<PAGE>

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-K

           [X]   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

                   For the fiscal year ended December 31, 2004

                                       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                               51-0002090
   -------------------------------             ----------------------
   (State or other jurisdiction of               (I.R.S. Employer
    incorporation or organization)             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: None
Securities registered pursuant to Section 12(g) of the Act:

                         Class A Non-Voting Common Stock
                                (Title of class)

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.

[X] Yes  [ ] No

Indicate by check mark if the disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2)

[X] 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, 2004 was
$84,097,000 and $5,035,000, 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 National Market on June 30, 2004. 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

<PAGE>

OTC Bulletin Board as of June 30, 2004, which trade date was June 22, 2004.

As of February 28, 2005, 3,382,434 shares of Class A Non-Voting Common Stock and
587,680 shares of Class B Common Stock were outstanding.

                                        2
<PAGE>

                                     PART I

ITEM 1. - BUSINESS.

Artesian Resources Corporation, Artesian Resources or the Company, operates as
the parent holding company of Artesian Water Company, Inc., Artesian Water, our
principal subsidiary, Artesian Water Pennsylvania, Inc., Artesian Wastewater
Management, Inc., each a regulated public utility, and two non-regulated
subsidiaries, Artesian Utility Development, Inc. and Artesian Development,
Corporation. Artesian Water Company was organized in 1927 as the successor to
the Richardson Park Water Company, founded in 1905. In 1984, the name of
Artesian Water Company was changed to Artesian Resources Corporation and the
utility assets were contributed to the newly formed subsidiary, Artesian Water.
In this Annual Report on Form 10-K, we frequently use the terms "we," "our" and
the "Company" to refer to Artesian Resources and its subsidiaries, including
Artesian Water.

We distribute and sell water to residential, commercial, industrial,
governmental, municipal and utility customers throughout the State of Delaware.
As of December 31, 2004, we had approximately 71,000 metered customers and
served a population of approximately 232,000 (including contract services),
representing approximately 28% of Delaware's total population. We also provide
water for public and private fire protection to customers in our service
territories. Our gross water sales revenue for 2004 was approximately $38.0
million, and our percentages of gross water sales revenue by major customer
classifications were 62% for residential, 31% for commercial, industrial,
governmental, municipal and utility, and 7% for public fire protection. These
percentages have remained fairly constant for the past four years. We received
recognition of Artesian Water Pennsylvania, Inc. as a regulated public water
utility by the Pennsylvania Public Utility Commission in 2002. We are now
serving a community in Pennsylvania consisting of 39 customers. We received
recognition of Artesian Wastewater Management, Inc. as a regulated public
wastewater utility by the Delaware Public Service Commission on March 8, 2005.

Demand for water during the warmer months is generally greater than during
cooler months due primarily to additional 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 as
in 2003 and 2004 there is more rainfall than expected, the demand for water may
decrease and our revenues may be adversely affected.

Our current primary market area is the State of Delaware, which had a population
of approximately 830,000 at July 1, 2004. According to the US Census Bureau,
Delaware's population has increased 17.6% from 1990 to 2000, the 14th largest
percentage increase among the states. Most recently, Delaware was ranked the
eighth fastest-growing state by population percentage growth from 2003 to 2004.
Although New Castle is the most populous of Delaware's three counties, Sussex
County, in southern Delaware, has experienced the most significant growth with a
population increase of approximately 38.3% from 1990 to 2000. Substantial
portions of Delaware, particularly outside of New Castle County, are not served
by a public water system and represent potential opportunities for Artesian
Water to obtain new exclusive franchised service areas. We continue to focus
resources on developing and serving existing service territories and obtaining
new territories throughout the State. In 2004, we added 21.5 square miles of
franchised service area.

In Delaware, a Certificate of Public Convenience and Necessity, CPCN, grants a
water company the exclusive right to serve all existing and new customers within
a designated area. Effective July 1, 2001, the authority to issue these CPCN's
was transferred to the Delaware Public Service Commission, PSC, from the
Delaware Department of Natural Resources and Environmental Control, DNREC. In
this Annual Report on Form 10-K, we refer to these Certificates as "CPCN's",
"franchises" or "service territories." The PSC grants 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, where the supply is
insufficient to meet the projected demand, or where the applicant is in
possession of one of the following:

     o    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;
     o    a petition requesting such service signed by a majority of the
          landowners of the proposed territory to be served; or
     o    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.

CPCN's are not transferable, and a water utility must obtain the approval of the
PSC to abandon a service territory once granted. Once a CPCN to a water utility
is granted, it may not be suspended or terminated unless the PSC determines in
accordance with its rules and regulations that good cause exists for any such
suspension or termination.

                                        3
<PAGE>

We hold CPCN's for approximately 159 square miles of exclusive service
territory, which is segmented into a number of service areas. Our largest
connected regional water system, consisting of approximately 98.6 square miles
and 66,000 customers, is located in northern Delaware. A significant portion of
our exclusive service territory 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 service to the newly developed areas and new
customers. The total number of customers we serve has grown at an average annual
rate of approximately 2.6% since 1993, when we began expansion of our service
territory. Within our existing service territory, we hold CPCN's for nearly
5,000 vacant acres zoned for industrial and manufacturing development.

In 1993, we initiated efforts to expand our service territory in Delaware beyond
northern New Castle County. This expansion, which has occurred in southern New
Castle, Kent and Sussex Counties, has increased our exclusive service area in
Delaware by approximately 61% since 1993. The pursuit of new service territory
in the State of Delaware by water companies is competitive. Our strategy is to
continue our efforts to acquire additional exclusive service areas, although the
future rate of increase will depend upon interest rates, land use rules, and our
ability to enter into agreements with landowners, developers or municipalities.
Beginning in 1992, we undertook steps to increase our sources of groundwater
supply, recognizing that such sources provided improved reliability while also
being more cost effective. We have identified sufficient sources of groundwater
supply to serve our expanding customer base for the foreseeable future. Our
self-supply has increased from 63% of our total water supply in 1992 to
approximately 82% in 2004. Since 1992, we have increased our sources of
groundwater supply from our own wells by 65%, or nearly twelve million gallons
per day. We plan to continue development of new sources of groundwater supplies
as demand warrants.

Our primary sources of water are our wells that pump groundwater from aquifers
and other formations. To supplement our groundwater supply, we purchase surface
water through interconnections only in the northern service area of our New
Castle County system. The purchased surface water is blended with our
groundwater supply for distribution to our customers. Nearly 82% of the overall
7.2 billion gallons of water we distributed in all our systems during 2004 came
from our groundwater wells, while the remaining 18% came from interconnections
with other utilities and municipalities. During 2004, our average rate of water
pumped was approximately 16.3 million gallons per day, "mgd", from our
groundwater wells and approximately 3.6 mgd was supplied from interconnections.
Our peak water supply capacity currently is approximately 50.0 mgd. Our peak
water demand in 2004 was approximately 25.6 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.

Under state laws and regulations, we are required to file applications with the
Delaware Department of Natural Resources and Environmental Control for water
allocation permits for each of our operating wells pumping greater than 50,000
gallons per day. We have 109 operating and 60 monitoring wells in our systems.
At December 31, 2004, we had permits for 74 wells, permit applications pending
for 16 wells and 19 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.

Our northern New Castle County system is interconnected. During the first half
of 2004, we completed the installation of water mains beneath the Chesapeake and
Delaware Canal, C&D Canal, joining our northern New Castle County system to a
portion of our southern New Castle County system. In the remainder of the State,
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.

We have 19 interconnections with three neighboring water utilities and six
municipalities that provide us with the ability to purchase or sell water.
Interconnection agreements with the Chester Water Authority and the City of
Wilmington have "take or pay" clauses requiring us to take, as of December 31,
2004, minimum draws totaling 1.298 billion gallons annually. During the fiscal
year ended December 31, 2004, we used the minimum draws under these agreements.
The Chester Water Authority agreement, which expires December 31, 2021, provides
for the right to extend the term of this agreement through and including
December 31, 2047, at our option, subject to the approval of the Susquehanna
River Basin Commission. Our remaining take or pay agreement with the City of
Wilmington was renewed in December 2001 for a period of five years. All of the
interconnections

                                        4
<PAGE>

provide Artesian Water the ability to sell water to neighboring water utilities
or municipalities.

As of December 31, 2004, we were serving customers through approximately 977
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,
cast iron or transite pipe. Ductile iron is more durable than plastic and we
install ductile iron pipes wherever possible. We are installing a more durable
type of plastic pipe near ocean front property in southern Delaware where
corrosive conditions of the surrounding ground affect the longevity of ductile
iron pipe. We also install this more durable type of plastic pipe for major
crossings of waterways, such as the C&D Canal. We supply public fire protection
service through approximately 4,000 hydrants installed throughout our service
territories.

We have 31 storage tanks, most of which are elevated, providing total system
storage of 39.0 million gallons. We have developed and are using an aquifer
storage and recovery system. At some locations, we rely on hydropneumatic tanks
to maintain adequate system pressures. Where possible, we will combine our
smaller satellite systems with systems having elevated storage facilities.

We pump all of our water with electric power purchased from major electric
utilities. We also have diesel and propane powered generating equipment at most
treatment and elevated storage facilities for the provision of basic water
service during possible electrical outages.

We derive about 95% of our self-supplied groundwater from wells located in the
Atlantic Coastal Plain. The remaining 5% comes from wells in the Piedmont
Province. We use a variety of treatment methods, including aeration, pH
adjustment, chlorination, fluoridation and iron removal, to meet federal, state
and local water quality standards. Additionally, a corrosion inhibitor is added
to all of our self-supplied groundwater and most of the supply from
interconnections. We have 52 different water treatment facilities. All water
supplies that we purchase from neighboring utilities are potable. We believe,
based on our experience, the costs of treating groundwater are significantly
lower than those of treating surface water.

The United States Environmental Protection Agency, the EPA; DNREC; and the
Delaware Division of Public Health, DPH, regulate the water quality of our
treatment and distribution systems. 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
and results of operations. Chester Water Authority, which supplies water to
Artesian Water through interconnections in northern New Castle County, is
regulated by the Pennsylvania Department of Environmental Protection, as well as
the EPA.

As required by the Safe Drinking Water Act, the EPA has established maximum
contaminant levels for various substances found in drinking water. 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 the Lead and Copper Rule, rules for
volatile organic compounds and the Total Coliform Rule. Because we have no
surface water sources of supply that we treat for consumption, the Surface Water
Treatment Rule generally does not apply to us.

Delaware enacted legislation in 1998 requiring water utilities to meet secondary
water quality standards that include limitations on iron content, odor and other
water quality-related issues that are not proven health risks but may be
objectionable for consumption. We believe our current treatment systems and
facilities meet or exceed these secondary standards.

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 county-approved wastewater facilities or
removed from the facilities by a licensed third party vendor. 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 Artesian Resources, but there is no assurance
that such compliance will continue to not have a material effect in the future.

Artesian Water, as a public utility, is regulated by the PSC with respect to
rates and charges for service, the sale and issuance of securities, mergers and
other matters. We 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. The timing of
our rate increase requests are 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

                                        5
<PAGE>

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.

We filed a request for a rate increase on February 5, 2004, for an $8.8 million
increase in our annual revenue requirement, but we cannot predict whether the
PSC will approve the requested increase, approve a smaller increase or deny the
request altogether. We currently derive our water service revenues from water
consumption, upon which base rates are applied, which were last increased on
September 7, 2004. The September 7, 2004 increase reflects the second of two
temporary increases totaling approximately 15%, or $5.5 million on an annualized
basis, which Artesian Water is permitted to collect by law, until the PSC makes
a final rate determination. The first temporary increase was placed into effect
on April 6, 2004, for $2.5 million on an annualized basis. The last permanent
increase was placed in effect on May 1, 2003, which reflected an authorized
return on equity rate of 10.5%, and an overall rate of return on rate base of
8.75%.

On December 19, 1996, Artesian Wastewater Management, Inc., Artesian Wastewater,
was created as a non-regulated subsidiary of Artesian Resources. On September
30, 2004, we changed the name of our non-regulated subsidiary, Artesian
Wastewater, which operates municipal wastewater facilities under operating
agreements, to Artesian Utility Development, Inc., Artesian Utility. Artesian
Utility is contracted to design and build wastewater infrastructure and provide
wastewater treatment services and management in Delaware. Artesian Utility is a
one-third participant, along with heavy-construction contractor George and Lynch
and engineering firm D. Preston Lee, Jr., P.E., Inc., in a limited liability
company called AquaStructure Delaware, L.L.C., AquaStructure. The purpose of
AquaStructure is to develop and market proposals for design, construction and
operation of wastewater facilities. In 1999, Artesian Wastewater (now Artesian
Utility) began operating a 250,000 gallon per day wastewater facility for the
town of Middletown in southern New Castle County. In 2002, AquaStructure
substantially completed construction of a 2.5 million gallon per day wastewater
facility for Middletown and Artesian Wastewater, under contract with
AquaStructure, began operating the facility for Middletown under a 20-year
contract.

Concurrent with the name change of Artesian Wastewater to Artesian Utility, we
formed a new subsidiary, Artesian Wastewater Management, Inc., which will own
wastewater infrastructure and will provide wastewater services to customers in
Delaware as a regulated public wastewater service company.

The Company has no collective bargaining agreements with any of its employees,
and its work force is not union organized or union represented. As of December
31, 2004, we employed 183 full-time and 9 part-time employees, all of whom were
non-unionized. Of these full-time employees, 24 were officers and managers; 105
were employed as operations personnel, including engineers, technicians,
draftsman, maintenance and repair persons, meter readers and utility personnel;
and 47 were employed in the accounting, budgeting, information systems, human
resources, customer relations, public relations and conservation departments.
The remaining seven employees were administrative personnel. We believe that our
employee relations are good.

We file our annual reports on Form 10-K, quarterly reports on Form 10-Q and
current reports on Form 8-K pursuant to Section 13(a) or 15(d) of the Exchange
Act electronically with the Securities and Exchange Commission, SEC. The public
may read or copy any materials we file with the SEC at the SEC's Public
Reference Room at 450 Fifth Street, NW, Washington, DC, 20549. The public may
obtain information on the operation of the Public Reference Room by calling the
SEC at 1-800-SEC-0330. The SEC maintains an Internet site that contains reports,
proxy and information statements, and other information regarding issuers that
file electronically with the SEC. The address of that site is
http://www.sec.gov.

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 the Investor Information section of 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 as soon as reasonably
practicable after such material is electronically filed with or furnished to 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.

ITEM 2. - PROPERTIES.

Our corporate headquarters are located at 664 Churchmans Road, Newark, Delaware.
As of October 20, 2003, Artesian Water owns the property. Prior to that date,
Artesian Water leased the property from White Clay Realty. For a discussion on
the manner by which Artesian Water acquired this property, see Note 8 to our
Financial Statements.

Artesian Resources and Artesian Development, Corporation, Artesian Development,
a wholly owned subsidiary of Artesian Resources, own various parcels of land in
New Castle County, Delaware. Artesian Water owns land, transmission and
distribution mains, pump facilities, treatment plants, storage tanks and related
facilities within New Castle, Kent and Sussex Counties,

                                        6
<PAGE>

Delaware. Artesian Water Pennsylvania, Inc. owns transmission and distribution
mains as well. In the aggregate, we own land, rights-of-way and easements
totaling approximately 706 acres. Substantially all of Artesian Water's utility
plant, except utility plant within the town of Townsend, Delaware, is pledged as
security for First Mortgage Securities.

Of the 706 acres we own, Artesian Development owns approximately eleven acres
zoned for office buildings located immediately adjacent to our corporate
headquarters. Artesian Development has no present plans to purchase new land or
develop the acreage it owns.

All of our existing facilities adequately meet current necessary production
capacities and current levels of utilization.

ITEM 3. - LEGAL PROCEEDINGS.

On February 5, 2004, Artesian Water filed a petition with the PSC to implement
new rates to meet a requested increase in water sales revenue of 24%, or
approximately $8.8 million, on an annualized basis. The PSC, on March 16, 2004,
suspended the implementation of the proposed new rates pending further
investigation and public evidentiary hearings. Pending these hearings and a
final ruling by the PSC, Artesian Water, as is permitted by law, placed a
portion, $2.5 million or 6.9%, of the proposed rates into effect under surety,
in lieu of bond, on April 6, 2004. Beginning September 7, 2004, Artesian Water
placed an additional portion of the proposed rates into effect. These temporary
rates were designed to generate a total increase in operating revenue of
approximately 15%, or $5.5 million on an annualized basis. These revised
temporary rates will remain in effect until the regulatory process associated
with this application is completed. If this permitted temporary rate increase is
determined to be in excess of rates that the PSC ultimately deems appropriate,
Artesian Water will be required to refund the excess portion plus interest to
its customers. As of December 31, 2004, we have reserved $217,000 from revenue
pending the final ruling by the PSC on our rate increase request. We expect a
final decision on this matter during the first six months of 2005, but we cannot
predict whether the PSC will approve the requested increase, approve a smaller
increase or deny the request altogether.

There are no other material legal proceedings pending at this time.

ITEM 4. - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

There were no matters submitted to a vote of security holders during the fourth
quarter of 2004.

                                        7
<PAGE>

                                     PART II

ITEM 5. - MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES.

Artesian Resources' Class A Non-Voting Common Stock, Class A Stock, is listed on
the Nasdaq National Market and trades under the symbol "ARTNA." On February 28,
2005, there were 865 holders of record of the Class A Stock. The following table
sets forth, for the periods indicated, the high and low closing sale prices for
the Class A Stock on the Nasdaq National Market and the cash dividends declared
per share:

                         CLASS A NON-VOTING COMMON STOCK

                                                            Dividend
                                     High        Low       Per Share
                                   --------    --------    ---------
          2003
                First Quarter      $ 21.733    $ 19.713    $  0.1984
                Second Quarter       24.667      19.900       0.1984
                Third Quarter        25.860      23.200       0.1984
                Fourth Quarter       29.330      25.680       0.2025

          2004
                First Quarter      $ 29.500    $ 27.300    $  0.2025
                Second Quarter       28.460      26.241       0.2075
                Third Quarter        28.000      22.790       0.2075
                Fourth Quarter       29.761      26.530       0.2125

The closing sale prices shown above reflect prices between dealers and do not
include retail markups or markdowns or commissions and may not necessarily
represent actual transactions.

Our Class B Voting Stock, 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 February 28, 2005, the last reported trade
of the Class B Stock on the OTC Bulletin Board was at a price of $27.25 per
share on December 6, 2004. As of February 28, 2005, we had 210 holders of record
of the Class B Stock.

SEC Regulation S-K, Item 701, the following table represents recent sales of
unregistered securities.

<TABLE>
<CAPTION>
                                                                                               Use of             Exemption from
           Securities Sold              Underwriters/Purchasers      Consideration            Proceeds         Registration Claimed
-------------------------------------   -----------------------   --------------------   ------------------   ----------------------
<S>                                     <C>                       <C>                    <C>                  <C>
First Mortgage Bonds, Series Q, 4.75%   Underwriter -             Offering Price -       Financing of         Private Placement
Date of Bond - December 1, 2003         Janney Montgomery Scott            $15,400,000   specific             pursuant to Rule 144A
                                        Purchaser -               Cost of Issuance       construction         of the Securities
                                        Delaware Economic                   $1,181,574   projects             Exchange Act of 1934
                                        Development Authority     Net Proceeds
                                                                           $14,218,426

First Mortgage Bonds, Series P, 6.58%   Purchaser - Co-Bank       Offering Price -       Repayment of $10     Private Placement
Date of Sale - January 31, 2003                                            $25,000,000   million First        pursuant to Rule 144A
                                                                  Cost of Issuance       Mortgage Bonds,      of the Securities
                                                                               $57,030   Series L, 8.03% to   Exchange Act of 1934
                                                                  Net Proceeds           CoBank.
                                                                           $24,942,970   Balance to pay
                                                                                         down the Company's
                                                                                         line of credit.
</TABLE>

SEC Regulation S-K, Item 703, we have no purchases of equity securities by the
issuer and affiliated purchasers.

                                        8
<PAGE>

ITEM 6. - SELECTED FINANCIAL DATA.

The selected consolidated financial data for each of the years in the 5-year
period ended December 31, 2004 are derived from the audited financial statements
of the Company. The following data should be read in conjunction with the
financial statements and related notes and also with Management's Discussion and
Analysis of Financial Condition and Results of Operations, which are included
elsewhere in this Annual Report on Form 10-K.

<TABLE>
<CAPTION>
In thousands, except per share and operating data       2004         2003         2002         2001         2000
--------------------------------------------------   ----------   ----------   ----------   ----------   ----------
<S>                                                  <C>          <C>          <C>          <C>          <C>
STATEMENT OF OPERATIONS DATA
     Operating revenues
     Water sales                                     $   37,985   $   35,164   $   33,644   $   31,362   $   27,090
     Other revenue                                        1,597        1,131          953          625          461
        Total operating revenues                     $   39,582   $   36,295   $   34,597   $   31,987   $   27,551

Operating expenses
     Operating and maintenance                       $   20,700   $   19,629   $   18,334   $   17,619   $   15,399
     Depreciation and amortization                        4,046        3,635        3,392        3,001        2,706
     State and federal income taxes                       2,892        2,387        2,825        2,184        1,619
     Property and other taxes                             2,070        2,115        1,871        1,782        1,616
        Total operating expenses                     $   29,708   $   27,766   $   26,422   $   24,586   $   21,340

Operating income                                     $    9,874   $    8,529   $    8,175   $    7,401   $    6,211
Other income, net                                           471          277          380          457          295
Total income before interest charges                 $   10,345   $    8,806   $    8,555   $    7,858   $    6,506

Interest charges                                     $    5,943   $    4,889   $    4,388   $    4,537   $    4,055

Net income                                           $    4,402   $    3,917   $    4,167   $    3,321   $    2,451
Dividends on preferred stock                                  2           71           42           51           61
Net income applicable to common stock                $    4,400   $    3,846   $    4,125   $    3,270   $    2,390

Net income per share of common stock:
     Basic                                           $     1.12   $     0.99   $     1.17   $     1.07   $     0.79
     Diluted                                         $     1.08   $     0.96   $     1.14   $     1.05   $     0.78

Avg. shares of common stock outstanding
     Basic                                                3,936        3,880        3,534        3,039        3,011
     Diluted                                              4,066        3,993        3,612        3,108        3,066
Cash dividends per share of common stock             $     0.83   $   0.7975   $     0.77   $     0.74   $     0.73

BALANCE SHEET DATA
Utility plant, at original cost
     less accumulated depreciation                   $  212,152   $  187,893   $  167,338   $  152,356   $  134,038
Total assets                                         $  227,380   $  216,324   $  183,072   $  163,534   $  144,407
Notes payable                                        $    9,213   $   12,499   $    3,163   $   16,118   $    2,000
Long-term obligations and
     redeemable preferred stock,
     including current portions                      $   83,437   $   80,846   $   64,591   $   50,998   $   52,236
Stockholders' equity                                 $   54,943   $   52,691   $   51,176   $   34,445   $   32,829
Total capitalization                                 $  137,299   $  133,249   $  115,246   $   84,015   $   83,846

OPERATING DATA
Average water sales per customer                     $      535   $      505   $      495   $      474   $      417
Water pumped (millions of gallons)                        7,166        7,199        7,198        7,321        6,886
Number of metered customers                              70,993       69,687       68,049       66,173       64,902
Miles of water main                                         977          938          917          888          872
</TABLE>

                                        9
<PAGE>

ITEM 7. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.

OVERVIEW

Our regulated water utility's earnings, which comprise 98.2% of the total
earnings, are directly affected by the amount and duration of precipitation
during periods when water is used for purposes outside the home or office such
as irrigation. In both 2004 and 2003, our service area experienced an unusual
amount of precipitation throughout the year, especially affecting the need for
irrigation by our customers. We do not expect this trend to continue although we
cannot reasonably predict the amount, timing and duration of precipitation nor
the effect it might have on our customers' water consumption. By comparison, in
2002, our service area was impacted by drought conditions that, because of the
duration of the drought period, resulted in mandatory restrictions for
non-essential water use for a period of 71 days. These restrictions had the
effect of reducing consumption through voluntary and mandatory restricted usage.

Our gross water sales revenues were also affected in 2004 by the implementation
of two interim rate increases associated with our application with the PSC on
February 5, 2004 for an increase in rates of 24%. We recognized revenues
reflecting a temporary increase of $2.5 million on an annual basis between April
and September 2004, and a secondary temporary increase of $3.0 million on an
annual basis effective September 2004, for a total from both of $5.5 million on
an annual basis.

Artesian Water Pennsylvania, Inc., our wholly owned Pennsylvania water utility
subsidiary, began operations in 2002, providing water service to a residential
community, consisting of 39 customers, in Chester County. One other subsidiary,
Artesian Wastewater Management, Inc., Artesian Wastewater, is a regulated entity
that will own wastewater infrastructure and provide wastewater services in
Delaware. Our other subsidiaries, neither of which is regulated, are Artesian
Utility Development, Inc., Artesian Utility, which designs and builds wastewater
infrastructure and provides contract wastewater services in Delaware, and
Artesian Development, Corporation, whose sole activity is the ownership of an
eleven-acre parcel of land. On October 14, 2003, we filed an application with
the Pennsylvania Public Utilities Commission to increase our service area in
Pennsylvania. This application, which concerns four specific developments that
are expected to add 350 customers over 10 years, was approved and an order
entered on February 4, 2005.

While water sales revenues are our primary source of gross revenues, generating
96.0% of total gross revenues, we continue to explore and develop relationships
with developers and municipalities in order to increase revenues from contract
water operations provided by Artesian Water and from wastewater management
services provided by both Artesian Wastewater and Artesian Utility. In 2004, our
efforts in the non-regulated operations of Artesian Utility led to an increase
in those revenues of $343,000, or 88.7%, over 2003. The increase reflected
revenues associated with design/build contracts for five wastewater treatment
plants. Our contract operations and wastewater management services provide a
revenue stream that is not affected by changes in weather patterns. We plan to
continue developing and expanding our contract operations and wastewater
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 in Delaware, which may be affected by
interest rates, inflation and general housing and economic market conditions.

Water Industry

A January 2004 federal Environmental Protection Agency report states that the
United States' water industry is comprised of approximately 54,000 community
water systems, 84% of which serve less than 3,300 customers. Only 14% of all
community water systems are run by investor-owned utilities. There are currently
11 publicly traded water utilities based in the United States. The rest are
privately or municipally owned systems. The water industry is capital intensive,
with the highest 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 of 1974 have required the water
industry to invest in more advanced treatment systems and processes, which
require a heightened level of expertise. 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 30 years.

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

                                       10
<PAGE>

mortgages have resulted, and will continue to result, in increases to our
customer base. Based on U.S. Census Bureau reports, Delaware has recorded an 18%
growth in residents from 1990 to 2000, with Sussex County providing a population
growth of 38% during the same period. From April 2000 to July 2003, Delaware has
recorded an estimated 4.3% growth in residents, with Sussex County providing an
estimated population growth of 7.3% during the same period. Substantial portions
of Delaware are not served by a public water system. Interest rates for
mortgages have fallen from 6.84% on average in December 2001 to 5.81% through
December 2004. Long-term interest rates for our recent First Mortgage Bond
issuance (see Note 6 to our Financial Statements) reflect a similar trend, as we
were able to reduce our overall weighted cost of debt from 7.93% in 2001 to
6.79% at the end of 2004.

Strategic Direction

We believe the effects of weather are short term and do not materially affect
the execution of our strategic initiatives. As we anticipated, our initiatives
south of the C&D Canal that began in 1992 are now providing the greatest portion
of our customer growth. This is occurring due to the build out of service area
in northern New Castle County. In 2004, we increased our customer base by 1.9%
and increased our service territory by 21.5 square miles, a 15.6% increase. We
continued to increase our sources of supply, adding about 4.0 million gallons to
our daily production capacity, to assure we have adequate high quality water
supply to meet our customer growth expectations.

Our strategy is to focus on total resource management covering a wide spectrum
of activities, which include identifying new and dependable sources of supply;
developing the wells, treatment plants and delivery systems to get water to the
customers; educating customers on the wise use of water; and providing
responsible wastewater management to assist with recharge of the aquifers. Our
strategy includes focusing our efforts to expand in new regions added to our
service territory over the last 10 years, where growth is strong and demand is
increasing. These regions have provided over half of our growth in customers in
2004 and we expect growth to remain strong in these regions. We also foresee
significant growth opportunities in our wastewater subsidiaries and will
continue to seek strategic partnerships and relationships with developers and
municipalities to complement existing agreements for the provision of wastewater
service in Delaware.

Regulatory Matters and Inflation

As of December 31, 2004, we had approximately 71,000 metered customers and
served a population of approximately 232,000, representing approximately 28% of
Delaware's total population. Increases in the number of customers served by
Artesian Water contribute to increases in our operating revenues. The PSC
regulates Artesian Water's rates charged for water service, the sale and
issuance of securities and other matters. We 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
PSC finds to be appropriate, the utility must refund the portion found to be in
excess to customers with interest.

We currently derive our water service revenues from water consumption, upon
which base rates are applied, which were last increased and placed into effect
September 7, 2004. On February 5, 2004, we filed with the PSC a rate application
requesting an increase in rates sufficient to generate an additional $8.8
million on an annual basis, or an approximate 24.22% increase, in gross water
sales revenue to recognize the significant increase in utility plant and
equipment placed in service and increases in operating expenses. On March 26,
2004, we filed a supplemental application reducing the requested increase to
$8.7 million, or approximately 23.8%. Temporary rates generating an additional
$2.5 million on an annual basis were placed into effect under surety, in lieu of
bond, on April 6, 2004. On September 7, 2004 we placed into effect an additional
$3.0 million in temporary rates as permitted by law. Hearings regarding the rate
increase were held in October 2004. As of December 31, 2004, we have reserved
$217,000 from revenue pending the final ruling by the PSC on our rate increase
request. We expect a final decision on this matter during the first six months
of 2005, but we cannot predict whether the PSC will approve the requested
increase, approve a smaller increase or deny the request altogether.

                                       11
<PAGE>

Delaware statute permits water utilities to put into effect, on a semi-annual
basis, increases related to specific types of distribution system improvements
through a Distribution System Improvement Charge, DSIC. This charge is available
to water utilities to be implemented between general rate increase applications
that normally recognize changes in a water utility's overall financial position.
The DSIC process significantly reduces expenses when compared to those typically
associated with general rate increase requests. We requested on November 30,
2003, and subsequently implemented, a 1.13% DSIC surcharge for bills rendered
subsequent to January 1, 2004. This surcharge was suspended on April 6, 2004
with the implementation of temporary rates associated with the rate application
filed on February 5, 2004. Between January 1 and April 6, 2004, the surcharge
generated approximately $87,000 in revenues.

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 costs compared to
investments made 20 to 40 years ago, which must be recovered from future cash
flows.

CRITICAL ACCOUNTING POLICIES

All additions to plant are recorded at cost. Cost includes direct labor,
materials, and indirect charges for such items as transportation, supervision,
pension, and other fringe benefits related to employees engaged in construction
activities. When depreciable units of utility plant are retired, the cost of
retired property, together with any cost associated with retirement and less any
salvage value or proceeds received, is charged to accumulated depreciation.
Maintenance, repairs, and replacement of minor items of plant are charged to
expense as incurred.

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. These estimates are
made on an individual customer basis, based on the previous year's consumption
in the same period, and are adjusted to reflect current changes in water demand
on a system-wide basis. 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, as the overall estimate has been adjusted to reflect
any change in overall demand on the system for the period.

Our regulated utilities record deferred regulatory assets under Statement of
Financial Accounting Standards No. 71, "Accounting for the Effects of Certain
Types of Regulation," which are expenses that may be recovered over various
lengths of time as prescribed by the PSC. As the utility incurs certain
expenses, such as expenses related to rate case applications, a deferred
regulatory asset is created. Adjustments to these deferred regulatory assets are
made when the PSC 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 no longer
recoverable in rates charged to customers. Adjustments to reflect changes in
recoverability of certain deferred regulatory assets may have a material effect
on our financial results.

RESULTS OF OPERATIONS

2004 COMPARED TO 2003

OPERATING REVENUES

Revenues totaled $39.6 million in 2004 and were 9.1% above revenues in 2003 of
$36.3 million, which is primarily due to an increase of $2.8 million, or 8.0%,
in water sales revenue, reflecting a 1.9% increase in the number of customers
served and rate increases placed in effect in 2003 and 2004. The remaining
increase in total revenues is due to a $343,000, or 88.7%, increase in
non-utility operating revenues. We realized 96.0% of our total revenue in 2004
from the sale of water, compared to 96.9% in 2003; the percentage decrease is
primarily due to an increase in contract revenues.

On February 5, 2004, Artesian Water filed a petition with the PSC seeking to
raise rates for water service by 24% or $8.8 million, on an annualized basis.
The PSC, on March 16, 2004, suspended the implementation of the proposed new
rates pending further investigation and public evidentiary hearings. Pending
these hearings and a final ruling by the PSC, Artesian Water, as is permitted by
law, placed $2.5 million of the proposed rates into effect under surety, in lieu
of bond, beginning April 6, 2004. Beginning September 7, 2004, Artesian Water
placed an additional $3.0 million of the proposed rates into effect, for a total
annualized revenue increase of 15%. These revised

                                       12
<PAGE>

temporary rates will remain in effect until the level of permanent rates is
decided by the PSC. If this permitted temporary rate increase is determined to
be in excess of rates that the PSC ultimately deems appropriate, Artesian Water
will be required to refund the excess portion plus interest to its customers. As
of December 31, 2004, we have reserved $217,000, or approximately 14% of 2004
temporary rate revenue, in anticipation of such a refund. Any revenues that have
been deferred and are subsequently approved for recovery will be recorded as
revenue in 2005.

PERCENTAGE OF OPERATING REVENUES

                                          2004          2003          2002
                                       ----------    ----------    ----------
     Residential                            59.07%        59.83%        59.57%
     Commercial                             23.66%        24.00%        23.83%
     Industrial                              0.79%         0.88%         1.31%
     Government and Other                   12.45%        12.17%        12.54%
     Other utility operating revenues        2.19%         2.05%         1.92%
     Non-utility operating revenues          1.84%         1.07%         0.83%
                                       ----------    ----------    ----------
          Total                            100.00%       100.00%       100.00%

RESIDENTIAL

Residential water service revenues in 2004 amounted to $23.4 million, an
increase of $1.7 million, or 7.7%, over the $21.7 million recorded in 2003,
primarily due to rate increases in effect. The increase in 2004 follows an
increase of $1.1 million, or 5.3%, in 2003. The volume of water sold to
residential customers increased from 3,650 million gallons in 2003 to 3,680
million gallons in 2004. Although the number of residential customers served
increased 1,266 or 1.9% in 2004, unusually wet weather during the summer of 2004
suppressed water demand.

COMMERCIAL

Revenues from commercial customers in 2004 increased by 7.5% to $9.4 million,
from $8.7 million in 2003 due to rate increases in 2004. The number of
commercial customers served increased 0.5% in 2004 and the 2,159 million gallons
of water sold to commercial customers in 2004 was nearly the same as the 2,166
million gallons sold in 2003, as unusually wet weather in 2004 and 2003
suppressed demand by these customers.

INDUSTRIAL

Revenues from industrial customers decreased by 2.2% from $318,000 in 2003 to
$311,000 in 2004. The volume of water sold to industrial customers decreased
42.1% from 117 million gallons in 2003 to 68 million gallons in 2004 primarily
as a result of decreased usage by customers and serving two fewer customers. It
is currently unknown whether consumption will return to its former level. During
2004, one of our industrial customers shut down its plant for retrofitting. Due
to minimum take provisions in our contract with this customer, payments up to
the contract requirement were made. Therefore, although revenues remained
relatively stable for 2004 versus 2003, consumption declined.

GOVERNMENT AND OTHER

Government and other revenues in 2004 increased by 11.5% to $4.9 million from
$4.4 million in 2003. The increase was primarily driven by revenues derived from
fire protection services, which totaled $2.6 and $2.3 million in 2004 and 2003,
respectively. This increase in fire protection services revenue resulted from
increases in rates.

OTHER UTILITY OPERATING REVENUE

Other utility operating revenue, derived from contract operations, antenna
leases on water tanks and finance charges increased 16.5% in 2004 to $868,000
from $744,000 in 2003. The increase is a result of increased service charges to
customers primarily due to increased service turn-on and shut-off activity.
Additionally, we have experienced an

                                       13
<PAGE>

increase in the number of antenna leases.

NON-UTILITY OPERATING REVENUE

Non-utility operating revenue, derived from non-regulated wastewater operations,
increased 88.7% in 2004 to $730,000 from $387,000 in 2003. The increase
reflected revenues associated with design/build contracts for five wastewater
treatment plants.

OPERATING EXPENSES

Operating expenses, excluding depreciation and taxes, increased approximately
$1.1 million, or 5.5%, to $20.7 million in 2004. The increase in operating
expenses resulted primarily from increases in administrative expenses, repair
and maintenance expenses, and non-utility operating expenses. Administrative
expenses increased by $417,000 primarily as a result of consulting fees
associated with the implementation of the Sarbanes-Oxley Act and increased audit
fees, which represented $298,000 of the $417,000 increase. Repair and
maintenance expenses increased $273,000 from 2003 levels due to computer
hardware and software support fees, replacement of a water treatment filter
media, and fuel price increases. Non-utility operating expenses increased by
$268,000 primarily due to engineering services for new projects for Artesian
Utility. As a percentage of total operating expenses, payroll and associated
expenses have declined; however, actual expense for payroll and associated
expenses have marginally increased primarily due to a 15% increase in medical
insurance premiums effective August 2004. Payroll and related expense was also
affected in 2004 by the capitalization of $315,733 associated with our internal
staff effort to convert our customer information system computer programs. We
expect that this effort will be concluded in the first half of 2005.

OPERATING AND MAINTENANCE EXPENSES

<TABLE>
<CAPTION>
                                                        2004          2003          2002
                                                     ----------    ----------    ----------
     <S>                                                 <C>           <C>           <C>
     Payroll and Associated Expenses                      48.79%        50.98%        52.47%
     Purchased Water                                      14.47%        15.16%        13.55%
     Repair and Maintenance                                6.60%         5.57%         5.48%
     Water Treatment                                       3.12%         3.28%         3.47%
     Administrative                                       24.55%        23.76%        23.96%
     Non-utility Operating                                 2.48%         1.25%         1.07%
                                                     ----------    ----------    ----------
          Total operating and maintenance expenses       100.00%       100.00%       100.00%
</TABLE>

Depreciation and amortization expense increased $410,000, or 11.3%, due to
increases in our utility plant in service during 2004. Income tax expense
increased $506,000, or 21.2%, due to higher profitability in 2004. Our total
effective income tax rate for 2004 and 2003 was 39.6% and 37.9%, respectively.

OTHER INCOME, NET

Other Income increased $194,000, primarily due to the receipt of dividend income
from CoBank.

INTEREST CHARGES

Interest charges increased $1.1 million, or 21.6%, primarily due to an $897,000
increase in long-term debt interest associated with the issuance of $15.4
million in First Mortgage Bonds (Series Q) in December 2003 used to finance
additions to utility plant. The remaining increase is due to higher average
short-term debt balances and interest rates versus last year. Average
outstanding lines of credit during 2004 of $11.8 million increased by $3.2
million, compared to the average outstanding lines of credit during 2003 of $8.6
million. The average interest rate applied to these balances increased from 2.2%
in 2003 to 2.4% in 2004 due to an increasing interest rate environment in 2004.

                                       14
<PAGE>

NET INCOME

For the year ended December 31, 2004, our net income applicable to common stock
increased $555,000, or 14.4%, compared to 2003. The increase in net income was
primarily due to the implementation of increases in water utility rates to
recover investments made in utility plant and the related increases in
depreciation and interest expense. Non-utility operations also contributed
$135,000 to the increase in net income.

2003 COMPARED TO 2002

OPERATING REVENUES

Revenues totaled $36.3 million in 2003 and were 4.9% above revenues in 2002 of
$34.6 million, reflecting an increase in water sales of 4.5% due to customer
growth and rate increases approved by the PSC in 2003. We realized 96.9% of our
total revenue in 2003 from the sale of water, compared to 97.2% in 2002.

On April 2, 2002, Artesian Water filed a petition with the PSC seeking to raise
rates for water service by 23.12% or $7.5 million. The PSC, on April 16, 2002,
suspended the implementation of the proposed new rates pending further
investigation and public evidentiary hearings. Pending these hearings and a
final ruling by the PSC, Artesian Water, as is permitted by law, placed 7.71% of
the proposed rates into effect under bond beginning June 1, 2002. Beginning
December 3, 2002, Artesian Water placed an additional 3.69% of the proposed
rates into effect. On April 15, 2003, the PSC issued PSC Order No. 6147
approving an increase in Artesian Water's revenue requirement of 9.68% effective
May 1, 2003. These rates represented an increase in water consumption charges,
customer charges, and fire hydrant ready-to-serve charges necessary to generate
an increase in annual operating revenues of approximately $3.3 million. Since
temporary rates were in excess of the final rate increase, in June 2003 we
refunded approximately $201,000 plus interest to our customers. Since Artesian
Water had reserved revenue related to the second temporary increase of $234,000,
an additional $33,000 was recorded to revenue for the second quarter.

RESIDENTIAL

Residential water service revenues in 2003 amounted to $21.7 million, an
increase of 5.3% over the $20.6 million recorded in 2002. The increase in 2003
followed an increase of 6.9% in 2002. The volume of water sold to residential
customers increased from 3,627 million gallons in 2002 to 3,650 million gallons
in 2003. Although the number of residential customers served increased 2.6% in
2003, unusually wet weather during the summer of 2003 suppressed water demand.

COMMERCIAL

Revenues from commercial customers in 2003 increased by 6.1% to $8.7 million,
from $8.2 million in 2002 due to rate increases in 2003. The number of
commercial customers served increased 0.9% in 2003 and the 2,166 million gallons
of water sold to commercial customers in 2003 was nearly the same as the 2,167
million gallons sold in 2002, as unusually wet weather in 2003 and restrictions
on water use imposed during the drought of 2002 both suppressed demand by these
customers.

INDUSTRIAL

Revenues from industrial customers decreased by 29.8% from $453,000 in 2002 to
$318,000 in 2003. The volume of water sold to industrial customers decreased
47.1% from 221 million gallons in 2002 to 117 million gallons in 2003 primarily
as a result of decreased usage by three of our industrial customers and it is
currently unknown whether it will return to its former level.

GOVERNMENT AND OTHER

Government and other revenues in 2003 increased by 2.3% to $4.4 million from
$4.3 million in 2002. Revenues derived from fire protection services totaled
$2.3 million in 2003 and 2002. The increase in revenue resulted from increases
in rates, offset by decreased resale customer consumption.

                                       15
<PAGE>

OTHER UTILITY OPERATING REVENUE

Other utility operating revenue, derived from contract operations, antenna
leases on water tanks and finance charges increased 11.7% in 2003 to $744,000
from $666,000 in 2002. This is primarily a result of an increase in revenues
from vendor discounts for payment of invoices and from increased finance
charges.

NON-UTILITY OPERATING REVENUE

Non-utility operating revenue, derived from non-regulated wastewater operations,
increased 34.7% in 2003 to $387,000 from $287,000 in 2002. This is primarily a
result of an increase in revenues from contract operation services as a result
of the operation of the Middletown Wastewater Treatment Plant for a full year in
2003 versus a partial year in 2002.

OPERATING EXPENSES

Operating expenses, excluding depreciation and taxes, increased approximately
$1.3 million, or 7.1%, to $19.6 million in 2003. The increase in operating
expenses resulted primarily from increases in payroll and related expenses,
purchased water and administrative expenses. Payroll and related expenses
increased by $386,000, or 4.0%, due to increases in annual merit compensation
and medical insurance premiums. Purchased water expense increased $491,000 from
2002 levels due to the Chester Water Authority removing minimum purchase
requirements due to the drought conditions in the summer and fall of 2002 and
our ability to rely on our less costly groundwater supply in 2002.
Administrative expenses increased by $272,000 due to increased power expense due
to additional pumping and treatment stations, and due to increased property and
liability insurance. The ratio of operating expense, excluding depreciation and
taxes, to total revenue was 54.1% for the year ended December 31, 2003, compared
to 53.0% for the year ended December 31, 2002.

Depreciation and amortization expense increased $243,000, or 7.2%, due to
increases in our utility plant in service during 2003. Income tax expense
decreased $438,000, or 15.5%, due to decreased profitability in 2003. Our total
effective income tax rate for 2003 and 2002 was 37.9% and 40.4%, respectively.

INTEREST CHARGES

Interest charges increased $501,000, or 11.4%, primarily due to a $777,000
increase associated with the net issuance of $15 million in First Mortgage Bonds
in December 2003 for financing additions to utility plant. This was partially
offset by lower interest expense associated with short-term debt. Average
outstanding lines of credit during 2003 of $8.6 million decreased by $7.9
million, compared to the average outstanding lines of credit during 2002 of
$16.5 million, as a result of the issuance of the First Mortgage Bonds. The
average interest rate applied to these balances decreased from 2.7% in 2002 to
2.2% in 2003 due to a decreasing interest rate environment in 2003.

NET INCOME

For the year ended December 31, 2003, our net income applicable to common stock
decreased $279,000, or 6.8%, compared to 2002. The decrease in net income was
primarily due to unusually wet weather conditions during the summer of 2003 that
reduced customer water usage, an increase in purchased water expense compared to
2002 when minimum purchase requirements were waived during drought conditions,
and increased interest expense associated with the issuance of debt to finance
additions to utility plant.

LIQUIDITY AND CAPITAL RESOURCES

OVERVIEW

Our primary sources of liquidity for 2004 were $11.4 million provided by cash
flow from operating activities and $17.2 million from financing activities,
which includes $5.9 million in contributions and advances. 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.

We rely on our sources of liquidity for investments in our utility plant and to
meet our various payment obligations. We expect that our aggregate investments
in our utility plant and systems in 2005 will be approximately $20.0 million.
Our total obligations related to interest and principal payments on
indebtedness, rental payments and water

                                       16
<PAGE>

service interconnection agreements for 2005 are anticipated to be approximately
$9.6 million. We expect that our available cash balances, our projected cash
generated from operations and available bank credit lines will be sufficient to
fund our activities for the next year.

INVESTMENT IN UTILITY PLANT AND SYSTEMS

Capital expenditures increased by approximately $4.0 million for the year ended
December 31, 2004, or approximately 16.4%, from $24.6 million in 2003 to $28.6
million in 2004. Investment in utility plant, excluding advances and
contributions in aid of construction received from real estate developers,
increased by $0.7 million, or 3.1%, from $22.2 million in 2003 to $22.9 million
in 2004. Reflecting increased development activity, developers financed $5.4
million for the installation of water mains and hydrants serving their
developments in 2004, compared to $1.4 million financed by developers in 2003.

We invested approximately $12.4 million in new transmission and distribution
facilities, including refunds of advances for developer-financed infrastructure.
Of the $12.4 million invested, we invested $8.7 million in new infrastructure
and $3.7 million in our rehabilitation program for transmission and distribution
facilities, replacing aging or deteriorating mains. An investment of $7.4
million was made to enhance or improve existing treatment facilities,
rehabilitation of pumping equipment and installation of new wells to increase
supply capabilities. The remaining $3.4 million of capital investment in 2004
was made for general plant, including a major software application upgrade which
is expected to be implemented by the 2nd Quarter of 2005.

INVESTMENT IN UTILITY PLANT AND SYSTEMS

<TABLE>
<CAPTION>
In thousands                                            2004         2003         2002
--------------------------------------------------   ----------   ----------   ----------
<S>                                                  <C>          <C>          <C>
Source of supply                                     $      832   $    6,113   $    1,491
Treatment and pumping                                     6,546          569        5,686
Transmission and distribution                            12,419       10,699        7,451
General plant and equipment                               3,364        5,806        1,429
Developer financed utility plant                          5,435        1,375        2,345
                                                     ----------   ----------   ----------
     Total investment in utility plant and systems   $   28,596   $   24,562   $   18,402
</TABLE>

We have planned to invest approximately $20.0 million in utility plant in 2005.
Developers are expected to finance an additional $6.7 million in utility plant
construction. The largest portion of projected investment is primarily a result
of our efforts to identify, develop, treat and protect sources of water supply
to assure uninterrupted service to our customers. We expect to invest
approximately $3.7 million in new treatment facilities, equipment and wells
throughout Delaware.

As part of our total utility plant investment, we expect to invest over $11.5
million in transmission and distribution facilities. We expect approximately
$5.0 million will be invested in the relocations of facilities as a result of
government mandates and renewals associated with the rehabilitation of aging
infrastructure. We also expect investing approximately $6.4 million in new
transmission and distribution facilities to improve our system hydraulics and
address service needs in growth areas of our service territory.

OFF-BALANCE SHEET ARRANGEMENTS

We do not have any off-balance sheet arrangements, including any arrangements
with any structured finance, special purpose or variable interest entities.

FINANCING

We have several sources of liquidity to finance our investment in utility plant
and other fixed assets. We estimate that the projected investment of
approximately $20.0 million will be financed by our operations and external
sources, including a combination of capital investment and borrowings from the
Delaware Drinking Water State Revolving Fund and short-term borrowings under our
revolving credit agreements discussed below. Developers are expected to finance,
through advances and contributions in aid of construction, an additional $6.7
million of capital

                                       17
<PAGE>

expenditures, which includes the installation of mains and hydrants in new
developments.

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 the PSC.

At December 31, 2004, Artesian Water had lines of credit with two separate
financial institutions totaling $40.0 million to meet temporary cash
requirements. These facilities increased by $5.0 million on approval of the
Board of Directors on September 24, 2004. These revolving credit facilities are
unsecured. As of December 31, 2004, we had $30.8 million of available funds
under these lines. The interest rate for borrowings under each of these lines is
the London Interbank Offering Rate, LIBOR, plus 1.0% or, at our discretion, the
banks' federal funds rate plus 1.0%. Each bank reviews all of their facilities
annually for renewal.

At December 31, 2004, Artesian Utility and Artesian Wastewater had lines of
credit with a financial institution for $3.5 million and $1.5 million,
respectively, to meet temporary cash requirements. These revolving credit
facilities are unsecured. As of December 31, 2004, we had not borrowed funds
under these lines. The interest rate for borrowings under each of these lines is
the LIBOR plus 1.75%. The bank reviews its facilities annually for renewal.

We may, from time to time, sell our securities to meet capital requirements. The
amount and timing of future sales of our securities will depend upon market
conditions and our specific needs. Our trust indentures, which set certain
criteria for the issuance of new long-term debt, limit long-term debt, including
the short-term portion thereof, to 66 2/3% of total capitalization. Our debt to
total capitalization, including the short-term portion thereof, was 59.98% at
December 31, 2004.

On February 25, 2003, Artesian Water Company, Inc., the Company, entered into an
agreement to borrow up to $2,900,285 from the Delaware Drinking Water State
Revolving Fund, the Fund at an interest rate of 3.57%. The loan was used for
costs associated with the installation of new public water systems for Keen-wick
West/Keen-wick South and Route 54, Phase II projects in Sussex County, Delaware.
As of December 31, 2004 the Company borrowed $2,188,184 of which $717,269, which
was repaid to the Fund on February 9, 2005. We have notified the state that we
will not draw the remaining available funds.

On November 7, 2003, Artesian Water Company, Inc. entered into another agreement
to borrow $5,456,495 from the Fund for a term of twenty years at an interest
rate of 3.64%. The loan was used for costs associated with the replacement and
rehabilitation of transmission and distribution mains within several
developments in our northern New Castle County service territory. Through
December 31, 2004 the Company borrowed $1,971,415. We have notified the state
that we will not draw the remaining funds.

On December 23, 2003, Artesian Water issued $15.4 million, 4.75%, 40 year Series
Q First Mortgage Bonds. These bonds are tax-free and were issued for the Company
through the Delaware Economic Development Authority to finance utility
construction projects. The proceeds from these bonds are held on our behalf by
the First Mortgage Bond Trustee, Wilmington Trust, and will be disbursed to us
as construction is completed. Interest, which accrues to our benefit, is added
to the fund for use in completing construction of the various approved projects.
The remaining $502,796 was disbursed to the Company on January 26, 2005.

On May 4, 1999, Artesian Resources purchased 126,353 shares of Class B Common
Stock and 24,165 shares of Class A Non-Voting Common Stock from Ellis D. Taylor
and his spouse, Helena C. Taylor, in exchange for a promissory note, the Note,
in the principal amount of $4,450,000 representing the purchase price of the
stock, with a discounted present value of $4,307,000. The Note was payable
quarterly, on a calendar basis, over a four-year period and in sixteen equal
principal installments of $278,125 commencing on June 30, 1999. The outstanding
balance on the Note bore interest in an amount computed based on the quarterly
dividend the Taylors would have received on the stock transferred to Artesian
Resources but not yet paid for by Artesian Resources. In addition, the principal
installment was adjusted on a quarterly basis to reflect changes in the book
value per common share of the Company as reported in its most recent quarterly
financial statement distributed to stockholders prior to the quarterly payment.
Such amounts represented contingent purchase price of the stock and were charged
to retained earnings. The note was paid in full on March 25, 2003.

                                       18
<PAGE>

CONTRACTUAL OBLIGATIONS

<TABLE>
<CAPTION>
                                                                    PAYMENTS DUE BY PERIOD
                                           ------------------------------------------------------------------------
                                             Less than         1-3            4-5          After 5
In thousands                                  1 Year          Years          Years          Years          Total
------------------------------------       ------------   ------------   ------------   ------------   ------------
<S>                                        <C>            <C>            <C>            <C>            <C>
First Mortgage Bonds                       $         --   $     15,000   $         --   $     60,400   $     75,400
State revolving fund loans                        1,082            766            798          5,391          8,037
Operating leases                                     87             36             24             --            147
Unconditional purchase                            2,982          5,703          5,417         32,478         46,580
 obligations
Tank painting contractual obligation                249             --             --             --            249
                                           ------------   ------------   ------------   ------------   ------------
 Total contractual cash
  obligations                              $      4,400   $     21,505   $      6,239   $     98,269   $    130,413
                                           ============   ============   ============   ============   ============
</TABLE>

Long-term debt obligations reflect the maturities of certain series of our first
mortgage bonds, which we intend to refinance when due. The state revolving fund
loan obligation has an amortizing mortgage payment, payable over a 20-year
period, and will be refinanced as future securities are issued. Both the
long-term debt and the state revolving fund loan have certain financial covenant
provisions, which could result in default and require the obligation to be
repaid, however, there are also specific cure provisions, which allow us to
avoid default of the obligation. We have not experienced conditions, which would
result in our default under these agreements, and we do not anticipate any such
occurrence. Payments for unconditional purchase obligations reflect minimum
water purchase obligations based on rates that are subject to change under our
interconnection agreements with neighboring utilities. We have received notice
from Chester Water Authority regarding a rate increase effective July 1, 2005,
and incorporated the increase in future obligations noted above.

<TABLE>
<CAPTION>
                                  Less than
  Commitments      Committed        1 Year        1-3 Years      4-5 Years    Over 5 Years
---------------   ------------   ------------   ------------   ------------   ------------
<S>               <C>            <C>                      <C>            <C>            <C>
Lines of Credit   $      9,213   $      9,213             --             --             --
</TABLE>

IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS

In December 2004, the FASB issued Statement No. 123 (revised 2004), "Share-Based
Payment". This Statement is a revision of FASB Statement No. 123, "Accounting
for Stock-Based Compensation". This Statement supersedes APB Opinion No. 25,
"Accounting for Stock Issued to Employees", and its related implementation
guidance. This Statement establishes standards for the accounting for
transactions in which an entity exchanges its equity instruments for goods or
services. This Statement is effective as of the beginning of the first interim
or annual reporting period that begins after June 15, 2005. We have not yet
determined whether the adoption of this statement will have a material impact on
our financial condition or results of operation.

In December 2004, the FASB issued Statement No. 153, "Exchanges of Nonmonetary
Assets - an amendment of APB Opinion No. 29". The guidance in APB Opinion No.
29, "Accounting for Nonmonetary Transactions", is based on the principle that
exchanges of nonmonetary assets should be measured based on the fair value of
the assets exchanged. The guidance in that Opinion, however, included certain
exceptions to that principle. This Statement amends Opinion 29 to eliminate the
exception for nonmonetary exchanges of similar productive assets and replaces it
with a general exception for exchanges of nonmonetary assets that do not have
commercial substance. A nonmonetary exchange has commercial substance if the
future cash flows of the entity are expected to change significantly as a result
of the exchange. The adoption of this statement did not have a material impact
on our financial condition or results of operation.

In December 2003, the FASB issued revised Statement No. 132, "Employers'
Disclosures about Pensions and Other Postretirement Benefits-an amendment of
FASB Statements No. 87, 88, and 106." This statement requires additional
disclosures to those in the original Statement No. 132 about the assets,
obligations, cash flows, and net periodic benefit cost of defined pension plans
and other defined benefit postretirement plans. Disclosures for earlier annual
periods presented for comparative purposes are restated. This statement was
adopted as of December 31, 2003 and the additional disclosures required for our
postretirement benefit obligation are presented in Note 10. The adoption of this
statement did not have a material impact on our financial condition or results
of operation.

                                       19
<PAGE>

In December 2003, the FASB issued revised Interpretation No. 46, "Consolidation
of Variable Interest Entities - an interpretation of ARB No. 51". This
Interpretation of ARB No. 51, Consolidated Financial Statements, addresses
consolidation by business enterprises of variable interest entities, which have
one or more of the following characteristics: (1) The equity investment at risk
is not sufficient to permit the entity to finance its activities without
additional subordinated financial support provided by any parties, including the
equity holders (2) The equity investors lack one or more of the following
essential characteristics of a controlling financial interest: the direct or
indirect ability to make decisions about the entity's activities through voting
rights or similar rights; the obligation to absorb the expected losses of the
entity; or the right to receive the expected residual returns of the entity (3)
The equity investors have voting rights that are not proportionate to their
economic interests, and the activities of the entity involve or are conducted on
behalf of an investor with a disproportionately small voting interest. The
Company adopted this statement in 2004, however, it did not have a material
impact on our financial condition or results of operation.

CAUTIONARY STATEMENT

Statements in this Annual Report which express our "belief," "anticipation,"
"projection" 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, Section 21E of the Securities Exchange Act of 1934,
as amended, or the Exchange Act and the Private Securities Litigation Reform Act
of 1995. These may include statements regarding our goals, priorities and growth
and expansion plans for our water and wastewater subsidiaries, the timing and
the amount of a final decision in our pending rate case, exact amounts that may
be collected under temporary rate increases, the adequacy of our reserve for a
potential refund of revenues received under temporary rates upon a final
decision by the PSC on our request for an increase in rates and the potential
impact on revenue in 2005, our investment in utility plant and systems in 2005,
our sources of financing, and water quality standards. Also included are our
anticipated payments due in 2005 and satisfaction of our debt covenants. Such
statements involve risks and uncertainties that could cause actual results to
differ materially from those projected, including material changes in demand
from larger customers, changes in weather, availability of labor, changes in
government policies, levels of rate relief granted and changes in economic
conditions and the other risks described in this document. All of the
forward-looking statements made in this Annual Report are based on our current
beliefs and we undertake no obligation to update any of these cautionary
statements.

ITEM 7A. - QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.

        None.

                                       20
<PAGE>

ITEM 8. -  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                                        December 31,
                                                                                ---------------------------
In thousands                                                                        2004           2003
-----------------------------------------------------------------------------   ------------   ------------
<S>                                                                             <C>            <C>
ASSETS
Utility plant, at original cost less accumulated depreciation                   $    212,152   $    187,893
Current assets
     Cash and cash equivalents                                                         1,217          1,128
     Accounts receivable, net                                                          3,806          2,408
     Income tax receivable                                                                --            841
     Unbilled operating revenues                                                       2,372          2,745
     Materials and supplies - at cost on FIFO basis                                      932            801
     Prepaid property taxes                                                              765            711
     Prepaid expenses and other                                                          565            577
                                                                                ------------   ------------
                                                                                       9,658          9,211
                                                                                ------------   ------------
Other assets
     Non-utility property (less accumulated depreciation 2004-$108; 2003-$75)            337            334
     Restricted cash                                                                     503         14,219
     Other deferred assets                                                             2,626          2,544
                                                                                ------------   ------------
                                                                                       3,466         17,097
Regulatory assets, net                                                                 2,104          2,123
                                                                                ------------   ------------
                                                                                $    227,380   $    216,324
                                                                                ============   ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Stockholders' equity
     Common stock                                                               $      3,956   $      3,901
     Additional paid-in-capital                                                       42,222         41,160
     Retained earnings                                                                 8,765          7,630
                                                                                ------------   ------------
        Total stockholders' equity                                                    54,943         52,691
Long-term debt, net of current portion                                                82,356         80,558
                                                                                ------------   ------------
                                                                                     137,299        133,249
                                                                                ------------   ------------
Current liabilities
     Notes payable                                                                     9,213         12,499
     Current portion of long-term debt                                                 1,082            188
     Current portion of mandatorily redeemable preferred stock                            --            100
     Accounts payable                                                                  2,173          1,831
     Accrued expenses                                                                  1,989          2,120
     Overdraft payable                                                                 1,812          1,337
     Deferred income taxes                                                               150            213
     Interest accrued                                                                    354            267
     Customer deposits                                                                   470            422
     Other                                                                             1,197            697
                                                                                ------------   ------------
                                                                                      18,440         19,674
                                                                                ------------   ------------
Deferred credits and other liabilities
     Net advances for construction                                                    21,456         19,175
     Postretirement benefit obligation                                                 1,169          1,232
     Deferred investment tax credits                                                     816            843
     Deferred income taxes                                                            14,774         11,775
                                                                                ------------   ------------
Commitments and contingencies (Note 11)
                                                                                      38,215         33,025
Net contributions in aid of construction                                              33,426         30,376
                                                                                ------------   ------------
                                                                                $    227,380   $    216,324
                                                                                ============   ============
</TABLE>

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

                                       21
<PAGE>

CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                                      For the Year Ended December 31,
                                                                                -------------------------------------------
In thousands, except per share amounts                                              2004           2003            2002
-----------------------------------------------------------------------------   ------------   ------------    ------------
<S>                                                                             <C>            <C>             <C>
Operating revenues
     Water sales                                                                $     37,985   $     35,164    $     33,644
     Other utility operating revenue                                                     868            744             666
     Non-utility operating revenue (Note 7)                                              729            387             287
                                                                                ------------   ------------    ------------
                                                                                      39,582         36,295          34,597
                                                                                ------------   ------------    ------------
Operating expenses
     Utility operating expenses                                                       20,187         19,245          17,963
     Non-utility operating expenses (Note 7)                                             513            245             196
     Related party expenses (Note 8)                                                      --            139             175
     Depreciation and amortization                                                     4,046          3,635           3,392
     Taxes
        State and federal income
           Currently payable (Note 3)                                                     --         (1,543)            693
           Deferred (Note 3)                                                           2,892          3,930           2,132
        Property and other                                                             2,070          2,115           1,871
                                                                                ------------   ------------    ------------
                                                                                      29,708         27,766          26,422
                                                                                ------------   ------------    ------------
Operating income                                                                       9,874          8,529           8,175
                                                                                ------------   ------------    ------------
Other income, net
     Allowance for funds used during construction                                        302            230             380
     Miscellaneous                                                                       169             47              --
                                                                                ------------   ------------    ------------
                                                                                         471            277             380
                                                                                ------------   ------------    ------------
Income before interest charges                                                        10,345          8,806           8,555

Interest charges                                                                       5,943          4,889           4,388
                                                                                ------------   ------------    ------------
Net income                                                                             4,402          3,917           4,167
Dividends on preferred stock and redemption premium                                        2             71              42
                                                                                ------------   ------------    ------------
NET INCOME APPLICABLE TO COMMON STOCK                                           $      4,400   $      3,846    $      4,125

Income per common share:
     Basic                                                                      $       1.12   $       0.99    $       1.17
     Diluted                                                                    $       1.08   $       0.96    $       1.14

Weighted average common shares outstanding:
     Basic                                                                             3,936          3,880           3,534
     Diluted                                                                           4,066          3,993           3,612
Cash dividends per share of common stock                                        $       0.83   $     0.7975    $       0.77
</TABLE>

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

                                       22
<PAGE>

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                                      For the Year Ended December 31,
                                                                                -------------------------------------------
In thousands                                                                        2004           2003            2002
-----------------------------------------------------------------------------   ------------   ------------    ------------
<S>                                                                             <C>            <C>             <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income                                                                      $      4,402   $      3,917    $      4,167

Adjustments to reconcile net cash provided by operating activities:
     Depreciation and amortization                                                     4,046          3,635           3,238
     Deferred income taxes, net                                                        2,908          3,930           2,104
     Allowance for funds used during construction                                       (302)          (230)           (380)
Changes in assets and liabilities:
     Accounts receivable, net                                                         (1,398)           335            (133)
     Income tax receivable                                                               841           (841)             --
     Receivable, other                                                                    --          3,800          (3,800)
     Unbilled operating revenues                                                         373            (27)           (559)
     Materials and supplies                                                             (131)           (89)            (96)
     Prepaid property taxes                                                              (54)           (60)            (62)
     Prepaid expenses and other                                                           12           (155)             26
     Other deferred assets                                                               (66)          (557)            124
     Regulatory assets                                                                    19            314            (209)
     Accounts payable                                                                     52             33             239
     Accrued expenses                                                                    158            799          (1,865)
     State and federal income taxes                                                       --           (135)             97
     Interest accrued                                                                     87           (302)             14
     Customer deposits and other, net                                                    549           (196)            (89)
     Postretirement benefit obligation                                                   (63)           (66)            (62)
                                                                                ------------   ------------    ------------
Net cash provided by operating activities                                             11,434         14,105           2,754
                                                                                ------------   ------------    ------------
CASH FLOWS USED IN INVESTING ACTIVITIES
     Capital expenditures (net of AFUDC)                                             (28,596)       (24,562)        (18,402)
     Proceeds from sale of assets                                                         11             13              13
     Investments in unconsolidated affiliates                                             (4)             9             (15)
                                                                                ------------   ------------    ------------
Net cash used in investing activities                                                (28,589)       (24,540)        (18,404)
                                                                                ------------   ------------    ------------
CASH FLOWS FROM FINANCING ACTIVITIES
     Net borrowings under line of credit agreements                                   (3,286)         9,336           1,716
     Overdraft payable                                                                   475            628            (274)
     Net advances and contributions in aid of construction                             5,912          2,024           2,542
     Proceeds from issuance of long-term debt                                          2,929         26,588              --
     Restricted funds from issuance of tax-free bonds                                     --        (14,219)             --
     Decrease in restricted funds                                                     13,716             --              --
     Deferred debt issuance costs                                                        (12)          (927)             --
     Net proceeds from issuance of common stock                                        1,117            769          15,560
     Dividends                                                                        (3,267)        (3,177)         (2,724)
     Principal repayments of long-term debt                                             (240)       (10,233)         (1,249)
     Redemption of preferred stock                                                      (100)          (100)           (100)
                                                                                ------------   ------------    ------------
Net cash provided by financing activities                                             17,244         10,689          15,471
                                                                                ------------   ------------    ------------
Net increase (decrease) in cash and cash equivalents                                      89            254            (179)

Cash and cash equivalents at beginning of year                                         1,128            874           1,053
                                                                                ------------   ------------    ------------
Cash and cash equivalents at end of year                                        $      1,217   $      1,128    $        874
                                                                                ------------   ------------    ------------
Supplemental Disclosures of Cash Flow Information:
     Interest paid                                                              $      5,771   $      5,141    $      4,312
     Income taxes paid                                                          $         --   $        150    $        440
</TABLE>

See Note 1 (Stock Split) for a discussion of non-cash financing activity.

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

                                       23
<PAGE>

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
                                                           Common Shares
                                      Preferred Shares      Outstanding       Common Shares
                                       Outstanding 7%         Class A          Outstanding
In thousands, except share amounts    Prior Preferred     Non-Voting(1)(6)     Class B(2)(6)
----------------------------------    ----------------    ----------------    --------------
<S>                                                <C>               <C>                 <C>
BALANCE AS OF DECEMBER 31, 2001                     11               2,472               588
Net income
Cash dividends declared
     Common stock
     Preferred stock
Stock repurchase                                   (11)
Issuance of common stock
     Public stock issuance(4)                                          750
     Officer bonus                                                       6
     Dividend reinvestment plan                                         16
     Employee stock options                                             28
     Employee Retirement Plan(3)                                         2
BALANCE AS OF DECEMBER 31, 2002                      0               3,274               588
Net income
Cash dividends declared
     Common stock
     Preferred stock(5)
Stock repurchase
Issuance of common stock
     Officer bonus                                                       3
     Dividend reinvestment plan                                         16
     Employee stock options                                             10
     Employee Retirement Plan(3)                                        10
BALANCE AS OF DECEMBER 31, 2003                      0               3,313               588
Net income
Cash dividends declared
     Common stock
     Preferred stock
Issuance of common stock
     Officer bonus                                                       2
     Dividend reinvestment plan                                         12
     Employee stock options                                             31
     Employee Retirement Plan(3)                                        10
BALANCE AS OF DECEMBER 31, 2004                      0               3,368               588
</TABLE>

(1)     At December 31, 2004, 2003, and 2002, Class A Non-Voting Common Stock
        had 15,000,000 shares authorized.
(2)     At December 31, 2004, 2003, and 2002, Class B Common Stock had 1,040,000
        shares authorized.
(3)     Artesian Resources registered 200,000 shares of Class A Non-Voting
        Common Stock available for purchase through the Artesian Retirement Plan
        and the Artesian Supplemental Retirement Plan.
(4)     Artesian Resources Corporation issued 750,000 shares of Class A
        Non-Voting Common Stock on June 5, 2002.
(5)     Includes redemption premium for the redemption of 7% prior preferred
        shares on February 21, 2003.
(6)     Artesian Resources Corporation approved a three for two stock split on
        April 30, 2003, effected in the form of a 50% stock distribution. Each
        shareholder of record on May 30, 2003 received one additional share for
        each two shares held. All share and per share data for all prior periods
        have been restated to give effect to this stock split.

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

                                       24
<PAGE>

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
                                       $25 Par Value
                                         Preferred          $1 Par Value
                                         7% Prior              Class A          $1 Par Value
In thousands, except share amounts       Preferred        Non-Voting (1)(6)    Class B (2)(6)
----------------------------------    ----------------    -----------------    --------------
<S>                                           <C>                 <C>                 <C>
BALANCE AS OF DECEMBER 31, 2001               $    272            $   2,472           $   588
Net income
Cash dividends declared
     Common stock
     Preferred stock
Stock repurchase                              $   (272)
Issuance of common stock
     Public stock issuance(4)                                           750
     Officer bonus                                                        6
     Dividend reinvestment plan                                          16
     Employee stock options                                              28
     Employee Retirement Plan(3)                                          2
BALANCE AS OF DECEMBER 31, 2002               $      0            $   3,274           $   588
Net income
Cash dividends declared
     Common stock
     Preferred stock(5)
Stock repurchase
Issuance of common stock
     Officer bonus                                                        3
     Dividend reinvestment plan                                          16
     Employee stock options                                              10
     Employee Retirement Plan(3)                                         10
BALANCE AS OF DECEMBER 31, 2003               $      0            $   3,313           $   588
Net income
Cash dividends declared
     Common stock
     Preferred stock
Issuance of common stock
     Officer bonus                                                        2
     Dividend reinvestment plan                                          12
     Employee stock options                                              31
     Employee Retirement Plan(3)                                         10
BALANCE AS OF DECEMBER 31, 2004               $      0            $   3,368           $   588
</TABLE>

(1)     At December 31, 2004, 2003, and 2002, Class A Non-Voting Common Stock
        had 15,000,000 shares authorized.
(2)     At December 31, 2004, 2003, and 2002, Class B Common Stock had 1,040,000
        shares authorized.
(3)     Artesian Resources registered 200,000 shares of Class A Non-Voting
        Common Stock available for purchase through the Artesian Retirement Plan
        and the Artesian Supplemental Retirement Plan.
(4)     Artesian Resources Corporation issued 750,000 shares of Class A
        Non-Voting Common Stock on June 5, 2002.
(5)     Includes redemption premium for the redemption of 7% prior preferred
        shares on February 21, 2003.
(6)     Artesian Resources Corporation approved a three for two stock split on
        April 30, 2003, effected in the form of a 50% stock distribution. Each
        shareholder of record on May 30, 2003 received one additional share for
        each two shares held. All share and per share data for all prior periods
        have been restated to give effect to this stock split.

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

                                       25
<PAGE>

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
                                         Additional
                                           Paid-in            Retained
In thousands, except share amounts         Capital           Earnings(4)          Total(4)
----------------------------------    ----------------    -----------------    --------------
<S>                                          <C>                  <C>               <C>
BALANCE AS OF DECEMBER 31, 2001              $  25,107            $   5,739         $  34,178
Net income                                                            4,167             4,167
Cash dividends declared
     Common stock                                                    (2,683)           (2,683)
     Preferred stock                                                    (41)              (41)
Stock repurchase                                                       (209)             (481)
Issuance of common stock
     Public stock issuance(2)                   14,408                                 15,158
     Officer bonus                                 108                                    114
     Dividend reinvestment plan                    309                                    325
     Employee stock options                        370                                    398
     Employee Retirement Plan(1)                    39                                     41
BALANCE AS OF DECEMBER 31, 2002              $  40,341            $   6,973         $  51,176
Net income                                                            3,917             3,917
Cash dividends declared
     Common stock                                                    (3,106)           (3,106)
     Preferred stock(3)                                                 (71)              (71)
Stock repurchase                                                        (83)              (83)
Issuance of common stock
     Officer bonus                                  76                                     79
     Dividend reinvestment plan                    363                                    379
     Employee stock options                        142                                    152
     Employee Retirement Plan(1)                   238                                    248
BALANCE AS OF DECEMBER 31, 2003              $  41,160            $   7,630         $  52,691
Net income                                                            4,402             4,402
Cash dividends declared
     Common stock                                                    (3,265)           (3,265)
     Preferred stock                                                     (2)               (2)
Issuance of common stock
     Officer bonus                                  47                                     49
     Dividend reinvestment plan                    322                                    334
     Employee stock options                        444                                    475
     Employee Retirement Plan(1)                   249                                    259
BALANCE AS OF DECEMBER 31, 2004              $  42,222            $   8,765         $  54,943
</TABLE>

(1)     Artesian Resources registered 200,000 shares of Class A Non-Voting
        Common Stock available for purchase through the Artesian Retirement Plan
        and the Artesian Supplemental Retirement Plan.
(2)     Artesian Resources Corporation issued 750,000 shares of Class A
        Non-Voting Common Stock on June 5, 2002.
(3)     Includes redemption premium for the redemption of 7% prior preferred
        shares on February 21, 2003.
(4)     Artesian Resources Corporation approved a three for two stock split on
        April 30, 2003, effected in the form of a 50% stock distribution. Each
        shareholder of record on May 30, 2003 received one additional share for
        each two shares held. All share and per share data for all prior periods
        have been restated to give effect to this stock split.

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

                                       26
<PAGE>

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The consolidated financial statements include the accounts of Artesian Resources
Corporation and its wholly owned subsidiaries, Artesian Resources or the
Company, including its principal operating company, Artesian Water Company,
Inc., Artesian Water. Appropriate eliminations have been made for all
inter-company transactions and account balances.

Utility Subsidiary Accounting

The accounting records of Artesian Water and Artesian Wastewater Management are
maintained in accordance with the uniform system of accounts as prescribed by
the PSC. The accounting records of Artesian Water Pennsylvania, Inc. are
maintained in accordance with the uniform system of accounts as prescribed by
the Pennsylvania Public Utility Commission, PAPUC. All three subsidiaries follow
the provisions of Statement of Financial Accounting Standards No. 71,
"Accounting for the Effects of Certain Types of Regulation," which provides
guidance for companies in regulated industries.

Utility Plant and Capitalized Leases

All additions to plant are recorded at cost. Cost includes direct labor,
materials, and indirect charges for such items as transportation, supervision,
pension, and other fringe benefits related to employees engaged in construction
activities. When depreciable units of utility plant are retired, the cost of
retired property, together with any cost associated with retirement and less any
salvage value or proceeds received, is charged to accumulated depreciation.
Maintenance, repairs, and replacement of minor items of plant are charged to
expense as incurred.

In accordance with a rate order issued by the PSC, Artesian Water accrues an
Allowance for Funds Used During Construction, 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 weighted
average cost of debt and the rate of return on equity authorized by the PSC. The
rate used to capitalize AFUDC in 2004, 2003 and 2002 was 7.8%, 8.0%, and 8.3%,
respectively.

UTILITY PLANT COMPRISES:

<TABLE>
<CAPTION>
                                                  Estimated
                                                   Useful             December 31,
                                                    Life       ---------------------------
In thousands                                      In Years         2004           2003
---------------------------------------------   ------------   ------------   ------------
<S>                                                    <C>     <C>            <C>
Utility plant at original cost
   Utility plant in service
      Intangible plant                                    --   $        123   $        123
      Source of supply plant                           45-85         14,322         13,101
      Pumping and water treatment plant                35-62         38,084         31,514
      Transmission and distribution plant
         Mains                                            81        120,176        106,456
         Services                                         39         21,270         19,003
         Storage tanks                                    76         13,822         12,543
         Meters                                           26          8,998          8,605
         Hydrants                                         60          6,245          5,726
      General plant                                     3-31         20,657         19,694
   Property held for future use                           --          3,979          3,140
   Construction work in progress                          --          3,808          3,891
                                                               ------------   ------------
                                                                    251,484        223,796
   Less - accumulated depreciation                                   39,332         35,903
                                                               ------------   ------------
                                                               $    212,152   $    187,893
</TABLE>

                                       27
<PAGE>

Depreciation and Amortization

For financial reporting purposes, depreciation is provided using the
straight-line method at rates based on estimated economic useful lives, which
range from 3 to 85 years. Composite depreciation rates for utility plant were
2.14%, 2.20%, and 2.19%, for the years ended December 31, 2004, 2003, and 2002,
respectively. In a rate order issued by the PSC, the Company was directed
effective January 1, 1998 to begin using revised depreciation rates for utility
plant. In rate orders issued by the PSC, Artesian Water was directed effective
May 28, 1991 and August 25, 1992 to offset depreciation on utility property
funded by Contributions in Aid of Construction, CIAC, and Advances for
Construction, Advances, respectively, against CIAC and Advances. Other deferred
assets are amortized using the straight-line method over applicable lives, which
range from 2 to 40 years.

Regulatory Assets

Certain expenses are recoverable through rates, without a return on investment,
and are deferred and amortized during future periods using various methods as
permitted by the PSC. Expenses related to rate proceedings are amortized on a
straight-line basis over a period of 2 years. The postretirement benefit
obligation (see Note 10 to our Financial Statements for a description of the
Company's Postretirement Benefit Plan), which is being amortized over 20 years,
is adjusted for the difference between the net periodic postretirement benefit
costs and the cash payments. The deferred income taxes will be amortized over
future years as the tax effects of temporary differences previously flowed
through to the customers reverse.

REGULATORY ASSETS AT DECEMBER 31, NET OF AMORTIZATION, COMPRISE:

<TABLE>
<CAPTION>
          In thousands                                             2004           2003
          --------------------------------------------------   ------------   ------------
          <S>                                                  <C>            <C>
          Postretirement benefit obligation                    $      1,169   $      1,232
          Deferred income taxes recoverable in future rates             612            627
          Expense of rate proceedings                                   289            220
          Other                                                          34             44
                                                               ------------   ------------
                                                               $      2,104   $      2,123
</TABLE>

Other Deferred Assets

Debt issuance costs are amortized over the term of the related debt.

OTHER DEFERRED ASSETS AT DECEMBER 31, NET OF AMORTIZATION, COMPRISE:

<TABLE>
<CAPTION>
          In thousands                                             2004           2003
          --------------------------------------------------   ------------   ------------
          <S>                                                  <C>            <C>
          Debt issuance expense                                $      1,864   $      1,901
          Other                                                         762            643
                                                               ------------   ------------
                                                               $      2,626   $      2,544
</TABLE>

Advances for Construction

Water mains, services and hydrants, or cash advances to reimburse Artesian Water
for its costs to construct water mains, services and hydrants are contributed to
Artesian Water by customers, 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, 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, or cash to reimburse
Artesian Water for its costs to construct water mains, services and hydrants by
customers, real estate developers and builders in order to extend water service
to their properties.

                                       28
<PAGE>

Income Taxes

Deferred income taxes are provided in accordance with the provisions of
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" on all differences between the tax basis of assets and liabilities and
the amounts at which they are carried in the financial statements based on the
enacted tax rates to be in effect when such temporary differences are expected
to reverse.

The Tax Reform Act of 1986 mandated that Advances and CIAC received subsequent
to December 31, 1986, generally are taxable income to Artesian Water. The 1996
Tax Act provided an exclusion from taxable income for CIAC and Advances received
after June 12, 1996 by our utilities except for certain contributions for large
services that are not included in rate base for rate-making purposes.

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

At December 31, 2004, the Company had two stock-based compensation plans, which
are described in Note 9 to our Financial Statements. The Company applies APB
Opinion No. 25 and related interpretations in accounting for compensation
expense under its plans. Accordingly, the aggregate compensation cost that has
been charged against income for the two plans was $148,000, $56,000 and $99,000
for 2004, 2003 and 2002, respectively. Had compensation cost for the Company's
two plans been determined based on the fair value at the grant dates for awards
under those plans consistent with the method required by Statement of Financial
Accounting Standards No. 123, "Accounting for Stock Based Compensation," the
Company's net income and net income per common share would have been reduced to
the pro-forma amounts indicated below:

<TABLE>
<CAPTION>
          In thousands, except per share data                 2004            2003            2002
          ---------------------------------------------   ------------    ------------    ------------
          <S>                                             <C>             <C>             <C>
          NET INCOME APPLICABLE TO COMMON STOCK
          As reported                                     $      4,400    $      3,845    $      4,125
          Add:  compensation expense included
           in net income (net of tax)                               89              33              59
          Deduct:  compensation expense using
          fair value based method (net of tax)                    (275)           (165)           (161)
                                                          ------------    ------------    ------------
           Pro-forma                                      $      4,214    $      3,713    $      4,023
                                                          ============    ============    ============
          BASIC NET INCOME PER COMMON SHARE
            As reported                                   $       1.12    $       0.99    $       1.17
            Pro-forma                                     $       1.07    $       0.96    $       1.14
          DILUTED NET INCOME PER COMMON SHARE
            As reported                                   $       1.08    $       0.96    $       1.14
            Pro-forma                                     $       1.04    $       0.93    $       1.11
</TABLE>

The fair value of each option grant is estimated using the Black-Scholes option
pricing model with the following weighted-average assumptions used for grants in
2004, 2003, and 2002, respectively: dividend yield of 3.0%, 3.9%, and 4.0%;
expected volatility of 0.32, 0.33, and 0.34; risk free interest rates of 1.92%,
1.25%, and 2.24% for the employee options under the 1992 Non-Qualified Stock
Option Plan (as defined in Note 9 to our Financial Statements); 1.04%, 2.52%,
and 4.19% for the director and officer options under the 1992 Plan for 2004,
2003 and 2002 respectively; 2.97% for options under the Incentive Stock Option
Plan, ISO, (as defined in Note 9 to our Financial Statements) for 2003 and
expected lives of one year for the employee options and five years for the
director and officer options under the 1992 Plan and five years for all options
under the ISO Plan. Shares of Class A Stock have been reserved for future
issuance under the 1992 Plan and ISO Plan.

Revenue Recognition and Unbilled Revenues

Water service revenue for financial statement purposes includes 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

                                       29
<PAGE>

period. In the fourth quarter 2004, the Company changed the timing of the
billing for monthly-billed accounts, resulting in higher accounts receivable and
lower unbilled operating revenues at month-end.

Cash and Cash Equivalents

For purposes of the Consolidated Statement of Cash Flows, Artesian Resources
considers all temporary cash investments with a maturity of three months or less
to be cash equivalents. Artesian Water, Artesian Wastewater Management, and
Artesian Utility 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 Artesian
Water's books, the net liability is recorded as a current liability on the
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, which require management to make estimates about
the reported amounts of assets and liabilities including unbilled revenues,
reserve for a 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 estimate.

Stock Split

On June 30, 2003, the Company completed a three for two stock split on its Class
A Non-Voting Common Stock and Class B Common Stock, which was effected in the
form of a 50% stock dividend. Shareholders of record on May 30, 2003 received
one additional share of stock for each two shares held. All share and per share
data for all prior periods have been restated to give effect to this stock
split.

NOTE 2

FAIR VALUE OF FINANCIAL INSTRUMENTS

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

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

The fair value of Artesian Resources' long-term debt as of December 31, 2004 and
2003, determined by discounting their future cash flows using current market
interest rates on similar instruments with comparable maturities, are
approximately as shown below.

FAIR VALUE OF FINANCIAL INSTRUMENTS AT DECEMBER 31, COMPRISED:

                                  2004                          2003
                      ---------------------------   ---------------------------
                       Carrying        Estimated      Carrying       Estimated
     In thousands       Amount        Fair Value       Amount       Fair Value
     --------------   ------------   ------------   ------------   ------------
     Long-term debt   $     82,356   $     84,507   $     80,558   $     79,867

The fair value of Advances for Construction cannot be reasonably estimated due
to the inability to accurately estimate 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. Future refunds expected to
be paid would have to be estimated on a per contract basis using the past
history of refund payments. The fair value of Advances for Construction would be
less than the carrying amount because these financial instruments are
non-interest bearing.

                                       30
<PAGE>

NOTE 3

INCOME TAXES

Deferred income taxes reflect temporary differences between the valuation of
assets and liabilities for financial and tax reporting.

As of December 31, 2004, Artesian Resources has federal net operating loss carry
forwards aggregating approximately $20,900,000, which will expire if unused by
2024. As of December 31, 2004, Artesian Resources has separate company state net
operating loss carry forwards aggregating approximately $30,600,000. These net
operating loss carry forwards will expire if unused between 2005 and 2024.
Artesian Resources 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. Management believes that it is more
likely than not that the Company will realize the benefits of these net deferred
tax assets. The valuation allowance decreased from approximately $512,000 in
2003 to approximately $482,000 in 2004.

At December 31, 2004, for federal income tax purposes, there were alternative
minimum tax credit carry forwards aggregating $1,691,000 resulting from the
payment of alternative minimum tax in current and prior years. These alternative
minimum tax credit carry forwards may be carried forward indefinitely to offset
future regular federal income taxes.

COMPONENTS OF INCOME TAX EXPENSE

                                            For the Year Ended December 31,
                                      ------------------------------------------
     In thousands                         2004           2003           2002
     ------------------------------   ------------   ------------   ------------
     State income taxes
     Current                          $         --   $          4   $          1
     Deferred                                  366            549            629
                                      ------------   ------------   ------------
     Total state income tax expense   $        366   $        553   $        630
                                      ============   ============   ============

                                            For the Year Ended December 31,
                                      ------------------------------------------
                                          2004           2003           2002
                                      ------------   ------------   ------------
     Federal income taxes
     Current                          $         --   $     (1,547)  $        692
     Deferred                                2,526          3,380          1,503
                                      ------------   ------------   ------------
     Total federal income tax expense $      2,526   $      1,833   $      2,195
                                      ============   ============   ============

                                       31
<PAGE>

RECONCILIATION OF EFFECTIVE TAX RATE:

<TABLE>
<CAPTION>
                                                                      For the Year Ended December 31,
                                              -------------------------------------------------------------------------------
                                                 2004          2004          2003          2003          2002         2002
In thousands                                    Amount           %          Amount           %          Amount          %
-------------------------------------------   ----------    ----------    ----------    ----------    ----------   ----------
<S>                                           <C>                <C>      <C>                <C>      <C>               <C>
Reconciliation of effective tax rate
     Income before federal and state
       income taxes                           $    7,294         100.0    $    6,303         100.0    $    6,992        100.0

Amount computed at statutory rate                  2,480          34.0         2,143          34.0         2,377         34.0
Reconciling items
     State income tax-net of federal tax
       benefit                                       418           5.7           368           5.8           411          5.9
     Adjustment of prior year accruals                --            --          (155)         (2.4)           --           --
     Other                                            (6)         (0.1)           30           0.5            37          0.5
                                              ----------    ----------    ----------    ----------    ----------   ----------
Total income tax expense and effective rate   $    2,892          39.6    $    2,386          37.9    $    2,825         40.4
                                              ==========    ==========    ==========    ==========    ==========   ==========
</TABLE>

DEFERRED INCOME TAXES AT DECEMBER 31, 2004, 2003, AND 2002 WERE COMPRISED OF THE
FOLLOWING:

<TABLE>
<CAPTION>
                                                                 For the Year Ended December 31,
                                                        --------------------------------------------
In thousands                                                2004            2003            2002
-----------------------------------------------------   ------------    ------------    ------------
<S>                                                     <C>             <C>             <C>
DEFERRED TAX ASSETS RELATED TO:
Federal alternative minimum tax credit carry forwards   $      1,691    $      1,844    $      3,113
Federal and state operating loss carry forwards                8,884           5,323             669
Bad debt allowance                                                93              54              47
Valuation allowance                                             (482)           (512)           (506)
Stock options                                                    241             128             117
Other                                                             58              60              --
                                                        ------------    ------------    ------------
       Total deferred tax assets                        $     10,485    $      6,897    $      3,440
                                                        ============    ============    ============
DEFERRED TAX LIABILITIES RELATED TO:
Property plant and equipment basis differences          $    (24,739)   $    (18,234)   $    (10,754)
Expenses of rate proceedings                                    (115)            (88)           (197)
Property taxes                                                  (304)           (283)           (259)
Other                                                           (250)           (280)           (254)
                                                        ------------    ------------    ------------
       Total deferred tax liabilities                   $    (25,408)   $    (18,885)   $    (11,464)
                                                        ------------    ------------    ------------

       Net deferred tax liability                       $    (14,923)   $    (11,988)   $     (8,024)
                                                        ============    ============    ============
</TABLE>

DEFERRED TAXES, WHICH ARE CLASSIFIED INTO A NET CURRENT AND NON-CURRENT BALANCE,
ARE PRESENTED IN THE BALANCE SHEET AS FOLLOWS:

DEFERRED TAX ASSETS RELATED TO:

<TABLE>
<S>                                                     <C>             <C>             <C>
Current deferred tax liability                          $       (150)   $       (213)   $         --
Non-current deferred tax liability                           (14,773)        (11,775)         (8,024)
                                                        ------------    ------------    ------------
       Net deferred tax liability                       $    (14,923)   $    (11,988)   $     (8,024)
                                                        ============    ============    ============
</TABLE>

                                       32
<PAGE>

NOTE 4

PREFERRED STOCK

As of December 31, 2004, Artesian Resources had no preferred stock outstanding.
On February 21, 2003, the Company redeemed all 10,868 outstanding shares of the
7% Prior Preferred stock for $30.00 per share. The 7% Prior Preferred stock (on
which dividends were cumulative) was redeemable at Artesian Resources' option at
$30.00 per share plus accrued dividends. Since notice of redemption was in
January 2003, $271,700 of preferred stock was reclassified to Notes Payable as
of December 31, 2002. The 9.96% Series Cumulative Prior Preferred stock had an
annual sinking fund provision (mandatory redemption requirements). Under the
mandatory sinking fund provisions, on February 1, 2004 the Company redeemed the
remaining 4,000 shares of the 9.96% Series for $100,000. The Company also has
100,000 shares of $1.00 par value Series Preferred stock authorized but
unissued. See the Consolidated Statements of Stockholders' Equity.

There are 40,000 authorized shares of the 9.96% Series Cumulative Prior
Preferred stock with a par value of $25 per share, of which none and 4,000
shares were outstanding as of December 31, 2004 and 2003, respectively. Under
the mandatory sinking fund provisions, on February 1, 2004 the Company redeemed
the remaining 4,000 shares. Cash dividends paid in 2004 and 2003 were $2,000 and
$12,000, respectively.

NOTE 5

COMMON STOCK AND ADDITIONAL PAID-IN CAPITAL

The Class A Non-Voting Common Stock, Class A Stock, of Artesian Resources trades
on the NASDAQ National Market under the symbol ARTNA. The Class B Common Stock
of Artesian Resources trades on the NASDAQ's OTC Bulletin Board under the symbol
ARTNB.

Under Artesian Resources' dividend reinvestment plan, which allows for
reinvestment of cash dividends and optional cash payments, stockholders were
issued 12,360, 13,442, and 10,773 shares at fair market value for the investment
of $334,000, $376,000, and $320,000 of their monies in the years 2004, 2003 and
2002, respectively.

NOTE 6

DEBT

Artesian Water has available two unsecured lines of credit, with no financial
covenant restrictions, totaling $40.0 million at December 31, 2004, which are
renewable annually at each of the bank's discretion. Borrowings under the lines
of credit bear interest based on the London Interbank Offering Rate, LIBOR, plus
1.0% for 30, 60, 90, or 180 days or the banks' federal funds rate plus 1.0%, at
the option of Artesian Water.

At December 31, 2004, 2003 and 2002, Artesian Water had $9.2 million, $12.5
million, and $17.8 million outstanding under these lines at weighted average
interest rates of 3.2%, 2.0%, and 2.3%, respectively. The maximum amount
outstanding was $18.2 million, $18.2 million, and $24.4 million in 2004, 2003
and 2002, respectively. The twelve-month average amount outstanding was
approximately $11.8 million, $8.6 million, and $16.5 million, at weighted
average annual interest rates of 2.4%, 2.2%, and 2.7% in 2004, 2003 and 2002,
respectively.

At December 31, 2004, Artesian Utility and Artesian Wastewater had lines of
credit with a financial institution for $3.5 million and $1.5 million,
respectively, to meet temporary cash requirements. These revolving credit
facilities are unsecured. As of December 31, 2004, we had not borrowed funds
under these lines. The interest rate for borrowings under each of these lines is
the LIBOR plus 1.75%. The bank reviews its facilities annually for renewal.

As of December 31, 2004 and 2003, substantially all of Artesian Water's utility
plant was pledged as security for the First Mortgage Bonds. In addition, the
trust indentures, relating to these First Mortgage Bonds contain covenants which
limit long-term debt, including the current portion thereof, to 66 2/3% of total
capitalization including the current portion of the long-term debt, and which,
in certain circumstances, could restrict the payment of cash dividends. As of
December 31, 2004, however, no dividend restrictions were imposed under these
covenants.

                                       33
<PAGE>

On January 31, 2003, Artesian Water issued a $25.0 million, 6.58%, 15 year
Series P First Mortgage Bond with a maturity date of January 31, 2018, to redeem
the Series L $10.0 million First Mortgage Bond due February 1, 2003 and to pay
down the lines of credit. As such, the Company reclassified $14,943,000 from
Notes Payable to Long-term Debt on the Balance Sheet as of December 31, 2002.

On February 25, 2003, Artesian Water Company, Inc., the Company, entered into an
agreement to borrow up to $2,900,285 from the Delaware Drinking Water State
Revolving Fund, the Fund at an interest rate of 3.57%. The loan was used for
costs associated with the installation of new public water systems for Keen-wick
West/Keen-wick South and Route 54, Phase II projects in Sussex County, Delaware.
As of December 31, 2004 the Company borrowed $2,188,184 of which $717,269, which
was repaid to the Fund on February 9, 2005. We have notified the state that we
will not draw the remaining available funds.

On November 7, 2003, Artesian Water Company, Inc. entered into another agreement
to borrow $5,456,495 from the Fund for a term of twenty years at an interest
rate of 3.64%. The loan was used for costs associated with the replacement and
rehabilitation of transmission and distribution mains within several
developments in our northern New Castle County service territory. Through
December 31, 2004 the Company borrowed $1,971,415. We have notified the state
that we will not draw the remaining funds.

On December 23, 2003, Artesian Water issued $15.4 million, 4.75%, 40 year Series
Q First Mortgage Bonds. These bonds are tax-free and were issued for the Company
through the Delaware Economic Development Authority to finance utility
construction projects. The proceeds from these bonds are held on our behalf by
the First Mortgage Bond Trustee, Wilmington Trust, and will be disbursed to us
as construction is completed. Interest, which accrues to our benefit, is added
to the fund for use in completing construction of the various approved projects.
The remaining $502,796 was disbursed to the Company on January 26, 2005.

On May 4, 1999, Artesian Resources purchased 126,353 shares of Class B Common
Stock and 24,165 shares of Class A Non-Voting Common Stock from Ellis D. Taylor
and his spouse, Helena C. Taylor, in exchange for a promissory note, the Note,
in the principal amount of $4,450,000 representing the purchase price of the
stock, with a discounted present value of $4,307,000. The Note was payable
quarterly, on a calendar basis, over a four-year period and in sixteen equal
principal installments of $278,125 commencing on June 30, 1999. The outstanding
balance on the Note bore interest in an amount computed based on the quarterly
dividend the Taylors would have received on the stock transferred to Artesian
Resources but not yet paid for by Artesian Resources. In addition, the principal
installment was adjusted on a quarterly basis to reflect changes in the book
value per common share of the Company as reported in its most recent quarterly
financial statement distributed to stockholders prior to the quarterly payment.
Such amounts represented contingent purchase price of the stock and were charged
to retained earnings. The note was paid in full on March 25, 2003.

                                       34
<PAGE>

LONG-TERM DEBT CONSISTS OF:

<TABLE>
<CAPTION>
                                                                 December 31,
                                                          ---------------------------
     In thousands                                             2004           2003
     --------------------------------------------------   ------------   ------------
     <S>                                                  <C>            <C>
     First mortgage bonds

            Series M, 7.84%, due December 31, 2007        $     10,000   $     10,000
            Series N, 7.56%, due December 31, 2007               5,000          5,000
            Series O, 8.17%, due December 29, 2020              20,000         20,000
            Series P, 6.58%, due January 31, 2018               25,000         25,000
            Series Q, 4.75%, due December 1, 2043               15,400         15,400
                                                          ------------   ------------
                                                                75,400         75,400

     State revolving fund loans

            4.48%, due August 1, 2021                            3,878          4,027
            3.57%, due September 1, 2023                         2,188          1,319
            3.64%, due May 1, 2024                               1,971              0
                                                          ------------   ------------
                                                                 8,037          5,346

     Sub-total                                                  83,437         80,746

     Less: current maturities                                    1,082            188
                                                          ------------   ------------
     Total long-term debt                                 $     82,356   $     80,558
                                                          ============   ============
</TABLE>

PAYMENTS DUE DURING THE NEXT FIVE YEARS:

<TABLE>
<CAPTION>
     In thousands                    2005           2006           2007           2008           2009
     -------------------------   ------------   ------------   ------------   ------------   ------------
     <S>                         <C>            <C>            <C>            <C>            <C>
     First Mortgage bonds        $         --   $         --   $     15,000   $         --   $         --
     State revolving fund loan          1,082            379            387            395            403
                                 ------------   ------------   ------------   ------------   ------------
            Total payments       $      1,082   $        379   $     15,387   $        395   $        403
                                 ============   ============   ============   ============   ============
</TABLE>

NOTE 7

NON-UTILITY OPERATING REVENUE AND EXPENSES

On September 30, 2004, we changed the name of our non-regulated subsidiary,
Artesian Wastewater Management, Inc., Artesian Wastewater, which operated
municipal wastewater facilities under operating agreements, to Artesian Utility
Development, Inc., Artesian Utility. On March 12, 1997, Artesian Wastewater (now
Artesian Utility) became a one-third owner in AquaStructure Delaware, L.L.C.,
which markets proposals to design and construct wastewater treatment facilities.

Non-utility operating revenue consisted of $729,000, $387,000, and $287,000
received by Artesian Wastewater (now Artesian Utility) in 2004, 2003 and 2002.

On July 17, 2002, Artesian Wastewater (now Artesian Utility) began contractual
operations of a wastewater treatment plant for which AquaStructure has an
agreement with a Delaware municipality that expires on February 1, 2021. This
agreement shall be extended for an additional twenty years unless advance notice
is given.

                                       35
<PAGE>

NON-UTILITY OPERATING EXPENSES ARE AS FOLLOWS:

          In thousands               2004           2003           2002
          --------------------   ------------   ------------   ------------
          Artesian Utility       $        495   $        239   $        194
          Artesian Resources               17              5              1
          Artesian Development              1              1              1
                                 ------------   ------------   ------------
               Total             $        513   $        245   $        196
                                 ============   ============   ============

NOTE 8

RELATED PARTY TRANSACTIONS

The office building and shop complex utilized by Artesian Water were leased at
an average annual rental of $173,000 from the former partners of White Clay
Realty who then owned the property jointly as tenants in common. Dian C. Taylor,
Chair and Chief Executive Officer of Artesian Resources, was a tenant in common
and John R. Eisenbrey, Jr., a director of Artesian Resources, was a beneficiary
of a tenant in common. The rental of $173,000 was below market rates. In
December 2002, Artesian Water filed a condemnation action in the Delaware
Superior Court, seeking to acquire title to the office and shop complex leased
by Artesian Water, known as 664 Churchmans Road, Newark, Delaware, the Property.
Artesian Water filed this action under its statutory power of eminent domain
against the owner of the Property, White Clay Realty, a Delaware Limited
Partnership, and each of the limited partners. The Superior Court ruled that
since White Clay Realty had no general partner, the partnership was dissolved
and all of the former partners owned the Property jointly as tenants in common.
A special committee of the Board of Directors of Artesian Water, composed
entirely of outside directors who had no ownership interest in the Property,
made the determination to purchase the Property through the condemnation
procedures. Under this procedure, if the acquisition of the Property is approved
by the court, the fair market value of the Property is determined by a panel of
commissioners after an evidentiary hearing. Artesian Water's independent
appraiser valued the Property to be worth $3,800,000. In December 2002, Artesian
Water issued a payment to the Prothonotary for the State of Delaware for
$3,800,000. As the court delayed payment until the matter was decided, the
amount was refunded to Artesian Water in June 2003. Until a final determination
of the condemnation, the parties agreed that Artesian Water could continue to
occupy the Property under the terms of the lease with a quarterly rental payment
of $43,361. Pursuant to a deadline set by the Superior Court, the owners of the
Property submitted an independent appraisal that valued the Property to be worth
$4,800,000. The condemnation case was scheduled for trial on October 20, 2003,
wherein the fair market value of the Property would have been determined by a
panel of three Commissioners after an evidentiary hearing. Prior to the
commencement of the trial, all parties agreed to settle the case for a purchase
price of $4,500,000 paid by Artesian Water on October 20, 2003. The decision to
settle on the part of Artesian Water was made by the Special Committee of
independent directors and with the recommendation of special counsel to the
Special Committee. The settlement was approved by order of the Superior Court on
October 20, 2003. The Court also approved applications of two of the tenants in
common (neither of whom is an officer or director of Artesian) for their
expenses, totaling $50,000, to be paid by Artesian Water, to which applications
Artesian Water did not object.

RENTAL EXPENSE ASSOCIATED WITH RELATED PARTY TRANSACTIONS ARE AS FOLLOWS:

          In thousands               2004           2003           2002
          --------------------   ------------   ------------   ------------
          White Clay Realty      $         --   $        139   $        175

NOTE 9

STOCK COMPENSATION PLANS

In 1992, the Company instituted the 1992 Non-Qualified Stock Option Plan, 1992
Plan, which was subsequently amended in 1998. Under the 1992 Plan, options to
purchase shares of Class A Stock may be granted to employees at prices not less
than 85% of the fair market value on the date of grant. The number of authorized
shares is 375,000. Employees who participate and who are not executive officers
or directors of the Company may receive options to purchase up to 1,000 shares.
Each director or officer who participates in any year may request an option to
purchase 4,500 shares of Class A Stock. The option price for directors and
officers of the Company is 90% of

                                       36
<PAGE>

the fair market value on the date of grant. Options granted under this plan to
employees who are not executive officers or directors extend for a period of one
year. Options granted to officers and directors extend for a period of ten
years. All options are exercisable after six months of service from the date of
initial grant, and are adjusted for stock dividends and splits. Employees,
officers and directors become eligible to exercise options under the 1992 plan
after one year of service to the Company.

In 1996, the Company instituted the Incentive Stock Option Plan, the ISO Plan,
under which the Company is authorized to grant options up to 150,000 shares of
Class A Stock to its key employees and officers. Options are granted at the fair
market value on the date of grant. The option exercise period shall not exceed
ten years from the date of grant and will be determined by the Stock Option
Committee of the Board of Directors for each stock option granted. Options
granted will vest in accordance with the terms and conditions determined by the
Stock Option Committee of the Board of Directors and are adjusted for stock
dividends and splits. The Company accelerated vesting for certain incentive
stock options held by officers and directors in anticipation of the Company's
adoption of FAS 123(R) in the second quarter of 2005.

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

<TABLE>
<CAPTION>
                                                            2004                       2003                       2002
                                                          Weighted                   Weighted                   Weighted
                                                           Average                    Average                    Average
                                              2004        Exercise       2003        Exercise       2002        Exercise
                                             Shares         Price       Shares         Price       Shares         Price
                                           ----------    ----------   ----------    ----------   ----------    ----------
<S>                                           <C>        <C>             <C>        <C>             <C>        <C>
Plan options
   Outstanding at beginning of year           314,793    $   15.310      273,641    $   14.085      258,907    $   12.982
   Granted                                     52,120    $   24.030       54,704    $   21.076       47,200    $   18.516
   Exercised                                  (31,204)   $   12.311       (9,948)   $   14.671      (27,799)   $   10.973
   Canceled                                    (3,419)   $   21.169       (3,604)   $   11.582       (4,667)   $   16.255
                                           ----------   ----------    ----------   ----------    ----------
   Outstanding at end of year                 332,290    $   16.899      314,793    $   15.310      273,641    $   14.085

Options exercisable at year end               307,385    $   16.590      248,623    $   14.400      219,731    $   13.693

Weighted average fair value of
   options granted during the year                       $   26.872                 $   22.170                 $   20.786
</TABLE>

THE FOLLOWING TABLES SUMMARIZE INFORMATION ABOUT EMPLOYEE AND DIRECTOR STOCK
OPTIONS OUTSTANDING AT DECEMBER 31, 2004:

OPTIONS OUTSTANDING

<TABLE>
<CAPTION>
           Range of        Shares Outstanding     Weighted Average   Weighted Average
        Exercise Price    at December 31, 2004     Remaining Life     Exercise Price
       ---------------    --------------------    ----------------   ----------------
       <S>                       <C>                 <C>                 <C>
        $8.473-$16.267           180,890             4.54 Years          $ 13.291
       $17.893-$24.700           151,400             7.96 Years          $ 21.209
</TABLE>

OPTIONS EXERCISABLE

<TABLE>
<CAPTION>
           Range of        Shares Exercisable     Weighted Average
        Exercise Price    at December 31, 2004     Exercise Price
       ---------------    --------------------    ----------------
       <S>                       <C>                  <C>
        $8.473-$16.267           175,190              $ 13.195
       $17.893-$24.700           132,195              $ 21.089
</TABLE>

NOTE 10

EMPLOYEE BENEFIT PLANS

401(k) Plan

Artesian Resources has a defined contribution 401(k) Salary Reduction Plan,
Plan, which covers substantially all employees. Under the terms of the Plan,
Artesian Resources contributes 2% of eligible salaries and wages and

                                       37
<PAGE>

matches 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 2004,
2003 and 2002. Plan expenses, which include Company contributions and
administrative fees, for the years 2004, 2003 and 2002, were approximately
$417,000, $420,000, and $374,000, respectively.

Postretirement Benefit Plan

Artesian Water has a Postretirement Benefit Plan, Benefit Plan, which provides
medical and life insurance benefits to certain retired employees. Prior to the
amendment of the Benefit Plan, substantially all employees could become eligible
for these benefits if they reached retirement age while still working for
Artesian Water.

Statement of Financial Accounting Standards No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions", SFAS 106, requires Artesian Water
to accrue the expected cost of providing postretirement health care and life
insurance benefits as employees render the services necessary to earn the
benefits. Artesian Resources elected to defer recognition and amortize its
transition obligation over twenty years.

Artesian Water recognized an offsetting regulatory asset with respect to the
SFAS 106 liability. This asset is recorded based on the PSC order, which permits
Artesian Water to continue recovery of postretirement health care and life
insurance expense on a pay-as-you-go basis for the remaining eligible employees.
Artesian Water anticipates liquidating its SFAS 106 obligation and substantially
recovering the expenses in rates over a period of approximately 20 years (based
on the age and life expectancy of the remaining eligible participants). Further,
expense recovery as a percentage of rates is expected to remain generally
constant over the initial years, and then decline until the obligation is
liquidated. Amounts charged to expense were $63,000, $66,000, and $62,000 for
2004, 2003 and 2002, respectively.

Supplemental Pension Plan

Effective October 1, 1994, Artesian Water established a Supplemental Pension
Plan, Supplemental Plan, to provide additional retirement benefits to full-time
employees hired prior to April 26, 1994. The Supplemental Plan is a defined
contribution plan that enables employees to save for future retiree medical
costs, which will be paid by employees. The Supplemental Plan accomplishes this
objective by providing additional cash resources to employees upon a termination
of employment or retirement, to meet the cost of future medical expenses.
Artesian Water has established a contribution based upon each employee's years
of service ranging from 2% to 6% of eligible salaries and wages. Artesian Water
also provides additional benefits to individuals who were over age 50 as of
January 1, 1994. These individuals are referred to as the "Transition Group."
Effective November 1, 1994, individuals eligible for the Transition Group had
the opportunity to defer compensation to the Supplemental Plan, and to receive a
transition matching contribution for 5 years. Each one-dollar of eligible
salaries and wages deferred by the Transition Group was matched with three,
four, or five dollars by Artesian Water based on the employee's years of service
subject to certain limitations under the federal tax rules. Plan expenses, which
include Company contributions and administrative fees, for the years 2004, 2003
and 2002 were approximately $252,000, $240,000, and $239,000, respectively.

In December 2003, the FASB issued revised Statement No. 132, "Employers'
Disclosures about Pensions and Other Postretirement Benefits-an amendment of
FASB Statements No. 87, 88, and 106." This statement requires additional
disclosures at December 31, 2004, to those in the original Statement No. 132
about the assets, obligations, cash flows, and net periodic benefit cost of
defined pension plans and other postretirement benefit plans; it does not change
the measurement or recognition of those plans. Disclosures for earlier annual
periods presented for comparative purposes are restated. The additional
disclosures required for our postretirement benefit obligation are presented
below. The measurement date used to determine the postretirement benefit
obligation was December 31.

                                       38
<PAGE>

BENEFIT OBLIGATIONS AND FUNDED STATUS

<TABLE>
<CAPTION>
                                                                                       FISCAL YEAR ENDING
                                                                                 -----------------------------
In thousands                                                                      12/31/2004       12/31/2003
------------------------------------------------------------------------------   ------------     ------------
<S>                                                                              <C>              <C>
Change in Accumulated Postretirement Benefit Obligation
    Accumulated Postretirement Benefit Obligation at the Beginning of the Year   $        998     $        952
    Service Cost                                                                           --               --
    Interest Cost                                                                          57               64
    Actuarial (Gain) or Loss                                                              (17)              63
    Benefits Paid                                                                         (95)             (84)
    Plan Participant's Contributions                                                        3                3
                                                                                 ------------     ------------
    Accumulated Postretirement Benefit Obligation at the End of the Year                  946              998
Change in Plan Assets
    Fair Value of Plan Assets at the Beginning of the Year                                 --               --
    Benefits Paid                                                                         (95)             (84)
    Employer Contributions                                                                 92               81
    Plan Participant's Contributions                                                        3                3
                                                                                 ------------     ------------
    Fair Value of Assets at the End of the Year                                            --               --
Net Amount Recognized
    Funded Status                                                                        (946)            (998)
    Unrecognized Transition Obligation (Asset)                                             76               85
    Unrecognized Net (Gain) or Loss                                                      (299)            (319)
                                                                                 ------------     ------------
    Net Amount Recognized:                                                             (1,169)          (1,232)
Amounts Recognized in the Statement of Financial Position
    Accrued Benefit Liability                                                          (1,169)          (1,232)
                                                                                 ------------     ------------
    Net Amount Recognized                                                        $     (1,169)    $     (1,232)
Weighted Average Assumptions at the End of the Year
    Discount Rate                                                                        6.00%            6.00%
Assumed Health Care Cost Trend Rates
    Health Care Cost Trend Rate Assumed for Next Year                                   11.00%           11.00%
    Ultimate Rate                                                                        5.00%            5.00%
    Year that the Ultimate Rate is Reached                                               2011             2010
</TABLE>

NET PERIODIC BENEFIT COST

<TABLE>
<CAPTION>
                                                                                       FISCAL YEAR ENDING
                                                                                 -----------------------------
In thousands                                                                      12/31/2004       12/31/2003
------------------------------------------------------------------------------   ------------     ------------
<S>                                                                              <C>              <C>
Interest Cost                                                                    $         57     $         64
Amortization of Net (Gain) or Loss                                               $        (37)    $        (57)
Amortization of Transition Obligation/(Asset)                                    $          9     $          8
                                                                                 ------------     ------------
Total Net Periodic Benefit Cost                                                  $         29     $         15
Weighted Average Assumptions
    Discount Rate                                                                        6.00%            6.00%
Assumed Health Care Cost Trend Rates
    Health Care Cost Trend Rate Assumed for Current Year                                11.00%           12.00%
    Ultimate Rate                                                                        5.00%            5.00%
    Year that the Ultimate Rate is Reached                                               2010             2010
</TABLE>

<TABLE>
<CAPTION>
Impact of One-Percentage-Point Change in Assumed Health Care Cost Trend Rates      INCREASE         DECREASE
------------------------------------------------------------------------------   ------------     ------------
<S>                                                                              <C>              <C>
Effect on Service Cost & Interest Cost                                           $          3     $         (3)
Effect on Postretirement Benefit Obligation                                      $         52     $        (48)
</TABLE>

The impact of Medicare Part D, although insignificant, was included in the
determination of Accumulated Postretirement Benefit Obligation as of December
31, 2004, and Net Periodic Benefit Cost beginning in 2005.

                                       39
<PAGE>

CONTRIBUTIONS

Artesian Water expects to contribute $95,000 to its postretirement benefit plan
in 2005. The following table represents the benefits expected to be paid:

                In thousands                      Other Benefits
                ------------                      --------------
                2005                              $           95
                2006                                         100
                2007                                         100
                2008                                         100
                2009                                         100
                2010-2014                         $          500

NOTE 11

COMMITMENTS

In 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.

During 1996, Artesian Water entered into a 10-year lease commitment for office
space. Rent expense for 2004, 2003 and 2002 for the office space was $74,000,
$72,000, and $71,000, respectively.

FUTURE MINIMUM ANNUAL RENTAL PAYMENTS UNDER THESE LEASE OBLIGATIONS FOR THE FIVE
YEARS SUBSEQUENT TO 2004 ARE AS FOLLOWS:

                In thousands
                ------------
                2005                              $           87
                2006                                          24
                2007                                          12
                2008                                          12
                2009                                          12
                                                  --------------
                                                  $          147
                                                  ==============

Artesian Water has two water service interconnection agreements, one with a
neighboring utility and one with a municipality, which require minimum annual
purchases. Rates charged under all agreements are subject to change. Effective
August 1, 1997, Artesian Water renegotiated the contract with the Chester Water
Authority to, among other things, reduce the minimum purchase requirements from
1,459 million gallons to 1,095 million gallons annually and to extend the
contract through the year 2021. The interconnection agreement with the City of
Wilmington expires in 2006. The minimum annual purchase commitments for all
interconnection agreements for 2005 through 2009 and the aggregate total for the
years 2010 through 2021, at rates effective July 1, 2005, are as follows:

                In thousands
                -----------------
                2005                              $        2,982
                2006                                       2,998
                2007                                       2,705
                2008                                       2,712
                2009                                       2,705
                2010 through 2021                         32,478
                                                  --------------
                                                  $       46,580
                                                  ==============

                                       40
<PAGE>

Expenses for purchased water were $2,995,000, $2,976,000, and $2,485,000 for the
years ended December 31, 2004, 2003 and 2002, respectively.

In 2001, Artesian Water entered into a 5-year agreement with Allied Painting,
Inc. to paint all tanks that are scheduled to be painted in the following 5
years, including 2001. The expenditures committed to in the agreement for the
year 2005 is as follows:

                In thousands
                ------------
                2005                              $          249

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 2005 through 2009 are as follows:

                In thousands                       (unaudited)
                -----------------
                2005                              $        3,227
                2006                                         900
                2007                                         750
                2008                                         600
                2009                                         500
                                                  --------------
                                                  $        5,977
                                                  ==============

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 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 Pennsylvania, pursuant to rates filed with and
approved by the PSC and the PAPUC. As of December 31, 2004, Artesian Water was
serving 70,993 customers and Artesian Water Pennsylvania was serving 39
customers.

NOTE 13

RATE PROCEEDINGS

On February 5, 2004, Artesian Water filed a petition with the PSC to implement
new rates to meet a requested increase in revenue of 24%, or approximately $8.8
million, on an annualized basis. The PSC, on March 16, 2004, suspended the
implementation of the proposed new rates pending further investigation and
public evidentiary hearings. Pending these hearings and a final ruling by the
PSC, Artesian Water, as is permitted by law, placed a portion of the proposed
rates into effect under surety, in lieu of bond, on April 6, 2004. Beginning
September 7, 2004, Artesian Water placed an additional portion of the proposed
rates into effect. These temporary rates were designed to generate an increase
in operating revenue of approximately 15%, or $5.5 million on an annualized
basis. These revised temporary rates will remain in effect until the PSC decides
the level of permanent rates. If this permitted temporary rate increase is
determined to be in excess of rates that the PSC ultimately deems appropriate,
Artesian Water will be required to refund the excess portion plus interest to
its customers. As of December 31, 2004, we have reserved $217,000, or
approximately 14% of the total temporary increases recognized through December
31, 2004, in anticipation of such a refund. We expect a final decision on this
matter during the first six months of 2005, but we cannot predict whether the
PSC will approve the requested increase, approve a smaller increase or deny the
request altogether.

On April 2, 2002, Artesian Water filed a petition with the PSC seeking to raise
rates for water service by 23.12% or $7.5 million. The PSC, on April 16, 2002,
suspended the implementation of the proposed new rates pending further
investigation and public evidentiary hearings. Pending these hearings and a
final ruling by the PSC, Artesian Water,

                                       41
<PAGE>

as is permitted by law, placed 7.71% of the proposed rates into effect under
bond beginning June 1, 2002. Beginning December 3, 2002, Artesian Water placed
an additional 3.69% of the proposed rates into effect. On April 15, 2003, the
PSC issued PSC Order No. 6147 approving an increase in Artesian Water's revenue
requirement of 9.68% effective May 1, 2003. These rates represent an increase in
water consumption charges, customer charges, and fire hydrant ready-to-serve
charges necessary to generate an increase in annual operating revenues of
approximately $3.3 million. Since temporary rates were in excess of the final
rate increase, in June 2003 we refunded approximately $201,000 plus interest to
our customers. Since Artesian Water had reserved revenue related to the second
temporary increase of $234,000, an additional $33,000 was recorded to revenue
for the second quarter.

Pennsylvania and Delaware statutes permit water utilities to put into effect, on
a semi-annual basis, increases related to specific types of distribution system
improvements through a Distribution System Improvement Charge, DSIC. This charge
is available to water utilities to be implemented between general rate increase
applications that normally recognize changes in a water utility's overall
financial position. The DSIC process significantly reduces expenses when
compared to those typically associated with general rate increase requests.
Artesian Water requested on May 30, 2003 and subsequently implemented a 0.39%
overall surcharge for bills rendered subsequent to July 1, 2003. Through this
charge, we generated approximately $80,000 in revenues during 2003. Furthermore,
Artesian Water requested on November 30, 2003, and subsequently implemented, a
1.13% DSIC surcharge for bills rendered subsequent to January 1, 2004. This
surcharge was designed to generate approximately $204,000 in revenues between
January and June of 2004, but was suspended on April 7, 2004, when the temporary
rate increase was implemented. Between January 1 and April 7, 2004, this charge
generated approximately $87,000 in revenues.

NOTE 14

NET INCOME PER COMMON SHARE AND EQUITY PER COMMON SHARE

Basic net income per common share is based on the weighted average number of
common shares outstanding. Diluted net income per common share is based on the
weighted average number of common shares outstanding and potentially dilutive
effect of employee stock options.

THE FOLLOWING TABLE SUMMARIZES THE SHARES USED IN COMPUTING BASIC AND DILUTED
NET INCOME PER COMMON SHARE:

<TABLE>
<CAPTION>
                                                                    Years Ended December 31,
                                                          ------------------------------------------
          In thousands                                        2004           2003           2002
          --------------------------------------------    ------------   ------------   ------------
          <S>                                                    <C>            <C>            <C>
          Average common shares outstanding during the
               period for Basic computation                      3,936          3,880          3,533
          Dilutive effect of employee stock options                130            113             79
                                                          ------------   ------------   ------------
          Average common shares outstanding during the
               period for Diluted computation                    4,066          3,993          3,612
                                                          ============   ============   ============
</TABLE>

Equity per common share was $13.89, $13.51, and $13.25 at December 31, 2004,
2003 and 2002, respectively. These amounts were computed by dividing
stockholders' equity excluding preferred stock by the number of basic shares of
common stock outstanding at the end of each year.

NOTE 15

SELECTED CONSOLIDATED QUARTERLY FINANCIAL DATA (UNAUDITED)

THE FOLLOWING TABLE PRESENTS CERTAIN HISTORICAL CONSOLIDATED STATEMENTS OF
OPERATIONS DATA FOR EACH QUARTER FOR THE FISCAL YEARS ENDED DECEMBER 31, 2004
AND 2003:

                                       42
<PAGE>

<TABLE>
<CAPTION>
                             First Quarter         Second Quarter        Third Quarter        Fourth Quarter
In thousands (except      -------------------   -------------------   -------------------   -------------------
 per share data)            2004       2003       2004       2003       2004       2003       2004       2003
-----------------------   --------   --------   --------   --------   --------   --------   --------   --------
<S>                       <C>        <C>        <C>        <C>        <C>        <C>        <C>        <C>
Operating revenues        $  8,787   $  8,538   $  9,984   $  9,453   $ 10,601   $  9,227   $ 10,210   $  9,077
Operating income          $  1,806   $  1,865   $  2,362   $  2,376   $  2,973   $  2,205   $  2,733   $  2,082
Net income applicable
 to common stock          $    716   $    708   $    959   $  1,217   $  1,480   $  1,052   $  1,245   $    868
Income per common share
   Basic                  $   0.18   $   0.18   $   0.24   $   0.31   $   0.38   $   0.27   $   0.32   $   0.22
   Diluted                $   0.18   $   0.18   $   0.24   $   0.31   $   0.36   $   0.26   $   0.31   $   0.22
</TABLE>

NOTE 16

IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS

In December 2004, the FASB issued Statement No. 123 (revised 2004), "Share-Based
Payment". This Statement is a revision of FASB Statement No. 123, "Accounting
for Stock-Based Compensation". This Statement supersedes APB Opinion No. 25,
"Accounting for Stock Issued to Employees", and its related implementation
guidance. This Statement establishes standards for the accounting for
transactions in which an entity exchanges its equity instruments for goods or
services. This Statement is effective as of the beginning of the first interim
or annual reporting period that begins after June 15, 2005. We have not yet
determined whether the adoption of this statement will have a material impact on
our financial condition or results of operation.

In December 2004, the FASB issued Statement No. 153, "Exchanges of Nonmonetary
Assets - an amendment of APB Opinion No. 29". The guidance in APB Opinion No.
29, "Accounting for Nonmonetary Transactions", is based on the principle that
exchanges of nonmonetary assets should be measured based on the fair value of
the assets exchanged. The guidance in that Opinion, however, included certain
exceptions to that principle. This Statement amends Opinion 29 to eliminate the
exception for nonmonetary exchanges of similar productive assets and replaces it
with a general exception for exchanges of nonmonetary assets that do not have
commercial substance. A nonmonetary exchange has commercial substance if the
future cash flows of the entity are expected to change significantly as a result
of the exchange. The adoption of this statement did not have a material impact
on our financial condition or results of operation.

In December 2003, the FASB issued revised Statement No. 132, "Employers'
Disclosures about Pensions and Other Postretirement Benefits-an amendment of
FASB Statements No. 87, 88, and 106." This statement requires additional
disclosures to those in the original Statement No. 132 about the assets,
obligations, cash flows, and net periodic benefit cost of defined pension plans
and other defined benefit postretirement plans. Disclosures for earlier annual
periods presented for comparative purposes are restated. This statement was
adopted as of December 31, 2003 and the additional disclosures required for our
postretirement benefit obligation are presented in Note 10. The adoption of this
statement did not have a material impact on our financial condition or results
of operation.

In December 2003, the FASB issued revised Interpretation No. 46, "Consolidation
of Variable Interest Entities - an interpretation of ARB No. 51". This
Interpretation of ARB No. 51, Consolidated Financial Statements, addresses
consolidation by business enterprises of variable interest entities, which have
one or more of the following characteristics: (1) The equity investment at risk
is not sufficient to permit the entity to finance its activities without
additional subordinated financial support provided by any parties, including the
equity holders (2) The equity investors lack one or more of the following
essential characteristics of a controlling financial interest: the direct or
indirect ability to make decisions about the entity's activities through voting
rights or similar rights; the obligation to absorb the expected losses of the
entity; or the right to receive the expected residual returns of the entity (3)
The equity investors have voting rights that are not proportionate to their
economic interests, and the activities of the entity involve or are conducted on
behalf of an investor with a disproportionately small voting interest. The
Company adopted this statement in 2004, however, it did not have a material
impact on our financial condition or results of operation.

                                       43
<PAGE>

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of Artesian Resources Corporation:

We have audited the accompanying consolidated balance sheets of Artesian
Resources Corporation and subsidiaries as of December 31, 2004 and 2003, and the
related consolidated statements of operations, changes in stockholders' equity
and cash flows for each of the years in the three-year period ended December 31,
2004. In connection with our audits of the consolidated financial statements, we
have also audited the financial statement schedule as listed in Item 15 of this
Form 10-K. These consolidated financial statements and financial statement
schedule are the responsibility of the Company's management. Our responsibility
is to express an opinion on these consolidated financial statements and
financial statement schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Artesian Resources
Corporation and subsidiaries as of December 31, 2004 and 2003, and the results
of their operations and their cash flows for each of the years in the three-year
period ended December 31, 2004 in conformity with U.S. generally accepted
accounting principles. Also in our opinion, the related financial statement
schedule, when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly, in all material respects, the
information set forth therein.


/s/ KPMG LLP


Philadelphia, Pennsylvania

March 30, 2005

                                       44
<PAGE>

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 Chief Financial Officer, evaluated the effectiveness of our disclosure
controls and procedures as of the end of the period covered by this report.
Based on that evaluation, the Chief Executive Officer and Chief Financial
Officer concluded that our disclosure controls and procedures as of the end of
the period covered by this report are functioning effectively to provide
reasonable assurance that the information required to be disclosed by us in
reports filed under the Securities Exchange Act of 1934 is (i) recorded,
processed, summarized and reported within the time periods specified in the
SEC's rules and forms and (ii) accumulated and communicated to our management,
including the Chief Executive Officer and Chief Financial Officer, as
appropriate to allow timely decisions regarding disclosure. A controls system
cannot provide absolute assurance, however, that the objectives of the controls
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 Report on Internal Control Over Financial Reporting

        In accordance with the Securities and Exchange Commission order dated
November 30, 2004 (Release No. 50754), our management's annual report on
internal control over financial reporting and the related attestation report of
our independent auditors, KPMG LLP, will be filed no later than 45 days after
the end of the 75 day filing period specified in Form 10-K.

        (c)     Change in Internal Control over Financial Reporting

        No change in our internal control over financial reporting occurred
during the Company's most recent fiscal quarter that has materially affected, or
is reasonably likely to materially affect, our internal control over financial
reporting.

ITEM 9B. - OTHER INFORMATION.

        None.

                                       45
<PAGE>

                                                              PART III

ITEM 10. - DIRECTORS AND EXECUTIVE OFFICERS.

<TABLE>
<CAPTION>
             Name                    Age                                     Position
--------------------------           ---      ---------------------------------------------------------------------
<S>                                  <C>      <C>
Dian C. Taylor                       59       Director since 1991, Chair of the Board since July 1993, and Chief
                                              Executive Officer and President 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 sister of
                                              Norman H. Taylor, Jr. and the aunt of John R. Eisenbrey, Jr. and
                                              Nicholle R. Taylor.  She serves on the Executive and Budget Committees.

Kenneth R. Biederman                 61       Director since 1991, Professor of Finance at the College of Business
                                              and Economics of the University of Delaware since May 1996. 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. 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; Compensation; Budget; and Stock Option Committees.

John R. Eisenbrey, Jr.               49       Director since 1993, owner and President of Bear Industries, Inc., a
                                              privately held contracting firm, for more than twenty years. Mr.
                                              Eisenbrey is co-owner and President of Peninsula Masonry Inc. for the
                                              last ten years.  Mr. Eisenbrey is the nephew of Dian C. Taylor and
                                              Norman H. Taylor, Jr. and the cousin of Nicholle R. Taylor.  He serves
                                              on the Audit; Compensation; and Stock Option Committees.

Norman H. Taylor, Jr.                65       Director since 2001, Manager of Construction, Facilities,
                                              Communications and Transportation of Artesian Water Company, Inc.
                                              since July 1997.  Mr. Taylor has been employed by Artesian Water
                                              Company, Inc. since 1965 and has held various operational and
                                              supervisory positions within the Company.  Mr. Taylor is the brother
                                              of Dian C. Taylor, the uncle of John R. Eisenbrey, Jr. and the father
                                              of Nicholle R. Taylor.  He serves on the Budget Committee.
</TABLE>

                                       46
<PAGE>

<TABLE>
<S>                                  <C>      <C>
William C. Wyer                      58       Director since 1991, Managing Director of Wilmington Renaissance
                                              Corporation (formerly Wilmington 2000) since January 1998. Wilmington
                                              Renaissance Corporation is a private organization seeking to
                                              revitalize the City of Wilmington, Delaware.  Mr. Wyer has served as a
                                              Director and member of the Audit Committee of GMAC Bank since August
                                              2001.  President of All Nation Life Insurance and 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. Formerly 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; Budget;
                                              Stock Option; and Compensation Committees.

Joseph A. DiNunzio                   42       Senior Vice President and Corporate Secretary of Artesian Resources
                                              Corporation and its Subsidiaries since March 2000.  Mr. DiNunzio
                                              previously served as Vice President and Secretary of Artesian
                                              Resources Corporation and its Subsidiaries since January 1995.  Mr.
                                              DiNunzio has been employed by the Company since 1989 and has held
                                              various executive and management level positions within the Company.
                                              Prior to joining Artesian, Mr. DiNunzio was employed by
                                              PriceWaterhouseCoopers LLP from 1984 to 1989.

Bruce P. Kraeuter                    55       Vice President of Engineering and Planning.  Mr. Kraeuter has served
                                              as an officer since March 1995.  He currently serves as an officer of
                                              Artesian Resources Corporation, Artesian Water Company, Inc. and
                                              Artesian Water Pennsylvania, Inc.  Mr. Kraeuter has been employed by
                                              the Company since July 1989 and has held various executive and
                                              operational positions within the Company.  Mr. Kraeuter served as
                                              Senior Engineer with the Water Resources Agency for New Castle County,
                                              Delaware from 1974 to 1989.

John J. Schreppler, II               48       Vice President, Assistant Secretary and General Counsel of Artesian
                                              Resources Corporation and its Subsidiaries since July 2000.  Prior to
                                              joining the Company he practiced law in Wilmington, Delaware as John
                                              J. Schreppler, II P.A. from February 1999, and before that as a
                                              partner in The Bayard Firm from 1988 to 1999.

David B. Spacht                      45       Vice President, Chief Financial Officer and Treasurer of Artesian
                                              Resources Corporation and its Subsidiaries since January 1995.  The
                                              Company has employed Mr. Spacht since 1980 and he has held various
                                              executive and management level positions within the Company.

Nicholle R. Taylor                   37       Vice President of Artesian Resources Corporation and Artesian Water
                                              Company, Inc. since May 2004.  Ms. Taylor has been employed by the
                                              Company since 1991 and has held various management level and
                                              operational positions within the Company.  Ms. Taylor is the daughter
                                              of Norman H. Taylor, Jr., the niece of Dian C. Taylor and the cousin
                                              of John R. Eisenbrey, Jr.
</TABLE>

                                       47
<PAGE>

<TABLE>
<S>                                  <C>      <C>
John M. Thaeder                      47       Vice President of Operations of Artesian Water Company, Inc.  Mr.
                                              Thaeder has served as an officer since February 1998.  He currently
                                              serves as an officer of Artesian Resources Corporation, Artesian Water
                                              Company, Inc., Artesian Wastewater Management, Inc., Artesian Water
                                              Pennsylvania, Inc. and Artesian Utility Development, Inc.  Prior to
                                              joining the Company, Mr. Thaeder was employed by Hydro Group, Inc.
                                              from 1996 to 1998 as Southeastern District Manager of Sales and
                                              Operations from Maryland to Florida.  During 1995 and 1996, Mr.
                                              Thaeder was Hydro Group's Sales Manager of the Northeast Division with
                                              sales responsibilities from Maine to Florida.  From 1988 to 1995, he
                                              served as District Manager of the Layne Well and Pump Division of
                                              Hydro Group.
</TABLE>

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. Dian C. Taylor
and John R. Eisenbrey, Jr. have been nominated for election to the Board of
Directors to be voted by the Class B shareholders at the Annual Meeting to be
held on May 25, 2005.

Directors receive an annual retainer fee of $8,000 paid in advance. Each
director receives $1,000 for each Board meeting attended, $500 for each
committee meeting attended on the day of a regular board meeting, $1,000 for
each committee meeting attended on any other day, and $450 per diem for
workshops. The chair of each committee receives an annual retainer of $1,000.

The executive officers are elected or approved by our Board or our appropriate
subsidiary to serve until his or her successor is appointed or shall have been
qualified or until earlier death, resignation or removal.

During fiscal year 2004, the Board of Directors had a standing audit committee,
consisting 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 National 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 401(h) of Regulation
S-K promulgated by the SEC. Mr. Biederman meets the independence criteria
prescribed by applicable law and the rules of the SEC for audit committee
membership and is an "independent director" as defined in the NASD Rule
4200(a)(15). The Board of Directors has determined that a majority of the Board
of Directors meet the independence requirements prescribed by the listing
standards of the Nasdaq National Market.

The Company 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 amendment or waiver, its effective date and to whom it applies on its
website.

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Under Section 16(a) of the Securities Exchange Act of 1934, as amended,
directors, officers and certain beneficial owners of the Company's equity
securities are required to file reports of their transactions in the Company's
equity securities with the Securities and Exchange Commission on specified due
dates. With respect to the fiscal year 2004, reports of transactions by all
directors, officers and such beneficial holders were timely filed. In making
this statement, the Company has relied on the written representations of its
directors, officers and ten percent (10%) stockholders and copies of the reports
that they filed with the Securities and Exchange Commission.

                                       48
<PAGE>

ITEM 11. - EXECUTIVE COMPENSATION.

The following table sets forth a summary of the compensation for the three most
recent fiscal years earned by the Chief Executive Officer and the next five
highest paid executive officers whose annual salaries and bonuses exceeded
$100,000 for the fiscal year 2004.

                                       49
<PAGE>

<TABLE>
<CAPTION>
                                                                 SUMMARY COMPENSATION TABLE
                               ----------------------------------------------------------------------------------------------
                                                                                              Long Term
                                                 Annual Compensation                       Compensation(4)
                               -------------------------------------------------------     ---------------
                                                                             Other            Securities
Name and Principal                                                           Annual           Underlying        All Other
Position                       Year         Salary           Bonus        Compensation        Options (#)    Compensation ($)
---------------------------    ----      ------------    ------------     ------------     ---------------   ----------------
<S>                            <C>       <C>             <C>              <C>                    <C>         <C>
Dian C. Taylor                 2004      $    259,927    $      1,529     $     47,556(3)        4,500       $         26,077(4)
  Director, Chair,             2003      $    271,401    $    111,211(1)  $     25,148(3)        4,500       $         24,237(4)
  CEO & President              2002      $    214,250    $     86,480(2)  $     47,512(3)        4,500       $         17,605(4)

Joseph A. DiNunzio             2004      $    177,294    $        545     $      4,898           4,500       $         17,713(4)
  Senior Vice President &      2003      $    177,519    $     32,210(1)  $      1,296           4,500       $         16,905(4)
  Corporate Secretary          2002      $    162,000    $     27,245(2)  $        780           4,500       $         15,772(4)

David B. Spacht                2004      $    159,334    $      5,366     $      4,862           4,500       $         16,980(4)
  Vice President,              2003      $    154,638    $     24,515(1)  $        992           4,500       $         16,397(4)
  Chief Financial Officer      2002      $    142,294    $     20,072(2)  $      1,212           4,500       $         10,962(4)
  & Treasurer

Bruce P. Kraeuter              2004      $    148,741    $      1,542     $      5,089           4,500       $         14,469(4)
  Vice President of            2003      $    136,794    $     24,687(1)  $      1,583           4,500       $         13,980(4)
  Engineering & Planning       2002      $    125,875    $     21,333(2)  $      1,391           4,500       $         12,904(4)

John J. Schreppler, II         2004      $    136,201    $     16,745     $      3,501           4,500       $          7,323(4)
  Vice President, Assistant    2003      $    136,794    $     20,932(1)  $         --           4,500       $          7,560(4)
  Secretary & General          2002      $    128,500    $     11,363(2)  $         --           4,500       $          2,478(4)
  Counsel

John M. Thaeder                2004      $    151,829    $        544     $      5,210           4,500       $          7,619(4)
  Vice President of            2003      $    136,794    $     33,562(1)  $      1,809           4,500       $          7,571(4)
  Operations                   2002      $    125,875    $     18,715(2)  $      1,999           4,500       $          6,763(4)
</TABLE>

(1)     Includes the realized value of the stock awards and cash bonuses
        approved by the Personnel, Compensation and Benefits Committee on
        October 29, 2003 under the Company's Cash and Stock Bonus Compensation
        Plan to Ms. Taylor and Messrs. DiNunzio, Spacht, Kraeuter, Schreppler
        and Thaeder. Ms. Taylor received $110,000 in cash. Mr. DiNunzio received
        750 shares of Class A Stock and $12,077 in cash. Mr. Spacht received 500
        shares of Class A Stock and $7,614 in cash. Mr. Kraeuter received 500
        shares of Class A Stock and $7,773 in cash. Mr. Schreppler received 500
        shares of Class A Stock and $7,374 in cash. Mr. Thaeder received 750
        shares of Class A Stock and $12,613 in cash. The cash portions of the
        bonuses for Messrs. DiNunzio, Spacht, Kraeuter, Schreppler and Thaeder
        were issued to cover the individual tax liability associated with the
        stock bonus issued. The fair market value of the Class A Stock issued
        (and included in the table above) was $26.30 per share based on the
        closing price on the Nasdaq National Market on the date of the award.

(2)     Includes the realized value of the stock awards and cash bonuses
        approved by the Personnel, Compensation and Benefits Committee on June
        19, 2002 under the Company's Cash and Stock Bonus Compensation Plan to
        Ms. Taylor and Messrs. DiNunzio, Spacht, Kraeuter, Thaeder and
        Schreppler. Ms. Taylor received 1,500 shares of Class A Stock and
        $37,679 in cash. Mr. DiNunzio received 500 shares of Class A Stock and
        $11,245 in cash. Mr. Spacht received 300 shares of Class A Stock and
        $7,352 in cash. Mr. Kraeuter received 300 shares of Class A Stock and
        $7,669 in cash. Mr. Schreppler received 200 shares of Class A Stock and
        $3,926 in cash. Mr. Thaeder received 300 shares of Class A Stock and
        $7,669 in cash. The cash portions of the bonuses were issued to cover
        the individual tax liability associated with the stock bonuses issued.
        The fair market value of the Class A Stock issued (and included in the
        table above) was $31.25 per share based on the closing price on the
        Nasdaq National Market on the date of the award.

                                       50
<PAGE>

(3)     Includes $22,900 in 2004, $22,400 in 2003 and $22,750 in 2002 received
        as compensation for attendance at meetings of the Board and its
        committees. In 2004 and 2002, Ms. Taylor received $23,355 and $23,705
        respectively, in medical expense reimbursements from the Company's
        Officer's Medical Reimbursement Plan.

(4)     The Company contributes two percent of an eligible employee's gross
        earnings to the 401(k) Plan. In addition, the Company matches fifty
        percent of the first six percent of the employee's gross earnings that
        the employee contributes to the 401(k) Plan. The amounts disclosed in
        this column include our contributions under the 401(k) Plan for the
        fiscal year 2004 - Ms. Taylor $13,053, Mr. DiNunzio $8,848, Mr. Spacht
        $7,709, Mr. Kraeuter $7,004, Mr. Schreppler $7,323 and Mr. Thaeder
        $7,619; for the fiscal year 2003 - Ms. Taylor $11,142, Mr. DiNunzio
        $8,345, Mr. Spacht $7,447, Mr. Kraeuter $7,380, Mr. Schreppler $7,560
        and Mr. Thaeder $7,571; and for the fiscal year 2002 - Ms. Taylor
        $8,493, Mr. DiNunzio $7,978, Mr. Spacht $2,740, Mr. Kraeuter $6,841, Mr.
        Schreppler $2,478 and Mr. Thaeder $6,763. In addition, effective October
        1, 1994, the Company established a Supplemental 401(k) Retirement Plan
        (the "Supplemental Plan"). All employees hired before April 26, 1994 and
        under the age of sixty at that date are eligible for the Supplemental
        Plan. Employees over the age of sixty waived participation in the
        Supplemental Plan in order to receive Company paid medical, dental and
        life insurance benefits upon retirement. The Company will not provide
        such benefits to any other current or future employees. The amounts
        disclosed in this column also include our contributions under the
        Supplemental Plan for the fiscal year 2004 - Ms. Taylor $13,024, Mr.
        DiNunzio $8,865, Mr. Spacht $9,271 and Mr. Kraeuter $7,464; for the
        fiscal year 2003 - Ms. Taylor $13,095, Mr. DiNunzio $8,560, Mr. Spacht
        $8,951 and Mr. Kraeuter $6,601; and for the fiscal year 2002 - Ms.
        Taylor $9,112, Mr. DiNunzio $7,794, Mr. Spacht $8,221 and Mr. Kraeuter
        $6,063.

                                       51
<PAGE>

OPTION GRANTS IN LAST FISCAL YEAR

The following table sets forth information regarding options granted in the 2004
fiscal year to the executive officers named in the Summary Compensation Table.

<TABLE>
<CAPTION>
                                                 Individual Grants
                         -----------------------------------------------------------------    Potential Realizable Value at
                           Number of        % of Total     Market    Exercise                    Assumed Annual Rates of
                          Securities          Options       Price     Or Base                 Stock Price Appreciation for
                          Underlying        Granted to       on        Price                           Option Term(1)
                            Options          Employees      Date        per                  -------------------------------
                            Granted          in Fiscal       of        Share    Expiration
Name                         (#)               Year        Grant      ($/Sh)       Date       0% ($)     5% ($)     10% ($)
----------------------   ------------      ------------   --------   --------   ----------   --------   --------   ---------
<S>                             <C>               <C>     <C>        <C>           <C>       <C>        <C>        <C>
Dian C. Taylor                  4,500(2)          11.65   $  26.99   $  24.20      5/26/14   $ 12,551   $ 89,933   $ 206,118

Joseph A. DiNunzio              4,500(2)          11.65   $  26.99   $  24.20      5/26/14   $ 12,551   $ 89,933   $ 206,118

David B. Spacht                 4,500(2)          11.65   $  26.99   $  24.20      5/26/14   $ 12,551   $ 89,933   $ 206,118

Bruce P. Kraeuter               4,500(2)          11.65   $  26.99   $  24.20      5/26/14   $ 12,551   $ 89,933   $ 206,118

John J. Schreppler, II          4,500(2)          11.65   $  26.99   $  24.20      5/26/14   $ 12,551   $ 89,933   $ 206,118

John M. Thaeder                 4,500(2)          11.65   $  26.99   $  24.20      5/26/14   $ 12,551   $ 89,933   $ 206,118
</TABLE>

(1)     Amounts represent the hypothetical gains that could be achieved from the
        respective options if exercised at the end of the option term. These
        gains are based on assumed rates of stock appreciation of zero percent
        (0%), five percent (5%) and ten percent (10%) compounded annually from
        the date the respective options were granted to their expiration date
        based upon the grant price.

(2)     Option granted for Class A Stock under the NQSO Plan. The grant was made
        on May 26, 2004 and the shares underlying the option granted will become
        exercisable in six months following the date of grant.

                                       52
<PAGE>

OPTION EXERCISES AND FISCAL YEAR END VALUES

The following table provides certain information concerning option exercises
during 2004 by the executive officers named in the Summary Compensation Table
and year end option values:

       Aggregated Option Exercises in Last Fiscal Year and Fiscal Year End
                                  Option Values

<TABLE>
<CAPTION>
                           Shares                    Number of Securities            Value of Unexercised
                          Acquired                  Underlying Unexercised               In-the Money
                             on                        Options at Fiscal              Options at Fiscal
                          Exercise     Value             Year End (#)                    Year End ($)
         Name                (#)      Realized    Exercisable/Unexercisable(1)    Exercisable/Unexercisable(2)
----------------------   ---------   ----------   ----------------------------    ----------------------------
<S>                          <C>     <C>                 <C>                             <C>
Dian C. Taylor               9,000   $  167,618            43,500/--                       $522,819/--
Joseph A. DiNunzio           6,000   $  108,126          33,150/6,600                    $412,364/$56,608
David B. Spacht              6,422   $  114,275          25,225/4,500                    $279,511/$31,717
Bruce P. Kraeuter              500   $    7,046          25,500/4,500                    $283,087/$31,717
John J. Schreppler, II          --   $       --          15,300/2,700                    $124,339/$15,787
John M. Thaeder                215   $    2,761          24,457/4,500                    $264,488/$31,717
</TABLE>

        (1)     All securities represent options to purchase shares of the Class
                A Stock.

        (2)     Based on $28.12 per share, which was the last reported sale
                price of the Company's Class A Stock as reported by Nasdaq on
                December 31, 2004.

The Company has an Officer's Medical Reimbursement Plan that reimburses officers
for certain medical expenses not covered under the Company's medical insurance
plan.

The Company has a Cash and Stock Bonus Compensation Plan for officers. The
purpose of this plan is to compensate the officers of the Company and Artesian
Water, as appointed by the Board of Directors, for their contributions to the
long-term growth and prosperity of the Company in the form of cash or shares of
the Class A Stock of the Company. Compensation in the form of a bonus of the
Class A Stock of the Company paid to such officers also serves to increase such
officers' proprietary interest in the Company.

ITEM 12. -  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 February 22, 2005, for each director, each executive
officer named in the Summary Compensation Table, 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.

                                       53
<PAGE>

<TABLE>
<CAPTION>
                                      Class A Non-Voting          Class B Common
                                        Common Stock(1)               Stock(1)
                                    ----------------------     ----------------------
                                    Shares      Percent(2)     Shares      Percent(2)
                                    -------     ----------     -------     ----------
<S>                                 <C>               <C>      <C>               <C>
Dian C. Taylor (3)
664 Churchmans Road
Newark, Delaware 19702              113,419            3.3%    105,148           17.9%

Kenneth R. Biederman (3)             49,750            1.5%         --             --

John R. Eisenbrey, Jr. (3)(4)
15 Albe Drive
Newark, Delaware 19702               51,094            1.5%     30,472            5.2%

Norman H. Taylor, Jr. (3) (5)
1597 Porter Road
Bear, Delaware 19701                 43,564            1.3%    180,624           30.7%

William C. Wyer(3)                   49,500            1.4%         --             --

Joseph A. DiNunzio (3) (6)           46,893            1.4%          69            --

Bruce P. Kraeuter (3)                43,588            1.3%         --             --

David B. Spacht (3)                  33,092            1.0%        126             --

John J. Schreppler, II(3)            20,661             --          --             --

John M. Thaeder (3)                  36,494            1.1%        900             --

Louisa Taylor Welcher (7)
219 Laurel Avenue
Newark, DE  19711                    32,984            1.0%     90,971           15.5%

Directors and Executive
Officers as a Group (11
Individuals)(3)                     497,252           13.5%    320,063           54.5%
</TABLE>

                                       54
<PAGE>

(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 held by such person
        or group to the extent such options are exercisable within 60 days after
        February 22, 2005.

(2)     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 February 22, 2005, and all shares
        issuable to such person upon the exercise of options held by such
        person, to the extent such options are exercisable within 60 days of
        that date.

(3)     Includes options to purchase shares of the Company's Class A Stock, as
        follows: Ms. Taylor (43,500 shares); Mr. Biederman (40,500 shares); Mr.
        Eisenbrey (20,593 shares); Mr. Taylor (18,000 shares); Mr. Wyer (40,500
        shares); Mr. DiNunzio (38,448 shares); Mr. Kraeuter (29,900 shares); Mr.
        Spacht (29,650 shares); Mr. Schreppler (18,000 shares); and Mr. Thaeder
        (28,898 shares).

(4)     Includes 520 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
        1,037 shares of the Class B Stock held in custodial accounts for Mr.
        Eisenbrey, Jr.'s daughters.

(5)     Includes 1,077 shares of the Class B Stock and 285 shares of the Class A
        Stock owned by Mr. Taylor's wife for which Mr. Taylor disclaims
        beneficial ownership.

(6)     Includes 18 shares of the Class A Stock held in custodial accounts for
        Mr. DiNunzio's sons.

(7)     Includes 96 shares of the Class B Stock held jointly by Ms. Welcher's
        husband and son, and 225 shares of the Class A Stock held by Ms.
        Welcher's husband for which Ms. Welcher disclaims beneficial ownership.

                                    Equity Compensation Plan Information

<TABLE>
<CAPTION>
                          Number of securities                                      Number of securities
                           to be issued upon           Weighted-average            remaining available for
                              exercise of              exercise price of        future issuance under equity
Plan category             outstanding options         outstanding options          compensation plans (1)
------------------        --------------------        -------------------       ----------------------------
<S>                                    <C>            <C>                                            <C>
Equity
compensation plans
approved by
security holders                       332,290        $             16.94                             42,619

Equity
compensation plans
not approved by
security holders
                                            --                                                            --
                          --------------------                                  ----------------------------
Total                                  332,290                                                        42,619
</TABLE>

(1)     Includes 13,650 shares available for issue under the stock and cash
        bonus plans for officers.

                                       55
<PAGE>

ITEM 13. - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

None.

ITEM 14. - PRINCIPAL ACCOUNTANT FEES AND SERVICES.

FEES BILLED BY INDEPENDENT AUDITORS

The following table sets forth the aggregate fees billed to the Company for
fiscal years 2004 and 2003 by KPMG LLP:

        In thousands               2004           2003
        --------------------   ------------   ------------
        Audit Fees             $        206   $        140
        Audit-Related Fees                0              0
        Tax Fees                         31             26(1)
        All Other Fees                    0              0
                               ------------   ------------
        Total Fees             $        237   $        166
                               ============   ============

        (1)     Includes $2,000 for a tax software license.

Audit Fees consist primarily of fees for year-end audit and the review of the
Company's Quarterly Reports on Form 10-Q.

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, tax audits and, in 2003, a tax
software license.

Pursuant to 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
auditors. Any changes in the amounts quoted are also subject to pre-approval by
the committee. All of the tax fees paid in 2003 and 2004 were pre-approved by
the committee.

                                       56
<PAGE>

ITEM 15. - EXHIBITS, FINANCIAL STATEMENTS SCHEDULES, AND REPORTS ON FORM 8-K.

<TABLE>
<CAPTION>
                                                                                   Page(s)*
                                                                                   --------
        <S>                                                                           <C>
        (a) The following documents are filed as part of this report:
            (1) Financial Statements:
                Report of Independent Auditors                                           45
                Consolidated Balance Sheets at December 31, 2004 and 2003                21
                Consolidated Statements of Operations for the three years ended
                December 31, 2004                                                        22
                Consolidated Statements of Cash Flows for the three years ended
                December 31, 2004                                                        23
                Consolidated Statements of Changes in Stockholders' Equity for
                the three years ended December 31, 2004                               24-26
                Notes to Consolidated Financial Statements                            27-44
            (2) Financial Statement Schedule:
                Schedule II: Valuation and Qualifying Accounts                           66
            (3) Exhibits:  see (c) below
        (b) Reports on Form 8-K.
            A current report on Form 8-K dated February 2, 2005 was
            filed with the Securities and Exchange Commission on
            February 4, 2005 reporting the granting of shares and cash
            to executive officers under the Company's Cash and Stock
            Bonus Compensation Plan.
        (c) Exhibits.                                                                 59-60
</TABLE>

      * Page number shown refers to page number in this Report on Form 10-K

                                       57
<PAGE>

                         ARTESIAN RESOURCES CORPORATION
                             FORM 10-K ANNUAL REPORT
                          YEAR ENDED DECEMBER 31, 2004

                                INDEX TO EXHIBITS
Exhibit
Number      Description
-------     --------------------------------------------------------------------
3.1         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.

3.2         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.

4.1         Seventeenth supplemental Indenture dated as of December 1, 2003
            between Artesian Water Company, Inc., subsidiary of the Company, and
            the Wilmington Trust Company, as Trustee. Incorporated by reference
            to Exhibit 4.1 filed with the Company's Annual Report on Form 10-K
            for the year ended December 31, 2003.

4.2         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.

4.3         Fifteenth supplemental Indenture dated as of December 1, 2000
            between Artesian Water Company, Inc., subsidiary of the Company, and
            the Wilmington Trust Company, as Trustee. Incorporated by reference
            to Exhibit 4.1 filed with the Company's Form 10-Q for the quarterly
            period ended March 31, 2002.

4.4         Thirteenth and Fourteenth Indentures dated as of June 17, 1997
            between Artesian Water Company, Inc., subsidiary of the Company, and
            the Wilmington Trust Company, as Trustee. Incorporated by reference
            to Exhibit 4 filed with the Company's Form 10-Q for the quarterly
            period ended June 30, 1997.

4.5         Twelfth Supplemental Indenture dated as of December 5, 1995 between
            Artesian Water Company, Inc. subsidiary of the Company and
            Wilmington Trust Company, as Trustee. Incorporated by reference to
            Exhibit 4(a) filed with the Company's Annual Report on Form 10-K for
            the year ended December 31, 1995.

4.6         Eleventh Supplemental Indenture dated as of February 16, 1993
            between Artesian Water Company, Inc., subsidiary of the Company and
            Principal Mutual Life Insurance Company. Incorporated by reference
            to Exhibit 4(a) filed with the Company's Annual Report on Form 10-K
            for the year ended December 31, 1992.

4.7         Tenth Supplemental Indenture dated as of April 1, 1989 between
            Artesian Water Company, Inc., subsidiary of the Company, and
            Wilmington Trust Company, as Trustee. Incorporated by reference to
            Exhibit 4(a) filed with the Company's Registration Statement on Form
            10 filed April 30, 1990 and as amended by Form 8-K filed on June 19,
            1990.

10.1        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.**

10.3        Artesian Resources Corporation Cash and Stock Bonus Compensation
            Plan for Officers incorporated by reference to Exhibit 10(d) filed
            with the Company's Annual Report on Form 10-K for the year ended
            December 31, 1993.**

10.4        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.**

                                       58
<PAGE>

10.6        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.**

11          Statement Re: Computation of Net Income per Class A and Class B
            Common Shares.

21          Subsidiaries of the Company as of December 31, 2004.

23.1        Consent of KPMG LLP.

24.1        Power of Attorney (included on signature page).

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.

----------
**      Compensation plan or arrangement required to be filed or incorporated as
        an exhibit.

                                       59
<PAGE>

                                   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 30, 2005                By: /s/ DAVID B. SPACHT
                                     David B. Spacht, Vice President, Chief
                                        Financial Officer and Treasurer

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.

        Each person in so signing also makes, constitutes and appoints Dian C.
        Taylor, Chairman, President, and Chief Executive Officer of Artesian
        Resources Corporation, and David B. Spacht, Vice President, Chief
        Financial Officer and Treasurer of Artesian Resources Corporation, and
        each of them acting alone, as his or her true and lawful
        attorneys-in-fact, in his or her name, place and stead, to execute and
        cause to be filed with the Securities and Exchange Commission any or all
        amendments to this report.

<TABLE>
<CAPTION>
              Signature                                    Title                          Date
-------------------------------------------   ---------------------------------------    -------
<S>                                           <C>                                        <C>
Principal Executive Officer:
/s/ DIAN C. TAYLOR
Dian C. Taylor                                President and Chief Executive Officer      3/30/05

Principal Financial and Accounting Officer:
/s/ DAVID B. SPACHT
David B. Spacht                               Vice President, Chief Financial Officer    3/30/05
                                              and Treasurer
Directors:
/s/ DIAN C. TAYLOR
Dian C. Taylor                                Director                                   3/30/05

/s/ NORMAN H. TAYLOR, JR.
Norman H. Taylor, Jr.                         Director                                   3/30/05

/s/ KENNETH R. BIEDERMAN
Kenneth R. Biederman                          Director                                   3/30/05

/s/ WILLIAM C. WYER
William C. Wyer                               Director                                   3/30/05

/s/ JOHN R. EISENBREY, JR.
John R. Eisenbrey, Jr.                        Director                                   3/30/05
</TABLE>

                                       60
<PAGE>

                         ARTESIAN RESOURCES CORPORATION
                             FORM 10-K ANNUAL REPORT
                          YEAR ENDED DECEMBER 31, 2004

                                INDEX TO EXHIBITS

Exhibit
Number      Description
-------     --------------------------------------------------------------------
3.1         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.

3.2         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.

4.1         Seventeenth supplemental Indenture dated as of December 1, 2003
            between Artesian Water Company, Inc., subsidiary of the Company, and
            the Wilmington Trust Company, as Trustee. Incorporated by reference
            to Exhibit 4.1 filed with the Company's Annual Report on Form 10-K
            for the year ended December 31, 2003.

4.2         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.

4.3         Fifteenth supplemental Indenture dated as of December 1, 2000
            between Artesian Water Company, Inc., subsidiary of the Company, and
            the Wilmington Trust Company, as Trustee. Incorporated by reference
            to Exhibit 4.1 filed with the Company's Form 10-Q for the quarterly
            period ended March 31, 2002.

4.4         Thirteenth and Fourteenth Indentures dated as of June 17, 1997
            between Artesian Water Company, Inc., subsidiary of the Company, and
            the Wilmington Trust Company, as Trustee. Incorporated by reference
            to Exhibit 4 filed with the Company's Form 10-Q for the quarterly
            period ended June 30, 1997.

4.5         Twelfth Supplemental Indenture dated as of December 5, 1995 between
            Artesian Water Company, Inc. subsidiary of the Company and
            Wilmington Trust Company, as Trustee. Incorporated by reference to
            Exhibit 4(a) filed with the Company's Annual Report on Form 10-K for
            the year ended December 31, 1995.

4.6         Eleventh Supplemental Indenture dated as of February 16, 1993
            between Artesian Water Company, Inc., subsidiary of the Company and
            Principal Mutual Life Insurance Company. Incorporated by reference
            to Exhibit 4(a) filed with the Company's Annual Report on Form 10-K
            for the year ended December 31, 1992.

4.7         Tenth Supplemental Indenture dated as of April 1, 1989 between
            Artesian Water Company, Inc., subsidiary of the Company, and
            Wilmington Trust Company, as Trustee. Incorporated by reference to
            Exhibit 4(a) filed with the Company's Registration Statement on Form
            10 filed April 30, 1990 and as amended by Form 8-K filed on June 19,
            1990.

10.1        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.**

10.3        Artesian Resources Corporation Cash and Stock Bonus Compensation
            Plan for Officers incorporated by reference to Exhibit 10(d) filed
            with the Company's Annual Report on Form 10-K for the year ended
            December 31, 1993.**

10.4        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.**

                                       61
<PAGE>

10.6        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.**

11          Statement Re: Computation of Net Income per Class A and Class B
            Common Shares.

21          Subsidiaries of the Company as of December 31, 2004.

23.1        Consent of KPMG LLP.

24.1        Power of Attorney (included on signature page).

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.

----------
**      Compensation plan or arrangement required to be filed or incorporated as
        an exhibit.

                                       62