Town of Clayton were finalized.

Utility Plant

6 unchanged sentences

Maintenance, repairs, and replacement of minor items of utility plant are charged to expense

In accordance with rate filings recorded with the DEPSC, Artesian Water, Artesian Wastewater and TESI accrue an Allowance for Funds Used during Construction,

AFUDC, which represents the cost of funds devoted to construction projects through the date the project is placed in service, is capitalized as part of construction work in progress.

The rate used for the AFUDC calculation is based on

Artesian Water’s and Artesian Wastewater’s weighted average cost of debt and the rate of return on equity authorized by the DEPSC.

The rate used to capitalize AFUDC for Artesian Water in 2022 , 2021 , and 2020 was 6.9 % , 6.7 % , and 7.0 % , respectively.

used to capitalize AFUDC for Artesian Wastewater in 2022 ,

2021 , and 2020 was 6.9 % , 6.4 % , and 6.3 % , respectively.

The rate used to capitalize AFUDC for TESI in 2022 was 5.7 %.

Utility plant

Allowance for Funds Used during Construction, or AFUDC, is a non-cash credit to income with a corresponding charge to utility plant that represents the cost

of borrowed funds or a return on equity funds devoted to plant under construction.

Presented in the table below is AFUDC for the years ended December 31:

AFUDC - Equity

Utility plant comprises :

Estimated Useful Life

19 unchanged sentences

depreciation rates for water utility plant were 2.13 % , 2.16 % and 2.17 % for 2023 , 2022 and 2021 , respectively.

a rate order issued by the DEPSC, the Company was directed effective January 1, 1998 to begin using revised depreciation rates for utility plant.

In rate orders issued by the DEPSC, Artesian Water was directed, effective May 28, 1991 and August 25,

1992, to offset depreciation recorded on utility plant by depreciation on utility property funded by Contributions in Aid of Construction, or CIAC, and Advances for Construction, or Advances, respectively.

This reduction in depreciation expense is

also applied to outstanding CIAC and Advances.

Other deferred assets are amortized using the straight-line method over applicable lives, which range from 20 to 24 years.

In a rate order issued by the DEPSC, the Company was directed effective January 1, 1998, to begin using revised depreciation rates for utility plant.

In rate orders issued by the DEPSC, Artesian Water

was directed, effective May 28, 1991 and August 25, 1992, to offset depreciation recorded on utility plant by depreciation on utility property funded by Contributions in Aid of Construction, or CIAC, and Advances for Construction, or Advances,

respectively.

This reduction in depreciation expense is also applied to outstanding CIAC and Advances.

Other deferred assets are amortized using the straight-line method

over applicable lives, which range from 20 to 24 years.

Regulatory Assets

The FASB ASC Topic 980 stipulates generally accepted accounting principles for companies whose rates are established or subject to approvals by a third-party

regulatory agency.

Certain expenses are recoverable through rates charged to our customers, without a return on investment, and are deferred and amortized during future periods using various methods as permitted by the DEPSC, MDPSC, and PAPUC.

The deferred income taxes will be amortized over future years as the tax effects of temporary differences that previously flowed through to our customers are

The FASB ASC Topic 980 stipulates generally accepted accounting principles for companies whose rates are established

or subject to approvals by a third-party regulatory agency.

Certain expenses are recoverable through rates charged to our customers, without a return on investment, and are deferred and amortized during future periods using various methods as

permitted by the DEPSC, MDPSC, and PAPUC.

The deferred income taxes will be amortized over future years as the tax effects of temporary differences that

previously flowed through to our customers are reversed.

Debt related costs include debt issuance costs and other debt related expense.

The DEPSC has approved deferred regulatory accounting treatment for issuance

costs associated with Artesian Water’s First Mortgage bonds.

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

The DEPSC has approved deferred

regulatory accounting treatment for issuance costs associated with Artesian Water’s First Mortgage bonds.

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.

These 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.

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.

Amortization of these deferred costs began in the fourth quarter of 2023.

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

14 unchanged sentences

December 31, 2022

Deferred income taxes

Deferred contract costs and other

Rate case studies

Rate proceedings

Deferred income taxes

Debt related costs

14 unchanged sentences

assets acquired.

At December 31, 2022, the Company had approximately $ 1.9 million of goodwill.

The $ 1.9 million goodwill arose from the January 2022 acquisition of Tidewater Environmental Services, Inc.

Artesian Wastewater operates as the parent holding company of Tidewater

Environmental Services, Inc.

dba Artesian Wastewater, or TESI.

In accordance with the accounting guidance for testing goodwill, the Company annually assesses qualitative factors to determine whether the existence of events or circumstances leads to a

determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount.

For 2022, the Company’s assessment of qualitative factors did not indicate that an impairment had occurred for goodwill.

the results of the qualitative testing, the Company did not perform quantitative testing on goodwill in 2022.

At December 31, 2023 and December 31, 2022, the Company had approximately $ 1.9 million of goodwill, respectively.

The $ 1.9 million of goodwill arose from the January 2022 acquisition of Tidewater Environmental Services, Inc.

Artesian Wastewater operates as the parent

holding company of Tidewater Environmental Services, Inc.

dba Artesian Wastewater, or TESI, and is a subsidiary of our Regulated Utility segment.

In accordance with the accounting guidance for testing goodwill for impairment, the Company performs an

annual assessment.

In 2023, the Company used the optional qualitative assessment, "step zero", to identify and evaluate relevant events and circumstances to conclude whether it is more likely than not that the fair value of its reporting unit is less

than its carrying amount, including goodwill.

Relevant events and circumstances assessed included macroeconomic conditions, industry and market conditions, cost factors, financial performance, management and overall strategy.

After evaluating and

weighing these relevant events and circumstances, it was concluded that there was no impairment of goodwill and it was not necessary to perform quantitative testing.

Other Deferred Assets

22 unchanged sentences

additional CIAC collected in 2021 to pay the associated tax.

As of December 31, 2022, Artesian Water received approximately $ 2.0

million in grant funding from the State of Delaware, Delaware Department of Health and Social Services, Division of Public Health, or DPH, pursuant to grant agreements.

The grants shall be used by Artesian Water to cover the costs associated with

certain construction projects.

The grant funds received under the grant agreements are recorded in accordance with the requirements under FASB ASC Topic 980, in Net contributions in aid of construction in the Consolidated Balance Sheets.

Water is eligible to receive an additional $ 3.8 million of grant funds pursuant to the grant agreements.

For the years ended December 31, 2023 and December 31, 2022, Artesian Water received approximately $ 3.8 million and $ 2.0 million, respectively, in grant funding from the

State of Delaware, Delaware Department of Health and Social Services, Division of Public Health, or DPH, pursuant to grant agreements.

The grants were used by Artesian Water to cover the costs associated with certain construction projects.

funds received under the grant agreements were recorded in accordance with the requirements under FASB ASC Topic 980, in Net contributions in aid of construction in the Consolidated Balance Sheets.

Pursuant to the grant agreements, Artesian Water is

no longer eligible to receive grant funds under these grants.

Regulatory Liabilities

FASB ASC Topic 980 stipulates generally accepted accounting principles for companies whose rates are established or subject to approvals by a third-party

regulatory agency.

FASB ASC Topic 980 stipulates generally accepted accounting principles for

companies whose rates are established or subject to approvals by a third-party regulatory agency.

Certain obligations are deferred and/or amortized as determined by the DEPSC, MDPSC, and PAPUC.

Regulatory liabilities represent excess recovery of cost or other items that have been deferred because it is probable such amounts

will be returned to customers through future regulated rates.

Utility plant retirement cost obligation consists of estimated costs related to the potential removal and replacement of facilities and equipment on the

Company’s water and wastewater properties.

Effective January 1, 2012, as authorized by the DEPSC, when depreciable units of utility plant are retired, any cost associated with retirement, less any salvage value or proceeds received, is charged to a

regulated retirement liability.

Each year the liability is increased by an annual amount authorized by the DEPSC.

Regulatory liabilities represent excess

recovery of cost or other items that have been deferred because it is probable such amounts will be returned to customers through future regulated rates.

Deferred settlement refunds consist of reimbursements from the Delaware Sand and Gravel Remedial Trust for Artesian Water’s past capital and operating costs,

1 unchanged sentence

Gravel Landfill Superfund Site in groundwater that Artesian Water uses for public potable water supply, pursuant to the Settlement Agreement.

Approximately $ 2.5

million was paid in August 2022.

The remaining $ 7.5 million is due in three equal installments no later than August of each year from 2023 through 2025.

Artesian Water received approval from the DEPSC in October 2022 to refund to its customers these

reimbursements for past capital and operating costs.

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.

installments for approximately $ 2.5 million each were paid in August 2022 and July 2023.

The remaining $ 5.0 million is due in two equal installments no later than July of 2024

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

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

annual installments.

The first two refunds occurred in October 2022 and August 2023.

Future customer refunds will occur no later than August

2024 and August 2025.

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

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 Part II – Financial Statements and Supplementary Data – Item 8 – 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

reflect the decrease in the corporate income tax rate from 34 % to 21 % (see Note 5) resulting in a decrease in the net deferred income tax liability of $ 24.3

million, of which $ 22.8 million was reclassified to a regulatory liability related to Artesian Water and Artesian Water Maryland.

The regulatory

liability amount is subject to certain Internal Revenue Service normalization rules that require the benefits to customers be spread over the remaining useful life of the underlying assets giving rise to the associated deferred income taxes.

January 31, 2019, the DEPSC approved the amortization of the regulatory liability amount of $ 22.2 million over a period of 49.5 years beginning February 1, 2018, subject to audit at a later date.

In May 2022, the Company received a rate order from the DEPSC instructing the

Company to continue amortizing the liability over a period of 49.5 years, subject to review in the Company’s next base rate filing.

has not issued a final order on the regulatory liability amount of $ 0.6 million regarding the effects of the TCJA on Maryland customers.

Regulatory liabilities comprise:

(in thousands)

December 31, 2022

December 31, 2021

Utility plant retirement cost obligation

Deferred settlement refunds

Deferred income taxes (related to TCJA)

Beginning in 2022, Artesian Water began recording 2022 and future recovery of capital expenditures as

Contributions in Aid of Construction and began recording expense recovery as an offset to operations and maintenance expense, with the intention that those recoveries will 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.

The deferred settlement refunds were $ 5.0 million and $ 7.5 million at December 31, 2023 and December 31, 2022, respectively.

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 reflect the decrease in the corporate income tax rate from 34 % to 21 % (see Note 5 – Income Taxes) resulting in a decrease in the net deferred income tax liability of $ 24.3 million, of which $ 22.8 million was reclassified to a regulatory

liability related to Artesian Water and Artesian Water Maryland.

The regulatory liability amount is subject to certain Internal Revenue Service normalization rules that require the benefits to customers be spread over the remaining useful life of the

underlying assets giving rise to the associated deferred income taxes.

On January 31, 2019, the DEPSC approved the amortization of the regulatory liability amount of $ 22.2 million over a period of 49.5 years beginning February 1, 2018, subject to audit at a later date.

2022, the Company received a rate order from the DEPSC instructing the Company to continue amortizing the liability over a period of 49.5

years, subject to review in the Company’s next base rate filing.

The MDPSC has not issued a final order on the regulatory liability amount of $ 0.6

million regarding the effects of the TCJA on Maryland customers.

The deferred income taxes, related to TCJA, were $ 20.7 million and $ 21.2 million at December 31, 2023 and December 31, 2022, respectively.

Deferred income taxes are provided in accordance with FASB ASC Topic 740 on all differences between the tax basis of assets and liabilities and the amounts

12 unchanged sentences

The statute of limitations for the 2018 tax

returns lapsed during the fourth quarter of 2021, which resulted in the reversal of the reserve in the amount of approximately $ 26,000 .

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.

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 2022 .

returns lapsed during the third quarter of 2022, which resulted in the reversal of the reserve in the amount of approximately $ 212 ,000.

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.

During 2023, the Company has accrued approximately $ 12 ,000

in penalties and interest related to positions taken on the 2022 corporate income tax return.

The Company remains subject to examination by federal and state authorities for

the tax years 2020 through 2023 .

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

1 unchanged sentence

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.

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.

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.

The Company accounts for stock options issued after January 1, 2006 under FASB ASC Topic 718.

Compensation expenses for restricted stock awards were $ 152,000 ,

$ 193,000 and $ 178,000 in 2022, 2021 and 2020, respectively.

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 awards.

As of December 31, 2022, there was $ 76,000 of unrecognized expense related to non-vested awards of restricted shares granted under the 2015 Plan.

There was no stock compensation cost capitalized as part of an asset.

Stock Options

No options were granted in 2022, 2021 or 2020.

Shares of Class A Stock have been reserved for future issuance under the 2015 Plan.

On May 3, 2022, 5,000 shares of Class A Common

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

The fair value per share was $ 45.58 , the closing price of the Class A Stock as

recorded on the Nasdaq Global Select Market on May 3, 2022.

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 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.

These shares were fully vested and released one year after the grant date.

On May 6, 2020, 5,000 shares of Class A Stock

were granted as restricted stock awards.

The fair value per share was $ 35.01 , the closing price of the Class A Stock as recorded on the Nasdaq

Global Select Market on May 6, 2020.

These shares were fully vested and released one year after the grant date.

See Note 9 (Stock Compensation Plans) to our Consolidated Financial Statements for a full description of our stock compensation plans.

Revenue Recognition and Unbilled Revenues

See Note 2 to our Consolidated Financial Statements for a full description of our revenue recognition .

The Company has agreements for land easements and office equipment under operating leases.

Management makes certain estimates and assumptions regarding each

lease agreement, renewal and amendment, including, but not limited to, discount rates and probable term, which can impact the escalations in payment that are taken into consideration when calculating the straight line basis.

The amount of rent expense

and income reported could vary if different estimates and assumptions are used.

Management also makes certain estimates and assumptions regarding the fair value of the leased property at lease commencement and the separation of lease and nonlease

See Note 3 to our Consolidated Financial Statements for a full description of our leases.

See Note 2 (Revenue Recognition) to our Consolidated Financial Statements for a full description of our revenue recognition .

The Company has agreements for land easements and office equipment under

operating leases.

Management makes certain estimates and assumptions regarding each lease agreement, renewal and amendment, including, but not limited to, discount rates and probable term, which can impact the escalations in payment that are taken

into consideration when calculating the straight-line basis.

The amount of rent expense and income reported could vary if different estimates and assumptions are used.

Management also makes certain estimates and assumptions regarding the fair value

of the leased property at lease commencement and the separation of lease and nonlease components.

See Note 3 (Leases) to our Consolidated Financial Statements for a full description of our leases.

Accounts Receivable

3 unchanged sentences

related to the treatment costs associated with the release of contaminants from the Delaware Sand & Gravel Landfill Superfund Site, or Site, in groundwater that Artesian Water uses for public potable water supply.

Approximately $ 2.5 million was paid in August 2022.

The remaining $ 7.5

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.

Two installments for approximately $ 2.5 million

each were paid in August 2022 and July 2023.

The remaining $ 5.0 million is due in two equal installments no later than July of 2024 and 2025.

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 contaminants of concern and of emerging concern.

A provision for expected credit loss is calculated as a percentage of total associated revenues based upon historical trends and adjusted for current and

reasonable projections based upon expected economic conditions.

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 allowance for doubtful accounts was $ 0.4 million and $ 0.4 million at December 31, 2022 and December 31, 2021 , respectively.

The corresponding expense, excluding the reserve adjustment recorded in 2021, for the years ended December 31, 2022 and 2021 was $ 0.1 million and $ 0.1 million, respectively.

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

accordingly, the related provision for expected credit loss and associated bad debt

expense has not been significant.

The provision for expected credit loss was $ 0.3 million and $ 0.4 million at December 31, 2023 and December 31, 2022 , respectively.

The corresponding expense for the years ended December 31, 2023 and 2022 was $ 0.1

million and $ 0.1 million, respectively, reported in

Operating expenses – Utility and Non-utility operating expenses on the Company’s Consolidated Statements of Operations.

The following table summarizes the changes in the

Company’s accounts receivable balance:

Customer accounts receivable – water

Customer accounts receivable – wastewater

Settlement agreement receivable

Settlement agreement receivable – short term

Miscellaneous accounts receivable

Developer receivable

Less allowance for doubtful accounts

Less provision for expected credit loss

Net accounts receivable

The activities in the allowance for doubtful accounts are as follows:

The activities in the provision for expected credit loss are as follows:

Beginning balance

Allowance adjustments

Provision adjustments

Write off of uncollectible accounts

11 unchanged sentences

The Company adjusts inventory value based on historical usage and forecasted demand.

We are highly dependent on the availability of

essential materials and parts from our suppliers for expansion, construction and maintenance of our services.

The majority of the materials required for our water and wastewater utility business are typically under contract at fixed prices, however,

supply chain issues associated with the COVID-19 pandemic resulted in price increases and delays in procuring certain materials and equipment.

We have been successful in minimizing these delays with thorough planning and pre-ordering.

As of December

31, 2022, we have increased our quantity of materials and supplies in inventory, at an increased value of approximately $ 2.8 million, reported in

Current Assets – Materials and Supplies on the Company’s Consolidated Balance Sheets.

Use of Estimates in the Preparation of Consolidated Financial Statements

The 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, goodwill and contingent 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.

All additions to utility plant are recorded at cost.

Business combinations pursuant to ASC Topic 805 may result in a purchase price allocation and the

acquired assets are required to be evaluated by the applicable regulatory agency.

Artesian Wastewater acquired TESI in January 2022 and Artesian Water purchased substantially all of the water operating assets from the Town of Clayton in May 2022.

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.

REVENUE RECOGNITION

Artesian’s operating revenues are primarily attributable to contract services based upon regulated 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.

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.

non-tariff contract revenues, which are primarily non-utility 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 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.

NOTE 2 – REVENUE RECOGNITION

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 certain 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.

Any estimated revenue

amounts are recorded as unbilled operating revenue (contract asset) through the end of the accounting period and will be billed at each year end for any shortfall of the actual volume from the required minimal volume.

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 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.

Artesian generates revenue from interim temporary rates.

In Delaware, utilities are permitted by law to place rates

into effect, under bond, on a temporary basis, pending resolution of an application for a base rate increase by the DEPSC.

Temporary rate revenue is calculated as a percentage increase on tariff rates.

We recognize this revenue based on the same

guidelines as noted above depending on whether the additional rate was applied to consumption revenue or fixed-fee revenue.

Until permanent rates are determined by the DEPSC, if it is probable that a refund of revenue associated with temporary rates

will occur, a reserve would be recorded reducing revenue from temporary rates.

As of December 31, 2023 and December 31, 2022, no such

reserve or reduction to revenue was recorded.

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.

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.

A provision for expected credit loss is calculated as a percentage of

total associated revenues based upon historical trends and adjusted for current conditions.

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

accordingly, the related provision for expected credit loss

and associated bad debt expense has not been significant.

Non-tariff Contract Revenues

6 unchanged sentences

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

Accounts receivable from SLP Plan customers are typically due within 25

days of invoicing.

An allowance for doubtful accounts is calculated as a percentage of total SLP Plan contract revenue.

Accounts receivable from SLP Plan customers are typically due within 25 days of invoicing.

A provision for expected credit loss is

calculated as a percentage of total SLP Plan contract revenue.

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.

accordingly, the related provision for expected credit loss and associated bad debt expense

has not been significant.

Artesian generates contract operation revenue from water and wastewater operation services provided to customers.

1 unchanged sentence

contracts, which consist primarily of monthly operation and maintenance services, over time as customers receive and consume the benefits of such services performed.

The majority of these services are invoiced in advance at the beginning of every month

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

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.

The majority of these services are invoiced in advance at the beginning of every

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

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

provision for expected credit loss 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.

related provision for expected credit loss 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

3 unchanged sentences

As of December 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.

There is no provision for expected

credit loss or bad debt expense associated with this revenue.

Artesian generates inspection fee revenue for inspection services related to onsite wastewater collection systems installed by developers of new

2 unchanged sentences

As a result, we record deferred revenue (contract liability) for any amounts related to infrastructure not yet inspected.

There are no accounts receivable, allowance for doubtful accounts or bad debt expense associated with inspection fee

There are no accounts receivable, provision for expected credit loss or bad debt expense associated with inspection

fee contracts.

The majority of Artesian’s revenues are earned within the State of Delaware, where there is no sales tax.

26 unchanged sentences

December 31, 2022

Contract Assets – Tariff

December 31, 2021

Contract Assets

Deferred Revenue

5 unchanged sentences

of $ 0.3 million from amounts that were included in Deferred Revenue – Non-Tariff at the beginning of the year.

The increases of Contract Assets and Deferred Revenue were primarily due to normal timing differences between our performance and customer payments.

For the year ended December 31,

2022, 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 were included in Deferred Revenue – Non- Tariff at the beginning of the year.

The changes in Contract Assets and Deferred Revenue are primarily due to normal timing differences between our performance and customer payments.

Remaining Performance Obligations

2 unchanged sentences

As of December 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 and wastewater inspections, which are expected to be satisfied and associated revenue recognized within the next three months and one year for the SLP Plan revenue and inspection fee revenue, respectively.

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

NOTE 3 – LEASES

The Company leases land and office equipment under operating leases from non-related parties.

Our leases have remaining lease terms of 20 year to 74 years, some of which include

Our leases have remaining lease terms of 4 years to 73 years , some of which include

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

22 unchanged sentences

Rental payments for 2023, 2022 and 2021 were $ 19,000 , $ 19,000 , and $ 17,000 , respectively.

The future minimum rental payment as disclosed in the following table is calculated using CPI-U from August 2022 as well as the adjustment for an appraisal conducted in

2019 to determine the fair market value of the parcel of land.

The future minimum rental payment as disclosed in the following table is calculated using CPI-U from August 2023 as well as the adjustment for an appraisal

conducted in 2019 to determine the fair market value of the parcel of land.

In March 2023, Artesian Water entered into a 5-year

operating lease for office equipment that expired in March 2022.

The quarterly lease payments remained fixed throughout the term of the lease.

Payments pursuant to the lease agreement for 2022 and 2021 were $ 5,000 and 19,000 respectively.

We entered into an operating lease for office equipment

that will commence at a future date when the equipment is received.

operating lease for office equipment.

The previous lease for office equipment expired in March 2022.

The quarterly lease payments under both lease agreements remained fixed throughout the term of the lease.

Payments pursuant to the lease agreements

for 2023, 2022 and 2021 were $ 6,000 , $ 5,000 and $ 19,000 , respectively.

Rent expense for all operating leases except those with terms of 12 months or less comprises:

5 unchanged sentences

Supplemental cash flow information related to leases is as follows:

(in thousands)

Twelve Months Ended

23 unchanged sentences

Total lease liabilities recognized

As of December 31, 2022, we entered into an

operating lease for office equipment that will commence at a future date when the equipment is received.

As of December 31, 2023, we have not entered into finance leases that will commence at a future date.

FAIR VALUE OF FINANCIAL INSTRUMENTS

NOTE 4 – FAIR VALUE OF FINANCIAL INSTRUMENTS

The following methods and assumptions were used to estimate the fair value of each class of financial instrument for which it is practicable to estimate that

Current Assets and Liabilities

For those current assets and liabilities that are considered financial instruments, the carrying amounts approximate fair value because of the short maturity

of those instruments.

For those current assets and liabilities that are considered financial

instruments, the carrying amounts approximate fair value because of the short maturity of those instruments.

Under the fair value hierarchy, the fair value of such financial instruments is classified as a Level 1.

Long-term Financial Liabilities

All of Artesian Resources’ outstanding long-term debt as of December 31, 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.

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 carrying amount and fair value of Artesian

Resources’ long-term debt (including current portion) are shown below:

As of December 31, 2023 and December 31, 2022 , all of the Company’s outstanding long-term debt interest rates were a

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

Carrying amount

5 unchanged sentences

because these financial instruments are non-interest bearing .

NOTE 5 – INCOME TAXES

Deferred income taxes are provided in accordance with FASB ASC Topic 740 on all differences between the tax basis of assets and liabilities and the amounts

4 unchanged sentences

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.

As of December 31, 2022, the Company fully

utilized all of its federal net operating loss carrybacks and carry-forwards.

As of December 31, 2022, the Company has separate company state

net operating loss carry-forwards aggregating approximately $ 13.8 million.

Most of these net operating loss carry-forwards will expire if unused

between 2023 and 2043 .

The Company has recorded a valuation allowance to reflect the estimated amount of deferred

tax assets that may not be realized due to the expiration of the state net operating loss carry-forwards.

The valuation allowance increased to approximately $ 600,000

in 2022 from approximately $ 546,000

Management believes that it is more likely than not that the Company will realize the benefit of these deferred tax assets, net of

the valuation allowance.

As of December 31, 2023 , the Company has separate company state net operating loss carry-forwards aggregating

approximately $ 15.7 million.

Most of these net

operating loss carry-forwards will not expire, with a negligible amount expiring in 2024.

The Company has recorded a valuation allowance to reflect the estimated amount of

deferred tax assets that may not be realized in the future.

The valuation allowance increased to approximately $ 906,000 in 2023 from approximately $ 600,000 in 2022 .

Management believes that it is more likely than not that the Company will realize the benefit of these deferred tax assets, net of the valuation allowance.

Components of Income Tax Expense

For the Year Ended December 31,

State income taxes

Total state income tax expense

For the Year Ended December 31,

Federal income taxes

Total federal income tax expense

For the Year Ended December 31,

State income taxes

Total state income tax expense

Reconciliation of effective tax rate:

7 unchanged sentences

Total income tax expense and effective rate

Deferred income taxes at December 31, 2022 and

2021 were comprised of the following:

Deferred income taxes at December 31, 2023 and 2022 were comprised of the following:

For the Year Ended

Deferred tax assets related to:

Federal and state operating loss carry-forwards

State operating loss carry-forwards

valuation allowance

14 unchanged sentences

For the Year Ended December 31, 2021 Valuation allowance for deferred tax assets

Under FASB ASC Topic 740, the Company establishes reserves for uncertain tax positions based upon management’s judgment as to the sustainability of

these positions.

Under FASB ASC Topic 740, the Company establishes reserves for uncertain tax positions based upon management’s judgment as to the sustainability of these

The Company reserved a liability related to the difference in the tax depreciation utilizing the half-year convention rather than the mid-quarter convention for 2018.

7 unchanged sentences

Balance at end of year

PREFERRED STOCK

NOTE 6 – PREFERRED STOCK

As of December 31, 2023 and 2022, Artesian Resources had no preferred stock outstanding.

Artesian Resources has 100,000 shares of $ 1.00 par value Series Preferred stock authorized but unissued.

COMMON STOCK AND ADDITIONAL PAID-IN CAPITAL

The Class A Non-Voting Common Stock, or Class A Stock, of Artesian Resources trades on the Nasdaq Global Select Market under the symbol ARTNA.

Common Stock, or Class B Stock, of Artesian Resources trades on the Nasdaq’s OTC Bulletin Board under the symbol ARTNB.

The rights of the holders of the Class A Stock and the Class B Stock are identical, except with respect to voting.

NOTE 7 – COMMON STOCK AND ADDITIONAL PAID-IN CAPITAL

The Class A Non-Voting Common Stock, or Class A Non-Voting Stock, of Artesian Resources trades on the Nasdaq Global Select Market under the symbol ARTNA.

The Class B Common Stock, or Class B Stock, of Artesian Resources trades on the

Nasdaq’s OTC Bulletin Board under the symbol ARTNB.

The rights of the holders of the Class A Non-Voting Stock and the Class B Stock are identical, except with

respect to voting.

Under Artesian Resources’ dividend reinvestment plan, which allows for

reinvestment of cash dividends and optional cash payments, stockholders were issued approximately 8,000 , 7,000 and 10,000 shares at fair market value for the investment of $ 381 ,000, $ 373 ,000 and $ 392 ,000 of their monies in the years 2023, 2022, and 2021, respectively.

At December 31, 2022 , Artesian Resources had a $ 40 million line of credit with Citizens Bank, or Citizens, which is available to all subsidiaries of Artesian

As of December 31, 2022 , there was $ 26.9 million of available funds under this line of credit.

interest rate for borrowings under this line was the London Interbank Offered Rate, or LIBOR , plus 1.00 % .

expected that the LIBOR rate for USD currency will be discontinued after June 30, 2023.

As a result, effective May 20, 2022, this line of credit agreement was

amended to replace LIBOR with the Daily Secured Overnight Financing Rate, or SOFR .

The interest rate is a one month

SOFR plus 10 basis points, or Term SOFR, plus an

applicable margin of 0.85 % .

NOTE 8 – DEBT

At December 31, 2023 , Artesian Resources had a $ 40 million line of credit with Citizens Bank, or Citizens, which is available to all subsidiaries of

Artesian Resources.

As of December 31, 2023 , there was

$ 40.0 million of available funds under this line of

The previous interest rate for borrowings under this line was the London Interbank Offered Rate, or LIBOR , plus 1.00 % .

The LIBOR rate for USD currency was discontinued as of June 30, 2023.

As a result, effective May 20, 2022, this line of credit agreement

was amended to replace LIBOR with the Daily Secured Overnight Financing Rate, or SOFR .

The interest rate is a one month SOFR plus 10 basis points, or Term SOFR, plus an

applicable margin of 0.85 % , which was increased to 1.10 % effective August 3, 2023.

Term SOFR cannot be less than 0.00 % .

This is a demand line of credit and therefore the

financial institution may demand payment for any outstanding amounts at any time.

This is a demand line of credit and therefore the financial institution

may demand payment for any outstanding amounts at any time.

The term of this line of credit expires on the earlier of May 20, 2024 or any date on which Citizens demands payment.

The Company expects to renew this line of credit.

At December 31, 2022 , Artesian Water had a $ 20 million line of credit with CoBank, ACB, or CoBank, that allows for the financing of operations for Artesian

Water, with up to $ 10 million of this line available for

the operations of Artesian Water Maryland.

As of December 31, 2022 , there was $ 12.9 million of available funds

under this line of credit.

At December 31, 2023 , Artesian Water had a $ 20 million line of credit with CoBank, ACB, or CoBank, that allows for the financing of operations for

Artesian Water, with up to $ 10 million of this line

available for the operations of Artesian Water Maryland.

As of December 31, 2023 , there was $ 20.0 million of

available funds under this line of credit.

The previous interest rate for borrowings under this line allowed the Company to select either LIBOR plus 1.50 % or a weekly variable rate established by CoBank;

the Company historically used the weekly variable interest

the Company historically used the weekly

variable interest rate.

In October 2022, this line of credit was amended to replace the previous interest rate options with a daily SOFR rate plus 1.45 % option or a term SOFR rate plus 1.45 % option that is locked in for either one or three months .

1 unchanged sentence

Artesian Water expects to renew this line of credit.

On April 29, 2022, Artesian Water and CoBank entered into a Bond Purchase Agreement, or the Agreement, relating to

the issue and sale by Artesian Water to CoBank of a $ 30 million principal amount First Mortgage Bond, Series W, or the Bond, due April 30, 2047 , or the Maturity Date.

The Bond was issued pursuant to Artesian Water’s Indenture of Mortgage dated as of July 1, 1961, as amended and

supplemented by supplemental indentures, including the Twenty-Fifth Supplemental Indenture dated as of April 29, 2022, or the Supplemental Indenture, from Artesian Water to Wilmington Trust Company, as Trustee.

The Supplemental Indenture is a first

mortgage lien against substantially all of Artesian Water’s utility plant.

The proceeds from the sale of the Bond were used to pay down outstanding lines of credit of the Company and a loan payable to Artesian Resources, with any additional proceeds

used to fund capital investments in Artesian Water.

The Delaware Public Service Commission approved the issuance of the Bond on April 20, 2022.

The Bond carries an annual interest rate of 4.43 % through but excluding the Maturity Date.

Interest is payable on June 30th, September 30th, December 30th and March 30th in each year and on the Maturity Date, beginning June 30, 2022,

until Artesian Water’s obligation with respect to the payment of principal, premium (if any) and interest shall be discharged.

Overdue payments shall bear interest as provided in the Supplemental Indenture.

The term of the Bond also includes certain

limitations on Artesian Water’s indebtedness.

On August 12, 2022, Artesian Water entered into three Financing Agreements, or the Financing Agreements, with the Delaware Drinking Water State Revolving Fund (the “Fund”), acting by and through the Delaware Department of Health &

Social Services, Division of Public Health, a public agency of the state of Delaware, or the Department.

The Department makes loans to, and acquires obligations of, eligible persons in Delaware to finance the costs of drinking water facilities in

accordance with the Federal Safe Drinking Water Act using funds from the Fund.

Under the Financing Agreements, the Department has agreed to advance to Artesian Water up to $ 966 ,000, $ 1,167 ,000 and $ 3,200 ,000 (collectively, the “Loans”) from the Fund to finance all or a portion of the costs to replace specific water transmission mains in service areas located in New Castle County,

Delaware (collectively, the “Projects”).

In accordance with the Financing Agreements, Artesian Water will from time to time request funds under the Loans as it incurs costs in connection with the Projects.

In connection with the Financing

Agreements, Artesian Water issued to the Department three General Obligation Notes dated as of August 12, 2022, or the Notes.

Under the Notes,

borrowings under the Financing Agreements bear interest at a rate of 1.0 % per annum and are further subject to an administrative fee at a rate

of 1.0 % per annum (collectively, interest and the administrative fee are referred to herein as “Fee”).

The Fee shall be paid semiannually on

each February 1 and August 1, beginning on February 1, 2023.

The Notes will mature on February 1, 2043 .

As of December 31, 2022, approximately $ 1.8 million was borrowed

under the Loans.

On December 9, 2022, Artesian Water Company entered into three Financing Agreements, or the Financing Agreements, with the Fund, acting by and through the Department.

Under the Financing Agreements, the Department has agreed to advance to or to

reimburse Artesian Water up to $ 901,170 , $ 1,042,695

and $ 1,050,000 (collectively, the “Loans”) from the Fund to finance all or a portion of the costs to replace specific water transmission mains

in service areas located in New Castle County, Delaware (collectively, the “Projects”).

In accordance with the Financing Agreements, Artesian Water will from time to time request funds under the Loans as it incurs costs in connection with the

In connection with the Financing Agreements, Artesian Water issued to the Department three General Obligation Notes dated as of December 9, 2022, or the Notes.

Under the Notes, borrowings under the Financing Agreements bear interest at a

rate of 1.0 % per annum and are further subject to an administrative fee at a rate of 1.0 % per annum (collectively, interest and the administrative fee are referred to herein as “Fee”).

The Fee shall be paid semiannually on each June 1 and December 1, beginning on June 1,

Two notes will mature on June 1, 2043 and one will mature on December 1, 2043 .

As of December 31, 2022, approximately $ 1.0 million was requested under the Loans, and funds received in January 2023.

CoBank may make an annual patronage refund.

The $ 20 million line of credit, the First Mortgage Bonds and the promissory note are

The patronage refunds earned by Artesian in 2022 and 2021 were $ 1.3 million and $ 1.2 million, respectively.

In 2022, CoBank issued a one-time additional all-cash patronage distribution of $ 233,000 ,

or 0.16 %, of the average line of credit and loan volume outstanding in the prior year, which was in addition to the standard 0.80 % patronage rate.

In 2021, CoBank issued a

one-time additional all-cash patronage distribution of $ 226,000 , or 0.165 %, of the average line of credit and loan volume outstanding in the prior year, which was in addition to the standard 0.80 % patronage rate.

CoBank may make an annual patronage refund based on the average line of

credit and loan volume outstanding in the prior year .

The $ 20 million line of credit, the First Mortgage Bonds and the promissory note are with CoBank.

Patronage refunds earned by Artesian in 2023 and 2022 were $ 1.6 million and $ 1.5 million, respectively.

The weighted average interest rate on the lines of credit discussed above paid by the Company was 6.27 % for the year ended December 31, 2023.

These lines of credit, as well as the

long-term debt obligations shown below, require us to abide by certain financial covenants and ratios.

As of December 31, 2022, we were in

compliance with these financial covenants.

These lines of credit, as

well as the long-term debt obligations shown below, require us to abide by certain financial covenants and ratios.

As of December 31, 2023,

we were in compliance with these financial covenants.

Long-term debt consists of:

22 unchanged sentences

2.00 %, due June 1, 2043

2.00 %, due February 1, 2044

2.00 %, due January 1, 2043

Notes Payable

15 unchanged sentences

land in Artesian Wastewater are pledged as security for the promissory note.

STOCK COMPENSATION PLANS

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.

NOTE 9 – STOCK

COMPENSATION PLANS

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

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 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 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 Plan.

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 are eligible for grants under the 2015 Plan.

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

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

The following summary reflects changes in the shares of Class A Stock under option:

The Company accounts for stock options issued after January 1, 2006 under FASB ASC Topic 718.

Compensation expenses for restricted stock awards were $ 254,000 ,

$ 152,000 and $ 193,000 in 2023, 2022 and 2021, respectively.

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 awards.

As of December 31, 2023, there was $ 97,000 of unrecognized expense related to non-vested awards of restricted shares granted under the 2015 Plan.

There was no stock compensation cost capitalized as part of an asset.

The following summary reflects changes in

the shares of Class A Non-Voting Stock under option:

Outstanding at beginning of year

15 unchanged sentences

Aggregate Intrinsic

As of December 31, 2022, there was no unrecognized expense related to non-vested option shares granted under the 2015 Plan.

The following summary reflects changes in the shares of Class A Stock Restricted Stock Awards (RSA):

As of December 31, 2023, there were no outstanding option shares.

The following summary reflects changes in the shares of Class A Non-Voting Stock Restricted Stock Awards (RSA):

Outstanding at beginning of year

1 unchanged sentence

Unvested Outstanding at end of year

On May 3, 2022, 5,000 shares of Class A Common

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

The fair value per share was $ 45.58 , the closing price of the Class A Stock as

recorded on the Nasdaq Global Select Market on May 3, 2022.

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 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.

Stock Options

No options were granted in 2023, 2022 or 2021.

Shares of Class A Non-Voting Stock have been reserved for future issuance under the 2015 Plan.

On May 9, 2023, 5,000 shares of Class A

Non-Voting Common Stock, or Class A Non-Voting Stock, were granted as restricted stock awards.

The fair value per share was $ 54.88 , the closing

price of the Class A Non-Voting Stock as recorded on the Nasdaq Global Select Market on May 9, 2023.

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 6, 2020, 5,000 shares of Class A Stock

were granted as restricted stock awards.

The fair value per share was $ 35.01 , the closing price of the Class A Stock as recorded on the Nasdaq

Global Select Market on May 6, 2020.

These shares vested and were released one year after the grant date.

On May 3, 2022, 5,000 shares of Class A

Non-Voting Stock, were granted as restricted stock awards.

The fair value per share was $ 45.58 , the closing price of the Class A Non-Voting

Stock as recorded on the Nasdaq Global Select Market on May 3, 2022.

These shares were fully vested and released one year after the grant date.

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

Non-Voting Stock were granted as restricted stock awards.

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

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

These shares were fully vested and released one year after the grant date.

As of December 31, 2023, there was $ 97,000 of total unrecognized expense related to non-vested awards of restricted shares awarded under the 2015 Plan.

The cost will be recognized over 0.35 years, the remaining vesting period for the restricted stock awards.

The total intrinsic value of awards released during 2022

was approximately $ 233,100 .

EMPLOYEE BENEFIT PLANS

The total intrinsic value of awards released during 2023 was approximately $ 272,600 .

NOTE 10 – EMPLOYEE BENEFIT PLANS

Artesian Resources has a defined contribution 401(k) Salary Reduction Plan, or

1 unchanged sentence

Under the terms of the 401(k) Plan, Artesian Resources contributed 2 % of eligible salaries and wages and matched employee contributions up to 6 % of gross pay at a rate of 50 % .

Artesian Resources may, at its option, make additional contributions of up to 3 % of eligible salaries and wages.

No such additional contributions were made in 2022 , 2021 or 2020 .

The 401(k) Plan also provides additional retirement benefits to full-time employees hired prior to April 26, 1994, allowing them to save for future retiree medical costs that

will be paid by employees by providing additional cash resources to those employees upon a termination of employment or retirement to meet the cost of future medical expenses.

The 401(k) Plan also provides additional retirement benefits to full-time employees hired prior to April 26, 1994, allowing them to save for future retiree medical costs that will be paid by employees

by providing additional cash resources to those employees upon a termination of employment or retirement to meet the cost of future medical expenses.

These eligible employees receive an additional contribution of 6 % of eligible salaries and wages.

1 unchanged sentence

Company contributions and administrative fees, for the years 2023 , 2022 and 2021 , were approximately $ 1.4 million, $ 1.3 million and $ 1.2 million, respectively.

COMMITMENTS AND CONTINGENCIES

In the first quarter of 2019, the Company adopted the new standard on leases that was issued by the FASB and has applied this standard as disclosed in Note

During 2003, Artesian Water Pennsylvania entered into a 40

year easement agreement to acquire an easement to access, operate, maintain, repair, improve, replace and connect Artesian’s water system to a well, including a parcel of land around the well.

Management made certain estimates and assumptions regarding

the separation of lease and nonlease components related to this easement agreement.

NOTE 11 – COMMITMENTS AND CONTINGENCIE S

The Company’s leases are disclosed in Note 3 – Leases .

During 2003, Artesian Water Pennsylvania entered into a 40-year

easement agreement to acquire an easement to access, operate, maintain, repair, improve, replace and connect Artesian’s water system to a well, including a parcel of land around the well.

Management made certain estimates and assumptions regarding the

separation of lease and non-lease components related to this easement agreement.

It was determined that the majority of this easement agreement contains non-lease components.

Easement payments for 2022, 2021 and 2020 were $ 43,000 , $ 42,000 and $ 41,000 , respectively.

Easement payments, including both lease and non-lease components, for 2023, 2022 and 2021 were $ 45,000 , $ 43,000 and $ 42,000 , respectively.

Artesian Wastewater entered into a perpetual agreement for the use of

10 unchanged sentences

Interconnections

Artesian Water has two water service interconnection agreements with a neighboring utility, Chester Water Authority.

agreement, that expired on December 31, 2021, had a “take or pay” clause requiring us to purchase 3 million gallons per day.

agreement is effective from January 1, 2022 through December 31, 2026, includes automatic five year renewal terms, unless terminated by either

party, and has a “take or pay” clause which required us to purchase water on a step down schedule through July 5, 2022, and now requires us to purchase a minimum of 0.5 million gallons per day.

Rates charged under this agreement are subject to change.

Artesian Water has one water service interconnection agreement with a neighboring utility, Chester Water Authority.

The agreement is effective from January 1, 2022 through December 31, 2026,

includes automatic five-year renewal terms, unless terminated by either party, and has a “take or pay” clause which required us to purchase

water on a step down schedule through July 5, 2022, and now requires us to purchase a minimum of 0.5 million gallons per day.

Rates charged

under this agreement are subject to change with notice.

Artesian Water Maryland has one interconnection agreement with the Town of North East that has a “take or pay” clause requiring us

1 unchanged sentence

agreement extends through June 2024.

The agreement includes two automatic 5-year renewal terms, unless terminated

by either party.

The minimum annual purchase commitments for all interconnection agreements for 2024 through 2028, calculated at the noticed rates, are as follows:

1 unchanged sentence

Other Commitments

In 2020, Artesian Water entered into a short term agreement with Worldwide Industries Corporation to clean and paint a tank in 2020.

Pursuant to the

agreement, the expenditure in 2020 was $ 0.1 million.

In April 2021, Artesian Water entered into a 3 -year agreement with Worldwide Industries Corporation effective July 1, 2021 to paint elevated water storage tanks.

Pursuant to the agreement, the total expenditure for the three years is $ 1.2 million.

In September 2022, this agreement was amended to paint an additional elevated water storage tank and to extend the term of the agreement for an additional year.

to the amended agreement, the total expenditure for the four years is $ 2.2 million.

Tank painting expense for 2022 , 2021 and 2020 was $ 531,000 , $ 222,000 , and $ 155,000 , respectively.

Budgeted mandatory utility plant expenditures, due to planned governmental highway projects, which require the relocation of

Artesian Water’s water service mains, expected to be incurred in 2023 through 2025 are as follows:

In April 2021, Artesian Water entered into a 3-year

agreement with Worldwide Industries Corporation effective July 1, 2021 to paint elevated water storage tanks.

Pursuant to the agreement, the total expenditure for the three years was $ 1.2 million.

September 2022, this agreement was amended to paint an additional elevated water storage tank and to extend the term of the agreement for an additional year.

Pursuant to the amended agreement, the total expenditure for the four years is $ 2.2 million.

Tank painting expense for 2023 , 2022

and 2021 was $ 689,000 , $ 531,000 , and $ 222,000 , respectively.

Budgeted mandatory utility plant expenditures, due to planned governmental highway projects, which require the relocation of Artesian Water’s water service

mains, expected to be incurred in 2024 through 2026

are as follows:

The exact timing and extent of these relocation projects is controlled primarily by the Delaware Department of Transportation.

GEOGRAPHIC CONCENTRATION OF CUSTOMERS

NOTE 12 – GEOGRAPHIC CONCENTRATION OF CUSTOMERS

Artesian Water, Artesian Water Maryland and Artesian Water Pennsylvania provide regulated water utility service to customers within their established service

6 unchanged sentences

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

As of December 31, 2022, Artesian Wastewater and TESI were serving approximately 7,500 customers combined including one

large industrial customer.

REGULATORY 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.

As of December 31, 2023, Artesian Wastewater and TESI were serving approximately 8,100 customers combined including one large industrial customer.

NOTE 13 – REGULATORY

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:

8 unchanged sentences

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 .

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.

Any DSIC rate in effect will be

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

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.

6 unchanged sentences

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

Artesian Water filed an initial request with the DEPSC on April 28, 2023, further supplemented with a request filed

on November 30, 2023, to implement new rates to meet a requested increase in revenue of 22.66 %, or approximately $ 16.7 million, on an annualized basis.

The actual effective increase is less than 22.66 % since Artesian Water has been permitted to recover specific investments made in infrastructure through the assessment of a 7.50 % DSIC.

Since the DSIC rate is set to zero when temporary rates are placed into effect, customers would experience an incremental increase of 15.16 %, the net of the overall 22.66 % increase

less the DSIC rate of 7.50 % currently in effect, if the requested increase is granted in full by the DEPSC.

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 a temporary base rate increase of 15 % of gross water sales on an annual basis

or $ 2.5 million, whichever is lower, 60 days

after the application is filed.

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

temporary rate increase.

However, since the application was not resolved within the seven-month statutory timeframe, in accordance with

applicable Delaware law, Artesian Water is permitted a temporary base rate increase of up to 15 % of gross water sales on an annual basis.

Artesian Water filed an interim rates application, which was approved, to place into effect on November 28, 2023 a temporary base rate increase of 15 % of gross water sales on an annual basis and reducing the 7.5 % DSIC

rate to zero, with such interim rates subject to refund, until permanent rates are determined by the DEPSC.

As of December 31, 2023, no amounts were held in reserve related to the temporary base rate increase.

Artesian Water’s last comprehensive

application for an increase in base rate charges was filed in April 2014.

Other Proceedings

6 unchanged sentences

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

6 unchanged sentences

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 years ended December 31, 2022 , December 31, 2021 and December 31, 2020 ,

we earned approximately $ 5.1 million, $ 5.1 million and $ 5.0 million in DSIC revenue, respectively.

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

Diluted net income per share is based on the weighted 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 per share:

The January 1, 2021 rate was reset to zero when temporary rates were

placed into effect on November 28, 2023 and is subject to periodic audit by the DEPSC.

For the years ended December 31, 2023 , December 31, 2022 and December 31, 2021 , we earned approximately $ 4.7 million, $ 5.1 million and $ 5.1 million in DSIC revenue, respectively.

NOTE 14 – 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.

income per share is based on the weighted 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 per share:

Ended December 31,

3 unchanged sentences

Weighted average common shares outstanding during the period for diluted computation

For the years ended 2022, 2021 and 2020 no shares of restricted stock awards were excluded from the calculations of

diluted net income per share.

For the years ended 2023, 2022 and 2021 no shares of restricted stock awards were excluded from the

calculations of diluted net income per share.

Due to unrecognized compensation costs, the hypothetical repurchase of shares exceeded the number of restricted shares expected to vest during the period, creating an anti-dilutive effect.

For the years ended 2022, 2021 and 2020, no stock options were excluded

For the years

ended 2023, 2022 and 2021, no stock options 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 Stock.

As of December 31, 2022, 8,621,415 shares of Class A Stock and 881,452 shares of Class B Stock were issued and outstanding.

As of December 31, 2021, 8,532,795 shares of Class A Stock and 881,452 shares of Class B Stock were issued and outstanding.

As of December 31, 2020, 8,475,452 shares of Class A Stock and 881,452 shares of Class B Stock were issued and outstanding.

The Company has 15,000,000 authorized shares of Class A Non-Voting Stock, and 1,040,000

authorized shares of Class B Stock.

As of December 31, 2023 , 9,404,311 shares of Class A Non-Voting

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

As of December 31, 2022 , 8,621,415 shares of Class A Non-Voting Stock and 881,452 shares of Class B Stock were issued and outstanding.

As of December 31, 2021 , 8,532,795 shares of Class A Non-Voting Stock and 881,452 shares of

Class B Stock were issued and outstanding.

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

2 unchanged sentences

stock outstanding on December 31, 2023, December 31, 2022, and December 31, 2021, respectively.

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 $ 191,000 and $ 386,000 was paid to MNAT during the years ended December 31, 2021 and December 31, 2020, respectively, for legal 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.

BUSINESS COMBINATIONS

NOTE 15 – COMMON STOCK OFFERING

On May 23, 2023, the Company completed the sale of 695,650

shares of its Class A Non-Voting Stock, par value $ 1.00 per

share, at a price to the public of $ 50 per share.

The net proceeds to the Company from the offering, after deducting the underwriting discounts

and commissions and other offering costs, were approximately $ 33.0 million.

The Company also granted the underwriter a 30-day option to purchase up to an additional 104,348

shares of Class A Non-Voting Stock at the public offering price, less the underwriting discount.

On June 16, 2023, the underwriter exercised its over-allotment

option to purchase 67,689 shares of Class A Non-Voting

Stock at the public offering price.

The net proceeds to the Company resulting from the exercise of the over-allotment option, after deducting the underwriting discounts and commissions and other offering costs, were approximately $ 3.2 million.

All of the shares of Class A Non-Voting Stock sold in the

offering were offered by the Company.

The proceeds from both the initial offering and the over-allotment option were used to repay short-term borrowings through our lines of credit with Citizens

Bank and CoBank, incurred primarily to finance capital expenditures, including investment in utility plant and equipment, and other general corporate purposes.

NOTE 16 – BUSINESS COMBINATIONS

As part of the Company’s growth strategy, on January 14, 2022 Artesian Wastewater completed its agreement to

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.

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

The fair value determination is now finalized.

A combination of methods were 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.

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.

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.

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.

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

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

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

The TESI acquisition was approved by the DEPSC on October 27, 2021, subject to the DEPSC determining the appropriate ratemaking

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

The Company reflected revenue of $ 3.0 million for the year ended December 31, 2022, in its consolidated statement of operations related to the acquisition.

The pro forma revenue for the year ended December 31, 2022 is

estimated to be $ 3.0 million.

The Company anticipates the pro forma effects of revenue for the year ended December 31, 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 results of operations for the years ended December 31, 2023 and December 31, 2022 related to the business

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

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

3 unchanged sentences

Net cash purchase price

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.

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

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.

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.

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.

The first installment payment was paid in May 2023.

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

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

purchase price allocation is $ 7.9 million of utility plant assets offset by $ 2.9 million of CIAC.

The acquisition was accounted for as a business combination under ASC

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.

4 unchanged sentences

The pro forma effects of the business acquired are not material to the Company’s financial position or results of operations based on estimated annual revenue of approximately $ 0.5 million related to customers acquired.

LEGAL PROCEEDINGS

As of December 31, 2022, the fair value determinations for TESI and the water operating assets acquired from the Town of Clayton were finalized.

NOTE 17 – LEGAL PROCEEDINGS

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

3 unchanged sentences

significant diversion of management attention.

Several of the water systems of Artesian Resources’ subsidiaries are eligible claimants in two multi-district litigation, or MDL, class action settlements

designed to resolve Claims for PFAS contamination in Public Water Systems’ Drinking Water, as those terms are defined in the respective Agreements (the “Settlements”), which are with two groups of settling defendants on behalf of:

(1) the 3M company

Du Pont de Nemours and Company (n/k/a Eidp, Inc.), Dupont de Nemours Inc., The Chemours Company, The Chemours Company FC, LLC, and Corteva, Inc.

(collectively, “Dupont”).

Both of these Settlements are designed to resolve Claims

for PFAS contamination in Public Water Systems’ Drinking Water, as those terms are defined in the respective Agreements.

Both of the proposed Settlements are still subject to final approval by the MDL Judge, the honorable Richard M.

Gergel of the

United States District Court for the District of South Carolina.

Artesian Resources’ eligible systems have remained in the multi-district litigation class action settlements with 3M and DuPont, having elected not to opt out in advance of the opt-out

The amount of any recovery, if any, by Artesian Resources’ subsidiaries is uncertain.

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

14 unchanged sentences

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.

As of December 31, 2022, Artesian Water received approximately $ 0.4 million of reimbursements from the Trust.

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 occurring 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.

BUSINESS SEGMENT INFORMATION

Two installments of approximately

$ 2.5 million each were paid in August 2022 and July 2023.

The remaining $ 5.0 million is due in two equal installments no later than July of 2024

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 two

refunds occurred in October 2022 and August 2023.

Future customer refunds will occur no later than August 2024 and August 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 – BUSINESS SEGMENT INFORMATION

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

16 unchanged sentences

The accounting policies of the operating segments are the same as those described in Note 1-Summary of Significant Accounting Policies.

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 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 December 31, 2022,

December 31, 2021, and December 31, 2020.

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 December 31, 2023, December 31, 2022, and December 31, 2021.

Years Ended December 31,

14 unchanged sentences

Consolidated Assets

IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS

There was no new guidance issued by the FASB during the year ended December 31, 2022 that is applicable to the

NOTE 19 – IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS

In November 2023, the FASB issued amended guidance for improvements to reportable segment disclosures.

The amendments in this update require the Company to

disclose significant segment expenses that are regularly provided to the chief operating decision makers, or CODM’s, and are included within each reported measure of segment operating results.

The standard also requires the Company to disclose the

total amount of any other items included in segment operating results which were not deemed to be significant expenses for separate disclosure, along with a qualitative description of the composition of these other items.

In addition, the standard

also requires disclosure of the CODM’s, title and position, as well as detail on how the CODM uses the reported measure of segment operating results to evaluate segment performance and allocate resources.

The standard also aligns interim segment

reporting disclosure requirements with annual segment reporting disclosure requirements.

The Company will adopt the standard effective with our December 31, 2024 year end reporting and the standard will be effective for interim reporting periods in

fiscal years beginning after December 15, 2024, with early adoption permitted.

The standard requires retrospective application to all prior periods presented.

While the standard requires additional disclosures related to the Company’s reportable

segments, management does not expect the standard to have an impact on the Company’s results of operations or cash flows due to the adoption of this guidance.

In December 2023, FASB issued amended guidance on Income Taxes:

Improvements to Income Tax.

The amendments require the Company to provide further disaggregated income tax disclosures for specific categories on the effective tax rate reconciliation, as well as

additional information about federal, state/local and foreign income taxes.

The standard also requires the Company to annually disclose its income taxes paid (net of refunds received), disaggregated by jurisdiction.

The standard is effective for

fiscal years beginning after December 15, 2024, with early adoption permitted.

The standard is to be applied on a prospective basis, although optional retrospective application is permitted.

While the standard will require additional disclosures

related to the Company’s income taxes, management does not expect the adoptions of this guidance to have an impact on the Company’s results of operations or cash flows due to the adoption of this guidance.

In March 2024, the SEC passed rule changes that will require registrants to provide certain climate-related

information in their registration statements and annual reports.

The new rules enhance and standardize climate-related disclosures in an effort to provide investors with more consistent, comparable and reliable information about the impact of

climate-related risks on registrants.

The rules require disclosure of greenhouse gas (GHG) emissions in annual reports and registration statements Additionally, all registrants would be required to provide numerous climate-related disclosures within

their financial statements and elsewhere in their filings.

The Company is currently evaluating the impact of the rule changes.

Report of Independent Registered Public Accounting Firm

Stockholders and Board of Directors

Shareholders and Board of Directors

Artesian Resources Corporation

1 unchanged sentence

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of Artesian Resources Corporation (the “Company”) as of December 31, 2022 and 2021, the related

consolidated statements of operations, cash flows and changes in stockholders’ equity, for each of the three years in the period ended December 31, 2022, and the related notes (collectively referred to as the “consolidated financial statements”).

our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2022 and 2021 and the results of its operations and its cash flows for each of the three years in the

period ended December 31, 2022 , in conformity with accounting principles generally accepted in the United States of America.

We have audited the accompanying consolidated balance sheets of Artesian Resources Corporation (the “Company”) as of December 31, 2023 and 2022, the related consolidated

statements of operations, cash flows and changes in stockholders’ equity for each of the three years in the period ended December 31, 2023,

and the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2023 and 2022, and the results of its

operations and its cash flows for each of the three years in the period ended December 31, 2023 , in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

17 unchanged sentences

We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were

communicated or required to be communicated to the audit committee and that:

(i) relate to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex

The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing a separate opinion on

the critical audit matters or on the accounts or disclosures to which they relate.

Valuation of Tangible Assets in TESI Acquisition

As described in Note 16 to the consolidated financial statements, the Company acquired all of the stock of TESI from Middlesex Water Company on January 14,

Management allocated the total purchase price of $3.1 million to the net identifiable assets, based on estimated fair values.

Management allocated $25.4 m illion to

utility plant assets, the majority of which were tangible assets valued using the cost method with assistance from a third-party valuation firm.

We identified the valuation of the utility plant tangible assets in the TESI acquisition as a critical audit matter.

Management’s determination of fair value

of the utility plant tangible assets acquired using the cost method required management to make significant estimates and assumptions related to the useful lives and replacement costs of these tangible assets.

Auditing these elements was complex

because it involved especially subjective auditor judgment, including the extent of specialized skills and knowledge needed.

The primary procedures we performed to address this critical audit matter included:

Utilizing personnel with specialized knowledge and skills in valuation who assisted in evaluating the appropriateness of useful lives and cost

trend assumptions used in estimating replacement costs by comparing them to published third-party sources.

Assessing the appropriateness of useful lives used in estimating replacement costs by comparing to peer company data.

Valuation of Tangible Assets in the Town of Clayton Acquisition

Additionally, as described in Note 16 to the consolidated financial statements, the Company acquired substantially all the water system operating assets from

the Town of Clayton (Clayton) on May 26, 2022.

Management allocated the total purchase price of $5.0 million to the net identifiable assets, based on estimated fair values.

Management allocated $7.9 million to utility plant assets, the majority of

which were tangible assets valued using the cost method with assistance from a third-party valuation firm.

We identified the valuation of the utility plant tangible assets in the Clayton acquisition as a critical audit matter.

Management’s determination of fair

value of the utility plant tangible assets acquired using the cost method required management to make significant estimates and assumptions related to useful lives, replacement costs, and physical characteristics of these tangible assets.

these elements was complex because it involved especially subjective auditor judgment, including the extent of specialized skills and knowledge needed.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated

or required to be communicated to the audit committee and that:

(1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments.

communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical

audit matter or on the accounts or disclosures to which it relates.

Revenue recognition – Water Sales

As indicated in Note 2 to the consolidated financial statements, water sales revenue consists of tariff contract revenues from the sale of water, fixed fees

for water services, and Distribution System Improvement Charges, or DSIC, billed to customers at rates outlined in the Company's tariffs.

The Company recognizes revenues from the sale of water, and fixed fees for water services over time as water is

consumed and as the customers simultaneously receive and consume the benefits of the Company remaining ready to provide them water services, respectively.

DSIC revenue is a surcharge applied to tariff rates, and the Company recognizes DSIC revenue

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

As indicated in the consolidated statements of operations, the Company recorded $80 million of water sales revenue for the year ended December 31, 2023.

We identified the recognition of water sales as a critical audit matter due to the large volume of customers and transactions.

The principal consideration

for our determination is the increased extent of auditor effort involved in performing procedures and evaluating audit evidence related to the Company’s water sales revenue recognition.

The primary procedures we performed to address this critical audit matter included:

Utilizing personnel with specialized knowledge and skills in valuation who assisted in evaluating the appropriateness of useful lives, cost trend

assumptions, and certain physical characteristics of the utility plant tangible assets used in estimating replacement costs by comparing them to third party sources, and independently recalculating the replacement costs.

Assessing the appropriateness of:

The useful lives used in estimating replacement costs by comparing to peer company data,

Certain physical characteristics of the utility plant tangible assets by comparing them to independent external data, and

The replacement costs of certain utility plant tangible assets by comparing to recent actual costs or construction quotes for similar utility plant

tangible assets.

/ s/ BDO USA, LLP

Testing a sample of revenue transactions by obtaining and inspecting source documents such as invoices, cash receipts, approved tariff rates and

recalculating the revenue recognized.

Testing a sample of revenue transactions to verify that the customer’s property is located within the Company’s approved service territory.

Performing analytical procedures to reconcile cash received from customers to revenue recognized.

/ s/ BDO USA, P.C.

We have served as the Company’s auditor since 2005.

4 unchanged sentences

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-K

Item 8. Financial Statements and Supplementary Data