Artesian Resources Corporation Annual Report 2021

Plain-text annual report

Our Vision is to remain the pre-eminent provider of water and wastewater services on the Delmarva Peninsula. T A B L E O F C O N T E N T S Developing a leadership team that ensures seamless management Company Overview Page 4 Company Highlights Page 5 Financial Highlights Page 6 Letter to Our Shareholders Page 8 succession has been a key focus Nicholle R. Taylor Page 9 at Artesian. Our strong leadership Investments That Drive Growth Page 10 team is working to create added financial value for our shareholders by pursuing regional growth while continuously providing safe, reliable services bolstered by innovation that fosters environmental protection and preservation. Pierre A. Anderson Stanley Siegfried Water Service Facts We’re Optimistic About Our Future Page 13 Page 15 Page 18 Page 18 Service to Our Communities Page 19 Service to Our Customers Page 19 Investor Information Page 20 Officers Directors William C. Wyer Page 21 Page 22 Page 23 FOR MORE INFORMATION ABOUT 2022 Annual Meeting Page 23 ARTESIAN RESOURCES CORPORATION, PLEASE VISIT US: a r t e s i a n r e s o u r c e s . c o m Artesian Subsidiaries Page 24 Financial Data 10-K 3 C O M P A N Y O V E R V I E W The genesis of Artesian Water Company dates to 1905, when Aaron K. Taylor began to supply a new housing development in New Castle County, Delaware, with water that ran directly into homes. From small beginnings as a local water company, Artesian has grown into a flourishing total water resource management company today. It is now the largest regulated investor- owned water utility on the Delmarva Peninsula and the ninth largest in the nation. Having expanded our territory since 1905, we now provide water and wastewater solutions to the entire state of Delaware and water solutions to nearby Cecil County, Maryland. We engage in a wide variety of activities from identifying new sources of supply and developing wells, treatment plants and delivery systems, to planning, building and managing responsible wastewater treatment systems. We serve our customers and communities through our employees’ involvement with various charities and civic organizations throughout our service area. We are dedicated to our mission of providing our customers with the very best service possible. 4 C O M P A N Y H I G H L I G H T S • Nicholle R. Taylor appointed President of our largest subsidiary, Artesian Water Company, Inc., in August 2021. • Increased our common stock dividend 4.1% in 2021, raising the annualized dividend per share to $1.07. • Posted a 24.9% stock price increase in 2021 and a 147.7% increase over the past 10 years. • Marked our 25th year as a publicly- traded company on Nasdaq. • Increased the number of customers • Plan to close on the acquisition of the Town of Clayton’s water system in the second quarter of 2022. The system serves approximately 4,000 residents through 23 miles of main, 3 wells, a water treatment plant and 2 elevated water storage tanks. • Began accepting treated effluent from a major poultry processing facility at our Sussex Regional Recharge Facility. The facility will initially land apply 1.5 million gallons per day of treated effluent from this large company, providing an effective, innovative and environmentally-friendly method of disposal that ceases discharge into served by 1.5% in our long-established our inland bays, rivers and streams. water business, and by 14.8% in our rapidly expanding wastewater business. • Closed on the acquisition of Middlesex Water Company’s wholly-owned wastewater subsidiary, Tidewater Environmental Services, Inc., in January 2022, adding 7 wastewater facilities, 13,000 acres of exclusive franchise territory, and more than doubling the number of wastewater customers we serve. • Added 2 million gallons per day of supply and treatment in southern New Castle County, where a large pharmaceutical company has decided to locate a “mega” campus. • Completed installation of 8.5 miles of main in southeastern Sussex County, and added 2 million gallons per day of supply and treatment in the regional water system. 5 F I N A N C I A L H I G H L I G H T S 9 1.7 $ 9 1.7 $ 0 1.6 $ 4 1.5 $ 1 1.5 $ 1 1.4 6 $ 1.2 $ 3 1.1 $ 7 1.0 4 $ 0.9 $ 1 1 0 2 1 0 2 3 1 0 2 4 1 0 2 5 1 0 2 6 1 0 2 7 1 0 2 8 1 0 2 9 1 0 2 0 2 0 2 1 2 0 2 2 6.8 1 $ 3 6.8 1 $ 3 4.9 1 $ 8 4.2 1 $ 8 3.9 1 $ EEaarrnniinnggss PPeerr CCoommmmoonn SShhaarree (at December 31) (at December 31st) 5 2.9 1 $ 1 1.3 1 $ 5 9.8 $ 1 9.5 0 $ 8.3 $ 5 6.7 $ 2 1 0 2 3 1 0 2 4 1 0 2 5 1 0 2 6 1 0 2 7 1 0 2 8 1 0 2 NNeett IInnccoommee (in millions) 1 2 0 2 9 1 0 2 0 2 0 2 0 2 0 2 4 2.2 8 $ 1 0.4 8 $ 9 9.0 7 $ 0 3.6 8 $ 2 7.0 7 7 $ 2.4 7 $ 6 0.5 7 7 $ 5.0 6 $ 7 9.0 6 $ 6 0.8 9 $ 4 8.1 8 $ 2 1 0 2 3 1 0 2 4 1 0 2 5 1 0 2 6 1 0 2 7 1 0 2 8 1 0 2 9 1 0 2 0 2 0 2 1 2 0 2 OOppeerraattiinngg RReevveennuuee (in millions) 0 1 0 2 1 1 0 2 2 1 0 2 3 1 0 2 4 1 0 2 5 1 0 2 6 1 0 2 7 1 0 2 8 1 0 2 9 1 0 2 6 T E N Y E A R S U M M A R Y 2021 2020 2019 2018 2017 2016 2015 2014 2013 2012 For the year ended December 31, (in millions except per share amounts) Operating Revenue Operating Expenses Operating Income Net Income $ 90.86 $ 88.14 $ 83.60 $ 80.41 $ 82.24 $ 79.09 $ 77.02 $ 72.47 $ 69.07 $ 70.56 68.57 65.85 63.67 61.46 62.64 60.27 59.44 56.42 54.59 54.71 22.29 22.30 19.93 18.96 19.60 18.82 17.58 16.05 14.48 15.85 16.83 16.82 14.93 14.28 13.98 12.95 11.31 9.51 8.30 9.85 Net Income Per Common Share - Diluted 1.79 1.79 1.60 1.54 1.51 1.41 1.26 1.07 0.94 1.13 Cash Dividend Per Common Share 1.05 1.01 0.98 0.95 0.93 0.90 0.87 0.85 0.82 0.79 Rate Base $331.60 $315.71 $267.55 $258.56 $249.00 $240.39 $233.46 $235.69 $225.10 $220.05 5 2 6 $ 7 7 5 $ 5 3 5 0 $ 1 5 2 $ 9 4 8 $ 6 4 $ 0 5 4 0 $ 3 4 $ 2 1 0 2 3 1 0 2 4 1 0 2 5 1 0 2 6 1 0 2 7 1 0 2 8 1 0 2 9 1 0 2 0 2 0 2 1 2 0 2 0 2 0 UUttiilliittyy PPllaanntt aatt CCoosstt (in millions) 2 0 5 7 $ 7 0 7 $ 7 6 6 $ 9 4.5 $ 8 4.3 $ 8 4.1 $ 6 3.8 $ 9 3.9 $ 0 3.6 $ 7 3.3 $ 6 3.0 2 $ 2.7 $ 5 2.4 $ 2 1 0 2 3 1 0 2 4 1 0 2 5 1 0 2 6 1 0 2 7 1 0 2 8 1 0 2 9 1 0 2 1 2 0 2 0 2 0 0 2 2 0 2 SSeerrvviiccee LLiinnee PPrrootteeccttiioonn PPllaann RReevveennuuee (in millions) (in millions) 7 D E A R S H A R E H O L D E R S For many years, we have worked to develop a leadership team capable of ensuring that Artesian remains the pre-eminent provider of water and wastewater services on the Delmarva Peninsula. Toward that end, we are excited to note that in August 2021, your Board of Directors appointed Nicholle Taylor as President of our largest subsidiary, Artesian Water Company. With David Spacht continuing as President of our fast-growing Artesian Wastewater Management subsidiary, and with Joseph DiNunzio continuing as President of our Artesian Water Maryland subsidiary, the Board and I have great confidence that the Company will continue to grow and prosper. Our leadership team, and all of our talented, hard-working employees, focus every day on achieving growth by adhering to our core mission—providing cost-effective, sustainable and environmentally responsible services across the Delmarva Peninsula; benefiting our customers and communities; and delivering to you, our shareholders, continued attractive returns on your investment. Decades ago, we developed a well-designed growth strategy that continues to be effective to this day. We are pleased to tell you now about what we accomplished last year in executing that strategy. Dian C. Taylor Chair, President and CEO 7 1.0 $ 3 1.0 0 $ 1.0 7 $ 0.9 4 $ 0.9 1 $ 0.9 9 $ 0.8 6 $ 0.8 $ 4 0.8 1 $ 0.8 $ 2 1 0 2 3 1 0 2 4 1 0 2 5 1 0 2 6 1 0 2 7 1 0 2 8 1 0 2 9 1 0 2 0 2 0 2 1 2 0 2 Annualized Dividend Per Common Share (at December 31) 8 D E A R S H A R E H O L D E R S In 2021, we marked the 25th anniversary of our listing on Nasdaq. We increased our common stock dividend in each of those 25 years, most recently providing a 4.1% increase in 2021 that raised your annualized dividend per share to $1.07 from $1.03 as of the end of 2020. Our stock price posted a 24.9% increase in 2021 and a 147.7% increase over the past 10 years. Our focus on the long-term direction of the company delivers positive results. We made significant progress last year in achieving our long-term strategic objectives; however, the financial impacts of such efforts are not always immediately apparent. Although our revenues increased 3.1% in 2021 to $90.9 million from $88.1 million for 2020, increased costs resulted in flat net income and diluted earnings per share of $16.8 million and $1.79, respectively, compared to 2020. What is notable, however, is that our revenue growth was driven by increases of 1.5% in the customer base of our long-established water business and of 14.8% in the customer base of our rapidly expanding wastewater business. Moreover, in January 2022, when we completed our acquisition of Tidewater Environmental Services, Inc. (TESI), a wastewater subsidiary of Middlesex Water Company, we further doubled the number of wastewater customers served. We remain certain that the acquisitions and investments in utility infrastructure we make across the Delmarva Peninsula will provide meaningful future contributions to growth on the financial bottom line. P R O M O T I O N Nicholle R. Taylor President, Artesian Water Company, Inc. Senior Vice President, Artesian Resources Corporation and its Subsidiaries Nicholle Taylor was promoted to President of Artesian Water Company in August 2021. Under her leadership, Artesian Water Company has been focus- ing on fully integrating its acquired and existing systems into regionalized systems, enhancing the processes of newly acquired water systems, and ensuring long-term reliability of the critical resource we provide for all customers and community mem- bers on the Delmarva Peninsula. Taylor has had over three decades of involvement in the water utility industry, holding various managerial positions ranging from planning and engineering to customer service, supervision of operations and oversight of investor relations. Her accomplished background includes being the Senior Vice President of Artesian Resources Corporation and its subsidiaries since 2019 and serving as Chief Operating Officer of Artesian Water Company from August 2019 to August 2021. Since 2007, she has been a member of the Board of Directors of Artesian Resources Corporation, where she serves on the Strategic Planning, Budget and Finance Committee. Her contributions extend far beyond Artesian: she is a member of the Board of Directors of the Committee of 100, a business organization promoting responsible economic development in the state of Delaware; she serves on the Board of Directors of the Delaware Nature Society; and she serves as Chair of the Board of Directors of the National Association of Water Companies (NAWC) for 2022. The NAWC is a trade organization of the investor-owned water industry. It represents companies that provide water and wastewater service to nearly 73 million Americans and that are committed to safeguarding public health and promoting environmental stewardship. 9 Investments That Drive Growth One such investment has been to continue developing new sources of supply. In 2021, we added 2 million gallons per day (mgd) of water supply and treatment capacity in southern New Castle County with the expan- sion of our Hyetts Corner Water Treatment Plant. This critical investment in our regional integrated water system has helped to further economic development in the area. For example, last year a large industrial customer selected a location in southern New Castle County for its “mega” pharma- ceutical campus. The availability of safe, reliable and plentiful water is critical to a pharmaceutical manufacturer, and Artesian’s ability to meet that need played a vital role in bringing this manufacturer to Delaware. The pharmaceutical campus is anticipated The Town of Clayton’s proximity to Route 1 and its excellent educational options are attracting many new residents. 10 to be operational in 2024, will require 250,000 to 600,000 gallons of water per day, and will bring over 1,200 new jobs to the area. We are proud to announce that the Town of Clayton, Delaware, has selected Artesian to acquire its water system with an Asset Purchase Agreement signed in February 2022. Clayton straddles the border between New Castle and Kent Counties. In September 2021, the Town issued a request for proposals for the acquisition, noting its interest in a “sustainable arrangement for the provision of safe drinking water to its constituents.” Closing is expected to occur in the second quarter of 2022, after due diligence and approval by the Delaware Public Service Commission of the transfer of exclusive franchise territory. This latest acquisition is a key addition to our northern Kent County system: Clayton brings to our integrated, regional system approxi- mately 4,000 residents, 23 miles of main, a water treatment plant, 3 wells and 2 elevated water storage tanks. The purchase agreement marks our eighth water system acquisition in the past six years; the previous seven were the municipal water systems of Delaware City and Frankford, as well as water systems serving High Point, Slaughter Beach, Cantwell, Odessa and historic Fort DuPont. Our acquisition of the Clayton water system means that Artesian’s regional system will grow with the town, which has multiple residential and commercial projects under construction. The town’s excellent educa- tional options and its proximity to Route 1, the major north/south thoroughfare through Delaware, are attracting many new residents. l m i n g t o n W i I-95 w e T h i s y e a r a d d e d 2 m i l o n s p e r g a l s u p p l y w a t e r N e w C a s t i o n l l d a y o f i n s o u t h e r n l e C o u n t y . RT-1 C & D C a n a l M i d d l e t o w n S O U T H E R N N E W C A S T L E C O U N T Y Our Hyetts Corner facility features expanded water supply and treatment capacity and includes a solar park providing carbon-free energy. i n l e C o u n t y t o A n e w “ m e g a ” i c a l c a m p u s p h a r m a c e u t s o u t h e r n N e w C a s t r e q u i 6 0 0 , 0 0 0 g a l p e r w a t e r r e 2 5 0 , 0 0 0 l o n s o f d a y . w i l l t T h e p l a n n e d c l o s i n g o n t h e i o n o f t h e a c q u i s i s y s t e m C l a y t o n ’ s w a t e r a d d a p p r o x i m a t e l y l e s o f 2 3 m i r e s i d e n t s , r e a t m e n t a l s , 3 w e l a n d 2 e l e v a t e d w a t e r t a n k s . s t o r a g e T o w n o f l w i 4 , 0 0 0 m a i n , t l p l a n t C l a y t o n 11 K E N T C O U N T Y L e w e s R e h o b o t h B e a c h RT-1 SRRF land applies treated effluent through rapid infiltration basins and spray irrigation, ceasing the discharge of effluent into the Broadkill River and other Delaware bays, creeks and streams. l s b o r o M i l Our Greater Dagsboro Water Treatment Plant supplies 2 million gallons of water per day and interconnects the regional southeastern Sussex County water system. S U S S E X C O U N T Y W i o f s o l e i o n t t h e a c q u i s i t h w e a r e , T E S I r e g i o n a l w a s t e w a t e r t h e r e g u l a t e d i n t y i l i u t D e l a w a r e . B e t h a n y B e a c h F e n w i c k I s l a n d t i o n o f T h e a c q u i s i t h a n a d d e d m o r e c u s t o m e r s , T E S I 3 , 7 0 0 w a s t e w a t e r t e s a n d i l f a c i 7 w a s t e w a t e r e x c l u s i v e 1 3 , 0 0 0 a c r e s o f i n t o r y i r t e r r a n c h i s e S u s s e x C o u n t y . f 12 We began providing water service in Sussex County, Delaware, in 1997. We recognized that with its vast undeveloped land near beautiful beach communities, the area offered valuable growth potential, limited only by the lack of public water and wastewater services. We have expanded our footprint in Sussex County through acquisi- tions of existing water systems, the develop- ment of groundwater sources of supply, and construction of several treatment plants. During 2021, we completed construction of a new 2 mgd treatment plant located in the town of Dagsboro, and we installed 8.5 miles of main through our franchised service area to integrate our new plant with our existing supply and treatment facilities serving South Bethany and Fenwick Island with nearby areas including the Town of Frankford. These accomplishments constitute a signifi- cant milestone in realizing our vision for our regional southeastern Sussex County system, which now covers over 20 square miles and serves about 20,000 residents. We recognized in the early stages of our planning that the provision of wastewater services in Sussex County would be critical to support the ongoing development in this area. In 2005, Artesian Wastewater Management, Inc. began providing waste- water service as a Delaware regulated utility. This not only marked our entry into a new, related line of business, but also comple- mented and aided the growth of our water services in Sussex County. P R O M O T I O N Pierre A. Anderson Chief Information Officer and Senior Vice President, Artesian Resources Corporation and its Subsidiaries IInn MMaayy 22002211,, tthhee BBooaarrdd ooff DDiirreeccttoorrss nnaammeedd PPiieerrrree AAnnddeerrssoonn CChhiieeff IInnffoorrmmaattiioonn OOffffiicceerr aanndd SSeenniioorr VViiccee PPrreessiiddeenntt.. AAnnddeerrssoonn pprreevviioouussllyy sseerrvveedd aass VViiccee PPrreessiiddeenntt ooff IInnffoorrmmaattiioonn TTeecchhnnoollooggiieess ooff AArrtteessiiaann RReessoouurrcceess CCoorrppoorraattiioonn aanndd iittss ssuubbssiiddiiaarriieess ffrroomm MMaayy 22001122 ttoo MMaayy 22002211.. AAnnddeerrssoonn jjooiinneedd tthhee CCoommppaannyy iinn 22000066,, aanndd hhaass bbeeeenn tthhee hhiigghheesstt rraannkkiinngg tteecchhnnoollooggyy ooffffiicciiaall ooff tthhee CCoorrppoorraattiioonn ffoorr hhiiss eennttiirree tteennuurree.. 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AAnnddeerrssoonn sseerrvveess oonn tthhee BBooaarrddss ooff EEaasstteerrsseeaallss DDeellaawwaarree && MMaarryyllaanndd’’ss EEaasstteerrnn SShhoorree ((TTrreeaassuurreerr)),, DDeellaawwaarree SSttaattee CChhaammbbeerr ooff CCoommmmeerrccee,, AAllffrreedd LLeerrnneerr CCoolllleeggee ooff BBuussiinneessss && EEccoonnoommiiccss AAlluummnnii BBooaarrdd aatt tthhee UUnniivveerrssiittyy ooff DDeellaawwaarree,, BBaannccrroofftt CCoonnssttrruuccttiioonn CCoommppaannyy,, aanndd bbyy gguubbeerrnnaattoorriiaall aappppooiinnttmmeenntt ttoo tthhee DDeellaawwaarree EEccoonnoommiicc && FFoorreeccaassttiinngg AAddvviissoorryy CCoouunncciill ((DDEEFFAACC)).. 13 F e n w i c k I s l a n d Having had the foresight to secure 1,700 acres of land to be dedicated to the disposal of treated effluent, and having acquired another 120 acres for location of a waste- water treatment facility, we are now well positioned to provide wastewater services sufficient to handle significant continued growth in Sussex County. We recently finished constructing and began operating Phase 1 of our regional wastewater disposal facility, known as the Sussex Regional Recharge Facility (SRRF). The plant has a planned spray-irrigation disposal capacity of 3 mgd. In June 2021, we began accepting treated effluent from a poultry processing facility, removing its effluent discharge from a local stream. Our environmentally-friendly disposal method allows for the treated effluent to be used to irrigate farmland and to pre- serve the local water cycle by recharging the aquifer, rather than discharging the effluent into Sussex County’s streams and inland bays, where it could have detrimental impacts on local communities and the environment. While working to bring SRRF into service, we met community wastewater needs by constructing satellite wastewater treatment facilities in new developments. Our plan was that the satellite facilities would become the mainstay of a fully integrated regional waste- water transmission system in our core service area. Through this regionalization effort, we were able to bring wastewater service to underserved areas and to expand our service areas—which in turn positioned us to acquire TESI, as mentioned earlier. This acquisition will accelerate the expansion of our wastewater services in Sussex County Milton Lewes Georgetown Rehoboth Beach Millsboro Dagsboro Frankford Bethany Beach Selbyville Fenwick Island The TESI acquisition accelerates the expansion of our wastewater services throughout Sussex County, near Delaware’s beaches and their surrounding growing communities. WASTEWATER SERVICE AREA 14 in areas near Delaware’s beaches, and will also give us new opportunities to serve the western portion of Sussex County along the Route 13 corridor. These opportunities bode well not only for residents and businesses in these areas but also for our shareholders. The acquisition of TESI has added more than 3,700 wastewater customers, 7 wastewater facilities and 13,000 acres of exclusive franchise territory in Sussex County. We expect to realize further wastewater operational synergies as we integrate TESI’s facilities into our regional system. As part of the integration, we will connect SRRF to the wastewater collection system serving the town of Milton. This connection will allow us to decommission Milton’s existing waste- water treatment facility, thus ceasing the discharge of effluent into the Broadkill River. We are well equipped to serve local busi- nesses and rapidly growing communities in the Milton area, and we expect to gain more than 2,000 new customers here as we work with landowners and developers on their projects. Over the past three decades, Sussex County has seen remarkable population growth that has been driven by its location in the mid- Atlantic region, easy access to beaches, tax-free shopping and overall low cost of living. As a result of these advantages, it has become a mecca for retirees relocating from neighboring city centers. The incremental, cost-effective investments we have made in Sussex County—always with the goal of a regional integrated water and wastewater system in mind—will support continued rapid growth in these attractive areas of the county. P R O M O T I O N Stanley Siegfried Vice President of Operations, Artesian Wastewater Management, Inc. Stanley Siegfried was named Vice President of Waste- water Operations in late December 2021. Siegfried has over 30 years of professional experience in utility plant construction. His high-level expertise in the design and construction of wastewater facilities and his skillful oversight of our wastewater operations have been essential to Artesian’s expansion projects and rehabilitation of new and existing wastewater systems. Siegfried will continue to oversee wastewater system operations, spray irrigation systems and wastewater facilities crucial to Artesian’s reliable service. He will also continue to direct wastewater operations to ensure total adherence to safety and compliance regulations. 15 P h a s e 1 o f i s u n d e r w a y o n i o n r u c t t h e 1 , 2 0 0 a c r e c o n s t 4 3 8 a c r e s o f w h i c h e n t a i t e , i d g e s i B a i n b r t o 3 , 7 5 0 , 0 0 0 s q u a r e u p a n d i a l r i n d u s t i c e s p a c e . f e e t o f o f f l s C E C I L C O U N T Y C & D C a n a l I l r C o u n t y h a s b e c o m e d e v e l o p m e n t C e c i f o r b e t w e e n h i g h l y s o u g h t i d o r - 9 5 c o r D . C . N e w Y o r k a n d W a s h i n g t o n , t h e a l o n g i n g e x i s t i o n s o f t e s i a n ’ s a c q u i s i s y s t e m s a n d e x c l u s i v e t h e c o r w a t e r i n t o r y i r t e r l i o n e d u s w e l r a n c h i s e t h a s p o s i t h i s g r o w t h . t o s e r v e A r r f t i d o r D e p o s i t P o r t I-95 t h e a s t N o r Divers inspect the Susquehanna River intake structure near Port Deposit in advance of planned work to ensure its continued reliable service. 16 In Maryland, we long ago identified nearby Water Company in the center of the county, Cecil County as offering another opportunity and then an adjacent water utility, Mountain to realize our vision of providing water and Hill Water Company, located along the wastewater service across the Delmarva county’s designated growth corridor between Peninsula. Cecil County is located at the the towns of Perryville and North East. top of the Chesapeake Bay, along the I-95 In 2010, we acquired the water system of corridor and close to the major metropolises the town of Port Deposit, which is located of Philadelphia, Baltimore, New York and on the banks of, and obtains its water supply Washington, D.C. All that was needed for from, the Susquehanna River. Finally, in Cecil County to become a highly-sought- 2011, we completed the acquisition of water after location for development was utility systems owned by Cecil County, obtaining infrastructure along its designated growth franchised service area from North East to corridor between I-95 and Route 40. the Delaware state line. As a result, Artesian Seeing the opportunity and knowing that it directly aligned with our vision, we proceeded in 2007 to acquire first the Carpenter’s Point became the primary water service provider across the county’s entire I-95/Route 40 designated growth corridor, with a verified substantial source of water supply available from the Susquehanna River. These acquisi- tion efforts are now yielding fruit, fueling the growth we expected to see along that corridor. A significant example of such growth is the Phase 1 development, now under way, of the U.S. Navy’s former Bainbridge Naval Training Center site just off I-95 along the Susquehanna River in Port Deposit. Work is currently being done to evaluate the water intake structure in the river to ensure that water demands will be met as development expands. The approximately 1,200-acre site has been inactive since the U.S. Navy departed in 1976 and is now being returned to use through its commercial and industrial development. 17 We’re Optimistic About Our Future As I noted at the beginning of this letter, a key goal of mine has been to provide for a seamless management succession and to develop the future leadership of Artesian. Your Board of Directors and I are confident that the leadership team we have assembled, supported by an amazing team of enthusiastic and devoted employees, will ensure that Artesian continues to grow and to remain the pre-eminent provider of water and wastewater services on the Delmarva Peninsula. We remain strongly committed to providing reliable, sustainable and safe services to our customers across the Delmarva Peninsula, and to achieving further growth through acquisitions, expansion of our franchised service areas and investment in infrastructure. Thanks to the vision and strategy guiding us, Artesian has seen incredible growth and as a result has been able to provide you, our shareholders, with sustainable and attractive returns on your investment. On behalf of your Board of Directors and your entire Artesian team, I want to express our gratitude for your continued confidence in Artesian. Dian C. Taylor Chair, President and CEO W A T E R S E R V I C E F A C T S Population served ......... approximately 301,000 Metered customers ........................... 94,300 Annual production ................ 8.4 billion gallons Miles of main .......................................1,398 Active wells ............................................ 209 Treatment facilities .................................. 73 Storage capacity .............. 175.4 million gallons Water service territory ..................................... 300 sq. miles Wastewater service territory ........................... 34 sq. miles Average cost per day for residential water service ............... $1.67 18 Service to Our Communities Service to Our Customers For over 115 years, Artesian has contributed to the communities it serves on the Delmarva Peninsula, with many of its employees serving in leadership positions. These are among the organizations we are proud to have employees serve: • National Association of Water Companies • Delaware State Chamber of Commerce • Delaware Business Roundtable • Delaware Prosperity Partnership • Cecil Business Leaders for Better Government • Cecil County Economic Development Commission • Delaware State Bar Asscociation • American Heart Association • Delaware Nature Society • Easterseals Delaware and Maryland’s Eastern Shore • Junior Achievement of Delaware • Alfred Lerner College of Business & Economics Alumni Board at the University of Delaware • Committee of 100 The extraordinary commitment of our employees was well-demonstrated in May 2021, when Artesian’s Supervisor of Waste- water Services, Douglas McClure, utilized his Artesian-provided safety training by applying life-saving CPR to resuscitate a community member. In 2021, despite the ongoing pandemic, severe weather conditions and other challenges, our dedicated employees worked 24/7 to ensure uninterrupted, reliable service. Our customer service personnel maintained minimal telephone call wait times and engaged in thorough customer communications. They also achieved a goal of increasing our customer enrollment in e-billing by 3.5% in one quarter, bringing to 43.5% the portion of our customers using our e-billing platform. This level is significantly above industry standards. E-billing not only affords greater convenience, but also—by eliminating paper and its delivery to and from the customer— reduces the impact on our environment as well as costs otherwise incurred in the billing and collection process. Helping to fight hunger in our communities, Artesian donated 516 pounds of food to the Food Bank of Delaware. 19 I N V E S T O R I N F O R M A T I O N SHAREHOLDER INQUIRIES Shareholder inquiries regarding Class A Non-Voting Common Stock and Class B Common Stock accounts, including transfer requirements, lost certificates and dividend payments, should be directed to: PROJECTED 2022 DIVIDEND DATES (Subject to the approval of the Artesian Resources Corporation Board of Directors) Quarter Record Date Payment Date 1st February 9, 2022 February 23, 2022 2nd May 9, 2022 May 23, 2022 3rd 4th August 9, 2022 August 23, 2022 November 9, 2022 November 23, 2022 CCAAUUTTIIOONNAARRYY NNOOTTEE OONN FFOORRWWAARRDD--LLOOOOKKIINNGG SSTTAATTEEMMEENNTTSS All statements other than historical facts are forward-looking and actual results may differ materially from those projected, anticipated or implied. Please refer to “Item 1A-Risk Factors” of the Company's Annual Report on Form 10-K for the year ended December 31, 2021, for a description of the substantial risks and uncertainties related to the forward looking statements included in this Annual Report. Past performance of Artesian’s Common Stock is not predictive of future returns. Computershare Investor Services P.O. Box 505000 Louisville, KY 40233-5000 800.368.5948 Private Couriers/Registered Mail: Computershare Investor Services 462 South 4th Street, Suite 1600 Louisville, KY 40202 computershare.com/investor Shareholder inquiries and requests for investment materials, should be directed to: Nicholle R. Taylor, Senior Vice President Artesian Resources Corporation P.O. Box 15004 Wilmington, DE 19850 302.453.6900 800.332.5114 n t a y l o r @ a r t e s i a n w a t e r. c o m DIVIDEND REINVESTMENT AND STOCK PURCHASE PLAN The holders of record of the Company’s Class A Non-Voting Common Stock are eligible to participate in the Dividend Reinvestment Plan. The plan provides for the direct purchase of Class A Non-Voting Common Stock through reinvestment of dividends and/or optional cash payments. To obtain a copy of the plan prospectus, contact either Computershare or Artesian directly. 20 O F F I C E R S Top to Bottom, Left to Right Dian C. Taylor President and Chief Executive Officer Artesian Resources Corporation Nicholle R. Taylor Senior Vice President Artesian Resources Corporation & Subsidiaries President Artesian Water Company David B. Spacht Chief Financial Officer Artesian Resources Corporation & Subsidiaries President Artesian Wastewater Management Joseph A. DiNunzio, CPA, CGMA Executive Vice President and Corporate Secretary Artesian Resources Corporation & Subsidiaries President Artesian Water Maryland Jennifer L. Finch, CPA Corporate Treasurer and Senior Vice President of Finance Artesian Resources Corporation & Subsidiaries Pierre A. Anderson Chief Information Officer & Senior Vice President, Information Technology Artesian Resources Corporation & Subsidiaries John M. Thaeder Senior Vice President Artesian Resources Corporation & Subsidiaries 21 D I R E C T O R S Top to Bottom, Left to Right Dian C. Taylor Chair of the Board, President & Chief Executive Officer Artesian Resources Corporation Nicholle R. Taylor Senior Vice President Artesian Resources Corporation & Subsidiaries President Artesian Water Company Kenneth R. Biederman, Ph.D. Professor (Ret.), Department of Finance Lerner College of Business and Economics, University of Delaware John R. Eisenbrey, Jr. Owner & President Bear Industries, Inc. Michael Houghton, Esq. Retired Partner Morris, Nichols, Arsht & Tunnell LLP William C. Wyer Business Consultant Wyer Group, Inc. More on Bill 22 William C. Wyer - Director After more than 30 years of service on the Artesian Resources Corporation Board of Directors, William Wyer decided not to stand for reelection for another three-year term at this year’s annual meeting of shareholders. We are extremely grateful that Bill will continue serving as a Director Emeritus and actively contribute his valuable and sage advice. Bill joined our Board of Directors in 1991, during a very challenging time for Artesian. Then, as throughout his service on our Board, Bill was a calming presence who provided incredible insight and valuable guidance. His extensive experience in economic develop- ment and leadership in Delaware, and his exceptional skills in communications, media relations and governmental affairs, proved critical to Artesian’s remarkable growth during his tenure on the Board. We were very fortunate to have Bill’s broad knowledge in these areas as Artesian grew from a local water utility in northern New Castle County to a regional provider of water and wastewater services across the Delmarva Peninsula. It was our great fortune that Bill agreed to serve on our Board in 1991, as well as on our Executive, Audit, Strategic Planning, Budget and Finance, Governance and Nominating, and Compensation Committees. It is our even greater fortune that he has agreed to remain available for guidance and counsel. On behalf of the Board of Directors and the Artesian management team, we thank Bill for his 30 years of service, and we look forward to many more years of his contributions to our continued success. A R T E S I A N R E S O U R C E S C O R P O R AT I O N A N N UA L M E E T I N G O F S H A R E H O L D E R S Wednesday, May 4, 2022 1:30 PM White Clay Creek Country Club 777 Delaware Park Boulevard Wilmington, DE 19804 23 ARTESIAN RESOURCES CORPORATION & SUBSIDIARIES Artesian Resources Corporation operates as the holding company of our wholly-owned subsidiaries. Artesian Water Company, Inc. is our principal subsidiary. It is the oldest and largest investor-owned regulated public water utility on the Delmarva Peninsula and has been providing water service since 1905. Artesian Water distributes and sells water to residential, commercial, industrial, governmental and utility customers throughout Delaware. It also provides private and municipal utilities with billing services and operational management services. Artesian Wastewater Management, Inc. is a regulated utility that owns and operates wastewater facilities and provides public wastewater services to customers throughout Delaware. Tidewater Environmental Services, Inc. d/b/a/ Artesian Wastewater, a subsidiary of Artesian Wastewater Management, Inc. is a regulated utility that owns and operates wastewater facilities and provides public wastewater services to customers in Sussex County, Delaware. Artesian Water Maryland, Inc. is a regulated public water utility providing services to customers in Cecil County, Maryland. Artesian Water Maryland is an important part of our strategy to be the preeminent provider of public water utility services on the Delmarva Peninsula. Artesian Water Pennsylvania, Inc. is a regulated public water utility providing services to customers in southeastern Pennsylvania. Artesian Utility Development, Inc. is a non-regulated operating company that designs and builds water and wastewater infrastructure and provides contract water and wastewater services on the Delmarva Peninsula. In addition, Artesian Utility offers three protection plans; the Water Service Line Protection Plan, the Sewer Service Line Protection Plan and the Internal Service Line Protection Plan. Artesian Development Corporation is the non-regulated real estate holding company of Artesian Resources. UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2021 OR  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number 000-18516 ARTESIAN RESOURCES CORPORATION __________________________________________________________________________________________________ (Exact name of registrant as specified in its charter) Delaware (State or other jurisdiction of incorporation or organization) 51-0002090 (I.R.S. Employer Identification Number) 664 Churchmans Road, Newark, Delaware 19702 _________________________________________________________________________________________________ Address of principal executive offices (302) 453 – 6900 _________________________________________________________________________________________________ Registrant's telephone number, including area code Securities registered pursuant to Section 12(b) of the Act: Trading Symbol (s) ARTNA Title of each class Common Stock Name of each exchange on which registered The Nasdaq Stock Market Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes  No Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.  Yes  No Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes  No Indicate by check mark whether the registrant has submitted electronically every Interactive Data file required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes  No Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and “emerging growth company” in Rule 12(b)-2 of the Exchange Act. Large Accelerated Filer  Accelerated Filer  Non-Accelerated Filer  Smaller Reporting Company  Emerging Growth Company  If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial report under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report  Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2).  Yes  No The aggregate market value of the Class A Non-Voting Common Stock and Class B Common Stock held by non-affiliates of the registrant at June 30, 2021 was $300,628,287 and $10,211,240, respectively. The aggregate market value of Class A Non-Voting Common Stock was computed by reference to the closing price of such class as reported on the Nasdaq Global Select Market on June 30, 2021, which trade date was June 30, 2021. The aggregate market value of Class B Common Stock was computed by reference to the last reported trade of such class as reported on the OTC Bulletin Board as of June 30, 2021, which trade date was June 18, 2021. As of March 8, 2022, 8,534,673 shares of Class A Non-Voting Common Stock and 881,452 shares of Class B Common Stock were outstanding. 1 ARTESIAN RESOURCES CORPORATION TABLE OF CONTENTS FORWARD LOOKING STATEMENTS PART I Item 1. – Business Item 1A. – Risk Factors Item 1B. – Unresolved Staff Comments Item 2. – Properties Item 3. – Legal Proceedings Item 4. – Mine Safety Disclosures PART II Item 5. – Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Item 6. – Reserved Item 7. – Management’s Discussion and Analysis of Financial Condition and Results of Operations Item 7A. – Quantitative and Qualitative Disclosure About Market Risk Item 8. – Financial Statements and Supplementary Data Item 9. – Changes in and Disagreements With Accountants on Accounting and Financial Disclosures Item 9A. – Controls and Procedures Item 9B. – Other Information Item 9C - Disclosure Regarding Foreign Jurisdictions that Prevent Inspections PART III Item 10. – Directors, Executive Officers and Corporate Governance Item 11. – Executive Compensation Item 12. – Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Item 13. – Certain Relationships and Related Transactions, and Director Independence Item 14. – Principal Accountant Fees and Services PART IV Item 15. – Exhibits and Financial Statement Schedules Item 16. – Form 10-K Summary SIGNATURES Exhibit 21-Subsidiaries of the Company Exhibit 23.1-Consent of BDO USA, LLP Exhibit 31.1-Certification of Chief Executive Officer Exhibit 31.2-Certification of Chief Financial Officer Exhibit 32- Certification of Chief Executive Officer and Chief Financial Officer 2 FORWARD-LOOKING STATEMENTS Statements in this Annual Report on Form 10-K which express our “belief,” “anticipation” or “expectation,” as well as other statements which are not historical fact, are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act and the Private Securities Litigation Reform Act of 1995 and involve risks and uncertainties that could cause actual results to differ materially from those projected. Words such as “expects”, “anticipates”, “intends”, “plans”, “believes”, “seeks”, “estimates”, “projects”, “forecasts”, “may”, “should”, variations of such words and similar expressions are intended to identify such forward-looking statements. They include, but are not limited to, the statements below: the impact of weather on our operations; the execution of our strategic initiatives; the adoption of recent accounting pronouncements; contract operations opportunities; legal proceedings; the specific and overall impacts of the COVID-19 global pandemic on our financial condition and results of operations; the impact of recent acquisitions on our ability to expand and foster relationships; strategic plans for goals, priorities, growth and expansion; expectations for our water and wastewater subsidiaries and non-regulated subsidiaries; customer base growth opportunities in Delaware and Cecil County, Maryland; − − − − − − our belief regarding our capacity to provide water services for the foreseeable future to our customers; − our belief relating to our compliance and the cost to achieve compliance with relevant governmental regulations; − our expectation of the timing of decisions by regulatory authorities; − − − our expectation regarding the timing for construction on new projects; − − − − our properties; − deferred tax assets; − − − our expectation to be in compliance with financial covenants in our debt instruments; − our ability to refinance our debt as it comes due; − our ability to adjust our debt level, interest rate, maturity schedule and structure; − − plans to increase our wastewater treatment operations, engineering services and other revenue streams less affected by weather; − − − − expected future contributions to our postretirement benefit plan; anticipated growth in our non-regulated division; anticipated investments in certain of our facilities and systems and the sources of funding for such investments; and sufficiency of internally generated funds and credit facilities to provide working capital and our liquidity needs. the adequacy of our available sources of financing; the expected recovery of expenses related to our long-term debt; the timing and terms of renewals of our lines of credit; Certain factors, as discussed under Item 1A - Risk Factors, that could cause results to differ materially from those in the forward-looking statements include, but are not limited to: changes in weather; changes in our contractual obligations; changes in government policies; the timing and results of our rate requests; failure to receive regulatory approvals; changes in economic and market conditions generally; − − − − − − − unexpected events, restrictions and policies related to a public health crisis, including the COVID-19 pandemic; and − other matters discussed elsewhere in this annual report. While the Company may elect to update forward-looking statements, we specifically disclaim any obligation to do so, except as may be required under applicable securities laws, and you should not rely on any forward-looking statement as a representation of the Company’s views as of any date subsequent to the date of the filing of this Annual Report on Form 10-K. 3 ITEM 1. BUSINESS General Information PART I Artesian Resources Corporation, or Artesian Resources, is a Delaware corporation incorporated in 1927, that is the holding company of eight wholly-owned subsidiaries offering water, wastewater and other services in Delaware, Maryland and Pennsylvania. The Company’s principal executive offices are located at 664 Churchmans Road, Newark, Delaware 19702. Our principal subsidiary, Artesian Water Company, Inc., is the oldest and largest investor-owned public water utility on the Delmarva Peninsula, and has been providing superior water service since 1905. We distribute and sell water, including water for public and private fire protection, to residential, commercial, industrial, municipal and utility customers in the states of Delaware, Maryland and Pennsylvania. We provide wastewater services to customers in Delaware. In addition, we provide contract water and wastewater operations, and water, sewer and internal Service Line Protection Plans. Our Class A Non-Voting Common Stock is listed on the Nasdaq Global Select Market and trades under the symbol "ARTNA." Our Class B Common Stock trades on the Nasdaq's OTC Bulletin Board under the symbol “ARTNB.” Artesian Resources is the holding company of five regulated public utilities: Artesian Water Company, Inc., or Artesian Water, Artesian Water Pennsylvania, Inc., or Artesian Water Pennsylvania, Artesian Water Maryland, Inc., or Artesian Water Maryland, Artesian Wastewater Management, Inc., or Artesian Wastewater, and Artesian Wastewater Maryland, Inc., or Artesian Wastewater Maryland; and three non-regulated subsidiaries: Artesian Utility Development, Inc., or Artesian Utility, Artesian Development Corporation, or Artesian Development, and Artesian Storm Water Services, Inc., or Artesian Storm Water. Effective January 14, 2022, Artesian Wastewater is the holding company of Tidewater Environmental Services, Inc. dba Artesian Wastewater, or TESI, a regulated public utility. The terms "we," "our," “Artesian,” and the "Company" as used herein refer to Artesian Resources and its subsidiaries. The business activity conducted by each of our subsidiaries is discussed below under separate headings. Our Market Our current market area is the Delmarva Peninsula. Our largest service area is in the State of Delaware. Substantial portions of Delaware, particularly outside of northern New Castle County, are not served by a public water or wastewater system and represent potential opportunities for Artesian Water and Artesian Wastewater to obtain new exclusive franchised service areas. We continue to focus resources on developing and serving existing service territories and obtaining new territories throughout Delaware. We hold Certificates of Public Convenience and Necessity, or CPCNs, for approximately 300 square miles of exclusive water service territory, most of which is in Delaware and some in Maryland and Pennsylvania. Our largest connected regional water system, consisting of approximately 141 square miles and 77,800 metered customers, is located in northern New Castle County and portions of southern New Castle County, Delaware. We hold CPCN’s for approximately 34 square miles of wastewater service territory located in Sussex County, Delaware. In January 2022, approximately 20 square miles of wastewater service territory, located in Sussex County, Delaware, was added upon the closing of the acquisition of TESI. A significant portion of our exclusive service territory is in Sussex County, Delaware and remains undeveloped, and if and when development occurs and there is population growth in these areas, we will increase our customer base by providing water and/or wastewater service to the newly developed areas and new customers. Subsidiaries Artesian Water Artesian Water, our principal subsidiary, distributes and sells water to residential, commercial, industrial, governmental, municipal and utility customers throughout the State of Delaware. In addition, Artesian Water provides services to other water utilities, including operations and billing functions, and has contract operation agreements with private and municipal water providers. Artesian Water also provides water for public and private fire protection to customers in our service territories. Artesian Water produced approximately 86% of our 2021 consolidated operating revenues. We derive about 98% of our self-supplied groundwater from wells that pump groundwater from aquifers and other formations located in the Atlantic Coastal Plain. The remaining 2% of our groundwater supply comes from wells in the Piedmont Province. We use a variety of treatment methods, including aeration, pH adjustment, chlorination, fluoridation, ultra violet oxidation, arsenic removal, nitrate removal, radium removal, iron removal, and carbon adsorption to meet federal, state and local water quality standards. Additionally, a corrosion inhibitor is added to our self-supplied groundwater and to supply from interconnections. We have 60 different water treatment facilities in our Delaware systems. All water supplies that we purchase from neighboring utilities are potable. 4 To supplement our groundwater supply, we purchase treated surface water through interconnections only in the northern service area of our New Castle County, Delaware system. The treated surface water is blended with our groundwater supply for distribution to our customers. Nearly 86% of the overall 8.3 billion gallons of water we distributed in all of our Delaware systems during 2021 came from our groundwater wells, while the remaining 14% came from interconnections with other utilities and municipalities. In Delaware in 2021, we pumped an average of 19.6 million gallons per day, or mgd, from our groundwater wells and obtained an average of approximately 3.3 mgd from interconnections. Our peak water supply capacity currently is approximately 57.0 mgd. We believe that we have in place sufficient capacity to provide water service for the foreseeable future to all existing and new customers in all of our service territories. Most of our New Castle County, Delaware water system is interconnected. In the remainder of the State of Delaware, we have several satellite systems that have not yet been connected by transmission and distribution facilities. We intend to join these systems into larger integrated regional systems through the construction of a transmission and distribution network as development continues and our expansion efforts provide us with contiguous exclusive service territories. In Delaware, we have 24 interconnections with two neighboring water utilities and seven municipalities that provide us with the ability to purchase or sell water. An interconnection agreement with Chester Water Authority, that expired December 31, 2021, had a “take or pay” clause requiring us to purchase 3 million gallons per day. The current agreement with Chester Water Authority, which 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 requiring us to purchase water on a step down schedule through July 5, 2022, thereafter requiring us to purchase a minimum of 0.5 million gallons per day. As of December 31, 2021, we were serving customers through approximately 1,398 miles of transmission and distribution mains. Mains range in diameter from two inches to twenty-four inches, and most of the mains are made of ductile iron or cast iron. We have 32 storage tanks in Delaware, most of which are elevated, providing total system storage of 43 million gallons. We have developed and are using an Aquifer Storage and Recovery, or ASR, system in New Castle County, Delaware. Our ASR system provides approximately 130 million gallons of storage capacity, which can be withdrawn at an average rate of approximately 1 mgd. At some locations, we rely on hydro-pneumatic tanks to maintain adequate system pressures. Where possible, we combine our smaller satellite systems with systems having elevated storage facilities. Artesian Water Maryland Artesian Water Maryland began operations in August 2007. Artesian Water Maryland distributes and sells water to residential, commercial, industrial and municipal customers in Cecil County, Maryland. Artesian Water Maryland owns and operates 9 public water systems. The majority of the 0.1 billion gallons of water we distributed in all of our Maryland systems during 2021 came from our groundwater wells, while a portion came from treated surface water. We have nine separate water treatment facilities in our Maryland systems. We have one water treatment facility that treats surface water through an intake in the Susquehanna River, located in Cecil County, Maryland, which has the ability to supply up to 1 mgd of water. Our peak water supply capacity currently is approximately 2.0 mgd. We have 7 storage tanks capable of storing approximately 2.4 million gallons. We believe that we have in place sufficient capacity to provide water service for the foreseeable future to all existing and new customers in all of our service territories. In Maryland, we have one interconnection with the Artesian Water system in Delaware, one interconnection with a neighboring utility, and four interconnections with municipalities. These interconnections are capable of providing over 3.0 mgd of water to our Maryland systems. Artesian Water Pennsylvania Artesian Water Pennsylvania began operations in 2002. It provides water service to a residential community in Chester County, Pennsylvania. Artesian Wastewater Artesian Wastewater began providing wastewater services in Sussex County, Delaware in July 2005. Artesian Wastewater is a regulated entity that owns wastewater collection and treatment infrastructure and provides wastewater services to customers in Delaware as a regulated public wastewater service company. Artesian Wastewater owns and operates three wastewater treatment facilities, which are permitted to treat approximately 650,000 gallons per day. Artesian Wastewater and Sussex County, a political subdivision of Delaware, provide reciprocal services to address the need of each for additional wastewater treatment and disposal capacity in certain service areas within Sussex County. Artesian Wastewater 5 received an operations permit in March 2020 for a disposal facility that includes a 90 million gallon storage lagoon and spray irrigation to agricultural land. This facility provides treated process wastewater disposal services for an industrial customer at a rate up to 1.5 million gallons per day. We began operating this facility in late June 2021, shortly after the industrial customer received its process wastewater treatment operating permit. TESI In January 2022, Artesian Wastewater acquired Tidewater Environmental Services, Inc. Artesian Wastewater operates as the parent holding company of Tidewater Environmental Services, Inc. dba Artesian Wastewater, or TESI. TESI was incorporated in December 2004 and is a regulated entity that owns wastewater collection and treatment infrastructure and provides wastewater services to customers in Sussex County, Delaware as a regulated public wastewater service company. Artesian Wastewater purchased all of the stock of TESI from Middlesex for $6.4 million in cash and other consideration, including, forgiveness of a $2.1 million intercompany note due from Middlesex. This acquisition more than doubled the number of wastewater customers served in Sussex County, Delaware and included all residents within the Town of Milton. Artesian Wastewater Maryland Artesian Wastewater Maryland was incorporated on June 3, 2008 and is able to provide regulated wastewater services to customers in the State of Maryland. It is currently not providing these services. Artesian Utility Artesian Utility was formed in 1996 and designs and builds water and wastewater infrastructure and provides contract water and wastewater operation services on the Delmarva Peninsula to private, municipal and governmental institutions. Artesian Utility also evaluates land parcels, provides recommendations to developers on the size of water or wastewater facilities and the type of technology that should be used for treatment at such facilities, and operates water and wastewater facilities in Delaware for municipal and governmental agencies. Artesian Utility also contracts with developers and government agencies for design and construction of wastewater infrastructure within the Delmarva Peninsula. In addition, as further discussed below, Artesian Utility operates the Water Service Line Protection Plan, or WSLP Plan, the Sewer Service Line Protection Plan, or SSLP Plan, and the Internal Service Line Protection Plan, or ISLP Plan. Artesian Utility currently operates wastewater treatment facilities for the town of Middletown, in southern New Castle County, Delaware, or Middletown, under a 20-year contract that expires in July 2039. The Company currently operates three wastewater treatment systems with a combined capacity of up to approximately 3.8 mgd. The wastewater treatment facilities in Middletown provide reclaimed wastewater for use in spray irrigation on public and agricultural lands in the area. Artesian Utility also offers three protection plans to customers, the WSLP Plan, the SSLP Plan, and the ISLP Plan. The WSLP Plan covers all parts, material and labor required to repair or replace participating customers' leaking water service lines up to an annual limit. The SSLP Plan covers all parts, material and labor required to repair or replace participating customers' leaking or clogged sewer lines up to an annual limit. The ISLP Plan enhances available coverage to include water and wastewater lines within customers' residences. Artesian Development Artesian Development is a real estate holding company that owns properties, including land approved for office buildings, a water treatment plant and wastewater facility, as well as property for current operations, including an office facility in Sussex County, Delaware. The facility consists of approximately 10,000 square feet of office space along with nearly 10,000 square feet of warehouse space. Artesian Storm Water Artesian Storm Water, incorporated in 2017, was formed to provide design, installation, maintenance and repair services related to existing or proposed storm water management systems in Delaware and the surrounding areas. The ability to offer storm water services will complement the primary water and wastewater services that we provide. Artesian Storm Water is not actively seeking new opportunities. 6 Government Regulations Overview The Company is subject to federal, state and local laws and regulations in all of the jurisdictions in which it operates. These regulations include state commission orders, environmental protection, securities and exchange activities, including financial reporting and internal controls processes, data protection and privacy, tax compliance, health and safety, labor and employment practices, and other general business activities. State Regulatory Commission Matters Our water and wastewater utility operations are subject to regulation by their respective state regulatory commissions, which have broad administrative power and authority to regulate rates charged for service, determine franchise areas and conditions of service, approve acquisitions, authorize the issuance of securities and other matters. The profitability of our utility operations is influenced, to a great extent, by the timeliness and adequacy of regulatory relief we are granted by the respective regulatory commissions or authorities in the states in which we operate. See Note 13 to our Consolidated Financial Statements for a full description of recent regulatory proceedings. Service Territory Expansion In Delaware, CPCN grants a water or wastewater company the exclusive right to serve all existing and new customers within a designated area. The Delaware Public Service Commission, or DEPSC, has the authority to issue and revoke these CPCNs. In this Form 10-K, we may refer to CPCNs as "franchises" or "service territories." For a water company, the DEPSC may grant a CPCN under circumstances where there has been a determination that the water in the proposed service area does not meet the regulations governing drinking water standards of the State Division of Public Health for human consumption or where the supply is insufficient to meet the projected demand. For a wastewater company, the DEPSC has jurisdiction over non-governmental wastewater utilities having fifty or more customers in the aggregate. A CPCN for water and wastewater utilities shall be granted by the DEPSC to applicants in possession of one of the following: − a signed service agreement with the developer of a proposed subdivision or development, which subdivision or development has been duly approved by the respective county government; − a petition requesting such service signed by a majority of the landowners of the proposed territory to be served; or − a duly certified copy of a resolution from the governing body of a county or municipality requesting the applicant to provide service to the proposed territory to be served. A water or wastewater utility that has a CPCN must obtain the approval of the DEPSC to abandon a service territory. Once a CPCN is granted to a water or wastewater utility, it may not be suspended or terminated unless the DEPSC determines in accordance with its rules and regulations that good cause exists for any such suspension or termination. Although we have been granted an exclusive franchise for each of our existing water and wastewater systems in Delaware, our ability to expand service areas can be affected by the DEPSC awarding franchises to other regulated water or wastewater utilities with whom we compete for such franchises. In Maryland, the Company must obtain approval from the appropriate local government authority for the ability to serve a particular area and also ensure that the acquired area is in the county’s master water and sewer plan. The authority to exercise a franchise must then be obtained from the Maryland Public Service Commission, or MDPSC. Utilities that seek to develop a franchise by constructing new facilities must obtain appropriate approvals from the Maryland Department of the Environment, or MDE, the local government and the MDPSC. The utility must also obtain approval for soil and erosion plans and easement agreements from appropriate parties. Environmental Regulation The United States Environmental Protection Agency, or the EPA, the Delaware Department of Natural Resources and Environmental Control, or DNREC, and the Delaware Division of Public Health, or DPH, regulate the water quality of our treatment and distribution systems in Delaware, as do the EPA and the MDE, with respect to our operations in Maryland. The Chester Water Authority, which supplies water to Artesian Water through an interconnection in northern New Castle County, is regulated by the Pennsylvania Department of Environmental Protection, as well as the EPA. We believe that we are in material compliance with all current federal, state and local water quality standards, including regulations under the federal Safe Drinking Water Act. However, if new water quality regulations are too costly, or if we fail to comply with such regulations, it could have a material adverse effect on our financial condition, results of operations and planned capital investments. 7 The water industry is capital intensive, with one of the highest levels of capital investment in plant and equipment per dollar of revenue among all utilities. Increasingly stringent drinking water regulations to meet the requirements of the Safe Drinking Water Act have required the water industry to invest in more advanced treatment systems and processes, which require a heightened level of expertise. Significant enhancements were made to existing facilities to effectively treat and remove compounds as required by government agencies, such as ultra violet oxidation treatment, ceramic membrane filtration and carbon filtration. We are currently in full compliance with the requirements of the Safe Drinking Water Act. Even though our water utility was founded in 1905, the majority of our investment in infrastructure occurred in the last 40 years. As required by the Safe Drinking Water Act, the EPA has established maximum contaminant levels for various substances found in drinking water to ensure that the water is safe for human consumption. These limits are known as Maximum Contaminant Levels and Maximum Residual Disinfection Levels. The EPA also regulates how often public water systems monitor their water for contaminants and report the monitoring results to the individual state agencies or the EPA. Generally, the larger the population served by a water system, the more frequent the monitoring and reporting requirements. The Safe Drinking Water Act applies to all 50 states. The Lead and Copper Rule, or LCR, is a United States federal regulation that limits the concentration of lead and copper allowed in public drinking water at the consumer's tap, as well as limiting the permissible amount of pipe corrosion occurring due to the water itself. The EPA first issued the rule in 1991 pursuant to the Safe Drinking Water Act. The EPA promulgated the regulations following studies that concluded that copper and lead have an adverse effect on individuals. The LCR sought to therefore limit the levels of these metals in water through improving water treatment centers, determining copper and lead levels for customers who use lead plumbing parts, and eliminating the water source as a source of lead and copper. If the lead and copper levels exceed the "action levels", water suppliers are required to educate their consumers on how to reduce exposure to lead. The EPA published a revised LCR in 2021, with a compliance deadline expected in 2024. These revised requirements provide greater and more effective protection of public health by reducing exposure to lead and copper in drinking water. Implementation of the revised rule will better identify high levels of lead, improve the reliability of lead tap sampling results, strengthen corrosion control treatment requirements, expand consumer awareness and improve risk communication. In addition, implementation of the revised rule will accelerate lead service line replacements by closing existing regulatory loopholes, propelling early action, and strengthening replacement requirements. We are fully compliant with the current LCR and are actively examining the revised LCR to ensure we are fully compliant on or before the deadline date. The DPH has set maximum contaminant levels for certain substances that are more restrictive than the maximum contaminant levels set by the EPA. The DPH is the EPA's agent for enforcing the Safe Drinking Water Act in Delaware and, in that capacity, monitors the activities of Artesian Water and reviews the results of water quality tests performed by Artesian Water for adherence to applicable regulations. Artesian Water is also subject to other laws regulating substances and contaminants in water, including rules for volatile organic compounds and the Total Coliform Rule. A normal by-product of our iron removal treatment facilities is a solid consisting of the iron removed from untreated groundwater plus residue from chemicals used in the treatment process. The solids produced at our facilities are either disposed directly into approved wastewater facilities or removed from our facilities by a licensed third-party vendor. A normal by-product of our carbon adsorption filtration process is exhausted carbon media, which is disposed of by the contractor providing the media replacement. Management believes that compliance with existing federal, state or local laws and regulations regulating the discharge of materials into the environment, or otherwise relating to the protection of the environment, has no material effect upon the business and affairs of the Company, but there is no assurance that such compliance will continue to not have a material effect in the future. Under Delaware state laws and regulations, we are required to file applications with DNREC for water allocation permits for each of our operating wells pumping greater than 50,000 gallons per day. For any wells in the Delaware River Basin, we must also file allocation permits with the Delaware River Basin Commission, or DRBC. We have 134 operating and 61 observation and monitoring wells in our Delaware systems. At December 31, 2021, we had allocation permits for 115 wells and 24 wells that do not require a permit. Our access to aquifers within our service territory is not exclusive. Water allocation permits control the amount of water that can be drawn from water resources and are granted with specific restrictions on water level draw down limits, annual, monthly and daily pumpage limits, and well field allocation pumpage limits. We are also subject to water allocation regulations that control the amount of water that we can draw from water sources. As a result, if new or more restrictive water allocation regulations are imposed, they could have an adverse effect on our ability to supply the demands of our customers, and in turn, our water supply revenues and results of operations. Our ability to supply the demands of our customers historically has not been affected by private usage of the aquifers by landowners or the limits imposed by the state of Delaware. Because of the extensive regulatory requirements relating to the withdrawal of any significant amounts of water from the aquifers, we believe that third-party usage of the aquifers within our service territory will not interfere with our ability to meet the present and future demands of our customers. The MDE ensures that water quality and quantity at all public water systems in Maryland meet the needs of the public and are in compliance with federal and state regulations. The MDE also ensures that public drinking water systems provide safe and adequate water to all current and future users in Maryland, and that appropriate usage, planning, and conservation policies are implemented for Maryland’s water resources. The MDE oversees the development of Source Water Assessments for water supplies and issues water 8 appropriation permits for public drinking water systems. In order to appropriate water for municipal, commercial, industrial or other non-domestic uses, a Water Appropriation Permit must be obtained. Issuance of the permit involves evaluating the needs of the user and the potential impact of the withdrawal on neighboring users and the water source in order to maximize beneficial use of the water. Permits for large appropriations often involve conducting pump tests to measure adequacy of an aquifer and safe yield of a well, or reviewing stream flow records to determine the adequacy of a surface water source. Regulations require all new community water systems to have sufficient technical, managerial and financial capacity to provide safe drinking water to their consumers prior to being issued a construction permit. Also, capacity management guidance contains capacity limiting factors that can include, source capacity, treatment capacity and appropriation permit quantity. The quantity of water withdrawn from the Port Deposit surface water intake is allocated by the Susquehanna River Basin Commission, or SRBC, and MDE. We have 14 operating wells and one surface water in- take in our Maryland systems. The Clean Water Act has established the foundation for wastewater discharge control in the United States. The Clean Water Act established a control program for ensuring that communities have clean water by regulating the release of contaminants into waterways. Permits that limit the amounts of pollutants discharged are required of all wastewater dischargers under the National Pollutant Discharge Elimination System, or the NPDES, permit program. In accordance with the NPDES permit program, the implementing states set maximum discharge limits for wastewater effluents and overflows from wastewater collection systems. Discharges that exceed the limits specified under the NPDES permit program can lead to the imposition of penalties. The Clean Water Act also requires that wastewater treatment plant discharges meet a minimum of secondary treatment. The secondary treatment process can remove 90% to 99% of the organic matter in wastewater. Our removal efficiency is generally 96% to 98%. Under Delaware state laws and regulations, we are required to hold a permit from DNREC for the construction, operation, maintenance or repair of any on-site wastewater treatment and disposal systems with daily design flow rates of 2,500 gallons or greater. A classification on the facility is performed in accordance with Regulations Licensing Operators of Wastewater Facilities. The class of operator required for the facility is determined by the Board of Certification for Licensed Wastewater Operations in accordance with Regulations Licensing Operators of Wastewater Facilities. We work to ensure that we operate environmentally friendly wastewater systems that meet federal, state, and local laws. Additional General Information Seasonality Substantially all of our water customers are metered, which allows us to measure and bill for our customers’ water consumption. Demand for water during the warmer months is generally greater than during cooler months primarily due to additional customer requirements for water in connection with cooling systems, swimming pools, irrigation systems and other outside water use. Throughout the year, and particularly during typically warmer months, demand for water will vary with temperature and rainfall. In the event that temperatures during the typically warmer months are cooler than expected, or there is more rainfall than expected, the demand for water may decrease and our revenues may be adversely affected. Competition Our business in our franchised service areas is substantially free from direct competition with other public utilities, municipalities and other entities. However, our ability to provide additional water and wastewater services is subject to competition from other public utilities, municipalities and other entities. Even though our regulated utilities have been granted an exclusive franchise for each of our existing community water and wastewater systems, our ability to expand service areas can be affected by the DEPSC, the MDPSC or the Pennsylvania Public Utility Commission, or PAPUC, awarding franchises to other regulated water or wastewater utilities with whom we compete for such franchises. Materials and Supplies We are highly dependent on the availability of essential materials and parts from our suppliers for expansion, construction and maintenance of our services. The majority of the materials required for our water and wastewater utility business are typically under contract at fixed prices, however, supply chain issues associated with the COVID-19 pandemic resulted in price increases and delays in procuring certain materials and equipment. We have been successful in minimizing these delays and cost increases with thorough planning and pre-ordering, however there is no assurance that our future financial results or business operations will not be negatively affected. 9 Suppliers and Independent Contractors We are dependent upon the ability of our suppliers and independent contractors to meet performance specifications, quality standards and delivery schedules at our anticipated costs. While we maintain an extensive qualification and performance review system to control risk associated with such reliance on third parties, failure of suppliers or independent contractors to meet commitments could adversely affect construction and maintenance schedules. The COVID-19 pandemic has delayed some of our construction projects and our lead time for material deliveries however, they have not impacted our ability to maintain our level of service to customers. We are also dependent on the availability of electricity and purchased water at affordable prices. Our electric costs and purchased water costs are at a fixed price under contract. Employees and Human Capital Resources As of December 31, 2021, we employed 245 full-time employees. Of these employees, 56 were officers and managers; 116 were employed as operations personnel, including engineers, technicians, draftsman, maintenance and repair persons, meter readers and utility personnel; and 37 were employed in accounting, budgeting, information systems, human resources, customer relations and public relations. The remaining 36 employees were administrative personnel. The Company has no collective bargaining agreements with any of its employees, and its work force is not union organized or union represented. We believe that our relations with our employees are good. Through ongoing employee development, competitive compensation and benefits, and a focus on health, safety and employee wellbeing, we strive to help our employees in all aspects of their lives. We believe the Company’s success depends on its ability to attract, develop and retain key personnel. We provide our employees with resources that contribute to their professional development, including technical training and performance reviews. A core principle of our company is to promote from within and offer advancement opportunities at all levels of employment, which helps us retain talented employees. We believe our management team has the experience, talent and dedication necessary to effectively execute our business goals and growth strategy. We recognize that the skills, experience, diversity, industry knowledge and dedication of our employees significantly benefit our operations and performance. We set pay ranges based on market data. When considering compensation, we consider factors such as an employee’s role, experience, and their performance. We regularly review our compensation practices, both in terms of our overall workforce and individual employees, to ensure our compensation is fair and equitable. Health and safety in the workplace for our employees is one of the Company’s core values. Hazards in the workplace are proactively identified and actions are taken to maintain workplace safety. We sponsor a wellness program designed to enhance physical, financial, and mental wellbeing for all our employees. Throughout the year, we encourage healthy behaviors through regular communications, educational sessions and other incentives. The COVID-19 pandemic further emphasized the importance of keeping our employees safe and healthy. In response to the pandemic, the Company took actions to help protect our employees so that they could continue to perform their work in a safe and effective manner. We use outside consultants and independent contractors on an as needed basis for various services. We rely on our independent contractors to manage their respective employee relations so that the services they are contractually obligated to perform for us satisfy our requirements. Management believes that through our own employees, coupled with the services provided by our independent contractors and outside consultants, we have sufficient human capital to continue to operate our business successfully. Available Information We are a Delaware corporation with our principal executive offices located at 664 Churchmans Road, Newark, Delaware, 19702. Our telephone number is (302) 453-6900 and our website address is www.artesianwater.com. We make available free of charge through our website our Code of Ethics, Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, current reports on Form 8-K and all amendments to those reports, our Corporate Governance Guidelines, and our Board Committee Charters as soon as reasonably practicable after such material is electronically filed with or furnished to the Securities and Exchange Commission, or the SEC. We include our website address in this Annual Report on Form 10-K only as an inactive textual reference and do not intend it to be an active link to our website. Information contained on our website shall not be deemed incorporated into, or to be a part of, this report. 10 ITEM 1A. RISK FACTORS We are exposed to a variety of risks and uncertainties. Most are general risks and uncertainties applicable to all water and wastewater utility companies. We describe below some of the specific known risk factors that could negatively affect our business, financial condition or results of operations. If one or more of these risks or uncertainties occur, actual results may vary materially from our projections. Risk Related to the COVID-19 Pandemic Our business, results of operations, financial condition, cash flows and stock price may be adversely affected by pandemics, epidemics or other public health emergencies, such as the outbreak of the coronavirus and its variants, or COVID-19. The COVID-19 pandemic continues to present business challenges. Our business, results of operations, financial condition, cash flows and stock price may be adversely affected by pandemics, epidemics or other public health emergencies, such as the outbreak of COVID- 19. We are considered an essential utility service company, as defined by the U.S. Department of Homeland Security. Although we have continued to operate our business to date consistent with federal guidelines and state and local orders, the outbreak of COVID-19 and any preventive or protective actions taken by governmental authorities may have an adverse effect on our operations. Additionally, concerns over the economic impact of COVID-19 have caused extreme volatility in financial and other capital markets, which may adversely impact our stock price. To the extent the COVID-19 pandemic adversely affects our business and financial results, it may also have the effect of heightening many of the other risks described in this report, such as those relating to our financial performance. The ultimate impact of COVID-19 on our operational and financial performance in future periods, remains uncertain and will depend on future pandemic-related developments, including the duration of the pandemic, potential subsequent waves of COVID-19 infection or potential new variants, the effectiveness and adoption of COVID-19 vaccines, supplier impacts and related government actions to prevent and manage disease spread, including the implementation of any federal, state, or local vaccine mandates, all of which are uncertain and cannot be predicted. In addition, we rely heavily on our suppliers to meet quality standards and delivery schedules at our anticipated costs. Materials could become more expensive or unavailable, or deliveries could be subject to longer lead times, which could have a material adverse impact on our business and results of operations. If executive orders are implemented mandating COVID-19 vaccines across our workforce, it is uncertain to what extent compliance with any such vaccine mandates may result in adverse impacts such as workforce loss for us or our suppliers or reduced morale or efficiency. If the adverse impact is significant for us or our suppliers, our results of operations could be adversely affected. Risks Related to Our Operations We are dependent upon the ability of our suppliers and independent contractors to meet performance specifications, quality standards and delivery schedules at our anticipated costs. While we maintain an extensive qualification and performance review system to control risk associated with such reliance on third parties, failure of suppliers or independent contractors to meet commitments could adversely affect construction and maintenance schedules and our results of operations and financial condition. We have been affected and could continue to be affected by supplier delays and increased costs which are outside of our control and could affect our results of operations. We are also dependent on the availability of electricity and purchased water at affordable prices. While our electricity costs and purchased water costs are at fixed prices under contracts, after the expiration of these contracts, we may be required to pay higher electricity costs and purchased water costs. We are subject to risks associated with the collection, treatment and disposal of wastewater. Wastewater collection, treatment and disposal involve various unique risks. If collection or treatment systems fail, overflow, or do not operate properly, untreated wastewater or other contaminants could spill onto nearby properties or into nearby streams and rivers, causing damage to persons or property, injury to aquatic life and economic damages, which may not be recoverable in fees. This risk is most acute during periods of substantial rainfall or flooding, which are common causes of sewer overflow and system failure. Liabilities resulting from such damages and injuries could materially and adversely affect our results of operations and financial condition. General economic conditions may materially and adversely affect our financial condition and results of operations. The effects of adverse U.S. economic conditions may lead to a number of impacts on our business that may materially and adversely affect our financial condition and results of operations. Such impacts may include a reduction in discretionary and recreational water use by our residential water customers, particularly during the summer months; a decline in usage by industrial and commercial 11 customers as a result of decreased business activity and commerce in our customers’ businesses; an increased incidence of customers’ inability, bankruptcy or delay in paying their bills which may lead to higher bad debt expense and reduced cash flow; and a lower natural customer growth rate may result as compared to what had been experienced before the economic downturn due to a decline in new housing starts and a possible slight decline in the number of active customers due to housing vacancies or abandonments. Aging infrastructure may lead to service disruptions, property damage and increased capital expenditures and operation and management costs, all of which could negatively impact our financial results. We have risks associated with aging infrastructure, including water and sewer mains, pumping stations and water and wastewater treatment facilities. Additionally, the nature of information available on buried and newly acquired assets may be limited, which may challenge our ability to conduct efficient asset management and maintenance practices. Assets that have aged beyond their expected useful lives may experience a higher rate of failure. Failure of aging infrastructure could result in increased capital expenditures and operation and management costs. In addition, failure of aging infrastructure may result in property damage, and in safety, environmental and public health impacts. To the extent that any increased costs or expenditures are not fully recovered in rates, our results of operations, liquidity and cash flows could be negatively impacted. Potential terrorist attacks may disrupt our operations and adversely affect our business, operating results and financial condition. We have security measures in place at our facilities, including for delivery and handling of certain chemicals, as well as programs in place to ensure employee awareness of potential threats. We have and will continue to bear any increase in costs, most of which have been recoverable under state regulatory policies, for security precautions to protect our facilities, operations and supplies. While the costs of increases in security, including capital expenditures, may be significant, we expect these costs to continue to be recoverable in water and wastewater rates. Despite our security measures, we may not be in a position to control the outcome of terrorist events, or other attacks on our water systems, should they occur. We depend on the availability of capital for expansion, construction and maintenance. Weaknesses in capital and credit markets may limit our access to capital. Our ability to continue our expansion efforts and fund our utility construction and maintenance program depends on the availability of adequate capital. There is no guarantee that we will be able to obtain sufficient capital in the future on favorable terms and conditions for expansion, construction and maintenance. In the event our lines of credit are not extended or we are unable to refinance our first mortgage bonds when due and the borrowings are called for payment, we will have to seek alternative financing sources, although there can be no assurance that these alternative financing sources will be available on terms acceptable to us. In the event we are unable to obtain sufficient capital, our expansion efforts could be curtailed, which may affect our growth and may affect our future results of operations. Climate variability may cause weather volatility in the future and may impact water usage and related revenue, or may require additional expenditures to reduce risk associated with any increasing storm, flood, drought or other weather occurrences, all of which may not be fully recoverable in rates or otherwise. Severe weather, climate variability patterns and natural or other events, such as increased precipitation and flooding, increased frequency and severity of storms and other weather events, may cause decreases in water supply, changes in water usage patterns, potential degradation of water quality, disruptions in water or wastewater services to our customers, and increases in expenditures to repair any damage. Due to the uncertainty of weather volatility related to climate variability, we cannot predict its potential impact on our financial condition, results of operations, cash flows and liquidity. Although some or all potential expenditures and costs with respect to our regulated businesses could be recovered through rates we charge to our customers, there can be no assurance that the applicable regulatory authority would authorize recovery of such costs, in whole or in part, for any of these impacts. Risks Related to Governmental Laws and Regulations We rely on governmental approvals in the States of Delaware, Maryland and Pennsylvania, as well as from the Delaware River Basin Commission and Susquehanna River Basin Commission for applicable water allocation, water appropriation and water capacity permits. In addition, we rely on governmental approvals in the State of Delaware for applicable wastewater collection, treatment and disposal permits for the operation of our wastewater facilities. Our water and wastewater services are governed by various federal and state governmental agencies. Pursuant to these regulations, we are required to obtain various permits for any additional systems and current systems to assist in our operations. If any of those permit approvals are not received timely or at all, we may risk the loss of economic opportunity and our ability to create additional systems for the effective operation of our water business in the States of Delaware, Maryland and Pennsylvania or our wastewater business in the State of Delaware. We can provide no assurances that we will receive all necessary permits to add systems or continue to operate facilities of our water or wastewater business. 12 Our operating revenue is primarily from water sales. The rates that we charge our customers are subject to the regulations of the public service commissions in the states in which we operate. If a public service commission disapproves or is unable to timely approve our requests for rate increases or approves rate increases that are inadequate to cover our investments, deferred regulatory assets or increased costs, our profitability may suffer. We file rate increase requests, from time to time, to recover our investments in utility plant, deferred regulatory assets and expenses. Once a rate increase petition is filed with a public service commission, the ensuing administrative and hearing process may be lengthy and costly. We can provide no assurances that any future rate increase request will be approved by the DEPSC, MDPSC or PAPUC, and if approved, we cannot guarantee that these rate increases will be granted in a timely manner and/or will be sufficient in amount to cover the investments, deferred regulatory assets and expenses for which we initially sought the rate increase. To the extent we are able to pass through such costs to customers and a state public service commission subsequently determines that such costs should not have been paid by customers, we may be required to refund such costs, with interest, to customers. Any such costs not recovered through rates, or any such refund, could adversely affect our results of operations, financial position or cash flows. Our operating costs could be significantly increased if new or stricter regulatory standards are imposed by federal and state environmental agencies. Our water and wastewater services are governed by various federal and state environmental protection and health and safety laws and regulations, including the federal Safe Drinking Water Act, the Clean Water Act and similar state laws. These federal and state regulations are issued by the EPA and state environmental regulatory agencies. Pursuant to these laws and regulations, we are required to obtain various water allocation permits and environmental permits for our operations. The water allocation permits control the amount of water that can be drawn from water resources. New or stricter water allocation regulations can adversely affect our ability to meet the demands of our customers. While we have budgeted for future capital and operating expenditures to maintain compliance with these laws and our permits, it is possible that new or stricter standards would be imposed that will raise our operating costs. Thus, we can provide no assurances that our costs of complying with, or discharging liability under current and future environmental and health and safety laws will not adversely affect our business, results of operations or financial condition. Risks Related to Our Financial Statements and Operating Results Our business is subject to seasonal fluctuations, which could affect demand for our water service and our revenues. Demand for water during warmer months is generally greater than during cooler months primarily due to additional customer requirements in irrigation systems, swimming pools, cooling systems and other outside water use. In the event that temperatures during typically warmer months are cooler than normal, or rainfall is more than normal, the demand for our water may decrease and adversely affect our revenues. Drought conditions and government imposed water use restrictions may impact our ability to serve our current and future customers, and may impact our customers’ use of our water, which may adversely affect our financial condition and results of operations. We believe that we have in place sufficient capacity to provide water service for the foreseeable future to all existing and new customers in all of our service territories. However, severe drought conditions could interfere with our sources of water supply and could adversely affect our ability to supply water in sufficient quantities to our existing and future customers. This may adversely affect our revenues and earnings. Moreover, governmental restrictions on water usage during drought conditions may result in a decreased demand for water, which may adversely affect our revenue and earnings. We could be adversely impacted by inflation. If inflation increases significantly, we may seek to increase our rates charged to customers. We can provide no assurances that any future rate increase request will be approved by the applicable regulatory authority, and if approved, we cannot guarantee that any rate increase will be granted in a timely manner and/or will be sufficient in amount to cover costs for which we initially sought the rate increase. The impact of inflation could adversely affect our results of operations, financial position or cash flows. Risks Related to Our Business Strategy We face competition from other water and wastewater utilities for the acquisition of new exclusive service territories. We face competition from other water and wastewater utilities as we pursue the right to exclusively serve territories in Delaware and Maryland by entering into agreements with landowners, developers or municipalities and, under current law, then applying to the DEPSC or the MDPSC for a CPCN. If we are unable to enter into agreements with landowners, developers or municipalities and secure CPCNs 13 for the right to exclusively serve territories in Delaware or Maryland, our ability to expand may be significantly impeded. Any future acquisitions we undertake or other actions to further grow our water and wastewater business may involve risks. An element of our growth strategy is the acquisition and integration of water and wastewater systems in order to broaden our current service areas, and move into new ones. It is our intent, when practical, to integrate any businesses we acquire with our existing operations. The negotiation of potential acquisitions as well as the integration of acquired businesses could require us to incur significant costs and cause diversion of our management’s time and resources. We may not be successful in the future in identifying businesses that meet our acquisition criteria. The failure to identify such businesses may limit the rate of our growth. In addition, future acquisitions or expansion of our service areas by us could result in: Incurrence of debt and contingent liabilities; − Dilutive issuance of our equity securities; − − Difficulties in integrating the operations and personnel of the acquired businesses; − Diversion of our management’s attention from ongoing business concerns; − Failure to have effective internal control over financial reporting; − Overload of human resources; and − Other acquisition-related expense. Some or all of these items could have a material adverse effect on our business and our ability to finance our business and comply with regulatory requirements. The businesses we acquire in the future may not achieve sales and profitability that would justify our investment. We also may experience risks relating to the challenges and costs of closing a transaction and the risk that an announced transaction may not close. Completion of certain acquisition transactions are conditioned upon, among other things, the receipt of approvals, including from certain state public utilities commissions. Failure to complete a pending transaction would prevent us from realizing the anticipated benefits. We would also remain liable for significant transaction costs, including legal and accounting fees, whether or not the transaction is completed. Risks Related to Legal Uncertainty Contamination of our water supply may result in disruption in our services and could lead to litigation that may adversely affect our business, operating results and financial condition. Our water supplies are subject to contamination from naturally-occurring compounds as well as pollution resulting from man-made sources. Even though we monitor the quality of our water on an on-going basis, any possible contamination due to factors beyond our control could interrupt the use of our water supply until we are able to substitute it from an uncontaminated water source. Additionally, treating the contaminated water source could involve significant costs and could adversely affect our business. We could also be held liable for consequences arising out of human or environmental exposure to hazardous substances, if found, in our water supply. This could adversely affect our business, results of operations and financial condition. We are subject to, and could be further subject to, governmental investigations or actions by other third parties. We are subject to various federal and state laws, including environmental laws, violations of which can involve civil or criminal sanctions. Our operations from time to time could be parties to or targets of lawsuits, claims, investigations and proceedings, including system failure, injury, contract, environmental, health and safety and employment matters, which are handled and defended in the ordinary course of business. The results of any future litigation or settlement of such lawsuits and claims are inherently unpredictable, but such outcomes could also materially and adversely affect our business, financial position and results of operations. Risk Related to Cybersecurity and Technology We are dependent on the continuous and reliable operation of our information technology systems. We rely on our information technology systems to manage operation of our business. Specifically, our business relies on the following technology systems: customer information system, financial reporting system, asset tracking system, remote monitoring system for some of our treatment, storage and pumping facilities, human resources management system, inventory management system, and accounts receivable collection management system. Such systems require periodic modifications, upgrades or replacement that subject us to inherent costs and risks, including substantial capital expenditures, additional administration and operating expenses, and other risks and costs of delays in transitioning to new systems or of integrating new systems into our current systems. Our computer and 14 communications systems and operations could be damaged or interrupted by natural disasters, telecommunications failures or acts of war or terrorism or similar events or disruptions. A loss of these systems or major problems with the operation of these systems could affect our operations and have a material adverse effect on our results of operations. There have been an increasing number of cyber-attacks on companies around the world, which have caused operational failures or compromised sensitive corporate or customer data. These attacks have occurred over the internet, through malware, viruses or attachments to e-mails, or through persons inside the organization or with access to systems inside the organization. We have implemented security measures and will continue to devote resources to address any security vulnerabilities in an effort to prevent cyber- attacks. Despite our efforts, a cyber-attack, if it occurred, could cause water or wastewater system problems, disrupt service to our customers, compromise important data or systems or result in an unintended release of customer information. We feel we have adequate cyber-security insurance coverage to mitigate the cost of any such cyber-attack; however, a possible cyber-attack could affect our operations and have a material adverse effect on our results of operations. Risk Associated with Management Turnover in our management team could have an adverse impact on our business or the financial market’s perception of our ability to continue to grow. Our success depends significantly on the continued contribution of our management team both individually and collectively. The loss of the services of any member of our management team or the inability to hire and retain experienced management personnel could harm our operating results. In addition, turnover in our management team could adversely affect the financial market’s perception of our ability to continue to grow. Risks Related to Our Common Stock There can be no assurance that we will continue to pay dividends in the future or, if dividends are paid, that they will be in amounts similar to past dividends. Dividends on our common stock will only be paid if and when declared by our Board of Directors. Our earnings, financial condition, capital requirements, applicable regulations and other factors, including the timeliness and adequacy of rate increases, will determine both our ability to pay dividends on common stock and the amount of the dividends declared by our Board of Directors. There can be no assurance that we will continue to pay dividends in the future or, if dividends are paid, that they will be in amounts similar to past dividends. The price of our common stock may be volatile and may be affected by market conditions beyond our control. The trading price of our common stock may fluctuate in the future based on a variety of factors, many of which are beyond our control and unrelated to our financial results. Factors that could cause fluctuations in the trading price of our common stock include but are not limited to volatility of the general stock market or the utility stock index, regulatory developments, general economic conditions and trends, actual or anticipated changes or fluctuations in our results of operations, actual or anticipated changes in the expectations of investors or securities analysts, actual or anticipated developments in our competitors’ businesses or the competitive landscape generally, litigation involving us or our industry, major catastrophic events or sales of large blocks of our stock. Furthermore, we believe that stockholders invest in public utility stocks in part because they seek reliable dividend payments. If there is an over supply of stock of public utilities in the market relative to demand by such investors, the trading price of our common stock may decrease. Additionally, if interest rates rise above the dividend yield offered by our common stock, demand for our stock and its trading price may also decrease. 15 ITEM 1B. UNRESOLVED STAFF COMMENTS None. ITEM 2. PROPERTIES Our corporate headquarters are located at 664 Churchmans Road, Newark, Delaware and are owned by Artesian Water. The Company owns approximately six acres of land in New Castle County, Delaware zoned for office development and two nine-acre parcels of land in Sussex County, Delaware for water and wastewater treatment facilities and elevated water storage. The Company also owns an office facility located in Sussex County, Delaware. The facility consists of approximately 10,000 square feet of office space along with approximately 10,000 square feet of warehouse space. The Company owns land, rights-of-way, easements, transmission and distribution mains, collection mains, pump facilities, treatment plants, lift stations, treatment/disposal facilities, storage tanks, meters, vehicles and related equipment and facilities. The following table indicates our utility plant as of December 31, 2021. Utility plant comprises: In thousands Utility plant at original cost Utility plant in service-Water Intangible plant Source of supply plant Pumping and water treatment plant Transmission and distribution plant Mains Services Storage tanks Meters Hydrants General plant Utility plant in service-Wastewater Intangible plant Treatment and disposal plant Collection mains and lift stations General plant Property held for future use Construction work in progress Less – accumulated depreciation Estimated Useful Life (In Years) December 31, 2021 --- $ 45-85 8-62 81 39 76 26 60 5-31 --- 21-81 81 5-31 --- --- $ 140 25,045 109,087 320,767 53,210 29,972 28,778 16,789 62,604 116 43,725 33,901 1,665 5,536 18,481 749,816 159,385 590,431 Substantially all of Artesian Water's utility plant, except the utility plant in the town of Townsend, Delaware, is pledged as security for our First Mortgage Bonds. As of December 31, 2021, no other water utility plant has been pledged as security for loans. Two parcels of land in Artesian Wastewater are pledged as security for a loan. We believe that our properties are generally maintained in good condition and in accordance with current standards of good water and wastewater works industry practice. We believe that all of our existing facilities adequately meet current necessary production capacities and current levels of utilization. 16 ITEM 3. LEGAL PROCEEDINGS For a discussion of our legal proceedings, refer to Note 17 to our Consolidated Financial Statements. ITEM 4. MINE SAFETY DISCLOSURES Not applicable. PART II ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Market Information for the Company’s Common Equity Artesian Resources' Class A Non-Voting Common Stock, or Class A Stock, is listed on the Nasdaq Global Select Market and trades under the symbol "ARTNA." On March 8, 2022, the last closing sale price as reported by the Nasdaq Global Select Market was $49.45 per share. As of March 8, 2022 there were 548 holders of record of the Class A Stock. Our Class B Common Stock, or Class B Stock, is quoted on the OTC Bulletin Board under the symbol "ARTNB." There has been a limited and sporadic public trading market for the Class B Stock. As of March 8, 2022, the last reported trade of the Class B Stock on the OTC Bulletin Board was at a price of $44.65 per share on February 23, 2022. As of March 8, 2022, there were 140 holders of record of the Class B Stock. The Class B shares are paid the same dividend as the Class A shares. Recent Sales of Unregistered Securities During the year ended December 31, 2021, we did not issue any unregistered shares of our Class A or Class B Stock. 17 The following graph compares the percentage change in cumulative shareholder return on the Company’s Class A Stock with the Standard & Poor’s 500 Stock Index and a Peer Group of water utility companies. The graph covers the period from December 2016 (assuming a $100 investment on December 31, 2016, and the reinvestment of any dividends) through December 2021: $300 $250 $200 $150 $100 $50 $0 2016 Company Name / Index Artesian Resources Corporation S&P 500 Index Peer Group Comparison of Cumulative Five Year Total Return Artesian Resources Corporation S&P 500 Index Peer Group 2017 2018 2019 2020 2021 Base Period 2016 2017 INDEXED RETURNS Years Ending December 31 2019 2018 2020 100 100 100 123.91 121.83 128.23 115.00 116.49 128.58 126.11 153.17 173.45 129.22 181.35 200.03 2021 165.68 233.41 247.99 The Peer Group includes American States Water Company, American Water Works Company, Inc., Essential Utilities, Inc., California Water Service Group, Connecticut Water Service, Inc. (included through October 9, 2019 when it was acquired by SJW Group), Middlesex Water Company, SJW Group and York Water Company. 18 ITEM 6. RESERVED ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW Our profitability is primarily attributable to the sale of water. Gross water sales comprised 85.7% of total operating revenues for the year ended December 31, 2021. Our profitability is also attributed to the various contract operations, water, sewer and internal SLP Plans and other services we provide. Water sales are subject to seasonal fluctuations, particularly during summer when water demand may vary with rainfall and temperature. In the event temperatures during the typically warmer months are cooler than expected, or rainfall is greater than expected, the demand for water may decrease and our revenues may be adversely affected. We believe the effects of weather are short term and do not materially affect the execution of our strategic initiatives. Our wastewater services, contract operations and other services provide a revenue stream that is not affected by changes in weather patterns. While water sales are our primary source of revenues, we continue to seek growth opportunities to provide wastewater services in Delaware and the surrounding areas. We also continue to explore and develop relationships with developers and municipalities in order to increase revenues from contract water and wastewater operations, wastewater management services, and design, construction and engineering services. We plan to continue developing and expanding our contract operations and other services in a manner that complements our growth in water service to new customers. Our anticipated growth in these areas is subject to changes in residential and commercial construction, which may be affected by interest rates, inflation and general housing and economic market conditions. We anticipate continued growth in our non-regulated division due to our water, sewer, and internal SLP Plans. COVID-19 Pandemic As of December 31, 2021, the Company’s financial results and business operations have not been materially adversely affected by the coronavirus, or COVID-19, outbreak, which was declared a pandemic in March 2020. However, we have experienced delays in procuring some materials and supplies. While we have been successful in managing these delays, there is no assurance that our future financial results or business operations will not be negatively affected. The full impact of the COVID-19 outbreak continues to evolve as of the date of this report. Management is actively monitoring the situation and impacts on its operations, suppliers, industry, and workforce. Inflation We are affected by inflation, most notably by the continually increasing costs required to maintain, improve and expand our service capability. The cumulative effect of inflation results in significantly higher facility replacement costs which must be recovered from future cash flows. Our ability to recover increases in investments in facilities is dependent upon future rate increases, which are subject to approval by the applicable regulatory authority. We can provide no assurances that any future rate increase request will be approved, and if approved, we cannot guarantee that any rate increase will be granted in a timely manner and/or will be sufficient in amount to cover costs for which we initially sought the rate increase. The impact of inflation could adversely affect our results of operations, financial position or cash flows. Water Division Artesian Water, Artesian Water Maryland and Artesian Water Pennsylvania provide water service to residential, commercial, industrial, governmental, municipal and utility customers. Increases in the number of customers contribute to increases, or help to offset any intermittent decreases, in our operating revenue. As of December 31, 2021, the number of metered water customers in Delaware increased approximately 1.5% compared to December 31, 2020. The number of metered water customers in Maryland increased approximately 2.2% compared to December 31, 2020. The number of metered water customers in Pennsylvania remained consistent compared to December 31, 2020. For the year ended December 31, 2021, approximately 8.3 billion gallons of water were distributed in our Delaware systems and approximately 134.7 million gallons of water were distributed in our Maryland systems. Wastewater Division Artesian Wastewater owns wastewater collection and treatment infrastructure and began providing regulated wastewater services to customers in Delaware in July 2005. Artesian Wastewater Maryland was incorporated on June 3, 2008 and is able to provide regulated wastewater services to customers in Maryland. It is not currently providing these services in Maryland. Our residential and commercial wastewater customers are billed a flat monthly fee, which contributes to providing a revenue stream unaffected by weather. The number of Delaware wastewater customers increased approximately 14.8% compared to December 31, 2020. In January 2022, Artesian Wastewater completed its agreement to acquire Tidewater Environmental Services, Inc, or TESI, which more than doubled our current 19 number of wastewater customers served in Sussex County, Delaware. The acquisition agreement with TESI is discussed further in the “Strategic Direction and Recent Developments” section below. Non-Regulated Division Artesian Utility provides contract water and wastewater operation services to private, municipal and governmental institutions. Artesian Utility also offers three protection plans to customers, the WSLP Plan, the SSLP Plan, and the ISLP Plan. SLP Plan customers are billed a flat monthly or quarterly rate, which contributes to providing a revenue stream unaffected by weather. There has been consistent customer growth over the years. As of December 30, 2021, the eligible customers enrolled in the WSLP Plan, the SSLP Plan and the ISLP Plan increased 4.9%, 2.1% and 28.6%, respectively, compared to December 31, 2020. The non-utility customers enrolled in one of our three protections plans increased 3.7%. Strategic Direction and Recent Developments Our strategy is to increase customer growth, revenues, earnings and dividends by expanding our water, wastewater and SLP Plan services across the Delmarva Peninsula. We remain focused on providing superior service to our customers and continuously seek ways to improve our efficiency and performance. Our strategy has included a focus on building strategic partnerships with county governments, municipalities and developers. By providing water and wastewater services, we believe we are positioned as the primary resource for developers and communities throughout the Delmarva Peninsula seeking to fill both needs simultaneously. We believe we have a proven ability to acquire and integrate high growth, reputable entities, through which we have captured additional service territories that will serve as a base for future revenue. We believe this experience presents a strong platform for further expansion and that our success to date also produces positive relationships and credibility with regulators, municipalities, developers and customers in both existing and prospective service areas. In our regulated water division, our strategy is to focus on a wide spectrum of activities, which include strategic acquisitions of existing systems, expanding certificated service area, identifying new and dependable sources of supply, developing the wells, treatment plants and delivery systems to supply water to customers and educating customers on the wise use of water. Our strategy includes focused efforts to expand through strategic acquisitions and in new regions added to our Delaware service territory over the last 10 years. We plan to expand our regulated water service area in the Cecil County designated growth corridor and to expand our business through the design, construction, operation, management and acquisition of additional water systems. The expansion of our exclusive franchise areas elsewhere in Maryland and the award of contracts will similarly enhance our operations within the state. Our ability to develop partnerships with various county governments, municipalities and developers has provided a number of opportunities. In the last four years, we completed seven acquisitions including asset purchase agreements with municipal and developer/homeowner association operated systems. Some recent acquisitions are noted below. On August 3, 2020, Artesian Water completed the purchase of substantially all of the water system operating assets from the City of Delaware City, a Delaware municipality, or Delaware City, including the right to provide water service to Delaware City’s existing customers. The total purchase price was $2.1 million. Artesian Water had previously acquired the water assets of an area annexed by Delaware City, known as Fort DuPont, which was earmarked for growth and expansion of Delaware City. On April 2, 2020, Artesian Water completed its purchase of substantially all of the operating assets of the water system of the Town of Frankford, a Delaware municipality, or Frankford, including the right to provide water service to Frankford’s existing customers, or the Frankford Water System. Pursuant to the terms of the agreement, Frankford transferred to Artesian Water all of Frankford’s right, title and interest in and to all of the plant and equipment, associated real property, contracts, easements and permits possessed by Frankford at closing related to the Frankford Water System. The total purchase price was $3.6 million. The Delaware Drinking Water State Revolving Fund issued a $1.5 million appropriation in July 2021 to partially offset the purchase price. On February 16, 2022, Artesian Water signed an agreement, or the Asset Purchase Agreement, to purchase from the Town of Clayton, a Delaware municipality, or Clayton, substantially all of the operating assets of Clayton’s water system, including Clayton’s exclusive franchise territory and the right to provide water service to Clayton’s existing customers, or the Water System. Pursuant to the terms of the Asset Purchase Agreement, Clayton shall transfer to Artesian Water all of Clayton’s right, title and interest in and to substantially all of the municipal water utility, plant and equipment, associated real property, contracts, easements and permits possessed by Clayton at closing related to the Water System. The total purchase price is $5.0 million, less the current payoff amount of any secured debt or debt associated with the Water System. Closing on this transaction is pending due diligence and approval by the Delaware Public Service Commission related to the transfer of exclusive franchise territory. We believe that Delaware's generally lower cost of living in the region, availability of development sites in relatively close proximity to the Atlantic Ocean in Sussex County, and attractive financing rates for construction and mortgages have resulted, and will continue to result, in increases to our customer base. Delaware’s lower property and income tax rate make it an attractive region for new home development and retirement communities. Substantial portions of Delaware currently are not served by a public water system, which 20 could also assist in an increase to our customer base as systems are added. In our regulated wastewater division, we foresee significant growth opportunities and will continue to seek strategic partnerships and relationships with developers and governmental agencies to complement existing agreements for the provision of wastewater service on the Delmarva Peninsula. There are numerous locations in Sussex County where Artesian Wastewater’s and Sussex County’s facilities are connected or integrated to allow for the movement and disposal of wastewater generated by one or the other’s system in a manner that most efficiently and cost effectively manages wastewater transmission, treatment and disposal. In addition, Artesian Wastewater plans to utilize our larger regional wastewater facilities to expand service areas to new customers while transitioning our smaller treatment facilities into regional pump stations in order to gain additional efficiencies in the treatment and disposal of wastewater. We believe this will reduce operational costs at the smaller treatment facilities in the future because they will be converted from treatment and disposal plants to pump stations to assist with transitioning the flow of wastewater from one regional facility to another. In addition, since closing the transaction with TESI noted below, Artesian Wastewater will be the sole regional regulated wastewater utility in Delaware, which we believe will enable us to increase efficiencies in the treatment and disposal of wastewater and provide additional opportunities to expand our wastewater operations. On January 14, 2022, Artesian Wastewater acquired TESI, a wholly-owned subsidiary of Middlesex Water Company, or Middlesex, that provides regulated wastewater services in Delaware. Artesian Wastewater purchased all of the stock of TESI from Middlesex for $6.4 million in cash and other consideration, including, forgiveness of a $2.1 million intercompany note due from Middlesex. This acquisition more than doubled the number of wastewater customers served in Sussex County, Delaware and included all residents in the Town of Milton. Artesian Wastewater began operating its Sussex Regional Recharge Facility in late June 2021, shortly after our large industrial customer received its process wastewater treatment operating permit. The associated customer agreement includes a required minimum wastewater flow. Pursuant to a settlement agreement, for the calendar year 2021 only, the minimum required volume of wastewater was prorated on a seven month basis beginning June 1, 2021 and ending December 31, 2021. The general need for increased capital investment in our water and wastewater systems is due to a combination of population growth, more protective water quality standards, aging infrastructure and acquisitions. Our planned and budgeted capital improvements over the next three years include projects for water infrastructure improvements and expansion in both Delaware and Maryland and wastewater infrastructure improvements and expansion in Delaware. The DEPSC and MDPSC have generally recognized the operating and capital costs associated with these improvements in setting water and wastewater rates for current customers and capacity charges for new customers. In our non-regulated division, we continue pursuing opportunities to expand our contract operations. Through Artesian Utility, we will seek to expand our contract design, engineering and construction services of water and wastewater facilities for developers, municipalities and other utilities. We also anticipate continued growth due to our water, sewer and internal SLP Plans. Artesian Development owns two nine-acre parcels of land, located in Sussex County, Delaware, which will allow for construction of a water treatment facility and wastewater treatment facility. Artesian Storm Water was formed to expand contract work related to the design, installation, maintenance and repair services associated with existing or proposed storm water management systems in Delaware and the surrounding areas. CRITICAL ACCOUNTING POLICIES AND ESTIMATES Critical accounting policies and estimates are those we believe are most important to portraying the financial condition and results of operations and also require significant estimates, assumptions or other judgments by management. The following provides an overview of the accounting policies that are particularly important to the results of operations and financial condition of the Company. Changes in the estimates, assumptions or other judgments included within these accounting policies could result in a significant change to the financial statements in any quarterly or annual period. We consider the following policies to be the most critical in understanding the judgment that is involved in preparing our Consolidated Financial Statements. Senior management has discussed the selection and development of our critical accounting policies and estimates with the Audit Committee of the Board of Directors. All additions to utility plant are recorded at cost. Business combinations pursuant to ASC Topic 805 may result in a purchase price allocation and the acquired assets are required to be evaluated by the applicable regulatory agency. Cost includes direct labor, materials, AFUDC (see description in Note 1-Utility Plant) and indirect charges for items such as transportation, supervision, pension, medical, and other fringe benefits related to employees engaged in construction activities. When depreciable units of utility plant are retired, the historical costs of plant retired is charged to accumulated depreciation. Any cost associated with retirement, less any salvage value or proceeds received, is charged to the regulated retirement liability. Maintenance, repairs, and replacement of minor items of utility plant are charged to expense as incurred. 21 We record water service revenue, including amounts billed to customers, on a cycle basis and unbilled amounts based upon estimated usage from the date of the last meter reading to the end of the accounting period. As actual usage amounts are received, 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, using one of three methods: the previous year’s consumption in the same period, the previous billing period’s consumption, or averaging. While actual usage for individual customers may differ materially from the estimate, we believe the overall total estimate of consumption and revenue for the fiscal period will not differ materially from actual billed consumption. We record accounts receivable at the invoiced amounts. An allowance for doubtful accounts 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 allowance for doubtful accounts and associated bad debt expense has not been significant. However, the Company experienced longer receivable cycles throughout 2020, and into 2021, related to temporary executive orders issued by state governmental agencies requiring utility companies to prohibit late fees and service disconnections for non-payment, resulting in an adjustment to increase the reserve for bad debt. Account balances are written off against the allowance when it is probable the receivable will not be recovered. The Financial Accounting Standards Board, or FASB, Accounting Standards Codification, or ASC, Topic 980 stipulates generally accepted accounting principles for companies whose rates are established or subject to approvals by a third-party regulatory agency. Our regulated utilities record deferred regulatory assets under FASB ASC Topic 980, which are costs that may be recovered over various lengths of time as prescribed by the DEPSC, MDPSC and PAPUC. As the utility incurs certain costs, such as expenses related to rate case applications, a deferred regulatory asset is created. Adjustments to these deferred regulatory assets are made when the DEPSC, MDPSC or PAPUC determines whether the expense is recoverable in rates, the length of time over which an expense is recoverable, or, because of changes in circumstances, whether a remaining balance of deferred expense is recoverable in rates charged to customers. In addition, our regulated utilities record deferred and/or amortized regulatory liabilities under FASB ASC Topic 980, as determined by the DEPSC, the MDPSC, and the PAPUC. Regulatory liabilities represent excess recovery of cost or other items that have been deferred because it is probable such amounts will be returned to customers through future regulated rates. Adjustments to reflect changes in recoverability of certain deferred regulatory assets or certain deferred regulatory liabilities may have a significant effect on our financial results. 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 at which they are carried in the consolidated financial statements based on the enacted tax rates expected to be in effect when such temporary differences are expected to reverse. The Company’s rate regulated utilities recognize regulatory liabilities, to the extent considered in ratemaking, for deferred taxes provided in excess of the current statutory tax rate and regulatory assets for deferred taxes provided at rates less than the current statutory rate. Such tax-related regulatory assets and liabilities are reported at the revenue requirement level and amortized to income as the related temporary differences reverse, generally over the lives of the related properties. Our long-lived assets consist primarily of utility plant in service and regulatory assets. We review for impairment of our long-lived assets, including utility plant in service, in accordance with the requirements of FASB ASC Topic 360. We review regulatory assets for the continued application of FASB ASC Topic 980. Our review determines whether there have been changes in circumstances or events that have occurred that require adjustments to the carrying value of these assets. Adjustments to the carrying value of these assets would be made in instances where changes in circumstances or events indicate the carrying value of the asset may not be recoverable in rates charged to customers. The Company believes there are no impairments in the carrying amounts of its long-lived assets or regulatory assets at December 31, 2021. Results of Operations 2021 Compared to 2020 Operating Revenues Revenues totaled $90.9 million for the year ended December 31, 2021, $2.7 million, or 3.1%, more than revenues for the year ended December 31, 2020. Water sales revenue increased $1.3 million, or 1.8%, for the year ended December 31, 2021 from the corresponding period in 2020, primarily due to an increase in fixed fee revenue related to customer growth and an increase in non-residential consumption revenue. We realized 85.7% and 86.8% of our total operating revenue for the years ended December 31, 2021 and December 31, 2020, respectively, from the sale of water. 22 Other utility operating revenue, predominately consisting of wastewater revenues, increased approximately $0.7 million, or 10.3%, for the year ended December 31, 2021 compared to the year ended December 31, 2020. This increase is mainly due to an increase in wastewater revenue related to residential customer growth and housing development growth, mostly offset by a decrease in industrial wastewater service revenue resulting from adjustments related to the amounts recorded for the minimum required volume of wastewater under contract, pursuant to a settlement agreement. In addition, service and finance charges increased, related to executive orders that were issued by state governmental agencies in 2020 requiring utility companies to prohibit late fees and service disconnections for non- payment that since have been lifted. Non-utility operating revenue increased approximately $0.7 million, or 13.7%, for the year ended December 31, 2021 compared to the same period in 2020. The increase is primarily due to an increase in contract service revenue related to a contract for the design and construction of wastewater infrastructure for a third party and an increase in Service Line Protection Plan revenue. Percentage of Operating Revenues Water Sales Residential Commercial Industrial Government and Other Other utility operating revenues Non-utility operating revenues Total Residential 2021 2020 2019 53.0 % 19.4 0.1 13.2 7.9 6.4 100.0 % 53.8 % 19.5 0.1 13.4 7.4 5.8 100.0 % 52.8 % 21.0 0.1 14.1 5.9 6.1 100.0 % Residential water service revenues in 2021 amounted to $48.2 million, an increase of $0.8 million, or 1.7%, above the $47.4 million recorded in 2020, primarily due to an increase in fixed fee revenue related to customer growth and an increase in overall water consumption. The volume of water sold to residential customers increased to 4,230 million gallons in 2021 compared to 4,209 million gallons in 2020, a 0.5% increase. The number of residential customers served increased by approximately 1,400, or 1.6%, in 2021. Commercial Water service revenues from commercial customers in 2021 increased by 2.6%, to $17.6 million in 2021 from $17.2 million in 2020, primarily due to an increase in overall water consumption. The volume of water sold to commercial customers increased to 2,237 million gallons in 2021 compared to 2,180 million gallons sold in 2020, an increase of 2.6%. Industrial Water service revenues from industrial customers decreased to $49,000 in 2021 from $71,000 in 2020. The volume of water sold to industrial customers decreased to 5.3 million gallons in 2021 from 9.2 million gallons in 2020. Government and Other Government and other water service revenues in 2021 increased by 1.0%, to $12.0 million in 2021 from $11.8 million in 2020, primarily due to an increase in overall water consumption. The volume of water sold to government and other customers increased to 1,155 million gallons in 2021 compared to 1,050 million gallons in 2020, an increase of 10.0%. Other Utility Operating Revenue Other utility operating revenue, derived from regulated wastewater services, contract operations, antenna leases on water tanks, finance/service charges, wastewater customer service revenues and industrial wastewater service revenues, increased 10.3%, from $6.5 million in 2020 to $7.2 million in 2021. This increase is primarily due to an increase in wastewater revenue related to residential customer growth and housing development growth, mostly offset by a decrease in industrial wastewater service revenue. In addition, service and finance charges increased, related to executive orders that were issued by state governmental agencies in 2020 requiring utility companies to prohibit late fees and service disconnections for non-payment that since have been lifted. Non-Utility Operating Revenue Non-utility operating revenue, derived from non-regulated water and wastewater operations, increased by 13.7%, to $5.8 million in 2021 from $5.1 million in 2020. The increase is primarily due to an increase in contract service revenue related to a contract for the design and construction of wastewater infrastructure for a third party and an increase in Service Line Protection Plan revenue. 23 Operating Expenses Operating expenses, excluding depreciation and income taxes, increased $1.9 million, or 4.0%, for the year ended December 31, 2021 compared to the year ended December 31, 2020. The components of the change in operating expenses primarily include an increase in utility operating expenses of $1.1 million, an increase in non-utility operating expenses of $0.7 million and an increase in property and other taxes of $0.2 million. Utility operating expenses increased $1.1 million, or 2.7%, for the year ended December 31, 2021 compared to the year ended December 31, 2020. The net increase is primarily related to the following. − Repair and maintenance costs increased $1.0 million, related to an increase in maintenance costs primarily associated with water and wastewater treatment facilities and equipment, an increase in water treatment filter replacements, an increase in tank painting costs under contract, and an increase in fuel costs. − Payroll and employee benefit costs increased $0.4 million, primarily related to an increase in overall compensation. − Water treatment costs increased $0.1 million, primarily related to an increase in chemicals and associated equipment during 2021 in both water and wastewater operations. − Administrative costs decreased $0.5 million, primarily due to a decrease in bad debt reserve related to non-payment of water customer receivable balances resulting from the COVID-19 pandemic, which was partially offset by increases in training and overall employee related costs, legal expenses associated with the transition of the 401(k) retirement plan to a new record keeper, and a settlement agreement concerning the payment of fees by an industrial wastewater customer. Non-utility operating expenses increased 20.3%, primarily due to an increase in costs associated with the wastewater infrastructure design and construction contract, an increase in plumbing services related to Service Line Protection Plan repairs, and an increase in payroll and employee benefit costs. Property and other taxes increased $0.2 million, or 3.4%, primarily due to an increase in utility plant subject to taxation. Property taxes are assessed on land, buildings and certain utility plant, which include the footage and size of pipe, hydrants and wells. Percentage of Operating and Maintenance Expenses Payroll and Associated Expenses Administrative Purchased Water Repair and Maintenance Purchased Power Water Treatment Non-utility Operating Total 2021 49.9 % 12.3 9.5 10.2 5.4 4.0 8.7 100.0 % 2020 51.0 % 14.1 9.9 8.3 5.5 3.7 7.5 100.0 % 2019 50.1 % 13.6 9.9 9.3 5.5 3.8 7.8 100.0 % The ratio of operating expense, excluding depreciation and income taxes, to total revenue was 56.1% for the year ended December 31, 2021, compared to 55.6% for the year ended December 31, 2020. Depreciation and amortization expense increased $0.7 million, or 6.7%, primarily due to continued investment in utility plant providing supply, treatment, storage and distribution of water to customers and service to our wastewater customers. Other Income, Net Other income, net remained consistent. Miscellaneous income increased $0.3 million related to an increase in the annual patronage refund from CoBank, ACB. The primary refund calculation for both 2021 and 2020 was based on 0.8% of the average loan balance outstanding. In addition, a special patronage distribution based on 0.2% and 0.1% of the average loan balance outstanding was refunded in March 2021 and March 2020, respectively. Allowance for funds used during construction, or AFUDC, decreased $0.3 million as a result of lower long-term construction activity subject to AFUDC for the twelve months ended December 31, 2021 compared to the same period in 2020. Interest Charges Long-term debt interest decreased $0.1 million, primarily related to amortizing debt. Short-term debt interest increased $0.1 million, primarily related to higher short-term borrowing levels throughout 2021. 24 Net Income Our net income applicable to common stock remained consistent. Operating revenues increased $2.7 million, while operating expenses increased $2.7 million. Part I, Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2020 Annual Report on Form 10-K includes a comparative discussion of the years ended December 31, 2020 and 2019 and is incorporated herein by reference. Liquidity and Capital Resources Overview The Company’s primary sources of liquidity for the year ended December 31, 2021 were $31.9 million of cash provided by operating activities, $15.8 million in net contributions and advances from developers, $4.1 million from the issuance of long-term debt and $1.4 million in net proceeds from the issuance of common stock. These funds were used to invest $41.5 million in capital expenditures and to pay dividends of approximately $9.8 million. We depend on the availability of capital for expansion, construction and maintenance. We rely on our sources of liquidity for investments in our utility plant and to meet our various payment obligations. We expect that our net investments in utility plant in 2022 will be approximately $50.4 million. Our total obligations related to interest and principal payments on indebtedness, rental payments, elevated storage tank agreements and water service interconnection agreements for 2022 are anticipated to be approximately $10.4 million. Operating Activities Our primary source of liquidity for the year ended December 31, 2021 was $31.9 million provided by cash flow from operating activities. Cash flow from operating activities is primarily provided by our utility operations, and is impacted by the timeliness and adequacy of rate increases and changes in water consumption as a result of year-to-year variations in weather conditions, particularly during the summer. A significant part of our ability to maintain and meet our financial objectives is to ensure that our investments in utility plant and equipment are recovered in the rates charged to customers. As such, from time to time, we file rate increase requests to recover increases in operating expenses and investments in utility plant and equipment. We will continue to borrow on available lines of credit in order to satisfy current liquidity needs. In addition, the Company has a long history of paying regular quarterly dividends as approved by our Board of Directors using net cash from operating activities. Investment Activities The primary focus of our investment in 2021 was to continue to provide high quality reliable service to our growing service territory. Capital expenditures during 2021 were $40.8 million compared to $40.0 million invested during the same period in 2020. During 2021, we invested approximately $18.4 million for our rehabilitation program for transmission and distribution facilities by replacing aging or deteriorating mains and for installing new mains. We invested $8.5 million to enhance or improve existing treatment facilities and replace aging wells and pumping equipment to better serve our customers. We invested $1.7 million for equipment purchases, computer hardware and software upgrades and transportation equipment. Developers financed $6.4 million for the installation of water mains and hydrants in 2021 compared to $4.1 million in 2020. We invested $1.2 million to upgrade and automate our meter reading equipment. We invested approximately $2.5 million in mandatory utility plant expenditures due to governmental highway projects, which required the relocation of water service mains in addition to facility improvements and upgrades. We invested $2.1 million in wastewater projects in Delaware. The following chart summarizes our investment in plant and systems over the past three fiscal years. In thousands Source of supply, treatment and pumping Transmission and distribution General plant and equipment Developer financed utility plant Wastewater facilities Allowance for Funds Used During Construction, AFUDC Total 25 2021 2020 2019 $ $ 9,681 $ 20,951 1,739 6,866 2,133 (556) 40,814 $ 14,999 $ 15,993 3,089 4,132 2,586 (781) 40,018 $ 13,000 13,789 3,180 4,573 7,021 (886) 40,677 Of the $67.2 million gross investment expected in 2022, approximately $15.1 million will be invested in upgraded and improved booster stations, a new elevated storage tank, new water treatment facilities, water treatment facility upgrades, equipment and wells throughout Delaware, Maryland, and Pennsylvania to identify, develop, treat, and protect sources of water supply to assure uninterrupted service to our customers. Approximately $12.5 million will be invested in renewals associated with the rehabilitation of aging infrastructure. Approximately $12.3 million will be for extending transmission and distribution facilities to address service needs in growth areas of our service territory. Approximately $8.7 million will be invested in the construction of force mains used for the transmission of wastewater to plants. Approximately $8.0 million will be invested into the ongoing construction of a regional wastewater treatment plant along with improvements to existing wastewater treatment plants and wastewater pumping stations. Approximately $4.9 million will be invested in the relocations of facilities as a result of government mandates. Approximately $4.8 million will be invested in general plant, which includes transportation and equipment upgrades, new corporate automation, and building renovations. Additionally, we will refund $0.9 million to customers, real estate developers and builders related to previous advances for construction they provided to Artesian for distribution facilities on their properties. Our projected capital expenditures and other investments are subject to periodic review, and revision to reflect changes in economic conditions and other factors. The Company's investment for 2022 is expected to be offset by developer contributions of $10.8 million and grant funds from the State of Delaware of $6.0 million, for a net investment of $50.4 million in 2022. The Company believes the net investment in utility plant will continue to be recovered through rates charged to customers. Financing Activities We have several sources of liquidity to finance our investment in utility plant and other fixed assets. We estimate that future investments will be financed by our operations and external sources. We expect to fund our activities for the next twelve months using our projected cash generated from operations, bank credit lines, a $30 million first mortgage bond, state revolving fund loans, government grants, and other capital market financing as needed to provide sufficient working capital to maintain normal operations, to meet our financing requirements and to expand through strategic acquisitions. There is no assurance that we will be able to secure funding on terms acceptable to us, or at all. Our cash flows from operations are primarily derived from water sales revenues and may be materially affected by changes in water sales due to weather and the timing and extent of increases in rates approved by state public service commissions. Material Cash Requirements Lines of Credit and Long Term Debt At December 31, 2021, 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, 2021, there was $31.3 million of available funds under this line of credit. The interest rate for borrowings under this line is the London Interbank Offered Rate, or LIBOR, plus 1.00%. It is expected that the LIBOR rate for USD currency after June 30, 2023. As a result, it is possible that, in the future, the LIBOR rate may become unavailable or may no longer be deemed an appropriate reference rate upon which to determine the interest rate on LIBOR Rate Loans. In light of this eventuality, Citizens currently has initiatives underway to identify new or alternative reference rates to be used in place of the LIBOR rate. This is a demand line of credit and therefore the financial institution may demand payment for any outstanding amounts at any time. The term of this line of credit expires on the earlier of May 22, 2022 or any date on which Citizens demands payment. The Company expects to renew this line of credit. At December 31, 2021, 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, 2021, there was $2.0 million of available funds under this line of credit. The interest rate for borrowings under this line allows the Company to select either LIBOR plus 1.50% or a weekly variable rate established by CoBank; the Company has historically used the weekly variable interest rate. The patronage refunds earned by Artesian Water for 2021 and 2020 were $1.4 million and $1.0 million respectively. The term of this line of credit expires on July 30, 2022. Artesian Water expects to renew this line of credit. The Company’s material cash requirements include the following lines of credit commitments and contractual obligations: 26 Material Cash Requirements Payments Due by Period In thousands $ First mortgage bonds (principal and interest) State revolving fund loans (principal and interest) Lines of credit Promissory note (principal and interest) Operating leases Operating agreements Unconditional purchase obligations Tank painting contractual obligation Total contractual cash obligations $ Less than 1 Year 6,623 820 26,703 961 29 63 1,518 392 37,109 1-3 Years 13,169 $ 1,535 --- 1,921 48 77 1,489 588 18,827 $ $ $ After 5 4-5 Years 13,056 $ 188,219 1,122 --- 1,923 Years 4,336 --- 11,576 1,335 825 Total $ 221,067 7,813 26,703 16,381 1,461 1,046 4,410 980 $ 206,291 $ 279,861 --- --- 49 81 1,403 --- 17,634 Artesian’s long-term debt agreements and revolving lines of credit contain customary affirmative and negative covenants that are binding on us (which are in some cases subject to certain exceptions), including, but not limited to, restrictions on our ability to make certain loans and investments, guarantee certain obligations, enter into, or undertake, certain mergers, consolidations or acquisitions, transfer certain assets or change our business. As of December 31, 2021, we were in compliance with these covenants. Long-term debt obligations reflect the maturities of certain series of our first mortgage bonds, which we intend to refinance when due if not refinanced earlier. One first mortgage bond is subject to redemption in a principal amount equal to $150,000 plus interest per calendar quarter. The state revolving fund loan obligation and promissory note obligation have an amortizing mortgage payment payable over a 20-year period. The first mortgage bonds, the state revolving fund loan and the promissory note have certain financial covenant provisions, the violation of which could result in default and require the obligation to be immediately repaid, including all interest. We have not experienced conditions that would result in our default under these agreements. On February 7, 2022, Artesian Water entered into an interest rate lock agreement, or the Agreement, with CoBank. The Company is seeking to finance a $30 million principal amount First Mortgage Bond, or the Bond. The Agreement allows for a maturity period of 25 years and a fixed interest rate of 4.43% per annum, or the Fixed Rate, for the Bond. The Agreement is effective through May 7, 2022, or the Settlement Date. Pursuant to the Agreement, the Bond is not subject to redemption based on mortgage style amortization. Interest on the outstanding principal balance will be payable quarterly on the 30th day of January, April, July and October each year. The proceeds from the sale of the Bond shall be used to pay down outstanding lines of credit of Artesian Water, with any additional proceeds used to fund future capital investments in Artesian Water. Closing on the debt financing is subject to approval by the DEPSC. Also pursuant to the Agreement, the Company agrees to pay to CoBank, on demand, a broken funding charge if the Company does not, for any reason whatsoever, borrow the entire $30 million principal amount on or before the Settlement Date. The broken funding charge shall be in an amount equal to the present value of the sum of all losses and expenses incurred by CoBank in retiring, liquidating, or reallocating any debt, obligation, or cost incurred or allocated by CoBank to fund or hedge the Fixed Rate. On July 15, 2021, Artesian Water entered into a Financing Agreement, or the Financing Agreement, with the Delaware Drinking Water State Revolving Fund, acting by and through the Delaware Department of Health & Social Services, Division of Public Health, a public agency of the state of Delaware, or the Department. Under the Financing Agreement, the Department agreed to advance to Artesian Water up to approximately $2.5 million, or the Loan, to finance all or a portion of the cost to acquire the Town of Frankford water system and to replace water transmission mains and renew services and hydrants in the Town of Frankford, collectively, the Project. In accordance with the Financing Agreement, Artesian Water will from time to time request funds under the Loan as it incurs costs in connection with the Project. Artesian Water requested an initial draw of approximately $1.5 million for the acquisition of the Town of Frankford water system. Upon receipt of the initial draw, an amount equal to approximately $1.5 million was forgiven by the Department and is no longer considered outstanding or unpaid principal under the Financing Agreement. The Company shall pay to the Department, on the principal amount drawn down and outstanding from the date drawn, interest at a rate of 1.0% per annum and an administrative fee at the rate of 1.0% per annum. On April 28, 2020, Artesian Water entered into three financing agreements, or the Financing Agreements, with the Delaware Drinking Water State Revolving Fund, acting by and through the Delaware Department of Health & Social Services, Division of Public Health, a public agency of the state of Delaware, or the Department. Under the Financing Agreements, the Department agreed to advance to Artesian Water up to approximately $1.7 million, $1.0 million and $1.3 million, collectively, the Loans, to finance all or a portion of the costs to replace specific water transmission mains in service areas located in New Castle County, Delaware, collectively, the Projects. The Company shall pay to the Department, on the principal amount drawn down and outstanding from the date drawn, interest at a rate of 0.6% per annum and an administrative fee at the rate of 0.6% per annum. As of December 31, 2021, the full amount that will be borrowed under the Loans is approximately $2.6 million. 27 In order to control purchased power cost, in August 2018 Artesian Water entered into an electric supply contract with MidAmerican effective from September 2018 through May 2022. In February 2021, Artesian Water entered into a new electric supply contract with MidAmerican that is effective from May 2021 to May 2025. The fixed rate was lowered 5.6% starting in May 2021. In August 2018, Artesian Water Maryland entered into an electric supply agreement with Constellation NewEnergy, Inc., effective from May 2019 through May 2022. In February 2022, Artesian Water Maryland entered into an electric supply agreement with Constellation NewEnergy, Inc., effective from May 2022 through November 2025. Payments for unconditional purchase obligations reflect minimum water purchase obligations based on rates that are subject to change under two interconnection agreements with the Chester Water Authority. One agreement, that expired on December 31, 2021, had a “take or pay” clause requiring us to purchase 3 million gallons per day. The other 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 requiring us to purchase water on a step down schedule through July 5, 2022, thereafter requiring us to purchase a minimum of 0.5 million gallons per day. In addition, payments for unconditional purchase obligations reflect minimum water purchase obligations based on a contract rate under our interconnection agreement with the Town of North East, which expires June 26, 2024. In April 2021, Artesian Water entered into a 3-year agreement with Worldwide Industries Corporation effective July 1, 2021 to paint elevated water storage tanks. Pursuant to the agreement, the total expenditure for the three years is $1.2 million. IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS See Note 18 to our Consolidated Financial Statements for a full description of the impact of recent accounting pronouncements. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK The Company is subject to the risk of fluctuating interest rates in the normal course of business. Our policy is to manage interest rates through the use of fixed rate long-term debt and, to a lesser extent, short-term debt. The Company's exposure to interest rate risk related to existing fixed rate, long-term debt is due to the term of the majority of our First Mortgage Bonds and the term of the promissory note, which have final maturity dates ranging from 2028 to 2049, and interest rates ranging from 4.24% to 5.96%, which exposes the Company to interest rate risk as interest rates may drop below the existing fixed rate of the long-term debt prior to such debt’s maturity. In addition, the Company has interest rate exposure on $60 million of variable rate lines of credit, with two banks, under which the interim bank loans payable at December 31, 2021 were approximately $26.7 million. An increase in the variable interest rates will result in an increase in the cost of borrowing on these variable rate lines of credit. Also, changes in LIBOR could affect our operating results and liquidity. We are also exposed to market risk associated with changes in commodity prices. Our risks associated with price increases in chemicals, electricity and other commodities are mitigated by our ability to recover our costs through rate increases to our customers. We have also sought to mitigate future significant electric price increases by signing multi-year supply contracts at fixed prices. 28 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA CONSOLIDATED BALANCE SHEETS In thousands December 31, ASSETS Utility plant, at original cost less accumulated depreciation Current assets Cash and cash equivalents Accounts receivable (less allowance for doubtful accounts 2021 - $429; 2019 - $862) Income tax receivable Unbilled operating revenues Materials and supplies Prepaid property taxes Prepaid expenses and other Total current assets Other assets Non-utility property (less accumulated depreciation 2021 - $919; 2019 - $865) Other deferred assets Operating lease right of use assets Total other assets Regulatory assets, net Total Assets LIABILITIES AND STOCKHOLDERS' EQUITY Stockholders' equity Common stock Preferred stock Additional paid-in capital Retained earnings Total stockholders' equity Long-term debt, net of current portion Current liabilities Lines of credit Current portion of long-term debt Accounts payable Accrued expenses Overdraft payable Accrued interest Income taxes payable Customer and other deposits Other Total current liabilities Commitments and contingencies (Note 11) Deferred credits and other liabilities Net advances for construction Operating lease liabilities Regulatory liabilities Deferred investment tax credits Deferred income taxes Total deferred credits and other liabilities Net contributions in aid of construction Total Liabilities and Stockholders’ Equity The notes are an integral part of the consolidated financial statements. 29 $ $ $ $ $ $ $ 2021 590,431 $ December 31, 2020 559,561 92 8,863 2,234 1,080 1,933 2,306 2,652 19,160 3,751 5,097 451 9,299 6,321 625,211 $ 9,414 $ — 104,989 63,607 178,010 143,259 321,269 26,703 1,591 10,206 4,534 30 917 — 2,273 1,448 47,702 $ 28 10,162 629 1,166 1,535 1,891 2,208 17,619 3,796 5,309 460 9,565 6,473 593,218 9,357 — 103,463 56,606 169,426 142,333 311,759 26,813 1,757 6,341 4,283 105 930 28 2,064 1,403 43,724 4,295 $ 440 21,260 456 53,133 79,584 $ 4,578 432 21,681 473 50,313 77,477 176,656 625,211 $ 160,258 593,218 CONSOLIDATED STATEMENTS OF OPERATIONS In thousands, except per share amounts Operating revenues Water sales Other utility operating revenue Non-utility operating revenue Total Operating Revenues Operating expenses Utility operating expenses Non-utility operating expenses Depreciation and amortization Taxes State and federal income tax expense (benefit) Current Deferred Property and other taxes Total Operating Expenses Operating income Other income, net Allowance for funds used during construction (AFUDC) Miscellaneous Income before interest charges Interest charges Net income applicable to common stock Income per common share: Basic Diluted Weighted average common shares outstanding: Basic Diluted For the Year Ended December 31, 2019 2020 2021 $ 77,821 $ 7,195 5,843 90,859 76,476 $ 6,525 5,140 88,141 73,609 4,916 5,070 83,595 41,414 3,942 11,885 40,338 3,277 11,143 39,189 3,315 10,803 3,360 2,377 5,587 68,565 8,073 (2,389) 5,404 65,846 8,420 (3,239) 5,182 63,670 22,294 22,295 19,925 823 1,302 2,125 1,170 971 2,141 1,410 614 2,024 24,419 24,436 21,949 7,592 7,619 7,024 16,827 $ 16,817 $ 14,925 1.79 $ 1.79 $ 1.80 $ 1.79 $ 1.61 1.60 9,394 9,426 9,327 9,369 9,277 9,326 $ $ $ Cash dividends per share of common stock $ 1.05 $ 1.01 $ 0.98 The notes are an integral part of the consolidated financial statements. 30 CONSOLIDATED STATEMENTS OF CASH FLOWS In thousands For the Year Ended December 31, 2020 2021 2019 CASH FLOWS FROM OPERATING ACTIVITIES Net income Adjustments to reconcile net income to net cash provided by operating activities: $ 16,827 $ 16,817 $ 14,925 Depreciation and amortization Deferred income taxes, net Stock compensation AFUDC, equity portion Changes in assets and liabilities: Accounts receivable, net of allowance for doubtful accounts Income tax receivable Unbilled operating revenues Materials and supplies Income taxes payable Prepaid property taxes Prepaid expenses and other Other deferred assets Regulatory assets Regulatory liabilities Accounts payable Accrued expenses Accrued interest Revenue reserved for refund Customer deposits and other NET CASH PROVIDED BY OPERATING ACTIVITIES CASH FLOWS USED IN INVESTING ACTIVITIES Capital expenditures (net of AFUDC, equity portion) Investment in acquisitions Proceeds from sale of assets NET CASH USED IN INVESTING ACTIVITIES CASH FLOWS FROM FINANCING ACTIVITIES Net (repayments)borrowings under lines of credit agreements (Decrease) increase in overdraft payable Net advances and contributions in aid of construction Net proceeds from issuance of common stock Issuance of long-term debt Dividends paid Debt issuance costs Principal repayments of long-term debt NET CASH PROVIDED BY FINANCING ACTIVITIES NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 11,885 2,803 193 (556) 11,143 (1,963) 178 (781) 94 (1,605) 86 (398) (28) (415) (444) (445) 115 (535) 3,547 (71) (13) — 270 31,310 (2,324) (610) 45 (271) (106) 63 42 (409) 390 (635) (1,835) 301 100 — 213 20,358 10,803 (2,813) 181 (886) (94) 753 230 195 343 (84) (126) (361) 388 (642) (11) (789) 46 (3,298) 110 18,870 (40,814) — 90 (40,724) (34,277) (5,741) 46 (39,972) (40,677) — 51 (40,626) (110) (75) 15,817 1,390 4,126 (9,826) (19) (1,825) 9,478 19,313 90 9,280 1,539 — (9,376) (28) (1,772) 19,046 64 (568) 28 596 (8,442) (102) 10,507 1,033 30,000 (9,122) (90) (1,725) 22,059 303 293 596 CASH AND CASH EQUIVALENTS AT END OF YEAR $ 92 $ 28 $ 31 CONSOLIDATED STATEMENTS OF CASH FLOWS CONTINUED In thousands Non-cash Investing and Financing Activity: Utility plant received as construction advances and contributions in aid of construction Contractual amounts of contributions in aid of construction due from developers included in accounts receivable Contractual amounts of contributions in aid of construction received from developers previously included in accounts receivable Amounts included in accounts payable and accrued payables related to capital expenditures Supplemental Cash Flow Information: Interest paid Income taxes paid Purchase price allocation of investment in acquisitions: Utility plant Other deferred assets/goodwill Total investment in acquisitions $ $ $ $ $ $ $ $ 3,538 $ 2,403 $ 3,716 545 $ 1,705 $ 710 1,749 $ 3,763 $ 781 $ 3,122 $ 2,050 5,776 7,605 $ 5,181 $ 7,519 $ 8,792 $ 6,978 7,332 --- $ --- --- $ 5,118 $ 623 5,741 $ --- --- --- The notes are an integral part of the consolidated financial statements. 32 CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY In thousands Common Shares Outstanding Class A Non-Voting (1) (3) (4) Common Shares Outstanding Class B Voting (2) $1 Par Value Class A Non-Voting $1 Par Value Class B Voting Additional Paid-in Capital Retained Earnings Total Balance as of December 31, 2018 Net income Cash dividends declared Common stock Issuance of common stock Dividend reinvestment plan Employee stock options and awards(4) Employee Retirement Plan(3) Balance as of December 31, 2019 Net income Cash dividends declared Common stock Issuance of common stock Dividend reinvestment plan Employee stock options and awards(4) Employee Retirement Plan(3) Balance as of December 31, 2020 Net income Cash dividends declared Common stock Issuance of common stock Dividend reinvestment plan Employee stock options and awards(4) Employee Retirement Plan(3) Balance as of December 31, 2021 8,368 882 $8,368 $882 $100,639 $43,362 $153,251 — — 11 21 10 — — — — — — — 11 21 10 — — — 14,925 14,925 — (9,122) (9,122) — 389 — — 426 357 — — — 400 447 367 8,410 882 $8,410 $882 $101,811 $49,165 $160,268 — — 11 42 12 — — — — — — — 11 42 12 — — — 16,817 16,817 — (9,376) (9,376) — 377 — — 832 443 — — — 388 874 455 8,475 882 $8,475 $882 $103,463 $56,606 $169,426 — — 10 38 9 — — — — — — — 10 38 9 — — — 16,827 16,827 — (9,826) (9,826) — 382 — 392 — — 790 354 — — 828 363 8,532 882 $8,532 $882 $104,989 $63,607 $178,010 (1) (2) (3) (4) At December 31, 2021, 2020, and 2019, Class A Common Stock had 15,000,000 shares authorized. For the same periods, shares issued, inclusive of treasury shares, were 8,561,772, 8,504,429 and 8,439,223, respectively. At December 31, 2021, 2020, and 2019, Class B Common Stock had 1,040,000 shares authorized and 882,000 shares issued. Artesian Resources Corporation registered 200,000 shares of Class A Common Stock, subsequently adjusted for stock splits, available for purchase through the Artesian Retirement Plan and the Artesian Supplemental Retirement Plan. Under the Equity Compensation Plan, effective December 9, 2015, Artesian Resources Corporation authorized up to 331,500 shares of Class A Common Stock for issuance of grants in forms of stock options, stock units, dividend equivalents and other stock-based awards, subject to adjustment in certain circumstances as discussed in the Plan. Includes stock compensation expense for the years ended December 31, 2021, 2020, and 2019, see Note 1-Stock Compensation Plans. The notes are an integral part of the consolidated financial statements. 33 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation The audited consolidated financial statements are presented in accordance with the requirements of Form 10-K and accounting principles generally accepted in the United States and consequently include all the disclosures required in the consolidated financial statements included in the Company's annual report on Form 10-K. The accompanying consolidated financial statements include the accounts of Artesian Resources Corporation and its subsidiaries and all intercompany balances and transactions between subsidiaries have been eliminated. Utility Subsidiary Accounting The accounting records of Artesian Water Company, Inc., or Artesian Water, Artesian Wastewater Management, Inc., or Artesian Wastewater, and, effective January 14, 2022, Tidewater Environmental Services, Inc. dba Artesian Wastewater, or TESI, are maintained in accordance with the uniform system of accounts as prescribed by the Delaware Public Service Commission, or the DEPSC. The accounting records of Artesian Water Pennsylvania, Inc., or Artesian Water Pennsylvania, are maintained in accordance with the uniform system of accounts as prescribed by the Pennsylvania Public Utility Commission, or the PAPUC. The accounting records of Artesian Water Maryland, Inc., or Artesian Water Maryland, and Artesian Wastewater Maryland, Inc., or Artesian Wastewater Maryland, are maintained in accordance with the uniform system of accounts as prescribed by the Maryland Public Service Commission, or the MDPSC. All these subsidiaries follow the provisions of Financial Accounting Standards Board, or FASB, ASC Topic 980, which provides guidance for companies in regulated industries. These regulated subsidiaries account for the majority of our operating revenue. The operating revenues of our non-regulated division are presented in the Consolidated Statements of Operations. Utility Plant Utility plant is stated at original cost. Cost includes direct labor, materials, AFUDC (see description below) and indirect charges for such capitalized items as transportation, supervision, pension, medical, and other fringe benefits related to employees engaged in construction activities. When depreciable units of utility plant are retired, the historical costs of plant retired is charged to accumulated depreciation. Any cost associated with retirement, less any salvage value or proceeds received, is charged to the regulated retirement liability. Maintenance, repairs, and replacement of minor items of utility plant are charged to expense as incurred. In accordance with a rate order issued by the DEPSC, Artesian Water and Artesian Wastewater accrue an Allowance for Funds Used during Construction, or AFUDC. AFUDC, which represents the cost of funds devoted to construction projects through the date the project is placed in service, is capitalized as part of construction work in progress. The rate used for the AFUDC calculation is based on Artesian Water's and Artesian Wastewater’s weighted average cost of debt and the rate of return on equity authorized by the DEPSC. The rate used to capitalize AFUDC for Artesian Water in 2021, 2020, and 2019 was 6.7%, 7.0%, and 7.1%, respectively. The rate used to capitalize AFUDC for Artesian Wastewater in 2021, 2020, and 2019 was 6.4%, 6.3%, and 7.1%, respectively. 34 Utility plant comprises: In thousands Utility plant at original cost Utility plant in service-Water Intangible plant Source of supply plant Pumping and water treatment plant Transmission and distribution plant Mains Services Storage tanks Meters Hydrants General plant Utility plant in service-Wastewater Intangible plant Treatment and disposal plant Collection mains & lift stations General plant Property held for future use Construction work in progress Less – accumulated depreciation Depreciation and Amortization Estimated Useful Life (In Years) December 31, 2021 2020 — $ 45-85 8-62 140 $ 25,045 109,087 140 23,940 100,317 81 39 76 26 60 5-31 320,767 53,210 29,972 28,778 16,789 62,604 293,643 49,937 29,946 27,994 15,895 62,379 — 21-81 81 5-31 116 43,725 33,901 1,665 — — $ 5,536 18,481 749,816 159,385 590,431 $ 116 41,860 32,133 1,545 5,711 21,474 707,030 147,469 559,561 For financial reporting purposes, depreciation is recorded using the straight-line method at rates based on estimated economic useful lives, which range from 5 to 85 years. Composite depreciation rates for water utility plant were 2.17%, 2.23% and 2.27% for 2021, 2020 and 2019, 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. 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. 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 Series V First Mortgage bond in December 2019 that paid down outstanding lines of credit and a loan payable to Artesian Resources. Debt issuance costs and other debt related expenses are reviewed during Artesian Water’s rate applications as part of its cost of capital calculations. For the Series V First Mortgage bond, cash was paid for the issuance costs and $30 million of cash was received from the proceeds of the bond. 35 Regulatory expenses amortized on a straight-line basis are noted below: Expense Deferred contract costs and other Rate case studies Delaware rate proceedings Maryland rate proceedings Debt related costs 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 2010) Franchise Costs (resulting from purchase of water assets in Cecil County, Maryland in 2011) Regulatory assets, net of amortization, comprise: Years Amortized 5 5 2.5 5 15 to 30 (based on term of related debt) 50 20 80 Deferred income taxes Deferred contract costs and other Debt related costs Goodwill Deferred acquisition and franchise costs Impairment or Disposal of Long-Lived Assets December 31, 2021 December 31, 2020 (in thousands) $ 355 288 4,902 273 503 $ 370 46 5,233 281 543 $ 6,321 $ 6,473 Our long-lived assets consist primarily of utility plant in service and regulatory assets. A review of our long-lived assets is performed in accordance with the requirements of FASB ASC Topic 360. In addition, the regulatory assets are reviewed for the continued application of FASB ASC Topic 980. The review determines whether there have been changes in circumstances or events that have occurred requiring adjustments to the carrying value of these assets. FASB ASC Topic 980 stipulates that adjustments to the carrying value of these assets would be made in instances where the inclusion in the rate-making process is unlikely. For the years ended December 31, 2021, 2020 and 2019, there was no impairment or regulatory disallowance identified in our review. 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. Goodwill recorded in 2020 was a result of the acquisition of water assets from the Town of Frankford in April 2020 based on the purchase price allocation. A regulatory adjustment was made in 2021 to account for $1.5 million of Delaware Drinking Water State Revolving Fund loan proceeds automatically forgiven in July 2021 with the remainder recorded as contributions in aid of construction. Other deferred assets is related to the Mountain Hill acquisition. Other deferred assets at December 31, net of amortization, comprise: In thousands Investment in CoBank Other deferred assets/goodwill 2021 2020 $ $ 4,850 $ 247 5,097 $ 4,374 935 5,309 36 Advances for Construction Cash advances to reimburse Artesian Water for its costs to construct water mains, services and hydrants are contributed to Artesian Water by real estate developers and builders in order to extend water service to their properties. The value of these contributions is recorded as Advances for Construction. Artesian Water makes refunds on these advances over a specific period of time based on operating revenues generated by the specific plant or as new customers are connected to the mains. After all refunds are made within the contract period, any remaining balance is transferred to CIAC. Contributions in Aid of Construction CIAC includes the non-refundable portion of advances for construction and direct contributions of water mains, services and hydrants, and wastewater treatment facilities and collection systems, or cash to reimburse our water and wastewater divisions for costs to construct water mains, services and hydrants, and wastewater treatment and disposal plant. Effective with the Tax Cuts and Jobs Act, or TCJA, in 2017 CIAC was taxable and the DEPSC, MDPSC and PAPUC allowed the Company to collect additional CIAC to pay the associated tax. In 2021, legislation was issued to amend the TCJA, which now exempts CIAC from income taxes for regulated water and wastewater utilities, effective for all of 2021 and forward. The Company will refund developers a total of $3.2 million for the additional CIAC collected in 2021 to pay the associated tax. As of December 31, 2021, this refund amount is recorded in Current Liabilities – Accounts Payable on the Company’s Consolidated Balance Sheets. Regulatory Liabilities FASB ASC Topic 980 stipulates generally accepted accounting principles for companies whose rates are established or subject to approvals by a third-party regulatory agency. Certain obligations are deferred and/or amortized as determined by the DEPSC, MDPSC, and PAPUC. Regulatory liabilities represent excess recovery of cost or other items that have been deferred because it is probable such amounts will be returned to customers through future regulated rates. Utility plant retirement cost obligation consists of estimated costs related to the potential removal and replacement of facilities and equipment on the Company’s water and wastewater properties. Effective January 1, 2012, as authorized by the DEPSC, when depreciable units of utility plant are retired, any cost associated with retirement, less any salvage value or proceeds received, is charged to a regulated retirement liability. Each year the liability is increased by an annual amount authorized by the DEPSC Pursuant to the enactment of the TCJA on December 22, 2017, the Company adjusted its existing deferred income tax balances to reflect the decrease in the corporate income tax rate from 34% to 21% (see Note 5) resulting in a decrease in the net deferred income tax liability of $24.3 million, of which $22.8 million was reclassified to a regulatory liability related to Artesian Water and Artesian Water Maryland. The regulatory liability amount is subject to certain Internal Revenue Service normalization rules that require the benefits to customers be spread over the remaining useful life of the underlying assets giving rise to the associated deferred income taxes. 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. This audit is currently underway by the DEPSC, no final ruling has been made. 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. Regulatory liabilities comprise: Utility plant retirement cost obligation Deferred income taxes (related to TCJA) Income Taxes December 31, 2021 December 31, 2020 (in thousands) $ $ 149 21,111 21,260 $ $ 126 21,555 21,681 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 at which they are carried in the consolidated financial statements based on the enacted tax rates expected to be in effect when such temporary differences are expected to reverse. The Company’s rate regulated utilities recognize regulatory liabilities, to the extent considered in ratemaking, for deferred taxes provided in excess of the current statutory tax rate and regulatory assets for deferred taxes provided at rates less than the current statutory rate. Such tax-related regulatory assets and liabilities are reported at the revenue requirement level and amortized to income as the related temporary differences reverse, generally over the lives of the related properties. 37 Under FASB ASC Topic 740, an uncertain tax position represents our expected treatment of a tax position taken, or planned to be taken in the future, that has not been reflected in measuring income tax expense for financial reporting purposes. The Company establishes reserves for uncertain tax positions based upon management's judgment as to the sustainability of these positions. These accounting estimates related to the uncertain tax position reserve require judgments to be made as to the sustainability of each uncertain tax position based on its technical merits. The Company believes its tax positions comply with applicable law and that it has adequately recorded reserves as required. However, to the extent the final 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 2017 Corporate tax returns lapsed during the fourth quarter of 2021, which resulted in the reversal of the reserve in the amount of approximately $26,000. The statute of limitations for the 2016 Corporate tax returns lapsed during the fourth quarter of 2020. The Company has elected to recognize accrued interest (net of related tax benefits) and penalties related to uncertain tax positions as a component of its income tax expense. The Company has accrued approximately $19,000 in penalties and interest for the year ended December 31, 2021. The Company remains subject to examination by federal and state authorities for the tax years 2018 through 2021. Investment tax credits were deferred through 1986 and are recognized as a reduction of deferred income tax expense over the estimated economic useful lives of the related assets. Stock Compensation Plans On December 9, 2015, the Company's stockholders approved the 2015 Equity Compensation Plan, or the 2015 Plan. The 2015 Plan provides that grants may be in any of the following forms: incentive stock options, nonqualified stock options, stock units, stock awards, dividend equivalents and other stock-based awards. The 2015 Plan is administered and interpreted by the Compensation Committee, or the Committee, of the Board of Directors of the Company, or the Board. The Committee has the authority to determine the individuals to whom grants will be made under the 2015 Plan, the type, size and terms of the grants, the time when grants will be made and the duration of any applicable exercise or restriction period (subject to the limitations of the 2015 Plan), and deal with any other matters arising under the 2015 Plan. The Committee presently consists of three directors, each of whom is a non-employee director of the Company. All of the employees of the Company and its subsidiaries and non-employee directors of the Company are eligible for grants under the 2015 Plan. The Company accounts for stock options issued after January 1, 2006 under FASB ASC Topic 718. Compensation expenses for restricted stock awards were $193,000, $178,000 and $181,000 in 2021, 2020 and 2019, respectively. Costs were determined based on the fair value on the dates of the awards and those costs were charged to income over the service periods associated with the awards. As of December 31, 2021, there was $68,000 of unrecognized expense related to non-vested awards of restricted shares granted under the 2015 Plan. There was no stock compensation cost capitalized as part of an asset. Stock Options No options were granted in 2019, 2020 or 2021. Shares of Class A Stock have been reserved for future issuance under the 2015 Plan. Stock Awards On May 4, 2021, 5,000 shares of Class A Stock were granted as restricted stock awards. The fair value per share was $40.11, the closing price of the Class A Stock as recorded on the Nasdaq Global Select Market on May 4, 2021. Prior to their release date, these restricted stock awards may be subject to forfeiture in the event of the recipient’s termination of service. On May 6, 2020, 5,000 shares of Class A Stock were granted as restricted stock awards. The fair value per share was $35.01, the closing price of the Class A Stock as recorded on the Nasdaq Global Select Market on May 6, 2020. These shares were fully vested and released one year after the grant date. On May 8, 2019, 5,000 shares of Class A Stock were granted as restricted stock awards. The fair value per share was $36.11, the closing price of the Class A Stock as recorded on the Nasdaq Global Select Market on May 8, 2019. These shares were fully vested and released one year after the grant date. Revenue Recognition and Unbilled Revenues See Note 2 to our Consolidated Financial Statements for a full description of our revenue recognition. 38 Leases The Company has agreements for land easements and office equipment under operating leases. Management makes certain estimates and assumptions regarding each lease agreement, renewal and amendment, including, but not limited to, discount rates and probable term, which can impact the escalations in payment that are taken into consideration when calculating the straight line basis. The amount of rent expense and income reported could vary if different estimates and assumptions are used. Management also makes certain estimates and assumptions regarding the fair value of the leased property at lease commencement and the separation of lease and nonlease components. See Note 3 to our Consolidated Financial Statements for a full description of our leases. Accounts Receivable Accounts receivable are recorded at the invoiced amounts. An allowance for doubtful accounts 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 allowance for doubtful accounts and associated bad debt expense has not been significant. However, due to the coronavirus pandemic, or COVID-19, causing hardships for many utility customers, state government agencies issued executive orders in March 2020 requiring utility companies to take a number of steps to support their customers and communities, including prohibiting service disconnections for non-payment and prohibiting late fees. The Company experienced longer receivable cycles throughout 2020 and into 2021 and made an adjustment to increase the reserve for bad debt by $0.5 million in 2020. In June 2021 we made an adjustment to reduce the reserve by $0.3 million. Account balances are written off against the allowance when it is probable the receivable will not be recovered. The allowance for doubtful accounts was $0.4 million and $0.9 million at December 31, 2021 and December 31, 2020, respectively. The corresponding expense, excluding the reserve adjustment noted above, for the years ended December 31, 2021 and 2020 was $0.1 million and $0.2 million, respectively. The following table summarizes the changes in the Company’s accounts receivable balance: In thousands Customer accounts receivable – water Customer accounts receivable – wastewater Miscellaneous accounts receivable Developer receivable Less allowance for doubtful accounts Net accounts receivable The activities in the allowance for doubtful accounts are as follows: In thousands Beginning balance Allowance adjustments Recoveries Write off of uncollectible accounts Ending balance Cash and Cash Equivalents December 31, 2021 2020 5,986 $ 1,326 698 1,282 9,292 429 8,863 $ 6,707 1,717 699 1,901 11,024 862 10,162 December 31, 2021 2020 862 $ (236) 25 (222) 429 $ 264 754 13 (169) 862 $ $ $ $ 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. Use of Estimates in the Preparation of Consolidated Financial Statements The consolidated financial statements were prepared in conformity with generally accepted accounting principles in the U.S., which require management to make estimates about the reported amounts of assets and liabilities including unbilled revenues, reserve for a 39 portion of revenues received under temporary rates and regulatory asset recovery and contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from management's estimates. Management makes certain estimates and assumptions regarding each lease agreement, renewal and amendment, including, but not limited to, discount rates and probable term, which can impact the escalations in payment that are taken into consideration when calculating the straight line basis. The amount of rent expense and income reported could vary if different estimates and assumptions are used. Management also makes certain estimates and assumptions regarding the fair value of the leased property at lease commencement and the separation of lease and nonlease components. As of December 31, 2021, the Company’s financial results and business operations have not been materially adversely affected by the coronavirus, or COVID-19, outbreak, which was declared a pandemic in March 2020. However, we have experienced delays in procuring some materials and supplies. While we have been successful in managing these delays, there is no assurance that our future financial results or business operations will not be negatively affected. The full impact of the COVID-19 outbreak continues to evolve as of the date of this report. Management is actively monitoring the situation and impacts on its operations, suppliers, industry, and workforce. NOTE 2 REVENUE RECOGNITION Background Artesian’s operating revenues are primarily attributable to contract services based upon tariff rates approved by the Delaware Public Service Commission, or DEPSC, the Maryland Public Service Commission, or MDPSC, and the Pennsylvania Public Utility Commission, or PAPUC. Tariff contract service revenues consist of water consumption, industrial wastewater services, fixed fees for water and wastewater services including customer and fire protection fees, service charges and Distribution System Improvement Charges, or DSIC, billed to customers at rates outlined in our tariffs that represent stand-alone selling prices. Our non-tariff contract revenues consist of Service Line Protection Plan, or SLP Plan, fees, water and wastewater contract operations, design and installation contract services, and wastewater inspection fees. Other operating revenue primarily consists of developer guarantee contributions for wastewater and rental income for antenna agreements, which are not considered in the scope of Accounting Standards Codification 606, Revenue from Contracts with Customers. Tariff Contract Revenues Artesian generates revenue from the sale of water to customers in Delaware, Cecil County, Maryland, and Southern Chester County, Pennsylvania once a customer requests service in our territory. We recognize water consumption revenue at tariff rates on a cycle basis for the volume of water transferred to customers based upon meter readings for actual gallons of water consumed as well as unbilled amounts for estimated usage from the date of the last meter reading to the end of the accounting period. As actual usage amounts are known based on recurring meter readings, adjustments are made to the unbilled estimates in the next billing cycle based on the actual results. Estimates are made on an individual customer basis, based on one of three methods: the previous year’s consumption in the same period, the previous billing period’s consumption, or averaging. While actual usage for individual customers may differ materially from the estimate based on management judgments described above, we believe the overall total estimate of consumption and revenue for the fiscal period will not differ materially from actual billed consumption. The majority of our water customers are billed for water consumed on a monthly basis, while the remaining customers are billed on a quarterly basis. As a result, we record unbilled operating revenue (contract asset) for any estimated usage through the end of the accounting period that will be billed in the next monthly or quarterly billing cycle. Artesian generates revenue from industrial wastewater services provided to a customer in Sussex County, Delaware. We recognize industrial wastewater service revenue at a contract rate on a monthly basis for the volume of wastewater transferred to Artesian’s wastewater facilities based upon meter readings for actual gallons of wastewater transferred. These services are invoiced at the end of every month based on the actual meter readings for that month, and therefore there is no contract asset or liability associated with this revenue. The contract also provides for a minimum required volume of wastewater flow to our facility. At each year end, any shortfall of the actual volume from the required minimum volume is billed to the industrial customer and recorded as revenue. Additionally, if during the course of the year it is probable that the actual volume will not meet the minimum required volume, estimated revenue amounts would be recorded for the pro rata minimum volume, constrained for potential flow capacity that could occur in the remainder of the year. Pursuant to a settlement agreement, for the calendar year 2021 only, the minimum required volume was prorated on a seven month basis beginning June 1, 2021 and ending December 31, 2021. 40 Artesian generates fixed fee revenue for water and wastewater services provided to customers once a customer requests service in our territory. Our wastewater territory is located in Sussex County, Delaware. We recognize revenue from these services on a ratable basis over time as the customer simultaneously receives and consumes all the benefits of the Company remaining ready to provide them water and wastewater service. These contract services are billed in advance at tariff rates on a monthly, quarterly or semi-annual basis. As a result, we record deferred revenue (contract liability) and accounts receivable for any amounts for which we have a right to invoice but for which services have not been provided. This deferred revenue is netted with unbilled operating revenue on the Consolidated Balance Sheet. Artesian generates service charges primarily from non-payment fees, such as water shut off and reconnection fees and finance charges. These fees are billed and recognized as revenue at the point in time when our tariffs indicate the Company has the right to payment such as days past due have been reached or shut-offs and reconnections have been performed. There is no contract asset or liability associated with these fees. Artesian generates revenue from DSIC, which are surcharges applied to water customer tariff rates in Delaware related to specific types of water distribution system improvements. This rate is calculated on a semi-annual basis based on an approved projected revenue requirement over the following six-month period. This rate is adjusted up or down at the next DSIC filing to account for any differences between actual earned revenue and the projected revenue requirement. Since DSIC revenue is a surcharge applied to tariff rates, we recognize DSIC revenue based on the same guidelines as noted above depending on whether the surcharge was applied to consumption revenue or fixed fee revenue. Accounts receivable related to tariff contract revenues are typically due within 25 days of invoicing. An allowance for doubtful accounts is calculated as a percentage of total associated revenues based upon historical trends and adjusted for current conditions. We mitigate our exposure to credit losses by discontinuing services in the event of non-payment; accordingly, the related allowance for doubtful accounts and associated bad debt expense has not been significant. However, due to the COVID-19 pandemic causing hardships for many utility customers, in March 2020, state government agencies issued executive orders requiring utility companies to take a number of steps to support their customers and communities, including prohibiting service disconnections for non-payment and prohibiting late fees. In July 2020, the State of Delaware lifted its executive orders placing a moratorium on service disconnections for non-payment, with a provision requiring utilities to offer payment arrangements extending at least four months to customers. After properly notifying customers, Artesian reinstated its late fee process in September 2020 and began administering service disconnections in October 2020 for its Delaware customers. The State of Maryland and the Commonwealth of Pennsylvania lifted their executive orders placing moratoriums on service disconnections for non-payment effective November 2020. The State of Maryland required utilities to offer payment arrangements extending twelve months. The Company experienced longer receivable cycles throughout 2020 and into 2021 and made an adjustment to increase the reserve for bad debt by $0.5 million in 2020. In June 2021 we made an adjustment to reduce the reserve by $0.3 million. We will continue to monitor factors that affect the reserve for bad debt. Non-tariff Contract Revenues Artesian generates SLP Plan revenue once a customer requests service to cover all parts, materials and labor required to repair or replace leaking water service lines, leaking or clogged sewer lines, or water and wastewater lines within the customer’s residence, up to an annual limit. We recognize revenue from these services on a ratable basis over time as the customer simultaneously receives and consumes all the benefits of having service line protection services. These contract services are billed in advance on a monthly or quarterly basis. As a result, 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. Accounts receivable from SLP Plan customers are typically due within 25 days of invoicing. An allowance for doubtful accounts is calculated as a percentage of total SLP Plan contract revenue. We mitigate our exposure to credit losses by discontinuing services in the event of non-payment; accordingly, the related allowance for doubtful accounts and associated bad debt expense has not been significant. Artesian generates contract operation revenue from water and wastewater operation services provided to customers. We recognize revenue from these operation contracts, which consist primarily of monthly operation and maintenance services over time as customers receive and consume the benefits of such services performed. These services are invoiced in advance at the beginning of every month and are typically due within 30 days, and therefore there is no contract asset or liability associated with these revenues. An allowance for doubtful accounts is provided based on a periodic analysis of individual account balances, including an evaluation of days outstanding, payment history, recent payment trends, and our assessment of our customers’ creditworthiness. The related allowance for doubtful accounts and associated bad debt expense has not been significant. Artesian generates design and installation revenue for services related to the design and construction of wastewater infrastructure for a state agency under contract. We recognize revenue from these services over time as services are performed using the percentage-of- completion method based on an input method of incurred costs (cost-to-cost). These services are invoiced at the end of every month based on incurred costs to date. As of December 31, 2021, there is no associated contract asset or liability. There is no allowance for doubtful accounts or bad debt expense associated with this revenue. 41 Artesian generates inspection fee revenue for inspection services related to onsite wastewater collection systems installed by developers of new communities. These fees are paid by developers in advance when a service is requested for a new phase of a development. Inspection fee revenue is recognized on a per lot basis once the inspection of the infrastructure that serves each lot is completed. As a result, we record deferred revenue (contract liability) for any amounts related to infrastructure not yet inspected. There are no accounts receivable, allowance for doubtful accounts or bad debt expense associated with inspection fee contracts. Sales Tax The majority of Artesian’s revenues are earned within the State of Delaware, where there is no sales tax. Revenues earned in the State of Maryland and the Commonwealth of Pennsylvania are related primarily to the sale of water by a public water utility and are exempt from sales tax. Therefore, no sales tax is collected on revenues. Disaggregated Revenues The following table shows the Company’s revenues disaggregated by service type; all revenues are generated within a similar geographical location: (in thousands) Tariff Revenue Consumption charges Fixed fees Service charges DSIC Industrial wastewater services Total Tariff Revenue Non-Tariff Revenue Service line protection plans Contract operations Design and installation Inspection fees Total Non-Tariff Revenue Other Operating Revenue Total Operating Revenue For the Year Ended December 31, 2021 2020 2019 $ $ $ $ $ $ 47,924 27,977 579 5,093 675 82,248 4,594 884 562 341 6,381 2,230 90,859 $ $ $ $ $ $ 47,145 27,109 351 4,997 1,448 81,050 4,381 840 88 266 5,575 1,516 88,141 $ $ $ $ $ $ 45,451 26,216 617 4,331 22 76,637 4,177 1,122 --- 246 5,545 1,413 83,595 Contract Assets and Contract Liabilities Our contract assets and liabilities consist of the following: (in thousands) Contract Assets – Tariff Deferred Revenue Deferred Revenue – Tariff Deferred Revenue – Non-Tariff Total Deferred Revenue $ $ $ December 31, 2021 December 31, 2020 2,144 1,227 287 1,514 $ $ $ 2,175 1,150 300 1,450 For the year ended December 31, 2021, 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 increases of Contract Assets and Deferred Revenue were primarily due to normal timing differences between our performance and customer payments. 42 Remaining Performance Obligations As of December 31, 2021 and December 31, 2020, Deferred Revenue – Tariff is recorded net of contract assets within Unbilled operating revenues and represents our remaining performance obligations for our fixed fee water and wastewater services, all of which are expected to be satisfied and associated revenue recognized in the next three months. As of December 31, 2021 and December 31, 2020, Deferred Revenue – Non-Tariff is recorded within Other current liabilities and represents our remaining performance obligations for our SLP Plan services and wastewater inspections, which are expected to be satisfied and associated revenue recognized within the next three months and one year for the SLP Plan revenue and inspection fee revenue, respectively. NOTE 3 LEASES The Company leases land and office equipment under operating leases from non-related parties. Our leases have remaining lease terms of 20 years to 74 years, some of which include options to automatically extend the leases for up to 66 years. Payments made under operating leases are recognized in the consolidated statement of operations on a straight-line basis over the period of the lease. The annual lease payments for the land operating leases increase each year either by the most recent increase in the Consumer Price Index or by 3%, as applicable based on the lease agreements. Periodically, the annual lease payment for one operating land lease is determined based on the fair market value of the applicable parcel of land. 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. Management made certain assumptions related to the separation of lease and nonlease components and to the discount rate used when calculating the right of use asset and liability amounts for the operating leases. As our leases do not provide an implicit rate, we use our incremental borrowing rates for long-term and short-term agreements and apply the rates accordingly based on the term of the lease agreements to determine the present value of lease payments. In October 1997, Artesian Water entered into a 33 year operating lease for a parcel of land with improvements located in South Bethany, a municipality in Sussex County, Delaware. The annual lease payments increase each year by the most recent increase in the Consumer Price Index for Urban Workers, CPI-U, as published by the U.S. Department of Labor, Bureau of Labor Statistics. At each eleventh year of the lease term, the annual lease payment shall be determined based on the fair market value of the parcel of land. Rental payments for 2021, 2020 and 2019 were $17,000, $16,500, and $16,300, respectively. The future minimum rental payment as disclosed in the following table is calculated using CPI-U from August 2021 as well as the adjustment for an appraisal conducted in 2019 to determine the fair market value of the parcel of land. In March 2019, Artesian Water entered into a 3 year operating lease for office equipment. The quarterly lease payments remain fixed throughout the term of the lease. Payments for both 2021 and 2020 were $19,000. Rent expense for all operating leases except those with terms of 12 months or less comprises: (in thousands) Minimum rentals Contingent rentals For the Twelve Months Ended December 31, 2021 2020 $ $ 45 --- 45 $ $ 44 --- 44 43 Supplemental cash flow information related to leases is as follows: (in thousands) Twelve Months Ended December 31, 2021 Twelve Months Ended December 31, 2020 Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows from operating leases Right-of-use assets obtained in exchange for lease obligations: Operating leases $ $ 45 451 $ $ 44 460 Supplemental balance sheet information related to leases is as follows: (in thousands, except lease term and discount rate) Operating Leases: Operating lease right-of-use assets Other current liabilities Operating lease liabilities Total operating lease liabilities Weighted Average Remaining Lease Term Operating leases Weighted Average Discount Rate Operating leases December 31, 2021 December 31, 2020 $ $ $ 451 $ 6 440 446 $ 460 20 432 452 61 years 5.0% 59 years 5.0% Maturities of operating lease liabilities that have initial or remaining non-cancelable lease terms in excess of one year as of December 31, 2021 are as follows: Year 2022 2023 2024 2025 2026 Thereafter Total undiscounted lease payments Less effects of discounting Total lease liabilities recognized (in thousands) Operating Leases 29 24 24 24 25 1,334 1,460 (1,014) 446 $ $ As of December 31, 2021, we have not entered into operating or finance leases that will commence at a future date. NOTE 4 FAIR VALUE OF FINANCIAL INSTRUMENTS The following methods and assumptions were used to estimate the fair value of each class of financial instrument for which it is practicable to estimate that value. 44 Current Assets and Liabilities For those current assets and liabilities that are considered financial instruments, the carrying amounts approximate fair value because of the short maturity of those instruments. Long-term Financial Liabilities All of Artesian Resources’ outstanding long-term debt as of December 31, 2021 and December 31, 2020 was fixed-rate. The fair value of the Company’s long-term debt is determined by discounting their future cash flows using current market interest rates on similar instruments with comparable maturities consistent with FASB ASC 825. Under the fair value hierarchy, the fair value of the long-term debt in the table below is classified as Level 2 measurements. Level 2 is valued using observable inputs other than quoted prices. The fair values for long-term debt differ from the carrying values primarily due to interest rates that differ from the current market interest rates. The carrying amount and fair value of Artesian Resources' long-term debt (including current portion) are shown below: In thousands Carrying amount Estimated fair value December 31, $ 2021 144,850 $ 163,182 2020 144,090 171,374 The fair value of Advances for Construction cannot be reasonably estimated due to the inability to estimate accurately the timing and amounts of future refunds expected to be paid over the life of the contracts. Refund payments are based on the water sales to new customers in the particular development constructed. The fair value of Advances for Construction would be less than the carrying amount because these financial instruments are non-interest bearing. NOTE 5 INCOME TAXES Deferred income taxes reflect temporary differences between the valuation of assets and liabilities for financial and tax reporting. Pursuant to the enactment of the Tax Cuts and Jobs Act, or TCJA, in 2017, the Company adjusted its existing deferred income tax balances to reflect the decrease in the corporate income tax rate from 34% to 21% resulting in a decrease in the net deferred income tax liability of approximately $24.3 million, of which $22.8 million was reclassified to a regulatory liability. The regulatory liability amount is subject to certain Internal Revenue Service normalization rules that require the benefits to customers be spread over the remaining useful life of the underlying assets giving rise to the associated deferred income taxes. On January 31, 2019, the DEPSC approved the amortization of the regulatory liability amount of $22.2 million over a period of 49.5 years beginning February 1, 2018, subject to audit at a later date. This audit is currently underway by the DEPSC, but no final ruling has been made. 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. As of December 31, 2021, the Company fully utilized all of its federal net operating loss carrybacks and carry-forwards. As of December 31, 2021, the Company has separate company state net operating loss carry-forwards aggregating approximately $11.9 million. Most of these net operating loss carry-forwards will expire if unused between 2022 and 2042. The Company has recorded a valuation allowance to reflect the estimated amount of deferred tax assets that may not be realized due to the expiration of the state net operating loss carry- forwards. The valuation allowance increased to approximately $546,000 in 2021 from approximately $493,000 in 2020. Management believes that it is more likely than not that the Company will realize the benefit of these deferred tax assets, net of the valuation allowance. Components of Income Tax Expense In thousands State income taxes Current Deferred Total state income tax expense Federal income taxes Current Deferred Total federal income tax expense For the Year Ended December 31, 2019 2020 2021 1,216 $ 776 1,992 $ 2,348 $ (279) 2,069 $ 2,405 (610) 1,795 For the Year Ended December 31, 2019 2020 2021 2,144 $ 1,601 3,745 $ 5,725 $ (2,110) 3,615 $ 6,015 (2,629) 3,386 $ $ $ $ 45 Reconciliation of effective tax rate: In thousands Reconciliation of effective tax rate Income before federal and state income For the Year Ended December 31, 2021 Amount 2021 Percent 2020 Amount 2020 Percent 2019 Amount 2019 Percent taxes $ 22,564 100.0% $ 22,501 100.0% $ 20,106 100.0% Amount computed at statutory rate Reconciling items 4,738 21.0% 4,725 21.0% 4,222 21.0% State income tax-net of federal tax benefit Regulatory liability adjustment Other Total income tax expense and effective rate $ 1,600 (451) (150) 5,737 7.1% (2.0)% (.7)% 25.4% $ 1,704 (451) (294) 5,684 7.6% (2.0)% (1.3)% 25.3% $ 1,414 (451) (4) 5,181 7.0% (2.2)% 0.0% 25.8% Deferred income taxes at December 31, 2021 and 2020 were comprised of the following: In thousands Deferred tax assets related to: Federal and state operating loss carry-forwards Less: valuation allowance Bad debt allowance Stock options Other Total deferred tax assets Deferred tax liabilities related to: Property plant and equipment basis differences Bond retirement costs Property taxes Other Total deferred tax liabilities For the Year Ended December 31, 2021 2020 793 $ (546) 120 122 (10) 479 $ 629 (493) 240 148 75 599 (51,102) $ (1,134) (593) (783) (53,612) $ (48,536) (1,210) (481) (685) (50,912) $ $ $ $ Net deferred tax liability $ (53,133) $ (50,313) Schedule of Valuation Allowance In thousands Classification For the Year Ended December 31, 2021 Valuation allowance for deferred tax assets For the Year Ended December 31, 2020 Valuation allowance for deferred tax assets For the Year Ended December 31, 2019 Valuation allowance for deferred tax assets Balance at Beginning of Period Additions Charged to Costs and Expenses Deductions Balance at End of Period 493 $ 53 --- $ 546 335 $ 158 --- $ 493 396 $ 41 (102) $ 335 $ $ $ 46 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 2018. The following table provides the changes in the Company's uncertain tax position: For the years ended December 31, In thousands Balance at beginning of year Additions based on tax positions related to the current year Additions based on tax positions related to prior years Reductions for tax positions of prior years Lapses in statutes of limitations Balance at end of year 2021 209 --- 19 — (26) 202 $ $ $ $ 2020 271 --- 21 (83) — 209 NOTE 6 PREFERRED STOCK As of December 31, 2021 and 2020, Artesian Resources had no preferred stock outstanding. Artesian Resources has 100,000 shares of $1.00 par value Series Preferred stock authorized but unissued. NOTE 7 COMMON STOCK AND ADDITIONAL PAID-IN CAPITAL The Class A Non-Voting Common Stock, or Class A Stock, of Artesian Resources trades on the Nasdaq Global Select Market under the symbol ARTNA. The Class B Common Stock, or Class B Stock, of Artesian Resources trades on the Nasdaq's OTC Bulletin Board under the symbol ARTNB. The rights of the holders of the Class A Stock and the Class B Stock are identical, except with respect to voting. Under Artesian Resources' dividend reinvestment plan, which allows for reinvestment of cash dividends and optional cash payments, stockholders were issued approximately 10,000, 11,000 and 11,000 shares at fair market value for the investment of $392,000, $388,000, and $400,000 of their monies in the years 2021, 2020, and 2019, respectively. NOTE 8 DEBT At December 31, 2021, 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, 2021, there was $31.3 million of available funds under this line of credit. The interest rate for borrowings under this line is the London Interbank Offered Rate, or LIBOR, plus 1.00%. It is expected that the LIBOR rate will no longer be published for most currencies as of December 31, 2021, however, publication for USD currency should continue through June 30, 2023. As a result, it is possible that, in the future, the LIBOR rate may become unavailable or may no longer be deemed an appropriate reference rate upon which to determine the interest rate on LIBOR Rate Loans. In light of this eventuality, Citizens currently has initiatives underway to identify new or alternative reference rates to be used in place of the LIBOR rate. This is a demand line of credit and therefore the financial institution may demand payment for any outstanding amounts at any time. The term of this line of credit expires on the earlier of May 22, 2022 or any date on which Citizens demands payment. The Company expects to renew this line of credit. At December 31, 2021, 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, 2021, there was $2.0 million of available funds under this line of credit. The interest rate for borrowings under this line allows the Company to select either LIBOR plus 1.50% or a weekly variable rate established by CoBank; the Company has historically used the weekly variable interest rate. The term of this line of credit expires on July 30, 2022. Artesian Water expects to renew this line of credit. 47 On July 15, 2021, Artesian Water entered into a Financing Agreement, or the Financing Agreement, with the Delaware Drinking Water State Revolving Fund, acting by and through the Delaware Department of Health & Social Services, Division of Public Health, a public agency of the state of Delaware, or the Department. Under the Financing Agreement, the Department agreed to advance to Artesian Water up to approximately $2.5 million, or the Loan, to finance all or a portion of the cost to acquire the Town of Frankford water system and to replace water transmission mains and renew services and hydrants in the Town of Frankford, collectively, the Project. In accordance with the Financing Agreement, Artesian Water will from time to time request funds under the Loan as it incurs costs in connection with the Project. Artesian Water requested an initial draw of approximately $1.5 million for the acquisition of the Town of Frankford water system. Upon receipt of the initial draw, an amount equal to approximately $1.5 million was forgiven by the Department and is no longer considered outstanding or unpaid principal under the Financing Agreement. The Company shall pay to the Department, on the principal amount drawn down and outstanding from the date drawn, interest at a rate of 1.0% per annum and an administrative fee at the rate of 1.0% per annum. On April 28, 2020, Artesian Water entered into three financing agreements, or the Financing Agreements, with the Delaware Drinking Water State Revolving Fund, acting by and through the Delaware Department of Health & Social Services, Division of Public Health, a public agency of the state of Delaware, or the Department. Under the Financing Agreements, the Department agreed to advance to Artesian Water up to approximately $1.7 million, $1.0 million and $1.3 million, collectively, the Loans, to finance all or a portion of the costs to replace specific water transmission mains in service areas located in New Castle County, Delaware, collectively, the Projects. The Company shall pay to the Department, on the principal amount drawn down and outstanding from the date drawn, interest at a rate of 0.6% per annum and an administrative fee at the rate of 0.6% per annum. As of December 31, 2021, the full amount that will be borrowed under the Loans is approximately $2.6 million. CoBank may make an annual patronage refund. The $20 million line of credit, the First Mortgage Bonds and the promissory note are with CoBank. The patronage refunds earned by Artesian in 2021 and 2020 were $1.2 million and $1.0 million, respectively. In 2021, CoBank issued a one-time additional all-cash patronage distribution of $226,000, or 0.165%, of the average line of credit and loan volume outstanding in the prior year, which was in addition to the standard 0.80% patronage rate. In 2020, CoBank issued a one-time additional all-cash patronage distribution of $107,000, or 0.10%, of the average line of credit and loan volume outstanding in the prior year, which was in addition to the standard 0.80% patronage rate. The weighted average interest rate on the lines of credit discussed above paid by the Company was 1.40% for the year ended December 31, 2021. 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, 2021, we were in compliance with these financial covenants. 48 Long-term debt consists of: In thousands First mortgage bonds Series R, 5.96%, due December 31, 2028 Series S, 4.45%, due December 31, 2033 Series T, 4.24%, due December 20, 2036 Series U, 4.71%, due January 31, 2038 Series V, 4.42%, due October 31, 2049 State revolving fund loans 4.48%, due August 1, 2021 3.57%, due September 1, 2023 3.64%, due May 1, 2025 3.41%, due February 1, 2031 3.40%, due July 1, 2032 1.187%, due November 1, 2041 Notes Payable $ December 31, 2021 2020 25,000 7,200 40,000 25,000 30,000 127,200 --- 200 513 1,735 1,729 2,585 6,762 $ 25,000 7,800 40,000 25,000 30,000 127,800 318 294 648 1,887 1,887 --- 5,011 Promissory Note, 5.12%, due December 30, 2028 $ 10,888 $ 11,279 Sub-total Less: current maturities (principal amount) 144,850 1,591 144,090 1,757 Total long-term debt $ 143,259 $ 142,333 Payments of principal amounts due during the next five years and thereafter: In thousands First Mortgage bonds State revolving fund loans Promissory note Total payments 2022 600 $ 580 411 1,591 2023 600 $ 668 433 2024 600 $ 584 454 2025 600 $ 523 480 1,701 1,638 1,603 2026 Thereafter 124,200 3,949 8,605 136,754 600 $ 458 505 1,563 $ $ Substantially all of Artesian Water's utility plant is pledged as security for our First Mortgage Bonds. As of December 31, 2021, no other water utility plant has been pledged as security for loans. Two parcels of land in Artesian Wastewater are pledged as security for the promissory note. NOTE 9 STOCK COMPENSATION PLANS On December 9, 2015, the Company’s stockholders approved the 2015 Equity Compensation Plan, or the 2015 Plan, that replaced the 2005 Equity Compensation Plan, or the 2005 Plan, which expired on May 24, 2015. The 2015 Plan provides that grants may be in any of the following forms: incentive stock options, nonqualified stock options, stock units, stock awards, dividend equivalents and other stock-based awards. The 2015 Plan is administered and interpreted by the Compensation Committee of the Board of Directors, or the Committee. The Committee has the authority to determine the individuals to whom grants will be made under the 2015 Plan, determine the type, size and terms of the grants, determine the time when grants will be made and the duration of any applicable exercise or restriction period (subject to the limitations of the 2015 Plan) and deal with any other matters arising under the 2015 Plan. The Committee presently consists of three directors, each of whom is a non-employee director of the Company. All of the employees of the Company and its subsidiaries are eligible for grants under the 2015 Plan. Non-employee directors of the Company are also eligible to receive grants under the 2015 Plan. 49 The following summary reflects changes in the shares of Class A Stock under option: Plan options Outstanding at beginning of year Granted Exercised Expired Outstanding at end of year 2021 Weighted Average Exercise Price 2021 Shares 2020 Shares 2020 Weighted Average Exercise Price 2019 Shares 2019 Weighted Average Exercise Price 116,347 $ — (33,347) — 83,000 $ 20.90 — 19.04 — 21.65 153,250 $ — (36,903) — 116,347 $ 20.40 — 18.83 — 20.90 168,750 $ — (15,500) — 153,250 $ 20.11 — 17.15 — 20.40 Options exercisable at year end 83,000 $ 21.65 116,347 $ 20.90 153,250 $ 20.40 The total intrinsic value of options exercised during 2021, 2020 and 2019 were $736,000, $620,000 and $334,000, respectively. During 2021, we received $635,000 in cash from the exercise of options, with a $941,000 tax benefit realized for those options. The following table summarizes information about employee and director stock options outstanding and exercisable at December 31, 2021: Options Outstanding and Exercisable Range of Exercise Price 19.01 - $20.46 20.47 - $22.66 $ $ Shares Outstanding at December 31, 2021 Weighted Average Remaining Life Weighted Average Exercise Price Aggregate Intrinsic Value 15,500 67,500 0.35 Years $ 1.85 Years $ 19.01 $ 22.26 $ 423,460 1,624,725 As of December 31, 2021, there was no unrecognized expense related to non-vested option shares granted under the 2015 Plan. The following summary reflects changes in the shares of Class A Stock Restricted Stock Awards (RSA): Plan RSA’s Outstanding at beginning of year Granted Vested/Released Cancelled Unvested Outstanding at end of year 2021 Weighted Average Grant Date Fair Value 2021 Shares 2020 Shares 2020 Weighted Average Grant Date Fair Value 2019 Shares 2019 Weighted Average Exercise Price 5,000 $ 5,000 (5,000) — 5,000 $ 35.01 40.11 35.01 — 40.11 5,000 $ 5,000 (5,000) — 5,000 $ 36.11 35.01 36.11 — 35.01 5,000 $ 5,000 (5,000) — 5,000 $ 38.51 36.11 38.51 — 36.11 On May 4, 2021, 5,000 shares of Class A Stock were granted as restricted stock awards. The fair value per share was $40.11, the closing price of the Class A Stock as recorded on the Nasdaq Global Select Market on May 4, 2021. Prior to their release date, these restricted stock awards may be subject to forfeiture in the event of the recipient’s termination of service. On May 6, 2020, 5,000 shares of Class A Stock were granted as restricted stock awards. The fair value per share was $35.01, the closing price of the Class A Stock as recorded on the Nasdaq Global Select Market on May 6, 2020. These shares vested and were released one year after the grant date. On May 8, 2019, 5,000 shares of Class A Common Stock, or Class A Stock, were granted as restricted stock awards. The fair value per share was $36.11, the closing price of the Class A Stock as recorded on the Nasdaq Global Select Market on May 8, 2019. These shares vested and were released one year after the grant date. 50 As of December 31, 2021, there was $67,600 of total unrecognized expense related to non-vested awards of restricted shares awarded under the 2015 Plan. The cost will be recognized over 0.34 years, the remaining vesting period for the restricted stock awards. The total intrinsic value of awards released during 2021 was approximately $204,900. NOTE 10 EMPLOYEE BENEFIT PLANS 401(k) Plan Artesian Resources has a defined contribution 401(k) Salary Reduction Plan, or the 401(k) Plan, which covers substantially all employees. Under the terms of the 401(k) Plan, Artesian Resources contributed 2% of eligible salaries and wages and matched employee contributions up to 6% of gross pay at a rate of 50%. Artesian Resources may, at its option, make additional contributions of up to 3% of eligible salaries and wages. No such additional contributions were made in 2021, 2020 or 2019. The 401(k) Plan also provides additional retirement benefits to full-time employees hired prior to April 26, 1994, allowing them to save for future retiree medical costs that will be paid by employees by providing additional cash resources to those employees upon a termination of employment or retirement to meet the cost of future medical expenses. These eligible employees receive an additional contribution of 6% of eligible salaries and wages. The 401(k) Plan expenses, which include Company contributions and administrative fees, for the years 2021, 2020 and 2019, were approximately $1.2 million, $1.1 million and $1.1 million, respectively. NOTE 11 COMMITMENTS AND CONTINGENCIES Leases In the first quarter of 2019, the Company adopted the new standard on leases that was issued by the FASB and has applied this standard as disclosed in Note 3. Easements During 2003, Artesian Water Pennsylvania entered into a 40 year easement agreement to acquire an easement to access, operate, maintain, repair, improve, replace and connect Artesian’s water system to a well, including a parcel of land around the well. Management made certain estimates and assumptions regarding the separation of lease and nonlease components related to this easement agreement. It was determined that the majority of this easement agreement contains non-lease components. Easement payments for 2021, 2020 and 2019 were $42,000, $41,000 and $40,000, respectively. Artesian Wastewater entered into a perpetual agreement for the use of approximately 460 acres of land in Sussex County, Delaware for wastewater disposal. Beginning November 2016, Artesian Wastewater was required to pay a minimum of $40,000 per year for the use of this land. Once operations began in 2021, the monthly fee is based on the volume of wastewater disposed on the properties charged at a rate per one thousand gallons of wastewater, providing for a minimum monthly payment. Payments for 2021, 2020 and 2019 were $65,000, $44,000, $44,000, respectively. 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 2021 are as follows: In thousands 2022 2023 2024 2025 2026 2027 through 2043 Interconnections $ $ 59 38 39 40 41 825 1,042 Artesian Water has two water service interconnection agreements with a neighboring utility, Chester Water Authority. One agreement, that expired on December 31, 2021, had a “take or pay” clause requiring us to purchase 3 million gallons per day. The other agreement 51 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 requiring us to purchase water on a step down schedule through July 5, 2022, thereafter requiring us to purchase a minimum of 0.5 million gallons per day. Rates charged under this agreement are subject to change. 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. The agreement extends through June 2024. The minimum annual purchase commitments for all interconnection agreements for 2022 through 2026, calculated at the noticed rates, are as follows: In thousands 2022 2023 2024 2025 2026 $ $ 1,518 759 730 702 701 4,410 Expenses for purchased water were $4.3 million, $4.3 million and $4.2 million for 2021, 2020 and 2019, respectively. Other Commitments In March 2017, Artesian Water entered into a 3-year agreement with Worldwide Industries Corporation to clean and paint tanks in 2017, 2018 and 2019. Pursuant to the 3-year agreement, the expenditure committed in total for the years 2017 through 2019 was $1.3 million. In 2020, Artesian Water entered into a short term agreement with Worldwide Industries Corporation to clean and paint a tank in 2020. Pursuant to the agreement, the expenditure in 2020 was $0.1 million. In April 2021, Artesian Water entered into a 3-year agreement with Worldwide Industries Corporation effective July 1, 2021 to paint elevated water storage tanks. Pursuant to the agreement, the total expenditure for the three years is $1.2 million. Tank painting expense for 2021, 2020 and 2019 was $222,000, $155,000, and $447,000, 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 2022 through 2024 are as follows: In thousands 2022 2023 2024 $ $ 4,820 8,430 2,420 15,670 The exact timing and extent of these relocation projects is controlled primarily by the Delaware Department of Transportation. NOTE 12 GEOGRAPHIC CONCENTRATION OF CUSTOMERS Artesian Water, Artesian Water Maryland and Artesian Water Pennsylvania provide water utility service to customers within their established service territory in all three counties of Delaware and in portions of Maryland and Pennsylvania, pursuant to rates filed with and approved by the DEPSC, the MDPSC and the PAPUC. As of December 31, 2021, Artesian Water was serving approximately 91,700 customers, Artesian Water Maryland was serving approximately 2,500 customers and Artesian Water Pennsylvania was serving approximately 40 customers. Artesian Wastewater provides wastewater utility service to customers within its established service territory in Sussex County, Delaware pursuant to rates filed with and approved by the DEPSC. As of December 31, 2021, Artesian Wastewater was serving approximately 3,200 customers, including one large industrial customer. Effective January 14, 2022, following the acquisition of TESI, the number of wastewater customers served more than doubled. All wastewater customers are located in Sussex County, Delaware. 52 NOTE 13 REGULATORY PROCEEDINGS Overview Our water and wastewater utilities generate operating revenue from customers based on rates that are established by state Public Service Commissions through a rate setting process that may include public hearings, evidentiary hearings and the submission of evidence and testimony in support of the requested level of rates by the Company. We are subject to regulation by the following state regulatory commissions: · · · The DEPSC, regulates both Artesian Water and Artesian Wastewater. The MDPSC, regulates both Artesian Water Maryland and Artesian Wastewater Maryland. The PAPUC, regulates Artesian Water Pennsylvania. Our water and wastewater utility operations are also subject to regulation under the federal Safe Drinking Water Act of 1974, or Safe Drinking Water Act, the Clean Water Act of 1972, or the Clean Water Act, and related state laws, and under federal and state regulations issued under these laws. These laws and regulations establish criteria and standards for drinking water and for wastewater discharges. Capital expenditures and operating costs required as a result of water quality standards and environmental requirements have been traditionally recognized by state regulatory commissions as appropriate for inclusion in establishing rates. Water and Wastewater Rates Our regulated utilities periodically seek rate increases to cover the cost of increased operating expenses, increased financing expenses due to additional investments in utility plant and other costs of doing business. In Delaware, utilities are permitted by law to place rates into effect, under bond, on a temporary basis pending completion of a rate increase proceeding. The first temporary increase may be up to the lesser of $2.5 million on an annual basis or 15% of gross water sales. Should the rate case not be completed within seven months, by law, the utility may put the entire requested rate relief, up to 15% of gross water sales, in effect under bond until a final resolution is ordered and placed into effect. If any such rates are found to be in excess of rates the DEPSC finds to be appropriate, the utility must refund customers the portion found to be in excess with interest. The timing of our rate increase requests is therefore dependent upon the estimated cost of the administrative process in relation to the investments and expenses that we hope to recover through the rate increase. We can provide no assurances that rate increase requests will be approved by applicable regulatory agencies and, if approved, we cannot guarantee that these rate increases will be granted in a timely or sufficient manner to cover the investments and expenses for which we initially sought the rate increase. Other Proceedings Delaware law permits water utilities to put into effect, on a semi-annual basis, increases related to specific types of distribution system improvements through a DSIC. This charge may be implemented by water utilities between general rate increase applications that normally recognize changes in a water utility's overall financial position. The DSIC approval process is less costly when compared to the approval process for general rate increase requests. The DSIC rate applied between base rate filings is capped at 7.50% of the amount billed to customers under otherwise applicable rates and charges, and the DSIC rate increase applied cannot exceed 5.0% within any 12-month period. The following table summarizes (1) Artesian Water’s applications with the DEPSC to collect DSIC rates and (2) the rates upon which eligible plant improvements are based: Application Date DEPSC Approval Date Effective Date Cumulative DSIC Rate Net Eligible Plant Improvements – Cumulative Dollars (in millions) Eligible Plant Improvements – Installed Beginning Date Eligible Plant Improvements – Installed Ending Date 11/28/2018 12/20/2018 01/01/2019 5.55% $30.4 05/29/2019 06/18/2019 07/01/2019 7.41% $43.1 11/15/2019 12/12/2019 01/01/2020 7.50% $43.1 05/29/2020 06/17/2020 07/01/2020 7.41% $43.1 11/20/20 12/14/20 01/01/21 7.50% $43.1 10/01/2014 10/01/2014 10/01/2014 10/01/2014 10/01/2014 10/31/2018 04/30/2019 04/30/2019 04/30/2019 04/30/2019 53 The rate reflects the eligible plant improvements installed through April 30, 2019. The DSIC rate effective January 1, 2021 is still subject to audit by the DEPSC at a later date. For the years ended December 31, 2021, December 31, 2020 and December 31, 2019, we earned approximately $5.1 million, $5.0 million and $4.3 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. 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: Weighted average common shares outstanding during the period for Basic computation Dilutive effect of employee stock options Weighted average common shares outstanding during the period for Diluted computation For the Year Ended December 31, 2020 (in thousands) 2021 2019 9,394 32 9,327 42 9,277 49 9,426 9,369 9,326 For the years ended 2021 and 2020, no shares of restricted stock awards were excluded from the calculations of diluted net income per share. For the year ended 2019, 5,390 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 2021, 2020 and 2019, no stock options were excluded from the calculations of diluted net income per share. The Company has 15,000,000 authorized shares of Class A Stock, and 1,040,000 authorized shares of Class B Stock. As of December 31, 2021, 8,532,795 shares of Class A Stock and 881,452 shares of Class B Stock were issued and outstanding. As of December 31, 2020, 8, 475,452 shares of Class A Stock and 881,452 shares of Class B Stock were issued and outstanding. As of December 31, 2019, 8, 410,246 shares of Class A Stock and 881,452 shares of Class B Stock were issued and outstanding. The par value for both classes is $1.00 per share. Equity per common share was $18.94, $18.16, and $17.28 at December 31, 2021, December 31, 2020, and December 31, 2019, respectively. These amounts were computed by dividing common stockholders' equity by the number of weighted average shares of common stock outstanding on December 31, 2021, December 31, 2020, and December 31, 2019, respectively. NOTE 15 RELATED PARTY TRANSACTIONS Mr. Michael Houghton currently serves as a director. During 2021, Mr. Houghton was a Partner in the law firm of Morris Nichols Arsht & Tunnell, or MNAT, in Wilmington, Delaware. In the normal course of business, the Company utilizes the services of MNAT for various regulatory, real estate and public policy matters. Approximately $191,000, $386,000 and $253,000 was paid to MNAT during the years ended December 31, 2021, December 31, 2020 and December 31, 2019, respectively, for legal and director related services. As of December 31, 2021, the Company had a $16,000 accounts payable balance due to MNAT. As set forth in the Charter of the Audit Committee of the Board, the Audit Committee is responsible for reviewing and, if appropriate, approving all related party transactions between us and any officer, any director, any person known to be the beneficial owner of more than 5% of any class of the Company's voting securities or any other related person that would potentially require disclosure. In its review and approval of the related party transactions with MNAT, the Audit Committee considered the nature of the related person's interest in the transactions; the satisfactory performance of work contracted with the related party prior to the election of Mr. Houghton as a director; and the material terms of the transactions, including, without limitation, the amount and type of transactions, the importance of the transactions to the related person, the importance of the transactions to the Company and whether the transactions would impair the judgment of a director or officer to act in the best interest of the Company. The Audit Committee approves only those related person transactions that are in, or are consistent with, the best interests of the Company and its stockholders. 54 NOTE 16 BUSINESS COMBINATIONS As part of the Company’s growth strategy, on April 2, 2020, Artesian Water purchased substantially all of the water system operating assets from the Town of Frankford, or Frankford, a Delaware municipality located in Sussex County, Delaware, including the right to provide water service to Frankford’s existing customers, or the Frankford Water System. The Frankford Water System serves approximately 360 customers. The total purchase price was $3.6 million. The acquisition was accounted for as a business combination under ASC Topic 805, “Business Combinations”. The purchase price allocation is primarily attributed to utility plant assets. The Company utilized a combination of three methods to determine the reasonableness of the purchase price: the cost approach, market approach and income approach. Given the majority of the assets acquired were tangible utility plant, the Company utilized the cost approach to record the fair value of the assets. The cost approach values the underlying assets to derive market value based on the estimated current new replacement cost, less the loss in value caused by physical deterioration, and functional and economic obsolescence of the assets. Goodwill was recognized primarily as a result of expected synergies of operations and interconnections to our existing utility plant infrastructure. In 2021, a regulatory adjustment was made to account for $1.5 million of Delaware Drinking Water State Revolving Fund loan proceeds automatically forgiven in July 2021. A portion of the adjustment offset the purchase price and recognition of goodwill, with the remainder recorded as contributions in aid of construction. Additionally, as part of the Company’s growth strategy, on August 3, 2020, Artesian Water completed its purchase of substantially all of the water system operating assets from the City of Delaware City, or Delaware City, a Delaware municipality located in New Castle County, Delaware, including the right to provide water service to Delaware City’s existing customers, or the Delaware City Water System. The Delaware City Water System currently serves approximately 800 customers. The total purchase price was $2.1 million. The acquisition was accounted for as a business combination under ASC Topic 805. The purchase price allocation was finalized in early 2021 and was primarily attributed to utility plant assets. The final purchase price allocation did not change materially compared to the preliminary allocation. The Company utilized similar valuation methodologies to those described above. A summary of the allocation of purchase price to the assets acquired is presented in the table below and is recorded in the accompanying Consolidated Balance Sheet. (In thousands) Utility plant Source of supply plant Pumping and water treatment plant Transmission and distribution plant Other deferred assets Goodwill Purchase Price $ $ 201 1,455 3,462 623 5,741 The Frankford Water System acquisition and the Delaware City Water System acquisition were approved by the DEPSC on March 18, 2020 and July 15, 2020, respectively, subject to the DEPSC determining 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 businesses acquired, individually and in the aggregate, are not material to the Company’s financial position or results of operations. NOTE 17 LEGAL PROCEEDINGS Periodically, we are involved in other proceedings or litigation arising in the ordinary course of business. We do not believe that the ultimate resolution of these matters will materially affect our business, financial position or results of operations. However, we cannot assure that we will prevail in any litigation and, regardless of the outcome, may incur significant litigation expense and may have significant diversion of management attention. NOTE 18 IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS In March 2020, the FASB issued new guidance that provides optional guidance for a limited period of time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting as the market transitions from reference 55 rates that are expected to be discontinued, such as the London Inter-bank Offered Rate, or LIBOR. The guidance was effective upon issuance and may be applied prospectively to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued, evaluated on or before December 31, 2022, beginning during the reporting period in which the guidance has been elected. It is expected that the LIBOR rate will no longer be published for most currencies as of December 31, 2021, however, publication for USD currency should continue through June 30, 2023. As a result, it is possible that, in the future, the LIBOR rate may become unavailable or may no longer be deemed an appropriate reference rate upon which to determine the interest rate on LIBOR Rate Loans. LIBOR is expected to be phased out completely by June 30, 2023. As a result, it is possible that, in the future, the LIBOR rate may become unavailable or may no longer be deemed an appropriate reference rate upon which to determine the interest rate on LIBOR Rate Loans. The guidance is optional and may be elected over time as reference rate reform activities occur. In light of this eventuality, one of the banks with which we have a line of credit arrangement, currently has initiatives underway to identify new or alternative reference rates to be used in place of the LIBOR rate. The Company is evaluating the impact of the new guidance on our financial position, results of operations and cash flows. In November 2021, the FASB issued new guidance to increase transparency in financial reporting by requiring business entities to disclose, in notes to their financial statements, information about certain types of government assistance they receive. The amendments are effective for financial statements issued for annual periods beginning after December 15, 2021. Management does not anticipate a material impact on our notes to financial statements related to possible government assistance received in future reporting periods. NOTE 19 SUBSEQUENT EVENTS On January 14, 2022, Artesian Wastewater Management completed its agreement to acquire Tidewater Environmental Services, Inc., or TESI, a wholly-owned subsidiary of Middlesex Water Company, or Middlesex, that provides regulated wastewater services in Delaware. Artesian Wastewater purchased all of the stock of TESI from Middlesex for $6.4 million in cash and other consideration, including forgiveness of a $2.1 million intercompany note due from Middlesex. This acquisition more than doubled the number of wastewater customers served in Sussex County, Delaware. The Delaware Public Service Commission approved this transaction with TESI on October 27, 2021. The Company is still gathering information related to this acquisition and will record the preliminary purchase price allocation in the first quarter of 2022 and finalize the allocation by the end of 2022, once the valuation of assets acquired has been completed. On February 7, 2022, Artesian Water Company entered into an interest rate lock agreement, or the Agreement, with CoBank, ACB, or CoBank. The Company is seeking to finance a $30 million principal amount First Mortgage Bond, or the Bond. The Agreement allows for a maturity period of 25 years and a fixed interest rate of 4.43% per annum, or the Fixed Rate, for the Bond. The Agreement is effective through May 7, 2022, or the Settlement Date. Pursuant to the Agreement, the Bond is not subject to redemption based on mortgage style amortization. Interest on the outstanding principal balance will be payable quarterly on the 30th day of January, April, July and October each year. The proceeds from the sale of the Bond shall be used to pay down outstanding lines of credit of Artesian Water, with any additional proceeds used to fund future capital investments in Artesian Water. Closing on the debt financing is subject to approval by the DEPSC. Also pursuant to the Agreement, the Company agrees to pay to CoBank, on demand, a broken funding charge if the Company does not, for any reason whatsoever, borrow the entire $30 million principal amount on or before the Settlement Date. The broken funding charge shall be in an amount equal to the present value of the sum of all losses and expenses incurred by CoBank in retiring, liquidating, or reallocating any debt, obligation, or cost incurred or allocated by CoBank to fund or hedge the Fixed Rate. On February 16, 2022, Artesian Water Company signed an agreement, or the Asset Purchase Agreement, to purchase from the Town of Clayton, a Delaware municipality, or Clayton, substantially all of the operating assets of Clayton’s water system, including Clayton’s exclusive franchise territory and the right to provide water service to Clayton’s existing customers, or the Water System. Pursuant to the terms of the Asset Purchase Agreement, Clayton shall transfer to Artesian Water all of Clayton’s right, title and interest in and to substantially all of the municipal water utility, plant and equipment, associated real property, contracts, easements and permits possessed by Clayton at closing related to the Water System. The total purchase price is $5.0 million, less the current payoff amount of any secured debt or debt associated with the Water System. Closing on this transaction is pending due diligence and approval by the Delaware Public Service Commission related to the transfer of exclusive franchise territory. The Asset Purchase Agreement contains customary representations, warranties, covenants and closing conditions for agreements of like type. 56 Report of Independent Registered Public Accounting Firm Shareholders and Board of Directors Artesian Resources Corporation Newark, Delaware Opinion on the Consolidated Financial Statements We have audited the accompanying consolidated balance sheets of Artesian Resources Corporation (the “Company”) as of December 31, 2021 and 2020, the related consolidated statements of operations, cash flows and changes in stockholders’ equity for each of the three years in the period ended December 31, 2021, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2021 and 2020 and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America. Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which it relates. Valuation of Tangible Assets in Business Combinations As described in Notes 1 and 16 to the consolidated financial statements, the Company acquired the municipal water system of Delaware City. As of December 31, 2020, the accounting for the transaction was preliminary. The Company finalized the purchase price accounting during 2021, allocating the total consideration of $2.1 million to identifiable tangible utility plant assets. Management estimated fair value of the tangible assets acquired using the cost method with assistance from third-party valuation specialists. We identified the valuation of the tangible utility plant assets as a critical audit matter. Management’s determination of fair value of the tangible assets acquired using the cost method required management to make significant estimates and assumptions related to economic lives of the assets, replacement costs, and physical characteristics of the tangible assets acquired. Auditing these elements involved a high degree of subjectivity, auditor judgment and an increased extent of effort when performing audit procedures, including the use of our valuation specialists. The primary procedures we performed to address this critical audit matter included: • Assessing the reasonableness of significant underlying assumptions used to calculate the fair value through (i) validating the existence of acquired assets and the reasonableness of attributes such as length and age based on external data, (ii) independently 57 recalculating replacement costs using recent actual costs for similar assets and construction quotes, and (iii) performing procedures to evaluate the appropriateness of the useful lives assigned to the newly acquired assets. • Utilizing personnel with specialized knowledge and skill in valuation to assist in the evaluation of the assumptions and methodologies used in the preparation of the fair value measurements for the utility plant assets. /s/ BDO USA, LLP We have served as the Company's auditor since 2005. Wilmington, Delaware March 11, 2022 58 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES None. ITEM 9A. CONTROLS AND PROCEDURES (a) Evaluation of Disclosure Controls and Procedures Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this report. Based upon this evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that our disclosure controls and procedures as of the end of the period covered by this report were effective in providing reasonable assurance that the information required to be disclosed by us in reports filed under the Securities Exchange Act of 1934 is (1) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (2) accumulated and communicated to our management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. In addition, the Chief Executive Officer and the Chief Financial Officer concluded that our disclosure controls and procedures as of the end of the period covered by this report were effective to achieve the foregoing objectives. A control system cannot provide absolute assurance, however, that the objectives of the control system are met and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected. (b) Management’s Annual Report on Internal Control Over Financial Reporting The Management of Artesian Resources Corporation is responsible for establishing and maintaining adequate internal control over its financial reporting. Artesian Resources Corporation’s internal control over financial reporting is a process designed under the supervision of the Corporation’s Chief Executive Officer and Chief Financial Officer to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the Company’s consolidated financial statements for external reporting purposes in accordance with U.S. generally accepted accounting principles. Artesian Resources Corporation’s Management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2021 based on the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in “Internal Control Integrated Framework (2013).” Based on this assessment, Management determined that at December 31, 2021, the Corporation’s internal control over financial reporting was effective. (c) Change in Internal Control over Financial Reporting No change in the Company’s internal control over financial reporting, occurred during the fiscal quarter ended December 31, 2021 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting. Date: March 11, 2022 CHIEF EXECUTIVE OFFICER: CHIEF FINANCIAL OFFICER: /s/ DIAN C. TAYLOR Dian C. Taylor ITEM 9B. OTHER INFORMATION None. /s/ DAVID B. SPACHT David B. Spacht ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS Not applicable. 59 ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE PART III Name Dian C. Taylor Age 76 Kenneth R. Biederman Ph. D. 78 Position Biography: Director since 1991 - Chair of the Board since July 1993, and Chief Executive Officer of Artesian Resources Corporation and its subsidiaries since September 1992. Ms. Taylor has been employed by the Company since August 1991. She was formerly a consultant to the Small Business Development Center at the University of Delaware from February 1991 to August 1991 and Owner and President of Achievement Resources Inc. from 1977 to 1991. Achievement Resources, Inc. specialized in strategic planning, marketing, entrepreneurial and human resources development consulting. Ms. Taylor was a marketing director for SMI, Inc. from 1982 to 1985. Ms. Taylor is the aunt of John R. Eisenbrey, Jr. and Nicholle R. Taylor. She serves on the Executive and Strategic Planning, Budget and Finance Committees. Qualifications: Ms. Dian Taylor has over 25 years of experience as Chief Executive Officer and President of the Company, during which the Company has continuously expanded its service area. Ms. Taylor has extensive knowledge of the complex issues facing smaller companies and prior strategic planning expertise. Ms. Taylor has served as President of the National Association of Water Companies, a trade organization of the investor-owned water utility industry. Ms. Taylor also has served on the Delaware Economic and Financial Advisory Council, on the Board of Governors of the Delaware State Chamber of Commerce, on the Executive Committee of the Delaware Business Round Table, the American Heart Association, the Committee of 100 and the Delaware Council on Economic Education, as a Regional Advisory Board Member for Citizens Bank, a Trustee of the Delaware Grand Opera and the Christiana Care Hospital and as a Commissioner for the Delaware River and Bay Authority. The Board views Ms. Taylor’s experience with various aspects of the utility industry and her demonstrated leadership roles in business and community activities as important qualifications, skills and experiences for the Board of Directors’ conclusion that Ms. Taylor should serve as a director of the Company. Biography: Director since 1991 - Currently retired and former Professor of Finance at the Lerner College of Business and Economics of the University of Delaware, from May 1996 to May 2011. Interim Dean of the College of Business and Economics of the University of Delaware from February 1999 to June 2000. Dean of the College of Business and Economics of the University of Delaware from 1990 to 1996. Former Director of the Mid-Atlantic Farm Credit Association from 2006 to 2010. Director of Chase Manhattan Bank USA from 1993 to 1996. Formerly a financial and banking consultant from 1989 to 1990 and President of Gibraltar Bank from 1987 to 1989. Previously Chief Executive Officer and Chairman of the Board of West Chester Savings Bank; Economist and former Treasurer of the State of New Jersey and Staff Economist for the United States Senate Budget Committee. He serves on the Executive; Audit; Strategic Planning, Budget and Finance; Governance and Nominating; and Compensation Committees. Qualifications: Mr. Biederman’s experience as a former State Treasurer of New Jersey and the former Dean of the Lerner College of Business and Economics at the University of Delaware gives him a substantial amount of business, economic and financial reporting knowledge. John R. Eisenbrey, Jr. 66 Biography: Director since 1993 – Small Business Executive. For more than 40 years, Owner and President of Bear Industries, Inc., a contracting firm providing building fire sprinkler protection installations for businesses throughout the Delmarva Peninsula. In 60 Michael Houghton, Esq. 65 2021, Mr. Eisenbrey was appointed to the Board of Trustees of St. Andrews School. Mr. Eisenbrey is the nephew of Dian C. Taylor and the cousin of Nicholle R. Taylor. He serves on the Audit; Governance and Nominating; and Compensation Committees. Qualifications: The Board of Directors has determined that Mr. Eisenbrey’s hands-on experience as a business owner in one of our primary geographic regions qualifies him to be a member of the Board. For more than 40 years, Mr. Eisenbrey has been the Owner and President of a privately held contracting firm providing fire sprinkler protection installations for businesses throughout the Delmarva Peninsula. Mr. Eisenbrey is a past President of the Delaware Contractors Association. Mr. Eisenbrey’s operating business background provides experience with operational, technical and regulatory matters also applicable to our water business. Biography: Director appointed September 2018 – Mr. Houghton retired as of January 1, 2022 as Senior Partner in the law firm of Morris Nichols Arsht & Tunnell in Wilmington, Delaware. He was admitted to practice law in Delaware in 1982, before the U.S. District Court for the District of Delaware in 1983 and before the U.S. Court of Appeals for the Third Circuit in 1985. He served a clerkship with the Delaware Court of Chancery in 1982-1983. Mr. Houghton’s legal expertise involved the representation of governmental entities, such as the Delaware River & Bay Authority. He also represented banks, trust companies, insurance companies and public utilities in commercial transactions and before regulatory authorities and state, county and local governments and in legislative and public policy matters before Delaware government. Mr. Houghton has also advised numerous entities, including Fortune 500 companies, on unclaimed property issues and has represented numerous companies in connection with unclaimed property audits. He was selected for inclusion in The Best Lawyers in America from 2009-2020. Mr. Houghton is a member of the Board of Governors of the Delaware State Chamber of Commerce and the Boards of the Delaware Public Policy Institute, the Pete du Pont Freedom Foundation and the Rockefeller Trust Company of Delaware. He is a member of the Board of the Delaware Bar Foundation, a Trustee of the Uniform Law Foundation, a Past President of the Delaware State Bar Association and a Past President the National Conference of Commissioners on Uniform State Laws. He was appointed in 2017 by Delaware Governor John Carney to serve as Chair of the Delaware Economic and Financial Advisory Council. Qualifications: Mr. Houghton’s legal and regulatory experience and extensive involvement in Delaware legislative and public policy matters are attributes that provide valuable insight and benefit as the Company continues its growth in Delaware. The Board has determined that Mr. Houghton’s more than 35 years of experience makes him well qualified to serve on the Board. Nicholle R. Taylor 54 Biography: Director since 2007 – President of Artesian Water Company, Inc. since August 2021. Senior Vice President of Artesian Resources Corporation and its subsidiaries since May 9, 2012 and Chief Operating Officer of Artesian Water Company from August 2019 through August 2021. She was Vice President of Artesian Resources Corporation and its subsidiaries from May 2004 to May 2012. Ms. Taylor has been employed by the Company since 1991 and has held various management level and operational positions within the Company. She serves on the Strategic Planning, Budget and Finance Committee. Ms. Taylor is the niece of Dian C. Taylor and the cousin of John R. Eisenbrey, Jr. Qualifications: Ms. Nicholle Taylor has over thirty years of experience with the Company in a variety of field, office and managerial positions. The Board of Directors has determined that the range of her experience across various company functions gives her a clear perception of how the Company operates, thus enhancing the Board’s ability to know the Company’s current capabilities and limitations, and qualifies her to serve as a director. Ms. Taylor serves as Chair on the Board of Directors of the National Association of Water Companies, a trade organization of the investor-owned water utility industry. Ms. Taylor also currently serves on the Board of Directors of the Committee of 100, which is a business organization that promotes responsible economic 61 William C. Wyer development in the state of Delaware. In 2019, Ms. Taylor was appointed to the Board of Directors of the Delaware Nature Society, a non- profit organization dedicated to connecting people with the natural world to improve the environment through education, advocacy and conservation. 75 Biography: Director since 1991 - Business Consultant with Wyer Group, Inc. since September 2005. Previously, Mr. Wyer served as Managing Director of Wilmington Renaissance Corporation (formerly Wilmington 2000) from January 1998 to August 2005. Wilmington Renaissance Corporation was a private organization seeking to revitalize the City of Wilmington, Delaware. Mr. Wyer served as a Director and member of the Audit Committee of GMAC Bank and its’ successor National Motors Bank, FBS from August 2001 through 2008, President of All Nation Life Insurance, Senior Vice President of Blue Cross/Blue Shield of Delaware from September 1995 to January 1998, Managing Director of Wilmington 2000 from May 1993 to September 1995 and President of Wyer Group, Inc. from 1991 to 1993 and Commerce Enterprise Group from 1989 to 1991, both of which are management-consulting firms specializing in operations reviews designed to increase productivity, cut overhead and increase competitiveness, and President of the Delaware State Chamber of Commerce from 1978 to 1989. He serves on the Executive; Audit; Strategic Planning, Budget and Finance; Governance and Nominating; and Compensation Committees. Pierre A. Anderson 43 Joseph A. DiNunzio, CPA, CGMA 59 Qualifications: Mr. Wyer has extensive management experience with both local and national organizations that facilitates the Company’s growth from a local to a regional provider of water and wastewater services. Mr. Wyer’s extensive experience in economic development efforts and as President of the Delaware State Chamber of Commerce and his associated skills in public, media and governmental communications were determined by the Board of Directors to qualify him to serve as a director. Chief Information Officer and Senior Vice President of Artesian Resources Corporation and its subsidiaries since May 19, 2021. Mr. Anderson previously served as Vice President of Information Technologies of Artesian Resources Corporation and its subsidiaries from May 2012 to May 2021, Director of Information Technologies from April 2008 to May 2012, and Manager of Information Technologies from December 2006 to April 2008. Prior to joining the Company, Mr. Anderson was employed by the Christina School District as Manager, Project & Support Services. From 2000 to 2005, while with MBNA (now Bank of America), he served in several information technology roles. He received his Bachelors of Science degree in Computer Science from Delaware State University and both an MBA and Masters of Science in Information Systems & Technology Management from the University of Delaware’s Lerner College of Business & Economics. Mr. Anderson serves on the Boards of Easterseals of Delaware & Maryland’s Eastern Shore (Treasurer), Delaware State Chamber of Commerce, University of Delaware’s Lerner College Alumni, Bancroft Construction Company, and by gubernatorial appointment to the Delaware Economic & Forecasting Advisory Council (DEFAC). Executive Vice President and Secretary of Artesian Resources Corporation and Subsidiaries since May 2007 and President of Artesian Water Maryland, Inc. since May 2017. Mr. DiNunzio previously served as Senior Vice President and Secretary since March 2000 and as Vice President and Secretary since January 1995. He served as Secretary of Artesian Resources Corporation and Subsidiaries from July 1992 to January 1995. Prior to joining Artesian in 1989, Mr. DiNunzio was employed by PriceWaterhouseCoopers LLP. He earned a B.S. in Commerce, with concentration in accounting, from the McIntire School of Commerce at the University of Virginia. Mr. DiNunzio is Past Chairman of the Board of the Cecil County Chamber of Commerce and a member of the Board of the Cecil Business Leaders. He is Past Chairman of the Delaware Chapter of the National Association of Water Companies. Mr. DiNunzio is a member of the Cecil County Maryland Economic Development Commission, Delaware Water Supply Coordinating Council, the Delaware Source Water Assessment 62 Jennifer L. Finch, CPA 53 David B. Spacht 62 John M. Thaeder 63 and Protection Program’s Citizens and Technical Advisory Committee, the American Institute of Certified Public Accountants, the Pennsylvania Institute of Certified Public Accountants, and was a member of the 2003 Delaware Legislative Drinking Water Task Force. Senior Vice President of Finance & Corporate Treasurer of Artesian Resources Corporation & Subsidiaries since November 2020. Prior to that, Ms. Finch was the Assistant Treasurer and Vice President of Finance. Ms. Finch is responsible for the oversight of all aspects of accounting and tax‐related matters, corporate financing, and serves as the principal accounting officer. Prior to joining Artesian in 2008, Ms. Finch held various accounting positions for Handler Corporation, a homebuilder and developer located in Wilmington, Delaware, where she worked for 14 years. She has more than 30 years of accounting, auditing and tax experience. Chief Financial Officer of Artesian Resources Corporation and Subsidiaries since January 1995 and President of Artesian Wastewater Management, Inc. since August 2019. Mr. Spacht joined the Company in 1980 and has held various executive and management level positions. Mr. Spacht has worked closely with the Public Service Commission for over 35 years on developing rates and regulations in Delaware. He has also worked closely with the Maryland Public Service Commission developing rates and regulations as a result of filing for acquisitions. He was selected by the National Association of Regulatory Utility Commissioners Subcommittee on Water as an instructor for their semi-annual course on rate making. Mr. Spacht is a member of several national and local organizations, including the National Association of Water Companies, having served on their Finance Committee for 32 years, and most recently in 2015 joining the Rate and Regulatory Committee; the American Water Works Association; the National Association of Regulatory Utility Commissioners; the International Organization of Management Accountants; and Special Olympics Delaware. Senior Vice President of Operations. Mr. Thaeder has served as an officer since February 1998. He currently serves as an officer of Artesian Resources Corporation and Subsidiaries. Prior to joining the company, Mr. Thaeder was with Hydro Group, Inc. from 1996 to 1998 as Southeastern District Manager of Sales and Operations from Maryland to Florida. During 1995 and 1996, he was Sales Manager of the Northeast Division with sales responsibilities from Maine to Florida. Previously, he served as District Manager of the Layne Well and Pump Division of Hydro Group. Corporate Governance The executive officers are elected or approved by our Board, or the Board of our appropriate subsidiary, to serve until his or her successor is appointed or shall have been qualified or until earlier death, resignation or removal. In accordance with the provisions of the Company's By-laws, the Board is divided into three classes. Members of each class serve for three years and one class is elected each year to serve a term until his or her successor shall have been elected and qualified or until earlier resignation or removal. Nicholle R. Taylor has been nominated for election to the Board of Directors at the shareholders Annual Meeting to be held May 4, 2022. The Board, which met thirteen times in 2021, has established five standing committees: the Executive Committee, the Audit Committee, the Compensation Committee, the Strategic Planning, Budget and Finance Committee, and the Governance and Nominating Committee. Information with respect to these committees is set forth below. In addition, the charter for each of the five standing committees of the Board is available on our website, www.artesianwater.com. Dian C. Taylor, the Company's Chief Executive Officer, also serves as Chair of the Board. The Board, after considering the size of the Company and the composition of the Board, has determined that the combined structure is appropriate. The Board has determined that 63 having one person serving as Chair of the Board and Chief Executive Officer ensures a unified leadership of the Board and management and provides potential efficiency in the execution of the strategies and visions of the Board and management. The Board believes that Ms. Taylor's experience and operational knowledge of the business enables her to effectively perform both roles. Given the limited number of Board members and the practice of open communication with the entire Board, the Company does not have a lead independent director. The Board meets as often as needed and at least twice a year in executive session without any management or non-independent directors present. The Board believes this is an appropriate structure for the Company which provides the appropriate independent oversight. In addition, the Audit Committee and the Compensation Committee regularly consult with the Company's General Counsel to review the various types of risks that affect the Company and to consult on strategies to anticipate such risks. The Board believes this structure has been effective. The Board meets with management on a regular basis to review operational reports, financial updates, strategic development and other matters. Frequent meetings help to promote and ensure open communication with the management team. All Board members are engaged and remain actively involved in their oversight roles. The Board is responsible for oversight of the Company's risk management process. The senior management team is responsible for identifying risks, managing risks and reporting and communicating risks back to the Board. Director Compensation In May 2021, each independent director received an annual retainer fee of $37,250 paid in advance. Dian C. Taylor and Nicholle R. Taylor received annual retainer fees of $34,600. The chair of the Audit Committee received an additional annual retainer of $9,000. The chair of the Corporate Governance and Nominating Committee received an additional annual retainer of $9,000. The chair of the Compensation Committee received an additional annual retainer of $7,000. The members of the Strategic Planning, Budget and Finance Committee each received additional annual retainers of $3,000. The members of the Executive Committee each received additional annual retainers of $1,000. Each director received $2,000 for each Board meeting attended, $1,500 for each committee meeting attended on the day of a regular board meeting and $2,000 for each committee meeting attended on any other day. Each director received $500 per diem for workshops. In 2021, our directors, other than Dian C. Taylor and Nicholle R. Taylor, whose fees as director are included in the Summary Compensation Table, received the following compensation: Director Compensation Table Name Kenneth R. Biederman John R. Eisenbrey, Jr. Michael Houghton William C. Wyer Fees Earned or Paid in Cash ($) 93,250 92,250 71,750 91,250 Stock Awards ($)(1) 40,110 40,110 N/A 40,110 All other Compensation ($)(2) Total ($) --- 133,360 --- 132,360 71,750 --- 12,696 144,056 (1) On May 4, 2021, each director, other than Mr. Houghton, received a restricted stock award of 1,000 shares of Class A Stock. The fair market value per share was $40.11, the closing price of the Class A Stock as recorded on the Nasdaq Global Select Market on May 4, 2021. The restricted shares vest one year from the date of grant. The aggregate number of stock options and restricted shares outstanding at December 31, 2021 for each director is: Kenneth R. Biederman John R. Eisenbrey, Jr. William C. Wyer Option Shares Outstanding at December 31, 2021 13,500 13,500 20,250 Restricted Shares Outstanding at December 31, 2021 1,000 1,000 1,000 (2) $9,678 was for medical insurance premiums for Mr. Wyer and his spouse, $3,000 was for a physical for Mr. Wyer and $18 was for life insurance premiums for Mr. Wyer. Compensation Committee Interlocks and Insider Participation During the year ended December 31, 2021, the members of our Compensation Committee were Kenneth R. Biederman, John R. Eisenbrey, Jr. and William C. Wyer. None of our executive officers serves as a director or as a member of the compensation committee, 64 or any other committee serving an equivalent function, of any entity that has one or more of its executive officers serving as members of our Compensation Committee or as a director of our Board. No member of our Compensation Committee has ever been our employee. Independence In 2021, the Board of Directors determined that Messrs. Biederman, Eisenbrey, Houghton and Wyer, a majority of the Board of Directors, met the independence requirements prescribed by the listing standards of the Nasdaq Global Select Market. Audit Committee The Audit Committee reviews the procedures and policies relating to the internal accounting procedures and controls of the Company, and provides general oversight with respect to the accounting principles employed in the Company's financial reporting. As part of its activities, the Audit Committee meets with representatives of the Company's management and independent accountants. The Audit Committee has considered the extent and scope of non-audit services provided to the Company by its outside accountants and has determined that such services are compatible with maintaining the independence of the outside accountants. The Audit Committee appoints and retains the Company's independent accountants. The Audit Committee consists of Kenneth R. Biederman, John R. Eisenbrey, Jr. and William C. Wyer. The Board of Directors has also determined that each member of the Audit Committee meets the independence requirements prescribed by the listing standards of the Nasdaq Global Select Market and the rules and regulations of the Securities and Exchange Commission. The Board of Directors has further determined that Mr. Biederman, a member of the Audit Committee, is an "audit committee financial expert" as such term is defined in Item 407(d)(5)(ii) of Regulation S-K promulgated by the Securities and Exchange Commission. During 2021, the Audit Committee met five times. Compensation Committee The Compensation Committee reviews the compensation and benefits provided to key management employees, officers and directors and makes recommendations as appropriate to the Board. The Compensation Committee also determines whether and what amounts should be granted under the 2015 Equity Compensation Plan, or the 2015 Plan, and may make recommendations for amendments to the 2015 Plan. The Compensation Committee is comprised of Kenneth R. Biederman, John R. Eisenbrey, Jr. and William C. Wyer, three independent directors. The Board of Directors has also determined that each member of the Compensation Committee meets the independence requirements prescribed by the listing standards of the Nasdaq Global Select Market and the rules and regulations of the Securities and Exchange Commission. During 2021, the Compensation Committee met two times. Consideration of Director Candidates The Governance and Nominating Committee is comprised of four independent directors, Kenneth R. Biederman, John R. Eisenbrey, Jr., Michael Houghton and William C. Wyer. As part of the formalized nominating procedures, the committee makes recommendations for director nominations to the full Board. Director candidates nominated by stockholders are considered in the same manner, provided the nominations are submitted to the Secretary and copied to the Chairman of the committee on a timely basis and in accordance with the Company's By-laws. Nominations for the election of directors for the 2022 Annual Stockholders' Meeting were approved by the Governance and Nominating Committee on January 25, 2022. The Governance and Nominating Committee has determined that no one single criterion should be given more weight than any other criteria when it considers the qualifications of a potential nominee to the Board. Instead, it believes that it should consider the total "skills set" of an individual. In evaluating an individual's skills set, the Governance and Nominating Committee considers a variety of factors, including, but not limited to, the potential nominee's background and education, his or her general business experience, and whether or not he or she has any experience in positions with a high degree of responsibility. In addition, although the Governance and Nominating Committee does not have a policy with regard to the consideration of diversity in identifying director nominees, its charter includes in the Governance and Nominating Committee's duties and responsibilities that it seek members from diverse backgrounds so that the Board consists of members with a broad spectrum of experience and expertise. Code of Ethics The Company has adopted a code of ethics applicable to its chief executive officer, chief financial officer, controller or principal accounting officer, and any person who performs a similar function, which is a "code of ethics" as defined by applicable rules of the Securities and Exchange Commission. This code is publicly available on the Company's website at www.artesianwater.com. If the Company makes any amendments to this code other than technical, administrative, or other non-substantive amendments, or grants any waivers, including implicit waivers, from a provision of this code to the Company's chief executive officer, chief financial officer, controller or principal accounting officer, and any person who performs a similar function, the Company will disclose the nature of the 65 amendment or waiver, its effective date and to whom it applies on its website. The information on the website listed above is not and should not be considered part of this Annual Report on Form 10-K and is intended to be an inactive textual reference only. Board Diversity We believe it is important that our Board is composed of individuals reflecting the diversity represented by our employees, our customers, and our communities. We provide below enhanced disclosure regarding the diversity of our Board as required by the listing standards of the NASDAQ Capital Market. 6 Non- Binary Did Not Disclose Gender Total Number of Directors Board Diversity Matrix (As of March 1, 2022) Female Male 2 4 2 4 Part I: Gender Identify Directors Part II: Demographic Background African American or Black Alaskan Native or Native American Asian Hispanic or Latinx Native Hawaiian or Pacific Islander White Two or More Races or Ethnicities LGBTQ+ Did Not Disclose Demographic Background ITEM 11. EXECUTIVE COMPENSATION COMPENSATION DISCUSSION AND ANALYSIS This discussion describes the Company's compensation program for its named executive officers listed in the Summary Compensation Table that immediately follows this discussion. The named executive officers are: Dian C. Taylor, Chair, President & Chief Executive Officer; David B. Spacht, Chief Financial Officer; Joseph A. DiNunzio, Executive Vice President & Secretary; Nicholle R. Taylor, Senior Vice President and Jennifer L. Finch, Corporate Treasurer and Senior Vice President of Finance & Treasurer. Objectives of the Company’s Compensation Program The Compensation Committee believes that the compensation for the Company’s executives should serve to attract, motivate and retain seasoned and talented executives responsible for successfully guiding and implementing the Company's strategy. Our strategy is to increase our customer base, revenues, earnings and dividends by expanding our services across the Delmarva Peninsula, thereby providing our shareholders with a long-term, satisfactory return on their investment. To implement our strategy, it is critical that our executives remain focused on: • ensuring superior customer service; • continuously improving our efficiency and performance; • managing risk appropriately; • expanding our franchised service territory and customer base at a consistent and sustainable rate - including by acquisitions - where growth is strong and demand is increasing; • identifying and developing dependable sources of supply; • constructing and maintaining reliable treatment facilities and water delivery and wastewater collection systems; • developing and continuing positive relationships with regulators, municipalities, developers and customers in both existing and prospective service areas; and • developing a skilled and motivated work force that is adaptive to change. 66 To accomplish our strategy, our compensation program's objectives are to: • provide compensation levels that are competitive with those provided by other companies with which we may compete for executive talent; • motivate and reward contributions and performance aligned with the Company's objectives; • attract and retain qualified, seasoned executives; and • ensure the Company maintains a pay-for-performance executive compensation program. The compensation program rewards overall qualitative contributions and performance of each individual towards the Company's strategy. In reviewing the Company's overall compensation program in the context of the risks identified in the Company's risk management processes, the Compensation Committee does not believe that the risks the Company faces are correlated with the Company's compensation programs. Therefore, the Compensation Committee believes that there is an appropriate level of risk in the Company’s compensation program design and does not believe that its approach to the design and administration of its incentive programs needs to change in order to mitigate compensation risk. Elements of the Company’s Compensation Program The elements of the Company’s compensation program include: • Base Salary • Cash Bonus Award • Equity Compensation as may be awarded under the 2015 Equity Compensation Plan • Employee Benefits The Company's executive compensation program does not provide for: • Severance or post-termination agreements • Post-retirement benefits • Defined benefit pension benefits or any supplemental executive retirement plan benefits • Non-qualified deferred compensation • Change-in-Control agreements Compensation Process The Compensation Committee relies on various factors in determining executive compensation, including the overall financial performance of the Company, combined with an executive officer's individual performance, progress in meeting strategic corporate objectives, and changes in responsibilities, as well as the consideration of elements of compensation not provided for by the Company in comparison to its peers. The Compensation Committee generally exercises broad discretion in setting the compensation of the Chief Executive Officer and other executives and primarily considers the performance of the management team as a group, the Chief Executive Officer's assessment of other executives' performance and compensation recommendations with respect to the other executive officers as part of its process. The Compensation Committee engaged Pearl Meyer & Partners as a compensation consultant in 2013 to provide it with independent advice on executive compensation matters. They did not develop a public company peer group as part of their compensation benchmarking exercise, as they found few similarly sized, publicly traded water utilities. They used data available from a peer group of water utility companies to review incentive plan market practices and to establish industry practices, but did not use the pay data from these organizations given that the size of many are substantially larger than the Company. This peer group includes American States Water Company; American Water Works Company, Inc.; Essential Utilities, Inc.; California Water Service Group; Middlesex Water Company; SJW Group and York Water Company. This peer group has been used since 2013, and the Company believes it is appropriate to continue the use of this peer group for comparing the percentage change in cumulative shareholder returns and for consideration of elements of compensation not provided for by the Company. Base Salary Base salaries for Company executives are set at levels considered appropriate to attract and retain seasoned and talented personnel. In 2021, the Compensation Committee increased the base salary of each of the named executive officers by 3%. The Compensation Committee determines actual base salaries for each executive other than the Chief Executive Officer based upon: • recommendations provided by the Chief Executive Officer; • internal equity with other executives and Company personnel; 67 • individual executive performance; and • individual contributions to the Company's strategic objectives. The Compensation Committee considers the same factors in determining the base salary of the Chief Executive Officer, without any recommendation by the Chief Executive Officer. The Chief Executive Officer was not present during deliberations on her compensation. Cash Bonus and Equity Compensation Awards Annually, the Compensation Committee determines whether any Cash Bonus and/or Equity Compensation Awards should be granted to any of the executives. The Cash Bonus and Equity Compensation Awards are intended to reward executives for their contributions towards meeting the Company's strategic objectives. Cash Bonus and Equity Compensation Awards are entirely discretionary and are based upon a qualitative assessment conducted by the Compensation Committee in the case of the Chief Executive Officer and by the Compensation Committee and the Chief Executive Officer in the case of other executives. Recognizing both the executive team's and each individual named executive officer’s contributions toward meeting the Company's strategic objectives, cash bonuses were awarded to the Chief Executive Officer and named executive officers in 2021, 2020, and 2019. Other Compensation Both Dian C. Taylor and Nicholle R. Taylor received compensation for their services as Directors, which compensation was equivalent to that provided to all other directors for Board and Committee meeting fees and less for retainers. See "Director Compensation." The Company’s named executive officers are eligible to participate in the same employee benefit plans and on the same basis as other Company employees, with the exception that executive officers are reimbursed for eligible medical expenses not otherwise covered by the Company's medical insurance plan under the Officer's Medical Reimbursement Plan. Amounts reimbursed are included in the "All Other Compensation" column in the Summary Compensation Table that follows this discussion. The Role of Management in the Executive Compensation Process Our Director of Human Resources typically assists the Compensation Committee by preparing and providing information showing: • current executive compensation levels; • executive compensation recommendations made by the Chief Executive Officer; • salary grade minimum, midpoint and maximums for each executive, based on information provided by the Company's compensation consultant retained in 2013, adjusted annually; and • actual base salary, cash bonus and equity compensation for each of the prior three years for each executive. Our Chief Executive Officer meets with the Compensation Committee and provides input regarding the contributions of each executive towards the Company's strategic objectives and each executive's overall performance that formed the basis for her recommendations to the Compensation Committee. The final decisions regarding compensation for each executive are made by the Compensation Committee. Please refer to Compensation Committee Interlocks and Insider Participation section for more information. Compensation Committee Report The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis with management and, based on the review and discussions, the Compensation Committee recommended to the Board that the Compensation Discussion and Analysis be included in the Company's Annual Report on Form 10-K. The Compensation Committee, William C. Wyer, Chairman Kenneth R. Biederman John R. Eisenbrey, Jr 68 CEO Pay Ratio The 2021 compensation disclosure ratio of the median annual total compensation of all Company employees to the annual total compensation of the Company’s Chief Executive Officer is as follows: Median employee total annual compensation Annual total compensation of Dian C. Taylor, CEO Ratio of CEO to median employee compensation 2021 Total Compensation $87,764 $940,287 11:1 For simplicity, we identified the median employee by examining the base annual salary for all individuals, excluding our CEO, who were employed by us on October 31, 2020. We included all employees, whether employed on a full-time, part-time, or seasonal basis. We believe that the use of base annual salary compensation, excluding overtime, is a consistently applied compensation measure because we do not widely distribute annual equity awards to employees and believe that it provides a reasonable estimate of the pay ratio calculated in a manner consistent with Item 402(u) of Regulation S-K. After identifying the median employee by examining base annual salary excluding overtime, we calculated annual total compensation, including overtime, for such employee using the same methodology we use for our named executive officers set forth in the 2021 Summary Compensation Table. Summary Compensation Table: Name and Principal Position Year Salary ($) Bonus ($) Dian C. Taylor, Chair, Chief Executive Officer & President David B. Spacht, Chief Financial Officer Joseph A. DiNunzio, Executive Vice President & Secretary Nicholle R. Taylor, Senior Vice President Jennifer L. Finch, Senior Vice President & Treasurer 2021 2020 2019 2021 2020 2019 2021 2020 2019 2021 2020 2019 2021 2020 2019 592,712 575,574 558,800 395,272 383,064 358,137 431,046 418,585 406,384 350,864 322,595 293,144 352,749 301,459 274,800 153,000 250,000 250,000 75,000 104,000 100,000 75,000 100,000 103,000 78,000 100,000 100,000 75,000 100,000 100,000 Stock Awards ($)(1) All Other Compensation ($)(2),(3),(4) Total ($) 40,980 35,010 36,110 153,595 214,924 138,308 940,287 1,075,508 983,218 N/A N/A N/A N/A N/A N/A 40,980 35,010 36,110 N/A N/A N/A 36,404 34,955 39,284 31,900 32,483 32,054 98,953 99,355 89,337 16,035 14,793 16,995 506,676 522,019 497,421 537,946 551,068 541,438 568,797 556,960 518,591 443,784 416,252 391,795 (1) On May 4, 2021, Dian Taylor and Nicholle Taylor each received a restricted stock award of 1,000 shares of Class A Stock in their capacities as directors of the Company. The award was valued at the fair market value on the date of the award (last reported sale price on the date of award) or $40.11 per share. The restricted shares vest one year from the date of grant. On May 6, 2020, Dian Taylor and Nicholle Taylor each received a restricted stock award of 1,000 shares of Class A Stock. The award was valued at the fair market value on the date of the award or $35.01 per share. The restricted shares vested one year from the date of grant. On May 8, 2019, Dian Taylor and Nicholle Taylor each received a restricted stock award of 1,000 shares of Class A Stock. The award was valued at the fair market value on the date of the award or $36.11 per share. The restricted shares vested one year from the date of grant. 69 (2) Under the Company’s defined contribution 401(k) Plan, the Company contributes two percent of an eligible employee's gross earnings. The Company also matches 50 percent of the first six percent of the employee's gross earnings that the employee contributes to the 401(k) Plan. In addition, all employees hired before April 26, 1994 and under the age of 60 at that date are eligible for additional contributions to the 401(k) Plan. Employees over the age of 60 at that date receive Company paid medical, dental and life insurance benefits upon retirement. The Company will not provide the additional 401(k) or medical, dental and life insurance benefits to any other current or future employees. In 2021, Company contributions to the 401(k) Plan under terms available to all other employees based upon their years of service and plan eligibility were made in the amounts of: Dian C. Taylor David B. Spacht Joseph A. DiNunzio Nicholle R. Taylor Jennifer L. Finch $ $ $ $ $ 31,900 31,900 31,900 31,900 14,500 (3) Included in the "All Other Compensation" column in the table above are amounts received by Dian C. Taylor as compensation for attendance at meetings of the Board and its committees in 2021 totaling $67,100, $36,026 for security provided at her personal residence, $16,756 for country club dues and personal use of a company-owned vehicle. Also included in the "All Other Compensation" column in the table above are amounts received by Nicholle R. Taylor as compensation for attendance at meetings of the Board and its committees in 2021 totaling $66,100. Grants of Plan-Based Awards Table Name Grant Date Vest Date All Other Stock Awards: Number of Shares of Stock or Units (#) All Other Option Awards: Number of Securities Underlying Options (#) Exercise or Base Price of Option Awards ($/share) Grant Date Fair Value of Stock & Option Awards ($) Dian C. Taylor Nicholle R. Taylor 5/04/2021 5/04/2021 5/04/2022 5/04/2022 1,000 1,000 - - - - 40,110 40,110 On May 4, 2021, Dian C. Taylor and Nicholle R. Taylor each received a restricted stock award of 1,000 shares of Class A Stock, as noted in the table above. The awards were valued at the fair market value on the date of the award (last reported sale price on the date of award) or $40.11 per share. The restricted stock awards vest one year from the date of grant. Outstanding Equity Awards at Fiscal Year-End Table Name Dian C. Taylor Nicholle R. Taylor Option Awards Number of Securities Underlying Unexercised Options(#) Exercisable Number of Securities Underlying Unexercised Options (#) Unexercisable Option Exercise Price($) Option Expiration Date --- --- --- --- --- --- 19.01 5/09/2022 22.66 5/08/2023 21.86 5/07/2024 19.01 22.66 21.86 5/09/2022 5/08/2023 5/07/2024 6,750 6,750 6,750 2,000 6,750 6,750 70 Option Exercises and Stock Vested Table Name Dian C. Taylor Nicholle R. Taylor Option Awards Stock Awards Number of Shares Acquired on Exercise (#) 6,750 6,347 Value Realized on Exercise ($) 137,490 146,147 Number of Shares Acquired on Vesting (#) 1,000 1,000 Value Realized on Vesting ($) 40,980 40,980 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS Security Ownership of Certain Beneficial Owners and Management The following table sets forth the beneficial ownership of the equity securities of the Company, as of March 8, 2022 for each director, each named executive officer, each beneficial owner of more than five percent (5%) of the outstanding shares of any class of the Company's voting securities and all directors and executive officers as a group, based in each case on information furnished to the Company. Addresses are provided for each beneficial owner of more than five percent (5%) of the Company’s voting securities. Dian C. Taylor (3) 664 Churchmans Road Newark, Delaware 19702 Kenneth R. Biederman (3) John R. Eisenbrey, Jr. (3)(4)(5) 15 Albe Drive Newark, Delaware 19702 Nicholle R. Taylor (3)(6) 20 Brendle Lane Wilmington, Delaware 19807 Michael Houghton William C. Wyer (3) Joseph A. DiNunzio David B. Spacht Jennifer L. Finch Louisa Taylor Welcher 219 Laurel Avenue Newark, DE 19711 Class A Non-Voting Common Class B Common Stock(1) Stock(1) Shares Percent(2) Shares Percent(2) 166,704 1.9 159,509 18.1 36,375 66,251 36,702 --- 40,750 19,062 4,024 1,778 * * * --- * * * * --- 45,707 --- 5.2 281,184 31.9 --- --- 203 189 --- --- --- * * --- 85,568 1.0 135,862 15.4 Directors and Executive Officers as a Group (12 406,333 4.7 488,142 55.4 Individuals)(3) * less than 1% (1) The nature of ownership consists of sole voting and investment power unless otherwise indicated. The amount also includes all shares issuable to such person or group upon the exercise of options or vesting of restricted shares held by such person or group to the extent such options are exercisable or restricted shares vest within 60 days after March 8, 2022. 71 (2) (3) (4) (5) (6) The percentage of the total number of shares of the class outstanding is shown where that percentage is one percent or greater. Percentages for each person are based on the aggregate number of shares of the applicable class outstanding as of March 8, 2022, and all shares issuable to such person upon the exercise of options or vesting of restricted shares held by such person to the extent such options are exercisable or restricted shares vest within 60 days of that date. Includes vesting of restricted shares and options to purchase shares of the Company’s Class A Stock, as follows: Ms. D. Taylor (21,250 shares); Mr. Biederman (14,500 shares); Mr. Eisenbrey, Jr. (14,500 shares); Ms. N. Taylor (16,500 shares); Mr. Wyer (21,250 shares). 89,123 shares were pledged by Mr. Eisenbrey, Jr. as collateral for a loan. Includes 780 shares of the Class B Stock owned by a trust, of which Mr. Eisenbrey, Jr. is a trustee and has a beneficial ownership interest, and 1,555 shares of the Class B Stock held in custodial accounts for Mr. Eisenbrey, Jr.’s daughters. Includes 710 shares of the Class A Stock and 45 shares of the Class B stock held in custodial accounts for Ms. N. Taylor’s daughter and 276 shares of Class A stock held by her spouse. Securities Authorized for Issuance under Equity Compensation Plans Equity Compensation Plan Information The following table provides information on the shares of our Class A Stock that may be issued upon exercise of outstanding stock options and vesting of awards as of December 31, 2021 under the Company’s stockholder approved stock plans. Equity Compensation Plan Information Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) Number of securities to be issued upon award vesting of exercise of outstanding options (a) Weighted- average exercise price of outstanding options Plan category Equity compensation plans approved by security holders 88,000 $ 21.650 289,932 Total 88,000 $21.650 289,932 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE We have four directors who are considered independent under the Nasdaq listing standards: Kenneth R. Biederman, John R. Eisenbrey, Jr., Michael Houghton and William C. Wyer. Review and Approval of Transactions with Related Persons As set forth in the Company’s Audit Committee Charter, the Audit Committee is responsible for reviewing and, if appropriate, approving all related-party transactions between us and any officer, director, any person known to be the beneficial owner of more than 5% of any class of the Company’s voting securities or any other related person that would potentially require disclosure. We expect that any transactions in which related persons have a direct or indirect interest will be presented to the Audit Committee for review and approval. 72 While neither the Audit Committee nor the Board have adopted a written policy regarding related-party transactions, the Audit Committee considers such information as it deems important to determine whether the transaction is on reasonable and competitive terms and is fair to the Company. In addition, the Audit Committee makes inquiries to our management and our auditors when reviewing such transactions. Related person transactions include any transaction in which (1) the Company is a participant, (2) any related person has a direct or indirect material interest and (3) the amount involved exceeds the lesser of $120,000 or one percent of the average of the Company’s total assets at year end for the last two completed fiscal years, but excludes certain type of transactions where the related person is deemed not to have a material interest. A related person means: (a) any person who is, or at any time since the beginning of the Company’s last fiscal year was, a director, an executive officer or a director nominee; (b) any person known to be the beneficial owner of more than 5% of any class of the Company’s voting securities; (c) any immediate family member of a person identified in items (a) or (b) above, meaning such person’s spouse, parent, stepparent, child, stepchild, sibling, mother- or father-in-law, son- or daughter-in- law, brother- or sister-in-law or any other individual (other than a tenant or employee) who shares the person’s household; or (d) any entity that employs any person identified in (a), (b) or (c) or in which any person identified in (a), (b) or (c) directly or indirectly owns or otherwise has a material interest. In its review and approval or ratification of related person transactions (including its determination as to whether the related person has a material interest in a transaction), the Audit Committee will consider, among other factors: the nature of the related person’s interest in the transaction; the material terms of the transaction, including, without limitation, the amount and type of transaction; the importance of the transaction to the related person; the importance of the transaction to the Company; − − − − − whether the transaction would impair the judgment of a director or executive officer to act in the best interest of the Company; and any other matters the Audit Committee deems important or appropriate. − The Audit Committee intends to approve only those related person transactions that are in, or are not inconsistent with, the best interests of the Company and its stockholders. Related Party Transactions Mr. Michael Houghton currently serves as a director. During 2021, Mr. Houghton was a Partner in the law firm of Morris Nichols Arsht & Tunnell, or MNAT, in Wilmington, Delaware. In the normal course of business, the Company utilizes the services of MNAT for various regulatory, real estate and public policy matters. Approximately $191,000, $386,000 and $253,000 was paid to MNAT during the years ended December 31, 2021, December 31, 2020 and December 31, 2019, respectively, for legal and director related services. As of December 31, 2021, the Company had a $16,000 accounts payable balance due to MNAT. As set forth in the Charter of the Audit Committee of the Board, the Audit Committee is responsible for reviewing and, if appropriate, approving all related party transactions between us and any officer, any director, any person known to be the beneficial owner of more than 5% of any class of the Company's voting securities or any other related person that would potentially require disclosure. In its review and approval of the related party transactions with MNAT, the Audit Committee considered the nature of the related person's interest in the transactions; the satisfactory performance of work contracted with the related party prior to the election of Mr. Houghton as a director; and the material terms of the transactions, including, without limitation, the amount and type of transactions, the importance of the transactions to the related person, the importance of the transactions to the Company and whether the transactions would impair the judgment of a director or officer to act in the best interest of the Company. The Audit Committee approves only those related person transactions that are in, or are consistent with, the best interests of the Company and its stockholders. ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES Fees Billed by Independent Registered Public Accounting Firm The following table sets forth the aggregate contract fees billed to the Company for the fiscal year 2021 and 2020 by the independent registered public accounting firm, BDO USA, LLP. 73 (In thousands) Audit Fees Audit-Related Fees Tax Fees All Other Fees Total Fees 2021 2020 $ $ $ 387 17 --- -- 404 $ 386 17 --- -- 403 Audit Fees: consist primarily of fees for the audits of our financial statements included in our Annual Report on Form 10-K; the reviews of the financial statements included in our Quarterly Reports on Form 10-Q; and the audits of internal control over financial reporting, including compliance with Section 404 of the Sarbanes-Oxley Act of 2002 and fees billed for assurance, services related to registration statements and other documents issued in connection with securities and related services that are reasonably related to the performance of the audit or review of our consolidated financial statements. Audit-Related Fees: consist of fees for services related to the audit of the Company’s 401(k) Plan. Tax Fees: consist of fees for professional services for tax compliance, tax advice and tax planning. These services include assistance regarding federal and state tax compliance, return preparation and tax audits. The independent registered public accounting firm did not provide any tax services to the Company in 2021 and 2020. All Other Fees: consist of fees for services other than described above. The independent registered public accounting firm did not provide any other services to the Company in 2021 and 2020. Pursuant to our policy, the Audit Committee pre-approves audit and tax services for the year as well as non-audit services to be provided by the independent registered public accounting firm. Any changes in the amounts quoted are also subject to pre-approval by the committee. Any audit related fees and tax fees paid are pre-approved by the committee. The Audit Committee of the Company’s Board of Directors has considered whether BDO’s provision of the services described above for the fiscal year ended December 31, 2021 is compatible with maintaining its independence. 74 ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES The following documents are filed as part of this report: (1) Financial Statements: PART IV Reports of Independent Registered Public Accountants (BDO USA,LLP; Wilmington, DE; PCAOB ID# 243) Consolidated Balance Sheets at December 31, 2021 and 2020 Consolidated Statements of Operations for the three years ended December 31, 2021 Consolidated Statements of Cash Flows for the three years ended December 31, 2021 Consolidated Statements of Changes in Stockholders’ Equity for the three years ended December 31, 2021 Notes to Consolidated Financial Statements (2) Exhibits: see the exhibit list below * Page number shown refers to page number in this Report on Form 10-K ITEM 16. FORM 10-K SUMMARY Information with respect to this item is not required and has been omitted at our option. Page(s)* 57-58 29 30 31 - 32 33 34 – 56 76-79 75 ARTESIAN RESOURCES CORPORATION FORM 10-K ANNUAL REPORT YEAR ENDED DECEMBER 31, 2021 EXHIBIT LIST Exhibit Number Description 3.1 3.2 3.3 4.1 4.2 4.3 4.4 4.5 4.6 4.7 4.8 4.9 4.10 4.11 Amended and Restated By-laws of Artesian Resources Corporation incorporated by reference to Exhibit 3.1 filed with the Company’s Form 8-K filed on November 23, 2020. Restated Certificate of Incorporation of the Company effective April 28, 2004 incorporated by reference to Exhibit 3.1 filed with the Company’s Form 10-Q for the quarterly period ended March 31, 2004. By-laws of the Company effective March 26, 2004 incorporated by reference to Exhibit 3.3 filed with the Company’s Form 10-Q for the quarterly period ended March 31, 2004. Twenty-Fourth Supplemental Indenture dated as of December 17, 2019, between Artesian Water Company, Inc., subsidiary of the Company, and Wilmington Trust Company, as Trustee. Incorporated by reference to Exhibit 4.1 filed with the Company's Form 8-K filed on December 19, 2019. Bond Purchase Agreement, dated December 17, 2019 by and between Artesian Water Company, Inc., subsidiary of the Company, and the Wilmington Trust Company, as Trustee. Incorporated by reference to Exhibit 4.2 filed with the Company’s Form 8-K filed on December 17, 2019. Twenty-Third Supplemental Indenture dated as of January 31, 2018, between Artesian Water Company, Inc., subsidiary of the Company, and Wilmington Trust Company, as Trustee. Incorporated by reference to Exhibit 4.1 filed with the Company's Form 8-K filed on February 2, 2018. Bond Purchase Agreement, dated January 31, 2018 by and between Artesian Water Company, Inc., subsidiary of the Company, and CoBank, ACB. Incorporated by reference to Exhibit 4.2 filed with the Company’s Form 8-K filed on February 2, 2018. Twenty-Second Supplemental Indenture dated as of January 18, 2017, between Artesian Water Company, Inc., subsidiary of the Company, and Wilmington Trust Company, as Trustee. Incorporated by reference to Exhibit 4.1 filed with the Company's Form 8-K filed on January 20, 2017. Bond Purchase Agreement, dated January 18, 2017 by and between Artesian Water Company, Inc., subsidiary of the Company, and CoBank, ACB. Incorporated by reference to Exhibit 4.2 filed with the Company’s Form 8-K filed on January 20, 2017. First Amendment to Indenture of Mortgage and to the Sixteenth, Eighteenth and Twentieth Supplemental Indentures dated as of January 18, 2017, between Artesian Water Company, Inc., subsidiary of the Company, and Wilmington Trust Company, as Trustee. Incorporated by reference to Exhibit 4.3 filed with the Company’s Form 10-K for the year ended December 31, 2017. Letter Agreement, dated as of September 15, 2015, by and between Artesian Water Company, Inc. and CoBank ACB. Incorporated by reference to Exhibit 4.1 filed with the Company’s Form 8-K filed on September 18, 2015. Twenty-First Supplemental Indenture dated as of November 20, 2009, between Artesian Water Company, Inc., subsidiary of the Company, and Wilmington Trust Company, as Trustee. Incorporated by reference to Exhibit 4.4 filed with the Company’s Form 10-K for the year ended December 31, 2017. Twentieth Supplemental Indenture dated as of December 1, 2008, between Artesian Water Company, Inc., subsidiary of the Company, and Wilmington Trust Company, as Trustee. Incorporated by reference to Exhibit 4.1 filed with the Company's Form 8-K filed on December 4, 2008. First Amendment to Bond Purchase Agreement, dated as of January 18, 2017 by and between Artesian Water Company, Inc., subsidiary of the Company, and CoBank, ACB. Incorporated by reference to Exhibit 4.13 filed with the Company’s Annual Report on Form 10-K for the year ended December 31, 2017. 76 4.12 Bond Purchase Agreement, dated December 1, 2008 by and between Artesian Water Company, Inc., subsidiary of the Company, and CoBank, ACB. Incorporated by reference to Exhibit 4.2 filed with the Company’s Form 8-K filed on December 4, 2008. 4.13 4.14 Eighteenth Supplemental Indenture dated as of August 1, 2005, between Artesian Water Company, Inc., subsidiary of the Company, and Wilmington Trust Company, as Trustee. Incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2005. Sixteenth Supplemental Indenture dated as of January 31, 2003 between Artesian Water Company, Inc., subsidiary of the Company, and the Wilmington Trust Company, as Trustee. Incorporated by reference to Exhibit 4.2 filed with the Company’s Annual Report on Form 10-K for the year ended December 31, 2003. 4.15 Indenture of Mortgage dated July 1, 1961, between Artesian Water Company, Inc., subsidiary of the Company, and the Wilmington Trust Company, as Trustee. Incorporated by reference to Exhibit 4.10 filed with the Company’s Annual Report on Form 10-K for the year ended December 31, 2017. 4.16 4.17 Second Amendment to Master Loan Agreement, dated as of November 13, 2019, by and between Artesian Wastewater Management, Inc. and CoBank, ACB. Incorporated by reference to Exhibit 4.16 filed with the Company’s Annual Report on Form 10-K for the year ended December 31, 2019. First Amendment to Master Loan Agreement, dated as of January 10, 2019, by and between Artesian Wastewater Management, Inc. and CoBank, ACB. Incorporated by reference to Exhibit 4.17 filed with the Company’s Annual Report on Form 10-K for the year ended December 31, 2019. 4.18 Guarantee of Payment, dated as of August 8, 2018, by and between Artesian Resources Corporation and CoBank, ACB. Incorporated by reference to Exhibit 4.3 filed with the Company’s Form 10-Q filed on August 9, 2018. 4.19 Master Loan Agreement, dated as of August 8, 2018, by and between Artesian Wastewater Management, Inc. and CoBank, ACB. Incorporated by reference to Exhibit 4.2 filed with the Company’s Form 10-Q filed on August 9, 2018. 4.20 Artesian Resources Corporation 2015 Equity Compensation Plan. Incorporated by reference to Exhibit 4.1 filed with the Company’s Registration Statement on Form S-8 filed December 16, 2015. 4.21 Interest Rate Lock Agreement, dated as of October 8, 2019, by and between Artesian Water Company, Inc. and CoBank, ACB, Incorporated by reference to Exhibit 4.1 filed with the Company’s Form 8-K filed on October 11, 2019. 4.22 Description of the Company’s Securities. Incorporated by reference to Exhibit 4.22 filed with the Company’s Annual Report on Form 10-K for the year ended December 31, 2019. 4.23 Interest Rate Lock Agreement, dated as of February 7, 2022, by and between Artesian Water Company, Inc. and CoBank, ACB. Incorporated by reference to Exhibit 4.1 filed with the Company’s Form 8-K filed on February 10, 2022. 10.1 Stock Purchase Agreement, dated August 27, 2021, by and among Artesian Wastewater Management, Inc., a Delaware corporation, and Middlesex Water Company, a New Jersey corporation. Incorporated by reference to Exhibit 10.1 filed with Company’s Form 10-Q filed on November 5, 2021. 10.2 Asset Purchase Agreement, dated February 16, 2022, by and among Artesian Water Company, Inc. a Delaware corporation, and the Town of Clayton, a Delaware municipality. * 10.3 Asset Purchase Agreement, dated June 11, 2020 by and among Artesian Water Company, Inc., a Delaware corporation, and the City of Delaware City, a Delaware municipality. Incorporated by reference to Exhibit 10.1 filed with Company’s Form 8-K filed on June 16, 2020. 10.4 Asset Purchase Agreement, dated February 27, 2020 by and among Artesian Water Company, Inc., a Delaware corporation, and the Town of Frankford, a Delaware municipality. Incorporated by reference to Exhibit 10.1 filed with Company’s Form 8-K filed on March 4, 2020. 10.5 Financing Agreement, dated as of April 28, 2020, between Artesian Water Company, Inc. and Delaware Drinking Water State Revolving Fund, acting by and through the Delaware Department of Health & Social Services, Division of Public Health. Incorporated by reference to Exhibit 10.1 filed with the Company’s Form 8-K filed on April 30, 2020. 77 10.6 General Obligation Note (New Castle County Water Main Transmission Replacements Projects), Series 2020A-SRF, dated as of April 28, 2020, issued by Artesian Water Company, Inc. in favor of Delaware Drinking Water State Revolving Fund, acting by and through the Delaware Department of Health & Social Services, Division of Public Health. Incorporated by reference to Exhibit 10.2 filed with the Company’s Form 8-K filed on April 30, 2020. 10.7 Financing Agreement, dated as of April 28, 2020, between Artesian Water Company, Inc. and Delaware Drinking Water State Revolving Fund, acting by and through the Delaware Department of Health & Social Services, Division of Public Health. Incorporated by reference to Exhibit 10.3 filed with the Company’s Form 8-K filed on April 30, 2020. 10.8 General Obligation Note (New Castle County Water Main Transmission Replacements Projects), Series 2020B-SRF, dated as of April 28, 2020, issued by Artesian Water Company, Inc. in favor of Delaware Drinking Water State Revolving Fund, acting by and through the Delaware Department of Health & Social Services, Division of Public Health. Incorporated by reference to Exhibit 10.4 filed with the Company’s Form 8-K filed on April 30, 2020. 10.9 Financing Agreement, dated as of April 28, 2020, between Artesian Water Company, Inc. and Delaware Drinking Water State Revolving Fund, acting by and through the Delaware Department of Health & Social Services, Division of Public Health. Incorporated by reference to Exhibit 10.5 filed with the Company’s Form 8-K filed on April 30, 2020. 10.10 General Obligation Note (New Castle County Water Main Transmission Replacements Projects), Series 2020C-SRF, dated as of April 28, 2020, issued by Artesian Water Company, Inc. in favor of Delaware Drinking Water State Revolving Fund, acting by and through the Delaware Department of Health & Social Services, Division of Public Health. Incorporated by reference to Exhibit 10.6 filed with the Company’s Form 8-K filed on April 30, 2020. 10.11 General Obligation Note (New Castle County Water Main Transmission Replacements Projects), Series 2011-SRF, dated as of July 15, 2011, issued by Artesian Water Company, Inc. in favor of Delaware Drinking Water State Revolving Fund, acting by and through the Delaware Department of Health & Social Services, Division of Public Health. Incorporated by reference to Exhibit 10.2 filed with the Company’s Form 8-K filed on July 19, 2011. 10.12 Financing Agreement, dated as of July 15, 2011, between Artesian Water Company, Inc. and Delaware Drinking Water State Revolving Fund, acting by and through the Delaware Department of Health & Social Services, Division of Public Health. Incorporated by reference to Exhibit 10.1 filed with the Company’s Form 8-K filed on July 19, 2011. 10.13 Financing Agreement and General Obligation Note dated February 12, 2010 between Artesian Water Company, Inc. and Delaware Drinking Water State Revolving Fund Delaware Department of Health and Social Services, Division of Public Health. Incorporated by reference to Exhibit 10.1 filed with the Company’s Form 8-K filed on February 17, 2010. 10.14 Second Amended and Restated Revolving Credit Agreement between Artesian Water Company, Inc. and CoBank, ACB dated September 20, 2019. Incorporated by reference to Exhibit 4.2 filed with the Company’s Form 10-Q filed on November 8, 2019. 10.15 Demand Line of Credit Agreement dated January 19, 2010 between Artesian Resources Corporation and each of its subsidiaries and Citizens Bank of Pennsylvania, as amended or modified from time to time. Incorporated by reference to Exhibit 10.2 filed with the Company’s Form 8-K filed on January 25, 2010. 10.16 Amendment to Agreement for Purchase of Water Assets of the Town of Port Deposit and for the provision of Potable Water Services, dated November 1, 2010 by and among Artesian Water Maryland, Inc., a Delaware Corporation, Artesian Resources Corporation, a Delaware Corporation and the Mayor and Town Council of Port Deposit, Maryland, a body corporate and politic organized under the laws of the State of Maryland. Incorporated by reference to Exhibit 10.2 filed with the Company’s Form 8-K filed on November 4, 2010. 10.17 Water Asset Purchase Agreement, dated December 1, 2009 by and among Artesian Water Maryland, Inc., a Delaware Corporation, Artesian Resources Corporation, a Delaware Corporation and the Mayor and Town Council of Port Deposit, Maryland, a body corporate and politic organized under the laws of the State of Maryland. Incorporated by reference to Exhibit 10.1 filed with the Company’s Form 8-K filed on December 2, 2009. 10.18 Limited Liability Interest Purchase Agreement between Artesian Water Maryland, Inc., subsidiary of the Company, and Mountain Hill Water Company, LLC, dated May 5, 2008. Incorporated by reference to Exhibit 10.1 filed with the Company’s Form 8-K filed on May 9, 2008. 78 10.19 Artesian Resources Corporation 2005 Equity Compensation Plan. Incorporated by reference to Exhibit 4.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2005. *** 10.20 Amended and Restated Artesian Resources Corporation 1992 Non-Qualified Stock Option Plan, as amended. Incorporated by reference to Exhibit 10.4 filed with the Company’s Form 10-Q for the quarterly period ended June 30, 2003.*** 10.21 Artesian Resources Corporation Incentive Stock Option Plan. Incorporated by reference to Exhibit 10(e) filed with the Company's Annual Report on Form 10-K for the year ended December 31, 1995.*** 10.22 Officer's Medical Reimbursement Plan dated May 27, 1992. Incorporated by reference to Exhibit 10.6 filed with the Company’s Annual Report on Form 10-K/A for the year ended December 31, 2001.*** 21 Subsidiaries of the Company as of December 31, 2021. * 23.1 Consent of BDO USA, LLP * 31.1 Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. * 31.2 Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. * 32 Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. ** 101.INS Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document). * 101.SCH Inline XBRL Taxonomy Extension Schema Document. * 101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document. * 101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document. * 101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document. * 101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document. * 104 Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101). * * ** *** Filed herewith. Furnished herewith. Compensation plan or arrangement required to be filed or incorporated as an exhibit. 79 SIGNATURES ARTESIAN RESOURCES CORPORATION Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Date March 11, 2022 By: /s/ DAVID B. SPACHT David B. Spacht Chief Financial Officer (Principal Financial Officer) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. Signature Title Date /s/ DIAN C. TAYLOR Dian C. Taylor Chair of the Board of Directors, President and Chief Executive Officer (Principal Executive Officer) March 11, 2022 /s/ DAVID B. SPACHT David B. Spacht Chief Financial Officer (Principal Financial Officer) March 11, 2022 /s/ JENNIFER L. FINCH Jennifer L. Finch Corporate Treasurer and Senior Vice President of Finance (Principal Accounting Officer) /s/ KENNETH R. BIEDERMAN Kenneth R. Biederman /s/ WILLIAM C. WYER William C. Wyer /s/ JOHN R. EISENBREY, JR. John R. Eisenbrey, Jr. /s/ MICHAEL HOUGHTON Michael Houghton /s/ NICHOLLE R. TAYLOR Nicholle R. Taylor Director Director Director Director Director March 11, 2022 March 11, 2022 March 11, 2022 March 11, 2022 March 11, 2022 March 11, 2022 80 EXHIBIT 21 ARTESIAN RESOURCES CORPORATION AND SUBSIDIARY COMPANIES Subsidiaries of Registrant The following list includes the Registrant and all of its subsidiaries. All subsidiaries of the Registrant appearing in the following table are included in the consolidated financial statements of the Registrant and its subsidiaries. Name of Company Artesian Resources Corporation Artesian Water Company, Inc. Artesian Water Pennsylvania, Inc. Artesian Water Maryland, Inc. Artesian Development Corporation Artesian Wastewater Management, Inc. Tidewater Environmental Services, Inc. dba Artesian Wastewater Artesian Wastewater Maryland, Inc. Artesian Utility Development, Inc. Artesian Storm Water Services, Inc. State of Incorporation Delaware Delaware Pennsylvania Delaware Delaware Delaware Delaware Delaware Delaware Delaware 81 EXHIBIT 23.1 Artesian Resources Corporation Newark, Delaware Consent of Independent Registered Public Accounting Firm We hereby consent to the incorporation by reference in the Registration Statements on Form S-3 (No. 333-88531) and Form S-8 (No. 33-05255, 333-31209, 333-78043, 333-126910 and 333-208582) of Artesian Resources Corporation of our report dated March 11, 2022, relating to the consolidated financial statements which appear in the Annual Report to Shareholders, which is incorporated by reference in this Annual Report on Form 10-K. /s/BDO USA, LLP BDO USA, LLP Wilmington, Delaware March 11, 2022 82 EXHIBIT 31.1 Certification of Chief Executive Officer of Artesian Resources Corporation, required by Rule 13a – 14(a) as adopted under the Securities and Exchange Act of 1934 I, Dian C. Taylor, certify that: 1. I have reviewed this annual report on Form 10-K for the period ended December 31, 2021 of Artesian Resources Corporation; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c. Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: March 11, 2022 /s/ Dian C. Taylor Dian C. Taylor Chief Executive Officer (Principal Executive Officer) 83 EXHIBIT 31.2 Certification of Chief Financial Officer of Artesian Resources Corporation, required by Rule 13a – 14(a) as adopted under the Securities and Exchange Act of 1934 I, David B. Spacht, certify that: 1. I have reviewed this annual report on Form 10-K for the period ended December 31, 2021 of Artesian Resources Corporation; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c. Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: March 11, 2022 /s/ David B. Spacht David B. Spacht Chief Financial Officer (Principal Financial and Accounting Officer) 84 EXHIBIT 32 Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350 I, Dian C. Taylor, Chief Executive Officer, and David B. Spacht, Chief Financial Officer, of Artesian Resources Corporation, a Delaware corporation (the "Company"), hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes- Oxley Act of 2002, that, based on our knowledge: 1. The Company's Annual Report on Form 10-K for the period ended December 31, 2021 (the " Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 USC Section 78m(a) or Section 78o(d)), as amended; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition of the Company at the end of the period covered by the Report and results of operations of the Company for the period covered by the Report. Date: March 11, 2022 Chief Executive Officer: /s/ Dian C. Taylor Dian C. Taylor Chief Financial Officer: /s/ David B. Spacht David B. Spacht These certifications accompany the Report to which they relate, are not deemed filed with the Securities and Exchange Commission and are not to be incorporated by reference into any filing of the Company under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended (whether made before or after the date of the Report), irrespective of any general incorporation language contained in such filing. 85

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