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Item 8. Financial Statements and Supplementary Data

2025-03-26 compared with 2024-03-18 · 386 added, 437 removed, 895 unchanged (48% of the section changed)

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CONSOLIDATED BALANCE SHEETS

For the Year Ended

December 31, 2024

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Depreciation and amortization

State and federal income tax expense (benefit)

State and federal income tax expense

Property and other taxes

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Amortization of debt expense

Amortization of deferred income tax regulatory liability

Provision for bad debt expense

Deferred income taxes, net

Stock compensation

Stock compensation expense

AFUDC, equity portion

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Accrued interest

Revenue reserved for refund

Customer deposits and other

Customer deposits and other, net

NET CASH PROVIDED BY OPERATING ACTIVITIES

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Borrowings under lines of credit agreements

(Decrease) increase in overdraft payable

Increase(decrease) in overdraft payable

Proceeds from contributions in aid of construction and advances

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NET CASH PROVIDED BY FINANCING ACTIVITIES

NET INCREASE IN CASH AND CASH EQUIVALENTS

NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS

CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR

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Change in amounts included in accounts payable and accrued

payables related to capital

payables related to capital expenditures

Supplemental Cash Flow Information:

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Income taxes paid

Purchase price allocation of investment in acquisitions:

Utility plant

Future contractual obligation payable to seller

Contributions in aid of construction

Cash paid for acquisitions

Cash received from acquisitions

Investment in acquisitions, net of cash acquired

Income taxes refunded

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

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Issuance of common stock

Public offering, net of costs

Dividend reinvestment plan

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Issuance of common stock

Public offering, net of costs

Dividend reinvestment plan

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Balance as of December 31, 2024

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.

At December 31, 2024, 2023, and 2022, Class A Stock had 15,000,000

shares authorized.

For the same periods, shares issued, inclusive of treasury shares, were 9,447,848 , 9,433,288 and 8,650,392 , respectively.

At December 31, 2024, 2023, and 2022, 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.

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, 2024, 2023, and 2022, See Notes to Consolidated Financial Statements - Note 9-Stock Compensation Plans.

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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.

make certain estimates and assumptions that could impact the Company’s financial condition, results of operations and cash flows.

Actual results could differ from management's estimates.

Management makes

certain estimates and assumptions regarding unbilled revenues, accounting for income taxes, credit losses and reserves for bad debt, lease agreements, goodwill and contingent assets and liabilities.

All additions to utility plant are recorded at cost.

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Utility plant comprises :

Estimated Useful Life

June 12, 2024

December 31, 2023

Utility plant at original cost

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depreciation rates for water utility plant were 1.93 % , 2.13 % and 2.16 % for 2024 , 2023 and 2022 , respectively.

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.

a rate order issued by the DEPSC, the Company was directed, effective June 12, 2024, to begin using revised depreciation rates for utility plant in Artesian Water, which are based on the estimated useful life years noted in the table above.

Water offsets 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.

This reduction in depreciation expense is also netted against

outstanding CIAC and Advances on the Consolidated Balance Sheet.

Certain 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 reversed.

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

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.

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.

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 reclassified from deferred costs to a regulatory asset in 2022.

Amortization of these

deferred costs began in the fourth quarter of 2023.

Deferred acquisition adjustments represent the excess payment for purchases of utility plant from Delaware municipalities over the determined original cost

net of depreciation.

Deferred acquisition costs represent the closing cost associated with the acquisitions.

Costs of $ 3.7 million were

reclassified from net utility plant and $ 0.1 million were reclassified from contributions in aid of construction, which are being amortized over

the periods noted in the table below and recovered in customer rates effective June 12, 2024 as part of the DEPSC approved settlement agreement for the Artesian Water rate application filed on April 28, 2023.

Unrecovered reserve for depreciation of $ 4.3

million is the result of the implementation of a change in depreciation methods for certain general plant assets that are being amortized over five years

and recovered in customer rates effective June 12, 2024 as part of the DEPSC approved settlement agreement for the Artesian Water rate application filed on April 28, 2023.

Amortization of these deferred costs began in the third quarter of 2024.

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

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Delaware rate proceedings

Maryland rate proceedings

Debt related costs

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Deferred costs affiliated interest agreement

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

Deferred acquisition costs (resulting from purchase of water assets in Cecil County, Maryland in 2011 and Port Deposit, Maryland in

Franchise Costs (resulting from purchase of water assets in Cecil County, Maryland in 2011)

Goodwill (Mountain Hill Water Company acquisition in 2008)

Deferred acquisition and franchise costs - Maryland

Deferred acquisition costs – Delaware

Deferred acquisition adjustments - Delaware

Unrecovered reserve for depreciation (general plant assets)

Regulatory assets, net of amortization, comprise:

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Rate case studies

Rate proceedings

Delaware rate proceedings

Deferred income taxes

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Deferred costs affiliated interest agreement

Deferred acquisition and franchise costs

Deferred acquisition and franchise costs - Maryland

Deferred acquisition costs – Delaware

Deferred acquisition adjustments – Delaware

Unrecovered reserve for depreciation

Impairment or Disposal of Long-Lived Assets

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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.

In 2023 and 2024, 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.

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

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

on the underlying long-term debt agreements.

The settlement agreement receivable is related to the long-term portion of reimbursements due in years 2024 and 2025 as further discussed in Note 1 – Accounts Receivable.

The investment in CoBank, ACB, or CoBank, which is a cooperative bank, is related to certain outstanding First Mortgage Bonds and is a required investment in

the bank based on the underlying long-term debt agreements.

The settlement agreement receivable is related to the long-term portion of reimbursements as further discussed in Note 1 – Accounts Receivable.

Other deferred assets at December 31, net of amortization, comprise:

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and wastewater utilities, effective for all of 2021 and forward.

In 2022 the Company refunded developers a total of $ 3.6 million for the

additional CIAC collected in 2021 to pay the associated tax.

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.

For the year ended December 31, 2023, Artesian Water received approximately $ 3.8 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.

For the year ended

December 31, 2024, Artesian Water did no t receive grant funding.

The grants received in 2023 were used by Artesian Water to cover the costs

associated with certain construction projects.

The grant 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

Pursuant to the grant agreements, Artesian Water is no longer eligible to receive grant funds under these grants.

Regulatory Liabilities

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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,

totaling approximately $ 10.0 million, related to the treatment costs associated with the release of contaminants from the Delaware Sand &

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

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 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.

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.

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

The annual amortization currently authorized by the DEPSC could be adjusted in future rate applications.

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

operating costs, totaling approximately $ 10.0 million, 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, pursuant to the Settlement Agreement.

Three installments for approximately $ 2.5 million each were paid in August 2022,

July 2023 and July 2024.

The final $ 2.5 million installment payment is due no later than July 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 is applied to current and future customer bills in annual installments.

The first three refunds occurred in October 2022, August 2023 and August 2024.

The final customer refund will occur no later than 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 began recording 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.

Pursuant to the enactment of the Tax Cuts and Jobs Act, or TCJA, on December 22,

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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.

On January 31, 2019, the DEPSC approved Artesian Water to amortize 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, Artesian Water received a rate order from the DEPSC instructing Artesian Water to continue amortizing the liability over a period of 49.5 years, subject to review in Artesian Water’s next base rate filing.

On June 12, 2024, the DEPSC approved a settlement agreement for the Artesian Water rate application, filed on April 28,

2023, that required two changes to the deferred income tax regulatory liability effective June 12, 2024.

A $ 7.6 million gross-up adjustment

was recorded to reflect the benefit customers would receive from the implementation of new base rates and $ 4.0 million of the regulatory

liability, which represents costs not subject to IRS normalization rules, is now required to be amortized over a six-year period rather than 49.5 years.

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.

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

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tax outcome of these matters is different than the estimates recorded, the Company would then adjust its tax reserves or unrecognized tax benefits in the period that this information becomes known.

The statute of limitations for the 2018 tax

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

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 .

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.

For the full year 2023, the Company accrued approximately $ 12,000 in penalties and interest related to positions taken on the 2022 corporate income tax return.

full year 2024, the Company has accrued approximately $ 17,000 in penalties and interest related to positions taken on the 2022 corporate income

The Company remains subject to examination by federal and state authorities for the tax years 2021 through 2024 .

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

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Accounts receivable are recorded at the invoiced amounts.

As set forth in a settlement agreement, Artesian Water will receive reimbursements from the

Delaware Sand and Gravel Remedial Trust, or Trust, for Artesian Water’s past capital and operating costs, totaling approximately $ 10.0 million,

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.

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.

As set forth in a settlement agreement, Artesian Water will receive reimbursements from the Trust,

for Artesian Water’s past capital and operating costs, totaling approximately $ 10.0 million, related to the treatment costs associated with the

release of contaminants from the Site, in groundwater that Artesian Water uses for public potable water supply.

Three installments for

approximately $ 2.5 million each were paid in August 2022, July 2023 and July 2024.

The final $ 2.5 million installment payment is due no later than July 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

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Customer accounts receivable – wastewater

Customer accounts receivable – SLP Plan

Settlement agreement receivable – short term

Miscellaneous accounts receivable

Developer receivable

Miscellaneous accounts receivable

Less provision for expected credit loss

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For purposes of the Consolidated Statement of Cash Flows, Artesian Resources considers all temporary cash investments with an original maturity of three months or less to be cash equivalents.

Artesian Resources and its subsidiaries utilize their bank’s zero balance account disbursement service to

reduce the use of their lines of credit by funding checks as they are presented to the bank for payment rather than at issuance.

If the checks currently outstanding, but not yet funded, exceed the cash balance on our books, the net liability is

recorded as a current liability on the Consolidated Balance Sheet in the Overdraft Payable account.

The Company utilizes its bank’s zero balance account disbursement service to reduce the use of their lines of

credit by funding checks as they are presented to the bank for payment rather than at issuance.

If the checks currently outstanding, but not yet funded, exceed the cash balance on our books, the net liability is recorded as a current liability on the

Consolidated Balance Sheet in the Overdraft Payable account.

Inventories consist of materials and supplies related to water and wastewater utility plant.

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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

Artesian’s operating revenues are primarily derived from 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.

Our non-tariff contract revenues, which are primarily non-utility revenues, are derived from SLP Plan fees, water and

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

Other regulated operating revenue are derived from 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

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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.

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

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.

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.

While actual usage for individual customers may

differ 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

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.

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

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.

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

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 against 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

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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.

Until final 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.

Temporary rates that were previously effective as of November 28, 2023 were replaced with final rates effective June 12, 2024, with no reserve or reduction to previously recorded revenue, as approved by the DEPSC.

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

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

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

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.

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

debt expense has not been significant.

Non-tariff Contract Revenues

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of $ 0.4 million from amounts that were included in Deferred Revenue – Non-Tariff at the beginning of the year.

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.

For the year ended December 31, 2023, the Company recognized revenue of $ 1.2

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

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.

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As of December 31, 2024 and December 31, 2023, Deferred Revenue – Non-Tariff is recorded within Other current liabilities and represents our remaining performance obligations for our SLP Plan

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

NOTE 3 – LEASES

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expect to exercise the options.

One of the leases for land was terminated in its entirety effective October 10, 2024.

The remaining lease

liability and right-of-use asset for the terminated lease was removed in the fourth quarter of 2024.

Any difference between the carrying amounts of the right-of-use asset and the lease liability will be recorded in the income statement as a gain or

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

The annual lease payments for the land operating leases increase

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

Periodically,

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

The annual lease payments for the land operating leases increase each year either by the most

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

Periodically, the annual lease payment for

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

None of the operating leases contain contingent rent provisions.

The commencement date of all the operating leases is

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

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

require disclosure.

The commencement date of all the operating leases is the earlier of the date we

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

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

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

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Rental payments for 2024, 2023 and 2022 were $ 20,000 , $ 19,000 , and $ 19,000 , respectively.

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.

The future minimum rental payment as disclosed in the following table is calculated using CPI-U from August 2024 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.

The quarterly lease payments under the lease agreement remain fixed throughout the term of the lease.

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.

Payments pursuant to the lease agreements for

2024, 2023 and 2022 were $ 8,000 , $ 6,000 and $ 5,000 , respectively.

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

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Long-term Financial Liabilities

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.

As of December 31, 2024 and December 31, 2023 , all of the Company’s outstanding long-term debt interest rates were a fixed rate.

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

Under the fair value hierarchy, the fair

value of the long-term debt in the table below is classified as Level 2 measurements.

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

The fair values for long-term debt differ from the carrying values primarily

due to interest rates that differ from the current market interest rates.

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

rates that differ from the current market interest rates.

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

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because these financial instruments are non-interest bearing .

NOTE 5 – INCOME TAXES

NOTE 5 – INCOME

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

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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, 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.

As of December 31, 2024 , the Company has separate company state net operating loss carry-forwards aggregating approximately $ 16.5 million.

Most of these net operating loss carry-forwards will not

expire, with a negligible amount expiring in 2025.

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 $ 1,084,000 in 2024 from approximately $ 906,000 in 2023 .

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Total income tax expense and effective rate

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

Deferred income taxes at December 31, 2024 and

2023 were comprised of the following:

For the Year Ended

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State operating loss carry-forwards

valuation allowance

Bad debt allowance

Stock options

Tax effect of regulatory liabilities

Total deferred tax assets

valuation allowance

Total deferred tax assets net of valuation allowance

Deferred tax liabilities related to:

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For the Year Ended December 31, 2022 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

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.

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.

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 2022 and 2024.

The following table provides the changes in the Company’s uncertain tax position:

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Balance at end of year

NOTE 6 – PREFERRED STOCK

PREFERRED STOCK

As of December 31, 2024 and 2023, Artesian Resources had no preferred stock outstanding.

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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.

reinvestment of cash dividends and optional cash payments, stockholders were issued approximately 10,000 , 8,000 and 7,000 shares at fair market value

for the investment of $ 347 ,000, $ 381 ,000

and $ 373 ,000 of their monies in the years 2024,

2023, and 2022, respectively.

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

At December 31, 2024 , 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, 2024 , there was $ 40.0 million of available funds under this line of credit.

The interest rate

is a one month Daily Secured Overnight Financing Rate, or

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.

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The Company expects to renew 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 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 .

At December 31, 2024 , 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, 2024 , there was $ 20.0 million of available funds

under this line of credit.

The interest rate for borrowings under this line is either 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 .

term of this line of credit expires on October 31, 2025 .

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The weighted average interest rate on the lines of credit discussed above paid by the Company was 6.47 % for the year ended December 31, 2024.

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.

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, 2024, we were in

compliance with these financial covenants.

Long-term debt consists of:

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

NOTE 9 – STOCK

COMPENSATION PLANS

NOTE 9 – STOCK COMPENSATION PLANS

On December 9, 2015, the Company’s stockholders approved the 2015 Equity

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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:

The following

summary reflects changes in the shares of Class A Non-Voting Stock under option:

Outstanding at beginning of year

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As of December 31, 2024, 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

Vested/Released

Unvested Outstanding at end of year

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

awards (RSA):

Restricted stock awards

Outstanding at January 1, 2024

Exercised/vested and released

Expired/cancelled

Outstanding at December 31, 2024

Exercisable/vested at December 31, 2024

Stock Options

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

On May 6, 2024, 5,000 shares of Class A Non

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

The fair value per share was $ 37.07 , the closing price of the

Class A Stock as recorded on the Nasdaq Global Select Market on May 6, 2024.

These restricted stock awards will be fully vested and released one year

after the grant date and, prior to their vesting date, are subject to forfeiture in the event of the recipient’s termination of service.

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

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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.

These restricted stock awards were fully vested and released one year after the grant date.

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

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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, 2024, there was $ 63,000 of total unrecognized expense related to non-vested awards of restricted shares awarded under the 2015 Plan.

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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.

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

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

In October 2024, this easement agreement was terminated in its entirety.

Easement payments, including both lease and non-lease components, for 2024 , 2023 and 2022 were $ 34,000 , $ 45,000 and $ 43,000 , respectively.

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The agreement can be terminated by giving 180-day notice prior to the termination date.

Future minimum annual payments related to the easement agreements noted above for the years subsequent to 2023 are as follows:

2029 through 2043

The future minimum annual payment related to this easement agreement for the years subsequent to 2024 is $ 22,000 .

Interconnections

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.

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 currently requires us to purchase a minimum of 0.5 million gallons of water 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

to purchase a minimum of 35,000 gallons per day.

agreement extends through June 2024.

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

by either party.

to purchase a minimum of 35,000 gallons of water per day.

The agreement extends through June 2029.

The agreement includes one remaining automatic five-year renewal term,

unless terminated by either party.

The minimum annual purchase commitments for all interconnection agreements for 2025 through 2029, calculated at the noticed rates, are as follows:

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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.

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.

Pursuant to the amended agreement, the total expenditure

for the four years is $ 2.2 million.

Tank painting expense for 2024 , 2023

and 2022 was $ 735,000 , $ 689,000 , and $ 531,000 , 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:

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 2025 through 2027 are as follows:

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

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pursuant to rates filed with and approved by the DEPSC.

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

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

NOTE 13 – REGULATORY

As of December 31, 2024, Artesian Wastewater and TESI were serving approximately 8,600 customers combined including one

large industrial customer.

NOTE 13 – REGULATORY PROCEEDINGS

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

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Should the rate case not be completed within seven months , by law, the utility may put the entire requested rate relief, up to 15 % of gross water sales, in effect under bond until a final resolution is ordered and placed into effect.

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

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

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

expenses that we hope to recover through the rate increase.

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

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

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

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

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

investments and expenses that we hope to recover through the rate increase.

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

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

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.

on November 30, 2023, to implement new rates to meet a requested increase in revenue of approximately $ 16.7 million, on an annualized basis, or 22.7 %.

The DEPSC approved and Artesian Water implemented a temporary rate increase effective November 28, 2023 of approximately $ 10.8 million, on an annualized basis, or 14.6 %,

subject to refund, and reduced the DSIC previously in effect from approximately 7.5 % to zero.

On May 22, 2024, Artesian Water, the Staff of the

DEPSC, and the Division of the Public Advocate, or DPA, (collectively, the Parties) entered into an agreement, or Settlement Agreement, to settle Artesian Water’s April 2023 application to implement new rates.

On June 12, 2024, a DEPSC order was

issued approving the settlement agreement entered into on May 22, 2024 between the Parties.

The Settlement Agreement authorizes a total increase in the revenue requirement of $ 11.2 million, on an annualized basis, or approximately 15.2 %, with a rate effective

date of June 12, 2024, which encompasses a 9.5 % return on common equity and an overall rate of return on rate base of 6.75 %.

Temporary rates that were in effect since November 28, 2023 were replaced with the final approved rates from the Settlement Agreement.

depreciation rates for utility plant and revised amortization rates for certain regulatory assets and liabilities were also approved effective June 12, 2024.

Other Proceedings

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

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

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

improvements was based:

Application Date

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Eligible Plant Improvements – Installed Ending Date

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

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.

On December 18, 2024, the DEPSC approved Artesian Water’s application to implement a DSIC rate of 1.66 %, effective January 1, 2025.

Effective July 1, 2024, Artesian Water was permitted to recover specific investments made in infrastructure through the assessment of a 0.34 % DSIC.

The January 1, 2025 and July 1, 2024 DSIC are subject to periodic audit by the DEPSC.

Effective January 1, 2021, Artesian Water was permitted

to recover specific investments made in infrastructure through the assessment of a 7.50 % DSIC.

The January 1, 2021 DSIC rate was reset to zero percent when the temporary base rate increase was placed into effect on November 28, 2023.

For the years ended December 31, 2024 ,

December 31, 2023 and December 31, 2022 , we earned approximately $ 0.1 million, $ 4.7 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:

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:

Ended December 31,

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Weighted average common shares outstanding during the period for diluted computation

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 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 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.

For the years ended 2024, 2023 and 2022 no shares of restricted stock awards were excluded from the calculations of

diluted net income per share.

For the years ended 2024, 2023 and 2022, 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 Non-Voting Stock, and 1,040,000 authorized

shares of Class B Stock.

As of December 31, 2024 , 9,418,871 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.

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.

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

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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.

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.

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 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.

(in thousands)

Utility plant

Liabilities and contributions in aid of construction (CIAC)

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 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

The purchase price allocation is $ 7.9

million of utility plant assets offset by $ 2.9 million of CIAC.

The Company utilized similar valuation methodologies to those described above.

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

DEPSC on April 20, 2022 .

The DEPSC will determine the appropriate ratemaking treatment of the acquisition price and the assets acquired in Artesian Water’s next

base rate case.

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.

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

shares of its Class A 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 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 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 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, including borrowings incurred under 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 – LEGAL PROCEEDINGS

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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

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

resolve claims for per- and polyfluoroalkyl substances, or 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

(1) the 3M company (“3M”);

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

Phase One Public Water System

Settlement Claims Forms have been submitted on behalf of Artesian Resources’ eligible systems in each of the Settlements.

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

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

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

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

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

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

ROD Amendment No.

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

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

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

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

The Remedy includes requirements that are

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

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

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

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

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.

Several of the water systems of Artesian Resources’ subsidiaries are eligible claimants in the MDL class action settlement designed to resolve claims for

PFAS contamination in Public Water Systems’ Drinking Water, as those terms are defined in the settlement agreement of settling defendants Tyco Fire Products LP and Chemguard, Inc.

(the “Tyco Settlement”).

The deadline for eligible claimants to submit

requests for exclusion from the settlement was September 23, 2024;

Artesian Resources’ subsidiaries have elected to remain in the settlement class.

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

Several of the water systems of Artesian Resources’ subsidiaries may be eligible claimants in the MDL class action settlement designed to resolve claims for

PFAS contamination in Public Water Systems’ Drinking Water, as those terms are defined in the settlement agreement of settling defendant BASF Corporation (the “BASF Settlement”).

The deadline for eligible claimants to submit requests for exclusion

from the settlement was October 15, 2024;

Artesian Resources’ subsidiaries have elected to remain in the settlement class.

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

NOTE 17 – BUSINESS SEGMENT INFORMATION

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

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

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

design, construction and engineering services;

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

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

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

the results of these businesses.

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

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

The Chief Operating Decision Maker, or CODM, is the Executive Committee led by the Chief Executive Officer and includes the Chief Financial Officer.

CODM uses operating income as its measure of profit to assess the performance of each segment.

This profit measure excludes the financing component and allows management to focus on controllable expenses, to allocate resources during the annual

budgeting process and to monitor budget versus actual results on a monthly basis.

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

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,

2024, December 31, 2023 and

December 31, 2022.

Years Ended December 31,

Regulated Utility

Other (non-utility)

Regulated Utility Revenues

Reconciliation of revenue

Other revenues

Inter-segment elimination

Consolidated revenues

Operating Income:

Regulated Utility

Other (non-utility)

Payroll and Benefits (c)

Supply and Delivery (d)

Administrative (e)

Depreciation and Amortization

Property and other taxes

Regulated Utility Operating Income

Reconciliation of operating income

Consolidated operating income

Income Taxes:

Regulated Utility

Other (non-utility)

Consolidated Income Taxes

Regulated Utility

Other (non-utility)

December 31, 2024

December 31, 2023

Regulated Utility Assets

Reconciliation of assets

Consolidated assets

(a) Other revenues and other profit:

Revenue and profit from segments below the quantitative thresholds are attributable to four non-utility businesses of the Company

– These businesses are

primarily comprised of:

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

design, construction and engineering services;

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

and leased space to the Regulated Utility Segment

– These non-utility

businesses do not individually or in the aggregate meet the quantitative thresholds for determining reportable segments

– Certain corporate costs

have been allocated from the regulated utility segment to the non-utility businesses and are included in the other profit amounts shown

(b) Significant expense categories:

– The significant expense

categories and amounts align with the segment-level information that is regularly provided to the CODM

– Inter-segment expenses

related to leased space provided by one non-utility business, calculated on the lower of cost or market method, are included in the amounts shown

– This category does not include amounts capitalized on the Consolidated Balance Sheet

(d) Supply and Delivery:

– This category includes

purchased power, purchased water, chemicals, infrastructure maintenance and repair costs, and wastewater disposal fees

(e) Administration expense:

– This category includes

computer systems maintenance and subscription fees, audit and legal fees, insurance, customer billing, and other general and administrative expenses

NOTE 18 – IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS

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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.

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

The standard also requires the Company to disclose the

4 unchanged sentences

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.

The Company adopted this 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.

The standard required retrospective application to all prior periods presented.

The standard required additional disclosures related to the Company’s reportable segments, and did not 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.

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 adoption of this guidance to have an impact on

the Company’s results of operations or cash flows.

In November 2024, FASB issued amended guidance which requires disaggregated disclosure of income statement expenses

for public business entities.

The guidance does not change the expense captions an entity presents on the face of the income statement;

rather, it requires disaggregation of certain expense captions into specified categories in disclosures within the

footnotes to the financial statements.

The standard is effective for fiscal years beginning after December 15, 2026, and interim periods within fiscal years beginning after December 15, 2027.

Early adoption is permitted.

Report of Independent Registered Public Accounting Firm

41 unchanged sentences

As indicated in the consolidated statements of operations, the Company recorded $88 million of water sales revenue for the year ended December 31, 2024.

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.

We identified the recognition of water sales as a critical audit matter due to the large volume of customers and transactions which involved an increased

extent of auditor effort in performing audit 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:

Testing the design and operating effectiveness of certain relevant internal controls related to the Company’s recognition of water sales revenue.

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

9 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