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, 2007


OR


o           
      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 incorporation or organization)
            (I.R.S.
                Employer Identification Number)





664
      Churchmans Road, Newark, Delaware 19702


------------------------------------------------------------------


Address
      of principal executive offices





(302)
      453 – 6900


-----------------------------------------------------------


Registrant's
      telephone number, including area code





Securities
      registered pursuant to Section 12(b) of the Act:





Title
                of each class
            Name
                of each exchange on which registeredClass
                A Non-Voting Common Stock
            The
                NASDAQ Global Market





Securities
      registered pursuant to Section 12(g) of the
      Act:   None





Indicate
      by check mark if the registrant is a well-known seasoned issuer, as defined
      in
      Rule 405 of the Securities Act.





o
            Yes
            þ
            No





Indicate
      by check mark if the registrant is not required to file report reports pursuant
      to Section 13 or Section 15(d) of the Act.





o
            Yes
            þ
            No











Indicate
      by check mark whether the registrant (1) has filed all reports required to
      be
      filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
      the
      preceding 12 months (or for such shorter period that the registrant was required
      to file such reports), and (2) has been subject to such filing requirements
      for
      the past 90 days.





þ
            Yes
            o
            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. þ







Indicate
      by check mark whether the registrant is a large accelerated filer, an
      accelerated filer, a non-accelerated filer or a smaller reporting
      company.  See the definitions of “large accelerated filer,”
“accelerated filer” and “small reporting company” in Rule 12(b)-2 of the
      Exchange Act.:





Large
        accelerated filer o
        Accelerated filer þNon-accelerated
        filer
o Small reporting
        company o





Indicate
        by check mark whether the registrant is a shell company ( as defined in Exchange
        Act Rule 12b-2)





o
            Yes
            þ
            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, 2007 was $115,214,000
      and $7,402,000, 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, 2007.  The
      aggregate market value of Class B Common Stock was computed by reference to
      the
      last reported trade of such class as reported on the OTC Bulletin Board as
      of
      June 30, 2007, which trade date was June 27, 2007.





As
      of
      March 7, 2008, 6,435,473 shares of Class A Non-Voting Common Stock and 881,452
      shares of Class B Common Stock were outstanding.











TABLE
      OF CONTENTS





PART
                IItem 1.
                BusinessItem 1A.
                Risk FactorsItem 1B.
                Unresolved Staff CommentsItem 2.
                — PropertiesItem 3.
                — Legal ProceedingsItem 4.
                — Submission of Matters to a Vote of Security
                HoldersPART
                IIItem 5.
                — Market for Registrant’s Common Equity, Related Stockholder Matters and
                Issuer Purchases of Equity SecuritiesItem 6.
                — Selected Financial DataItem 7.
                — Management’s Discussion and Analysis of Financial Condition and Results
                of OperationsItem 7A.
                — Quantitative and Qualitative Disclosure About Market
                RiskItem 8.
                — Financial Statements and Supplementary DataItem 9.
                — Changes in and Disagreements With Accountants on Accounting and
                Financial DisclosuresItem 9A.
                — Controls and ProceduresItem 9B.
                — Other InformationPART
                IIIItem 10.
                — Directors, Executive Officers and Corporate
                GovernanceItem 11.
                — Executive CompensationItem 12.
                — Security Ownership of Certain Beneficial Owners and Management and
                Related Stockholder MattersItem 13.
                — Certain Relationships and Related Transactions, and Director
                IndependenceItem 14.
                — Principal Accountant Fees and ServicesPART
                IVItem 15.
                — Exhibits and Financial Statement SchedulesSIGNATURESSubsidiaries
                of the CompanyConsent
                of BDO Seidman LLPCertification
                of Chief Executive OfficerCertification
                of Chief Financial OfficerCertification
                of Chief Executive Officer and Chief Financial
                Officer








Table
          Of Contents





PART
      I





Item
      1.
      Business.





General





Artesian
      Resources Corporation, or “Artesian Resources” operates as the parent holding
      company of Artesian Water Company, Inc., or “Artesian Water,” Artesian Water
      Pennsylvania, Inc., or “Artesian Water Pennsylvania,” Artesian Water Maryland,
      Inc, or “Artesian Water Maryland,” Artesian Wastewater Management, Inc., or
“Artesian Wastewater,” each a regulated public utility, and two non-regulated
      subsidiaries; Artesian Utility Development, Inc., or “Artesian Utility,” and
      Artesian Development Corporation, or “Artesian Development.”  The
      terms "we," "our" and the "Company" as used herein refer to Artesian Resources
      and its subsidiaries.  The business activity conducted by each of our
      subsidiaries is discussed below under separate headings.





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, 2007, we employed 205 full-time and 4 part-time
      employees.  Of these employees, 15 were officers and managers; 128
      were employed as operations personnel, including engineers, technicians,
      draftsman, maintenance and repair persons, meter readers and utility personnel;
      and 57 were employed in the accounting, budgeting, information systems, human
      resources, customer relations, public relations and conservation
      departments.  The remaining 9 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 100 F Street, NE, Washington, DC, 20549.  The public
      may obtain information on the operation of the Public Reference Room by calling
      the SEC at 1-202-551-8090.  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.





Our
      current market area is the Delmarva Peninsula.  Our largest service
      area is primarily in the State of Delaware, which had a population of
      approximately 865,000 at July 1, 2007.  According to the US
      Census Bureau, Delaware's population increased an estimated 10.4% from 2000
      to
      2007, as compared to the nationwide growth rate of approximately
      7.2%.  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 2007, we added approximately 15square miles of
      franchised water service area.





In
      addition, we have expanded the provision of our services into
      Maryland.  Cecil County has designated the Interstate 95 corridor as a
      preferred growth area for business and residential
      expansion.  Recently, the federal Base Re-Alignment and Closure
      Commission announced the relocation of approximately 14,000 jobs to nearby
      Aberdeen, Maryland by 2011.  The Wilmington Metropolitan Area Planning
      Commission projects Cecil County will grow 86 percent between 2000 and 2030
      and
      the Maryland Department of Planning projects that Cecil County will experience
      the highest rate of household growth through 2025 of any jurisdiction in the
      state.  We have entered into interconnection agreements with the towns
      of Elkton and Chesapeake City, Maryland to sell water to
      them.  Construction of the transmission main to Elkton is expected to
      begin in the spring and we anticipate supplying water to the town by summer
      2008.  Additional approvals are necessary to construct the
      transmission line to Chesapeake City.


2
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          Of Contents


On
      August
      7, 2007, we completed the acquisition of the Carpenters Point Water Company,
      which served a 141 home community near the I-95 growth corridor in Cecil County,
      Maryland.  Also, we have entered into an agreement to purchase the
      Mountain Hill Water Company, which currently serves two commercial accounts
      in
      the Principio Business Park and which is located within Cecil County’s
      designated growth corridor.  We have also been selected by Cecil
      County as the water and wastewater utility to serve a designated service
      territory within the growth corridor and we are in negotiations with the County
      regarding terms of the water and wastewater franchise agreements for the
      area.





Artesian
      Water





Artesian
      Water, our principal subsidiary, is the oldest and largest public water utility
      in the State of Delaware and has been providing water service within the state
      since 1905.  It 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.  Artesian Water distributes and sells water to residential,
      commercial, industrial, governmental, municipal and utility customers throughout
      the State of Delaware.  As of December 31, 2007, we had approximately
      75,100 metered customers and served a population of approximately 250,000
      (including contract services), representing approximately 29% 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 2007 was approximately $48.5 million, which was 92.3% of
      total
      operating revenues for the consolidated group.  Our water customer
      base is diversified among residential, commercial, and industrial
      customers.  Residential customers account for 94% of our customer
      base, 5% are commercial entities, and the remaining 1% are industrial and
      other.  Whereas, residential customers account for 58% of our total
      revenue, 22% is from commercial entities and the remaining 20% is from
      industrial and other customers.





Substantially
      all of our water customers are metered, which allows us to measure and bill
      for
      our customers’ water consumption.  Demand for water during the warmer
      months is generally greater than during cooler months due primarily to
      additional customer requirements for water in connection with cooling systems,
      swimming pools, irrigation systems and other outside water
      use.  Throughout the year, and particularly during typically warmer
      months, demand for water will vary with temperature and rainfall.  In
      the event that temperatures during the typically warmer months are cooler than
      expected, or there is more rainfall than expected, the demand for water may
      decrease and our revenues may be adversely affected.





In
      Delaware, a Certificate of Public Convenience and Necessity, or “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 CPCNs was transferred to the Delaware Public Service Commission, or the
      “PSC,” from the Delaware Department of Natural Resources and Environmental
      Control, or “DNREC”.  In this Form 10-K, we may refer to CPCNs as
      "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:





Øa
      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;


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


Øa
      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.





CPCNs
      are
      not transferable.  Once a CPCN is granted to a water utility, 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.  In addition, a water utility that has a CPCN must obtain
      the approval of the PSC to abandon a service territory.








3
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          Of Contents


On
      March
      20, 2007, the PSC entered Order No. 7142 which re-opened Regulation Docket
      No.
      51.  By this Order, the Commission proposes to repeal rules
      implemented in 2001 and replace them with new "Regulations Governing
      Certificates of Public Convenience and Necessity."  The proposed rules
      address the content of how notifications are sent to landowners, the definitions
      for the “Proposed Service Area,” and the requirement of the applying utility to
      certify that it will actually provide water services to a new proposed service
      territory within three years.  If water service is not provided within
      the three year time frame, the proposed rule provides a mechanism for the
      Commission to determine whether the utility should be able to retain the new
      CPCN.  These proposed rules have not been adopted and they may not be
      adopted or could be modified prior to adoption.





Our
      business in our franchised service area is substantially free from direct
      competition with other public utilities, municipalities and other
      entities.  Even though Artesian Water has been granted an exclusive
      franchise for each of our existing community water systems, our ability to
      expand service areas can be affected by the PSC awarding franchises to other
      regulated water utilities with whom competes for such franchises.





We
      hold
      CPCNs for approximately 225 square miles of exclusive water service territory,
      about 11.3% of the total square miles in Delaware, which is segmented into
      a
      number of service areas.  Our largest connected regional water system,
      consisting of approximately 98.6 square miles and 68,000 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.





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 86%
      of the overall 7.8 billion gallons of water we distributed in all of our systems
      during 2007came
      from our groundwater wells, while the remaining 14% came from interconnections
      with other utilities and municipalities.  During 2007, our average
      rate of water pumped was approximately 18.4 million gallons per day, “mgd,” from
      our groundwater wells and approximately 3.0 mgd was supplied from
      interconnections.  Our peak water supply capacity currently is
      approximately 56.0 mgd.  We believe that we have in place sufficient
      capacity to provide water service for the foreseeable future to all existing
      and
      new customers in all of our service territories.





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 116 operating and 56 observation and
      monitoring wells in our systems.  At December 31, 2007, we had
      allocation permits for 77 wells, permit applications pending for 12 wells,
      and
      27 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.  In 2003, Delaware passed legislation
      requiring all water utilities to certify by July 2006 that they had sufficient
      sources of self-supply to serve their respective systems.  We filed
      our certification of self-sufficiency of supply with the PSC on March 8,
      2005.  The review was completed on June 20, 2006, and the PSC
      concluded that we demonstrated that we had sufficient water supply to meet
      the
      demands of our customers through 2006.  As required by law, on
      June 30, 2006, we filed with the PSC a new certification of
      self-sufficiency for the period through 2009.  On July 24, 2007, after
      completion of their review the PSC accepted our certification of sufficient
      water supply through 2009.








4
 Table
          Of Contents


Most
      of
      our New Castle County system is interconnected.  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
      18 interconnections with 2 neighboring water utilities and 5 municipalities
      that
      provide us with the ability to purchase or sell water.  An
      interconnection agreement with the Chester Water Authority has a "take or pay"
      clause requiring us to purchase 1.095 billion gallons
      annually.  During the fiscal year ended December 31, 2007, we used the
      minimum draw under this agreement.  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.  On
      June 20, 2006, Artesian Water provided the City of Wilmington, Delaware or
“City” with notice of non-renewal of the interconnection agreement with the City
      upon its December 22, 2006 termination.  Artesian Water is no longer
      required to purchase 200 million gallons annually from the City after
      December 22, 2006.  All of the interconnections provide Artesian
      Water the ability to sell water to neighboring water utilities or
      municipalities.





As
      of
      December 31, 2007, we were serving customers through approximately
      1,086 miles of transmission and distribution mains.  Mains range in
      diameter from two inches to twenty-four inches, and most of the mains are made
      of ductile iron or cast iron.  We supply public fire protection
      service through approximately 5,055 hydrants installed throughout our service
      territories.





We
      have
      27 storage tanks, most of which are elevated, providing total system storage
      of
      40.5 million gallons.  We have developed and are using an Aquifer
      Storage and Recovery or “ASR” system in northern Delaware.  Our ASR
      system provides approximately 130 million gallons of storage capacity, which
      can
      be withdrawn at a rate of approximately 1 million gallons per day.  At
      some locations, we rely on hydropneumatic tanks to maintain adequate system
      pressures.  Where possible, we 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
      such as Delaware Electric Cooperative and Delmarva Power.  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.  Price caps instituted by electric
      restructuring legislation in Delaware in 1999 were lifted in 2005 for Delaware
      Electric Cooperative’s customers, and in 2006 for Delmarva Power’s customers,
      resulting in extreme price increases.  Although we were unable to
      escape the significant increase associated with the expiration of the price
      caps, we sought to mitigate future significant increases by signing a two-year
      supply contract, at a fixed price, with Pepco Energy Services.  This
      supply contract is due to expire in May 2008.  To continue to mitigate
      future increases we are currently examining new bids for service for the next
      two years.





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 53 different water treatment
      facilities.  All water supplies that we purchase from neighboring
      utilities are potable.  Based on our experience, we believe that the
      costs of treating groundwater are significantly lower than those of treating
      surface water.





The
      United States Environmental Protection Agency, or the “EPA,” DNREC, and the
      Delaware Division of Public Health or the “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 affect
      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.








5
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          Of Contents


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 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 approved wastewater facilities or removed from our
      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 the
      Company, 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 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
      currently derive our water service revenues from water distribution, upon which
      base rates are applied.  Our last increases in rates were effective
      January 1, 2007 and July 24, 2007, which reflected a settlement agreement
      between Artesian Water and the PSC, Public Advocate, and other interested
      parties.  In 2006, we resolved two separate rate cases with the PSC,
      one filed on February 5, 2004 and one filed on May 9, 2006.





In
      February 2004, we requested 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 second temporary increase of
      $3.0 million on an annual basis effective September 2004, for a total of
      $5.5 million on an annual basis.  A portion of the second increase was
      held in reserve based on an estimated outcome and was not reflected in
      income.  In May 2006, the PSC issued the final order in this
      case.  Based on the PSC decision, Artesian Water’s new rates were
      designed to generate approximately $4.9 million in additional revenue on an
      annual basis, or an increase of approximately 13.4% over rates in effect before
      the implementation of temporary rates in 2004.  We were required by
      law to refund the portion of the temporary rate increase in excess of the 13.4%
      plus interest to our customers.  The refund was completed in December
      2006.





In
      May
      2006, Artesian Water filed a petition with the PSC to implement new rates to
      meet a requested increase in revenue of 23%, or approximately $9.9 million,
      on
      an annualized basis.  This request was primarily due to the Company’s
      significant investment in infrastructure, as well as an approximately 92%
      increase in purchased power expense due to the expiration of price caps imposed
      in 1999 when deregulation of the electric industry in Delaware was
      adopted.  As permitted by law, in July 2006 we placed into effect
      temporary rates designed to generate an increase in annual operating revenue
      of
      approximately 5.9%, or $2.5 million on an annual basis, until new rates are
      approved by the PSC.








6
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          Of Contents


On
      December 19, 2006, the PSC approved a Settlement Agreement in this
      case.  The increase in annual revenue requirement under the Settlement
      Agreement of $6 million would be generated in two steps.  The first
      step was placed in effect on January 1, 2007 to generate approximately $4.8
      million in annual revenue.  The second step was placed in effect July
      24, 2007.  The second step rates were designed to recover
      approximately $1.2 million of annual revenue which reflected the issuance of
      additional equity issued by Artesian Resources and invested in Artesian Water
      in
      June and July of 2007 of approximately $20 million.





Artesian
      Water
      Pennsylvania





Our
      other
      water utility subsidiary, Artesian Water Pennsylvania, began operations upon
      receiving recognition as a regulated public water utility by the Pennsylvania
      Public Utility Commission in 2002.  It provides water service to a
      residential community consisting of 39 customers in Chester
      County.  Artesian Water Pennsylvania filed an application with the
      Pennsylvania Public Utilities Commission to increase our service area in
      Pennsylvania, which was approved and a related order was entered on
      February 4, 2005.  This application concerned four specific
      developments that are expected to add 350 customers.  Development in
      these specific developments has not progressed pending resolution of developer
      related township approvals.





Artesian
      Water
      Maryland





On
      July
      20, 2007, the Maryland Public Service Commission, or the MDPSC, approved our
      acquisition of Carpenters Point Water Company.  Carpenters Point Water
      Company has been renamed Artesian Water Maryland, Inc., or “Artesian Water
      Maryland”.  The acquisition was completed on August 7, 2007 in a
      transaction accounted for under Statement of Financial Accounting Standards
      No.
      141 “Business Combinations” (SFAS 141) and the results of operations are
      included in the Consolidated Statement of Income as of the August 7, 2007 date
      of acquisition.  While this acquisition is integral to our expansion
      into Maryland, it did not have a material effect on the financial statements
      in
      2007.  Carpenters Point Water Company served a 141 home community in
      Cecil County, Maryland near the Interstate 95 growth corridor between
      Philadelphia and Baltimore and has sufficient groundwater supply to serve
      additional customers in the undeveloped portions of its franchise and
      surrounding area.





In
      order
      for Artesian Water Maryland to expand its franchise area, we must first obtain
      approval from the county in Maryland in which we intend to expand.  We
      also need to seek approval from the MDPSC.  In addition, we are
      required to provide to the MDPSC any plans, permits, maps and proof of ownership
      of easements for our facilities.





We
      have
      entered into an agreement to purchase the Mountain Hill Water Company, which
      currently serves two commercial accounts in the Principio Business Park and
      which is located within Cecil County’s designated growth corridor.  We
      have also been selected by Cecil County as the water and wastewater utility
      to
      serve a designated service territory within the growth corridor and we are
      in
      negotiations with the County regarding terms of the water and wastewater
      franchise agreements for the area.





Artesian
      Wastewater





Artesian
      Wastewater Management owns wastewater collection and treatment infrastructure
      and provides wastewater services to customers in Delaware as a regulated public
      wastewater service company.  In Delaware, a CPCN grants a wastewater
      company the exclusive right to serve all existing and new customers within
      a
      designated area.  On July 6, 2004, legislation was enacted by the
      Delaware General Assembly, which granted the PSC jurisdiction over
      non-governmental wastewater utilities having fifty or more customers in the
      aggregate and authorizing the PSC to regulate wastewater companies, which
      includes rates charged for wastewater service, issuance of securities and other
      matters.  This authority includes the jurisdiction to grant and revoke
      CPCNs.








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The
      PSC
      has adopted rules, regulations and procedures necessary to implement this
      authority.  CPCNs are not transferable, and a wastewater utility must
      obtain the approval of the PSC to abandon a service territory once
      granted.  Once a CPCN is granted to a wastewater utility, 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.  Although Artesian Wastewater has been granted an
      exclusive franchise for each of its existing wastewater systems, its ability
      to
      expand service areas can be affected by the PSC awarding franchises to other
      regulated wastewater utilities with whom we compete for such
      franchises.


Artesian
      Wastewater received recognition as a regulated public wastewater utility by
      the
      PSC on March 8, 2005, and began providing service to a planned 725 home
      residential community in Sussex County, Delaware in July
      2005.  Artesian Wastewater subsequently received approval for another
      CPCN in 2005 to provide service to a 97 home community in Sussex County,
      Delaware.  In 2006 Artesian Wastewater received approvals on CPCNs for
      six planned communities in Sussex County and three planned communities in Kent
      County, Delaware to provide service to an estimated 1,548
      customers.  As of December 31, 2007, Artesian Wastewater provided
      wastewater services to 414 residential customers.





Artesian
      Utility





Artesian
      Utility, one of our non-regulated subsidiaries, designs and builds water and
      wastewater infrastructure and provides contract water and wastewater services
      on
      the Delmarva Peninsula.  Artesian Utility also evaluates land parcels,
      provides recommendations to developers on the size of a water or wastewater
      facility and the type of technology that should be utilized for treatment at
      said facilities, and operates 26 water and wastewater facilities in Delaware,
      Maryland and Pennsylvania for others.  Artesian Utility is currently
      evaluating several land parcels within the state of Delaware for their
      feasibility to handle a wastewater facility and their capacity for such a
      wastewater facility.  Artesian Utility also has several contracts with
      developers for design and construction of wastewater facilities within the
      Delmarva Peninsula, utilizing a number of different technologies for treatment
      of wastewater at each facility.





On
      May 1,
      2007, Artesian Utility acquired all rights, titles and interest in the
      operations contracts of TMH Environmental Services, Inc. or
“TMH”.  TMH, incorporated in Pennsylvania, provided contract water and
      wastewater operation services to 25 private, municipal and governmental
      institutions in the southeastern part of Pennsylvania.  In connection
      with this acquisition, we expanded our water and wastewater contract activity
      in
      the region and added experienced, qualified and licensed water and wastewater
      operators to our staff.  We believe this strategic expansion will
      provide Artesian Utility with additional potential for continued
      growth.





Artesian
      Utility is also a one-third participant, along with heavy-construction
      contractor George and Lynch, Inc and engineering firm D. Preston Lee, Jr.,
      P.E.,
      Inc., in a limited liability company called AquaStructure Delaware, L.L.C.,
      or  "AquaStructure" that is inactive.  The purpose of
      AquaStructure was to develop and market proposals for design, construction
      and
      operation of wastewater facilities.  In 1999, we began operating a
      250,000-gallon per day wastewater facility for the town of Middletown, in
      southern New Castle County.  In 2002,
      AquaStructure  completed construction of a 2.5 million gallon per day
      wastewater facility for Middletown.  Artesian Utility now operates
      this facility for Middletown under a 20-year contract that expires on February
      1, 2021.





Artesian
      Development





Our
      other
      non-regulated subsidiary, Artesian Development, owns an approximately six-acre
      parcel of land zoned for office buildings located immediately adjacent to our
      corporate headquarters.  In September 2006, Artesian Development sold
      a parcel of land of approximately four acres at the same location, resulting
      in
      a gain on sale of land of $1.3 million.





On
      October 8, 2007, Artesian Development purchased approximately twenty acres
      of
      land located on Route 9, west of the city of Lewes in Sussex County,
      Delaware.  Artesian Development received a conditional use for this
      land from Sussex County to construct an office facility as we continue to expand
      our operations in southern Delaware.  This conditional use also
      includes allowing for the construction of water treatment and wastewater
      facilities and elevated storage on the site to provide service to the area
      between Lewes and Georgetown, Delaware.  Once permits and approvals to
      construct the facilities are received, appropriate agreements with the utility
      affiliates of Artesian Development for its use will be developed.








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Item
      1A. Risk Factors





Our
      operating revenue is
      primarily from water sales.  The rates that we charge our customers
      are subject to the regulations of the PSC.  Additionally, our business
      requires significant capital expenditures on an annual basis and these
      expenditures are made for additions and replacement of property.  If
      the PSC disapproves or is unable to timely approve our requests for rate
      increase or approves rate increases that are inadequate to cover our investments
      or increased costs, our profitability may suffer.





We
      file
      rate increase requests, from time to time, to recover our investments in utility
      plant and expenses.  Once a rate increase petition is filed with the
      PSC, the ensuing administrative and hearing process may be lengthy and
      costly.  We can provide no assurances that any future rate increase
      request will be approved by the PSC; and if approved, we cannot guarantee that
      these rate increases will be granted in a timely manner and/or will be
      sufficient in amount to cover the investments and expenses for which we
      initially sought the rate increase.





Our
      business is subject to
      seasonal fluctuations, which could affect demand for our water service and
      our
      revenues.





Demand
      for water during warmer months is generally greater than during cooler months
      primarily due to additional customer requirements in irrigation systems,
      swimming pools, cooling systems and other outside water use.  In an
      event when temperatures during typically warmer months are cooler than normal,
      or if there is more rainfall than normal, the demand for our water may decrease
      and adversely affect our revenues.





Drought
      conditions may
      impact our ability to serve our current and future customers, and may impact
      our
      customers’ use of our water, which may adversely affect our financial condition
      and results of operations.





We
      believe that we have in place sufficient capacity to provide water service
      for
      the foreseeable future to all existing and new customers in all of our service
      territories.  However, severe drought conditions could interfere with
      our sources of water supply and could adversely affect our ability to supply
      water in sufficient quantities to our existing and future
      customers.  This may adversely affect our revenues and
      earnings.  Moreover, governmental restrictions on water usage during
      drought conditions may result in a decreased demand for water, which may
      adversely affect our revenue and earnings.





Our
      operating costs could be
      significantly increased if new or stricter regulatory standards are imposed
      by
      Federal and State Environmental agencies.





Our
      water
      and wastewater services are governed by various federal and state environmental
      protection and health and safety laws and regulations, including the federal
      Safe Drinking Water Act, the Clean Water Act and similar state
      laws.  These federal and state regulations are issued by the United
      States Environmental Protection Agency and state environmental regulatory
      agencies.  Pursuant to these laws, we are required to obtain various
      water allocation permits and environmental permits for our
      operations.  The water allocation permits control the amount of water
      that can be drawn from water resources.  New or stricter water
      allocation regulations can adversely affect our ability to meet the demands
      of
      our customers.  While we have budgeted for future capital and
      operating expenditures to maintain compliance with these laws and our permits,
      it is possible that new or stricter standards would be imposed that will raise
      our operating costs.  Thus, we can provide no assurances that our
      costs of complying with, or discharging liability under current and future
      environmental and health and safety laws will not adversely affect our business,
      results of operations or financial condition.





Turnover
      in Management
      Team.





Our
      success depends significantly on the continued contribution of our management
      team both individually and collectively.  The loss of the services of
      any member of our management team or the inability to hire and retain
      experienced management personnel could harm our operating results.








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We
      face competition from
      other water utilities for the acquisition of new exclusive service
      territories.





Water
      utilities competitively pursue the right to exclusively serve territories in
      Delaware by entering into agreements with landowners, developers or
      municipalities and, under current law, then applying to the PSC for a CPCN,
      which grants a water utility the exclusive right to serve all existing and
      new
      customers of a water utility within a designated area.  Typically,
      water utilities enter into agreements with developers who have approval from
      county governments with respect to proposed subdivisions or
      developments.  Once a CPCN is granted to a water utility, generally 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.  Therefore, we face competition from other water
      utilities as we pursue the right to exclusively serve territories.  If
      we are unable to enter into agreements with landowners, developers or
      municipalities and secure CPCNs for the right to exclusively serve territories
      in Delaware, our ability to expand may be significantly impeded.





We
      depend on the
      availability of capital for expansion, construction and
      maintenance.





Our
      ability to continue our expansion efforts and fund our utility construction
      and
      maintenance program depends on the availability of adequate
      capital.  There is no guarantee that we will be able to obtain
      sufficient capital in the future on favorable terms and conditions for
      expansion, construction and maintenance.  In the event we are unable
      to obtain sufficient capital, our expansion efforts could be curtailed, which
      may affect our growth and may affect our future results of
      operations.





Any
      future acquisitions we
      undertake or other actions to further grow our water and wastewater business
      may involve risks.





An
      element of our growth strategy is the acquisition and integration of water
      and
      wastewater systems in order to broaden our current service areas, and move
      into
      new ones.  It is our intent, when practical, to integrate any
      businesses we acquire with our existing operations.  The negotiation
      of potential acquisitions as well as the integration of acquired businesses
      could require us to incur significant costs and cause diversion of our
      management’s time and resources.  We may not be successful in the
      future in identifying businesses that meet our acquisition
      criteria.  The failure to identify such businesses may limit the rate
      of our growth.  In addition, future acquisitions or expansion of our
      service areas by us could result in:





ØDilutive
      issuance of our
      equity securities;


ØIncurrence
      of debt and
      contingent liabilities;


ØDifficulties
      in
      integrating the operations and personnel of the acquired
      businesses;


ØDiversion
      of our
      management’s attention from ongoing business concerns;


ØFailure
      to have
      effective internal control over financial reporting;


ØShuffling
      of human
      resources; and


ØOther
      acquisition-related expense





Some
      or
      all of these items could have a material adverse effect on our business and
      our
      ability to finance our business and comply with regulatory
      requirements.  The businesses we acquire in the future may not achieve
      sales and profitability that would justify our investment.





Contamination
      of our water
      supply may result in disruption in our services and could lead to litigation
      that may adversely affect our business, operating results and financial
      condition.





Our
      water
      supplies are subject to contamination from naturally-occurring compounds as
      well
      as pollution resulting from man-made sources.  Even though we monitor
      the quality of water on on-going basis, any possible contamination due to
      factors beyond our control could interrupt the use of our water supply until
      we
      are able to substitute it from an uncontaminated water
      source.  Additionally, treating the contaminated water source could
      involve significant costs and could adversely affect our business.  We
      could also be held liable for consequences arising out of human or environmental
      exposure to hazardous substances, if found, in our water supply.  This
      could adversely affect our business, results of operations and financial
      condition.








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Potential
      terrorist attacks
      may disrupt our operations and adversely affect our business, operating
      results and financial condition.





In
      the
      wake of the September 11, 2001 terrorist attacks, we have taken steps to
      increase security measures at our facilities and heighten employee awareness
      of
      threats to our water supply.  We also have tightened our security
      measures regarding delivery and handling of certain chemicals used in our
      business.  We are currently not aware of any specific threats to our
      facilities, operations or supplies, however, it is possible that we would not
      be
      in a position to control the outcome of terrorist events, if they
      occur.








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Item
      1B. Unresolved Staff Comments.





None.





Item
      2. - Properties.





Our
      corporate headquarters, owned by
      Artesian Water, are located at 664 Churchmans Road, Newark,
      Delaware.





Artesian
      Development, a wholly owned subsidiary of Artesian Resources, owns approximately
      6 acres of land in New Castle County, Delaware zoned for office development
      and
      approximately 20 acres of land in Sussex County, Delaware for an office
      facility, water and wastewater treatment facilities and elevated water
      storage.





Artesian
      Water owns land, transmission and distribution mains, pump facilities, treatment
      plants, storage tanks and related facilities throughout Delaware, of which
      the
      majority is used for utility operations.  Artesian Water Pennsylvania
      owns transmission and distribution mains. Artesian Water Maryland owns land,
      transmission and distribution mains, pump facilities and storage
      tanks.  Artesian Wastewater owns treatment, disposal plants collection
      mains and lift stations.  The following table indicates our utility
      plant as of December 31, 2007.





Utility
                plant
                comprises:$
                In thousandsEstimated
                Useful Life(In
                Years)
            
            
            2007Utility
                plant at original costUtility
                plant in serviceIntangible
                plant
            
            
            ---
            
            
            $
            140Source
                of supply plant
            
            
            45-85
            
            
            
            15,231Pumping
                and water treatment plant
            
            
            35-62
            
            
            
            46,808Transmission
                and distribution plantMains
            
            
            81
            
            
            
            155,927Services
            
            
            39
            
            
            
            26,162Storage
                tanks
            
            
            76
            
            
            
            17,376Meters
            
            
            26
            
            
            
            10,728Hydrants
            
            
            60
            
            
            
            8,359Treatment
                and Disposal Plant (Artesian Wastewater)
            
            
            35-62
            
            
            
            7,646General
                plant
            
            
            3-31
            
            
            
            26,971Property
                held for future use
            
            
            ---
            
            
            
            7,362Construction
                work in progress
            
            
            ---
            
            
            
            4,325327,035Less
                – accumulated depreciation
            
            
            
            
            
            
            52,895$
            274,140





In
      aggregate, we own land, rights-of-way and easements totaling approximately
      722
      acres, which includes the additional 20 acres of land purchased from Island
      Farms in October 2007 by Artesian Development.  In January 2007, we
      entered into an agreement for the use of approximately 460 acres in Sussex
      County for wastewater disposal in perpetuity.  Substantially all of
      Artesian Water's utility plant, except the utility plant in the town of
      Townsend, Delaware, is pledged as security for First Mortgage
      Securities.  Of the 722 acres we own, Artesian Development owns
      approximately 6 acres zoned for office buildings located immediately adjacent
      to
      our corporate headquarters.





We
      believe that our properties are generally maintained in good condition and
      in
      accordance with current standards of good water and wastewater works industry
      practice.  We believe that all of our existing facilities adequately
      meet current necessary production capacities and current levels of
      utilization.








12
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          Of Contents


Item
      3. - Legal Proceedings.





There
      are
      no material legal proceedings pending at this time to which we or any of our
      subsidiaries is a party or to which any of our properties is the subject that
      are material or are expected to have a material effect on our financial
      position, results of operations or cash flows.





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 2007.





PART
      II





Item
      5. - Market for Registrant’sCommon Equity, Related
      Stockholder Matters and Issuer Purchases of Equity Securities.





Market
      Information for the
      Company’s Common Equity


Artesian
      Resources' Class A Non-Voting Common Stock, or “Class A Stock,” is listed on
      NASDAQ Global Market and trades under the symbol "ARTNA."  On March 7,
      2008, the last closing sale price as reported by the NASDAQ Global Market was
      $18.960 per share.  On March 7, 2008, there were 854 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 as
      reported by NASDAQ Global Market and the cash dividends declared per
      share.





CLASS
      A
      NON-VOTING COMMON STOCK





High
            
            
            Low
            
            
            Dividend
                Per Share2006First
                Quarter
            
            $
            22.27
            
            
            $
            19.51
            
            
            $
            0.1488Second
                Quarter
            
            
            22.27
            
            
            
            18.40
            
            
            
            0.1523Third
                Quarter
            
            
            20.41
            
            
            
            18.03
            
            
            
            0.1523Fourth
                Quarter
            
            
            19.70
            
            
            
            18.25
            
            
            
            0.16002007First
                Quarter
            
            $
            20.60
            
            
            $
            18.71
            
            
            $
            0.1600Second
                Quarter
            
            
            20.59
            
            
            
            18.71
            
            
            
            0.1660Third
                Quarter
            
            
            19.50
            
            
            
            18.41
            
            
            
            0.1660Fourth
                Quarter
            
            
            19.49
            
            
            
            18.68
            
            
            
            0.1720








Our
      Class B Voting Stock, or “Class B
      Stock,” is quoted on the OTC Bulletin Board under the symbol
      "ARTNB.OB."  There has been a limited and sporadic public trading
      market for the Class B Stock.  As of March 7, 2008, the last reported
      trade of the Class B Stock on the OTC Bulletin Board was at a price of $20.00
      per share on January 25, 2008.  As of March 7, 2008, we had 183
      holders of record of the Class B Stock.  The Class B shares are paid
      the same dividend as the Class A shares noted in the table
      above.





Recent
      Sales of Unregistered
      Securities


During
      the quarter ended December 31,
      2007, we did not issue any unregistered shares of our Class A or Class B
      stock.








13
 Table
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Equity
      Compensation Plan Information


The
      following table provides information on the shares of our Class A Stock that
      may
      be issued upon exercise of outstanding stock options as of December 31, 2007
      under the Company’s shareholder approved stock plans.





Equity
                Compensation Plan InformationPlan
                category
            
            Number
                of securities to be issued upon exercise of outstanding
                options
            
            
            Weighted-average
                exercise price of outstanding options
            
            
            Number
                of securities remaining available for future issuance under equity
                compensation plans (excluding securities reflected in column
                (a))(a)Equity
                compensation plans approved by security holders
            
            
            595,699
            
            
            $
            14.62
            
            
            
            579,700Equity
                compensation plans not approved by security holders
            
            
            -----
            
            
            
            
            
            
            
            -----Total
            
            
            595,699
            
            
            
            
            
            
            
            579,700










14
 Table
          Of Contents


The
        following graph compares the
        percentage change in cumulative shareholder return on the company’s common stock
        with the Standard & Poor’s 500 Index and Peer Group since December 2002
        (assuming a $100 investment on December 31, 2002, and the reinvestment of
        any
        dividends).








INDEXED
                RETURNSBase
                Period
            Years
                Ending December 31Company
                Name / Index
            2002
            2003
            2004
            2005
            2006
            2007Artesian
                Resources Corporation
            100
            145.78
            151.56
            164.26
            168.83
            167.96S&P
                500 Index
            100
            128.68
            142.69
            149.70
            173.34
            182.86Peer
                Group
            100
            127.24
            146.91
            192.86
            193.10
            185.81





The
      Peer
      Group includes American States Water Company, Aqua America, Inc., BIW LTD,
      California Water Service Group, Connecticut Water Service, Inc., Middlesex
      Water
      Company, Pennichuck Corporation, SJW Corporation, Southwest Water Company,
      and
      York Water Company.








15
 Table
          Of Contents


Item
      6. - SelectedFinancial Data.





The
      selected consolidated financial data for each of the years in the 5-year period
      ended December 31, 2007 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.  The historical results
      presented are not necessarily indicative of results to be expected in any future
      period.





In
                thousands, except per share and operating data
            
            2007
            
            
            2006
            
            
            2005
            
            
            2004
            
            
            2003STATEMENT
                OF OPERATIONS DATAOperating
                revenuesWater
                sales
            
            $
            48,461
            
            
            $
            44,272
            
            
            $
            41,638
            
            
            
            37,985
            
            
            $
            35,164Other
                utility operating revenue
            
            
            1,699
            
            
            
            1,268
            
            
            
            1,073
            
            
            
            867
            
            
            
            744Non-utility
                operating revenue
            
            
            2,364
            
            
            
            1,725
            
            
            
            2,574
            
            
            
            730
            
            
            
            387Sale
                of land
            
            
            ---
            
            
            
            1,322
            
            
            
            ---
            
            
            
            ---
            
            
            
            ---Total
                operating revenues
            
            $
            52,524
            
            
            $
            48,587
            
            
            $
            45,285
            
            
            
            39,582
            
            
            $
            36,295Operating
                expensesOperating
                and maintenance
            
            $
            28,594
            
            
            $
            25,733
            
            
            $
            24,543
            
            
            
            20,700
            
            
            $
            19,629Depreciation
                and amortization
            
            
            5,162
            
            
            
            4,610
            
            
            
            4,365
            
            
            
            4,046
            
            
            
            3,635State
                and federal income taxes
            
            
            4,134
            
            
            
            3,887
            
            
            
            3,347
            
            
            
            2,892
            
            
            
            2,387Property
                and other taxes
            
            
            2,868
            
            
            
            2,562
            
            
            
            2,389
            
            
            
            2,070
            
            
            
            2,115Total
                operating expenses
            
            $
            40,758
            
            
            $
            36,792
            
            
            $
            34,644
            
            
            
            29,708
            
            
            $
            27,766Operating
                income
            
            $
            11,766
            
            
            $
            11,795
            
            
            $
            10,641
            
            
            
            9,874
            
            
            $
            8,529Other
                income, net
            
            
            802
            
            
            
            613
            
            
            
            515
            
            
            
            471
            
            
            
            277Total
                income before interest charges
            
            $
            12,568
            
            
            $
            12,408
            
            
            $
            11,156
            
            
            
            10,345
            
            
            $
            8,806Interest
                charges
            
            $
            6,305
            
            
            $
            6,337
            
            
            $
            6,121
            
            
            
            5,943
            
            
            $
            4,889Net
                income
            
            $
            6,263
            
            
            $
            6,071
            
            
            $
            5,035
            
            
            
            4,402
            
            
            $
            3,917Dividends
                on preferred stock
            
            
            0
            
            
            
            0
            
            
            
            0
            
            
            
            2
            
            
            
            71Net
                income applicable to common stock
            
            $
            6,263
            
            
            $
            6,071
            
            
            $
            5,035
            
            
            
            4,400
            
            
            $
            3,846Net
                income per share of common stock:Basic
            
            $
            0.92
            
            
            $
            1.00
            
            
            $
            0.84
            
            
            
            0.75
            
            
            $
            0.66Diluted
            
            $
            0.90
            
            
            $
            0.97
            
            
            $
            0.81
            
            
            
            0.72
            
            
            $
            0.64Avg.
                shares of common stock outstandingBasic
            
            
            6,787
            
            
            
            6,055
            
            
            
            5,984
            
            
            
            5,904
            
            
            
            5,820Diluted
            
            
            6,936
            
            
            
            6,235
            
            
            
            6,182
            
            
            
            6,099
            
            
            
            5,990Cash
                dividends per share of common stock
            
            $
            0.66
            
            
            $
            0.61
            
            
            $
            0.58
            
            
            
            0.55
            
            
            $
            0.53BALANCE
                SHEET DATAUtility
                plant, at original costless
                accumulated depreciation
            
            $
            274,140
            
            
            $
            253,182
            
            
            $
            227,566
            
            
            
            212,152
            
            
            $
            187,893Total
                assets
            
            $
            294,589
            
            
            $
            269,360
            
            
            $
            243,854
            
            
            
            227,380
            
            
            $
            216,324Notes
                payable
            
            $
            898
            
            
            $
            7,906
            
            
            $
            1,786
            
            
            
            9,213
            
            
            $
            12,499Long-term
                obligations andredeemable
                preferred stock,including
                current portions
            
            $
            92,073
            
            
            $
            92,383
            
            
            $
            92,680
            
            
            
            83,438
            
            
            $
            80,846Stockholders’
                equity
            
            $
            85,132
            
            
            $
            61,800
            
            
            $
            57,813
            
            
            
            54,943
            
            
            $
            52,691Total
                capitalization
            
            $
            176,889
            
            
            $
            153,873
            
            
            $
            150,192
            
            
            
            137,299
            
            
            $
            133,249


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OPERATING
                DATAAverage
                water sales per customer
            
            $
            645
            
            
            $
            600
            
            
            $
            575
            
            
            $
            535
            
            
            $
            505Water
                pumped (millions of gallons)
            
            
            7,755
            
            
            
            7,608
            
            
            
            7,468
            
            
            
            7,166
            
            
            
            7,199Number
                of metered customers
            
            
            75,149
            
            
            
            73,814
            
            
            
            72,383
            
            
            
            70,993
            
            
            
            69,687Miles
                of water main
            
            
            1,086
            
            
            
            1,051
            
            
            
            1,001
            
            
            
            977
            
            
            
            938





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Item
      7. - Management'sDiscussion and Analysis of Financial
      Condition and Results of Operations.





OVERVIEW





Our
      profitability is primarily attributable to the sale of water by Artesian Water,
      which comprises 92.3% of total operating revenues, the amount of which is
      subject to seasonal fluctuations, particularly during summer when water demand
      may vary with rainfall and temperature.  In the event temperatures
      during the typically warmer months are cooler than expected, or rainfall is
      greater than expected, the demand for water may decrease and our revenues may
      be
      adversely affected.  We believe the effects of weather are short term
      and do not materially affect the execution of our strategic
      initiatives.





Our
      water
      sales revenues were affected in 2007 by rate increases approved by the Delaware
      Public Service Commission.  As permitted under Delaware law, a 5.9%
      interim increase in rates was placed in effect July 10, 2006 pending conclusion
      of our filing with the PSC for rate relief.  On December 19, 2006 the
      PSC approved a settlement agreement in this case.  The increase in
      annual revenue requirement under the settlement agreement of $6 million was
      to
      be implemented in two steps.  As a result of the PSC approval of the
      settlement agreement, water rates were further adjusted effective January 1,
      2007 to reflect a total approved increase of 11% with an additional 3% second
      step increase in rates that became effective July 24, 2007 upon completion
      of
      our issuance of common stock.  The first step, placed in effect
      January 1, 2007, was to generate approximately $4.8 million in annual
      revenue.  Following the common stock issuance, Artesian Resources
      contributed additional paid in capital to Artesian
      Water.  Subsequently, the second step rates, designed to recover
      approximately $1.2 million of annual revenue, which reflected approximately
      $20
      million of additional equity, were placed in effect July 24, 2007.





Artesian
      Water Pennsylvania, our wholly owned Pennsylvania water utility subsidiary,
      began operations in 2002, providing water service to a residential community
      in
      Chester County, consisting of 39 customers.  In 2005, the Pennsylvania
      Public Utilities Commission approved our application to increase our service
      area to encompass four specific developments that are expected to add 350
      customers.  Development in these specific developments has not
      progressed pending resolution of developer related township
      approvals.





On
      July
      20, 2007, the Maryland Public Service Commission approved the acquisition of
      Carpenters Point Water Company.  The acquisition was completed on
      August 7, 2007 in a transaction accounted for under Statement of Financial
      Accounting Standards No. 141 “Business Combinations” (SFAS 141) and the results
      of operations have been included in the Consolidated Statement of Income as
      of
      the August 7, 2007 acquisition date.  Carpenters Point Water Company
      has been renamed Artesian Water Maryland.  Artesian Water Maryland
      serves a 141 home community near the Interstate 95 growth corridor between
      Philadelphia and Baltimore in Cecil County, Maryland, and has sufficient
      groundwater supply to serve additional customers in the undeveloped portions
      of
      its franchise and surrounding area.





Cecil
      County has designated the Interstate 95 corridor as a preferred growth area
      for
      business and residential expansion.  Recently, the federal Base
      Re-Alignment and Closure Commission announced the relocation of approximately
      14,000 jobs to nearby Aberdeen, Maryland by 2011.  The Wilmington
      Metropolitan Area Planning Commission projects Cecil County will grow 86 percent
      between 2000 and 2030 and the Maryland Department of Planning projects that
      Cecil County will experience the highest rate of household growth through 2025
      of any jurisdiction in the state.  We have entered into an agreement
      to purchase the Mountain Hill Water Company, which currently serves two
      commercial accounts in the Principio Business Park and which is located within
      Cecil County’s designated growth corridor.  We have also been selected
      by Cecil County as the water and wastewater utility to serve a designated
      service territory within the growth corridor and we are in negotiations with
      Cecil County regarding terms of the water and wastewater franchise agreements
      for the area.





Our
      regulated wastewater subsidiary, Artesian Wastewater, owns wastewater
      infrastructure and began providing wastewater services in Delaware in July
      2005.  Our wastewater customers are billed a flat monthly fee, which
      contributes to providing a revenue stream unaffected by weather.  As
      of December 2007, Artesian Wastewater had 414 customers in six
      communities.








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Our
      two
      other subsidiaries, neither of which is regulated, are Artesian Utility
      Development, Inc., or Artesian Utility, which designs and builds water and
      wastewater infrastructure and provides contract water and wastewater services
      on
      the Delmarva Peninsula, and Artesian Development Corporation, or Artesian
      Development, owns an approximately six-acre parcel of land zoned for office
      buildings located immediately adjacent to our corporate
      headquarters.





On
      October 8, 2007, Artesian Development purchased approximately twenty acres
      of
      land located on Route 9, west of the city of Lewes in Sussex County,
      Delaware.  Artesian Development received a conditional use for this
      land from Sussex County to construct an office facility to serve southern
      Delaware.  This conditional use also includes allowing for the
      construction of water treatment and wastewater facilities and elevated water
      storage on the site to provide service to the area between Lewes and Georgetown,
      Delaware.  Once permits and approvals to construct the facilities are
      received, appropriate agreements with the utility affiliates of Artesian
      Development for its use will be developed.





On
      May 1,
      2007, Artesian Utility acquired all rights, titles and interest in the
      operations contracts of TMH Environmental Services, Inc. or
“TMH”.  TMH, incorporated in Pennsylvania, provided contract water and
      wastewater operation services to 25 private, municipal and governmental
      institutions in the southeastern part of Pennsylvania.





In
      addition to services discussed above, Artesian Resources initiated a Service
      Line Protection Plan, or SLP Plan, in March 2005.  The SLP Plan covers
      all parts, material and labor required to repair or replace participants’
leaking water service lines up to an annual limit.  As of December 31,
      2007, approximately 9,600, or 16%, of our 60,000 eligible water customers had
      signed up for the SLP Plan.





While
      water sales revenues are our primary source of revenues, we continue to explore
      and develop relationships with developers and municipalities in order to
      increase revenues from contract water operations and wastewater management
      services.  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, which may
      be
      affected by interest rates, inflation and general housing and economic market
      conditions.  We will continue to focus attention on expanding our
      contract operations opportunities with municipalities and private water
      providers in Delaware and surrounding areas.





Ensuring
      our customers have a dependable supply of safe, high-quality water has been,
      and
      will continue to be, our highest priority.  In 2003, Delaware passed
      legislation requiring all water utilities to certify by July 2006 that they
      had
      sufficient sources of self-supply to serve their respective
      systems.  On March 8, 2005, we filed our certification of
      self-sufficiency of supply with the PSC.  The review was completed on
      June 20, 2006, and the PSC concluded that we demonstrated that we had
      sufficient water supply to meet the demands of our customers through
      2006.  In addition and as required by law, on June 30, 2006, we
      filed with the PSC a new certification of self-sufficiency for the period
      through 2009.  After completion of their review, on July 24, 2007, the
      PSC accepted our certification of sufficient water supply through
      2009.





Also
      on
      June 20, 2006, Artesian Water provided the City of Wilmington, Delaware
      (City) with notice of non-renewal of the interconnection agreement with the
      City
      upon its December 22, 2006 termination.  Artesian Water is no
      longer required to purchase 200 million gallons annually from the City after
      December 22, 2006.  At 2006 rates, that obligation was
      approximately $336,000.








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Water
      Industry





The
      Federal Environmental Protection Agency’s May 2005 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 12 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
      mortgages have resulted, and will continue to result, in increases to our
      customer base.  Substantial portions of Delaware are currently not
      served by a public water system, which could also assist in an increase to
      our
      customer base as systems are added.  According to the US Census
      Bureau, Delaware's population increased an estimated 10.4% from 2000 to 2007,
      as
      compared to the nationwide growth rate of approximately 7.2%.





Interest
      rates for mortgages have fallen from 7.16% on average in December 2001 to 6.23%
      through December 2007.  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 6.21% at the end of
      2007.





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 Chesapeake & Delaware Canal, or the “C&D
      Canal,” that began in 1992 are now providing the greatest portion of our
      customer growth.  This shift in growth is primarily the result of the
      build out of our service area in northern New Castle County.  In 2007,
      we increased our customer base by 2.0% and increased our service territory
      by
      approximately 15.2 square miles, a 7.3% increase.  We believe the
      recent slow down in the housing market does not materially affect our strategic
      goals and objectives.  We continued to increase our sources of supply,
      adding about 1.0 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
      approximately 81% of our growth in customers in 2007 and we expect continued
      growth 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 and
      surrounding areas.





In
      addition, we believe growth for Artesian Resources will be developed in the
      Maryland counties on the Delmarva Peninsula.  These opportunities
      include the efforts of Artesian Water Maryland, which is currently serving
      141
      customers and is expected to provide sufficient groundwater supply and elevated
      water storage to serve additional customers.  We have also entered
      into an agreement to purchase the Mountain Hill Water Company, which currently
      serves two commercial accounts in the Principio Business Park and which is
      located within Cecil County, Maryland designated growth
      corridor.  Also, the purchase of all the wastewater and water
      operations agreements of TMH in Pennsylvania expanded our water and wastewater
      activity in the region and added experienced, qualified and licensed water
      and
      wastewater operators to our staff.  It is our opinion that this
      expansion will provide Artesian Resources with additional potential for
      continued growth.








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Regulatory
      Matters and Inflation





As
      of
      December 31, 2007, we had approximately 75,100 metered water customers, 414
      wastewater customers, and served a population of approximately 250,000
      (including contract services), representing approximately 29% of Delaware’s
      total population.  Increases in the number of customers served by
      Artesian Water and Artesian Wastewater contributed to increases in our operating
      revenues.  The Delaware PSC regulates both Artesian Water's and
      Artesian Wastewater’s rates charged for service, the sale and issuance of
      securities and other matters.  The additional customers served by
      Artesian Water Maryland also contribute to increases in our operating
      revenues.  The Maryland Public Service Commission, or the MDPSC,
      regulates rates charged for service, the sale and issuance of securities and
      other matters in Maryland.





Our
      regulated utilities periodically seek rate increases to cover the cost of
      increased operating expenses, increased financing expenses due to additional
      investments in utility plant and other costs of doing business.  In
      Delaware, utilities are permitted by law to place rates into effect, under
      bond,
      on a temporary basis pending completion of a rate increase
      proceeding.  The first temporary increase may be up to the lesser of
      $2.5 million on an annual basis or 15% of gross water sales.  Should
      the rate case not be completed within seven months, by law, the utility may
      put
      the entire requested rate relief, up to 15% of gross water sales, in effect
      under bond until a final resolution is ordered and placed into
      effect.  If any such rates are found to be in excess of rates the PSC
      finds to be appropriate, the utility must refund the portion found to be in
      excess to customers with interest.  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 approved by applicable regulatory agencies; and,
      if
      approved, we cannot guarantee that these rate increases will be granted in
      a
      timely or sufficient manner to cover the investments and expenses for which
      we
      initially sought the rate increase.  Artesian Water’s last increase in
      water rates was approved by the PSC and placed into effect on July 24,
      2007.  On January 25, 2008, Artesian Water submitted a notice to the
      PSC of our intent to file an application for a rate increase, as is required
      to
      be submitted not less than 60 days prior to filing an application.





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 or 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 approval process is less costly when
      compared to the approval process for general rate increase
      requests.  The DSIC rate applied between base rate filings is capped
      at 7.5% of the amount billed to customers under otherwise applicable rates
      and
      charges, and the DSIC rate increase applied can not exceed 5% within any
      12-month period.  During 2006 we earned approximately $225,000 in
      revenue.  We did not have DSIC in effect during 2007.  In
      December 2007, Artesian Water filed an application with the PSC for approval
      to
      collect 0.46%, effective January 1, 2008, to recover the costs of eligible
      non-revenue producing improvements made since the last rate case in
      2006.  The PSC approved the DSIC effective January 1, 2008 subject to
      audit at a later date.





In
      1999,
      the General Assembly passed legislation restructuring the electric industry
      in
      Delaware.  Since the passage of electric restructuring legislation in
      1999, electricity prices had been capped for customers of Delmarva Power and
      the
      Delaware Electric Cooperative.  Those rate caps were lifted in 2005
      for customers of the Delaware Electric Cooperative and in May 2006 for Delmarva
      Power customers.  Our electric charges increased in 2005 due to higher
      billing rates charged by Delaware Electric Cooperative after the cap was
      removed.  In 2006, our electric charges increased further due to the
      increase from Delmarva Power.  Artesian Resources sought to mitigate
      future increases by signing a two-year fixed price supply contract with Pepco
      Energy Services in May 2006.  This contract is due to expire in May
      2008.  To continue to mitigate future increases we are currently
      examining new bids for service for the next two years.





On
      April
      10, 2006, the PSC made effective new rules under Regulation Docket 15 that
      govern the terms and conditions under which water utilities require advances
      or
      contributions from customers or developers.  These regulations require
      that developers pay for all water facilities within a new development, with
      such
      funding recorded as contributions in aid of construction by the water
      utility.  In addition, the utility is required to receive a
      contribution in aid of construction of $1,500 for each new residential
      connection to its system towards the cost of water supply, treatment and storage
      facilities.  These regulations further require developers to fully pay
      for facilities to serve satellite systems.  These required
      contributions are intended to place a greater burden upon new customers to
      pay
      for the cost of facilities required to serve them.


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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, medical, 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 one of three methods (the previous
      year’s consumption in the same period, the previous billing period’s
      consumption, or trending) 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.





We
      record
      accounts receivable at the invoiced amounts.  The reserve for bad
      debts is the Company's best estimate of the amount of probable credit losses
      in
      our existing accounts receivable, and is determined based on a five-year
      historical write-off experience.  The Company reviews the reserve for
      bad debts on a quarterly basis.  Account balances are written off
      against the reserve when it is probable the receivable will not be
      recovered.





We
      review
      for impairment of our long-lived assets, including Utility Plant in Service,
      in
      accordance with the requirements of SFAS No. 144, "Accounting for the Impairment
      or Disposal of Long-Lived Assets".  We also review regulatory assets
      for the continued application of SFAS No. 71.  Our review determines
      whether there have been changes in circumstances or events that have occurred
      that require adjustments to the carrying value of these assets.  In
      accordance with SFAS No. 71, adjustments to the carrying value of these assets
      would be made in instances where the inclusion in the rate-making process is
      unlikely.





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 costs that may be recovered over various lengths
      of time as prescribed by the PSC, MDPSC and Pennsylvania Public Utility
      Commission or the PAPUC.  As the utility incurs certain costs, such as
      expenses related to rate case applications, a deferred regulatory asset is
      created.  Adjustments to these deferred regulatory assets are made
      when the PSC, MDPSC or PAPUC determines whether the expense is recoverable
      in
      rates, the length of time over which an expense is recoverable, or, because
      of
      changes in circumstances, whether a remaining balance of deferred expense is
      recoverable in rates charged to customers.  Adjustments to reflect
      changes in recoverability of certain deferred regulatory assets may have a
      material effect on our financial results.








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Results
      of Operations





2007
      Compared to 2006





Operating
      Revenues





Revenues
      totaled $52.5 million in 2007 and were 8.1% above revenues in 2006 of $48.6
      million, which is primarily due to an increase of $4.2 million, or 9.5% in
      water
      sales revenue.  The increase in water sales revenue reflects a 2.0%
      increase in the number of customers served and rate increases placed in effect
      in 2007.  We realized 92.3% of our total revenue in 2007 from the sale
      of water.  During 2006 we realized 91.1% of our total revenue from
      water sales, which total included a recognition of a gain on the sale of land
      by
      Artesian Development of $1.3 million.  Non-utility revenue totaled
      $2.4 million in 2007 as compared to $1.7 million in 2006.  This
      revenue was primarily derived from the design, construction and operation of
      wastewater projects.  Artesian Utility records non-utility revenue
      associated with developer financed construction projects based upon the
      percent-of-completion method.  The Company records deferred revenue
      for the unearned portion until realized or realizable and earned.





Percentage
                of Operating Revenues2007
            
            
            2006
            
            
            2005Residential
            
            
            57.6
            %
            
            
            55.8
            %
            
            
            57.0
            %Commercial
            
            
            22.3
            %
            
            
            22.2
            %
            
            
            22.6
            %Industrial
            
            
            0.7
            %
            
            
            0.8
            %
            
            
            0.6
            %Government
                and Other
            
            
            11.7
            %
            
            
            12.3
            %
            
            
            11.7
            %Other
                utility operating revenues
            
            
            3.2
            %
            
            
            2.6
            %
            
            
            2.4
            %Non-utility
                operating revenues
            
            
            4.5
            %
            
            
            3.6
            %
            
            
            5.7
            %Sale
                of land
            
            
            0.0
            %
            
            
            2.7
            %
            
            
            0.0
            %Total
            
            
            100.00
            %
            
            
            100.00
            %
            
            
            100.00
            %





Residential





Residential
      water service revenues in 2007 amounted to $30.2 million, an increase of $3.1
      million, or 11.4% over the $27.1 million recorded in 2006, primarily due to
      rate
      increases effective January 1, 2007 and July 24, 2007.  The increase
      in 2007 follows an increase of $1.3 million, or 5.0%, in 2006.  The
      volume of water sold to residential customers increased slightly from 3,934
      million gallons in 2006 to 3,947 million gallons in 2007.  The number
      of residential customers served increased by 1,335 or 2.0% in 2007.





Commercial





Revenues
      from commercial customers in 2007 increased by 8.3%, from $10.8 million in
      2006
      to $11.7 million in 2007, due to rate increases in 2007.  The number
      of commercial customers served increased by 17, or 0.5%, in 2007.  We
      sold 2,197 million gallons of water to commercial customers in 2007, a marginal
      decrease as compared to 2,272 million gallons sold in 2006.  The
      decrease in gallons sold is primarily a result of the medical industry, which
      had a decrease of 34 million gallons sold.





Industrial





Revenues
      from industrial customers decreased by 2.7%, from $392,000 in 2006 to $381,000
      in 2007.  The volume of water sold to industrial customers decreased
      by 14.1%, from 135 million gallons in 2006 to 116 million gallons in 2007,
      primarily as a result of decreased usage by one industrial
      customer.








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 Table
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Government
      and Other





Government
      and other revenues in 2007 increased by 1.7%, from $6.0 million in 2006 to
      $6.1
      million in 2007.  This increase in revenue resulted from increases in
      rates, offset by a reduction in private sprinkler consumption.





Other
      Utility Operating Revenue





Other
      utility operating revenue, derived from contract operations, antenna leases
      on
      water tanks, finance/service charges and wastewater customer service revenues
      increased 31.0% in 2007, from $1.3 million in 2006 to $1.7 million in
      2007.  The increase is primarily the result of a 107% increase in
      wastewater customer service revenues, from $385,000 in 2006 to $796,000 in
      2007,
      which includes monthly fees and operating subsidies from development
      contracts.





Non-Utility
      Operating Revenue





Non-utility
      operating revenue, derived from non-regulated wastewater operations, increased
      from $1.7 million in 2006 to $2.4 million in 2007.  This increase
      reflects higher contract revenues associated with wastewater treatment projects
      in southern Delaware.  The increase is also due to an increase in
      Artesian Utility operations, which had a $369,000 increase for the construction
      of a water treatment facility in Cecil County, Maryland.  A portion of
      the increase, approximately $233,000, includes contract service revenue in
      Artesian Utility as a result of the TMH acquisition.  The increase in
      revenue also includes an increase in SLP Plan revenue, approximately $154,000,
      from $267,000 in 2006 to $421,000 in 2007.





Operating
      Expenses





Operating
      expenses, excluding depreciation and taxes, increased approximately $2.9
      million, or 11.3%, to $28.6 million in 2007.  Payroll and benefits
      increased $953,000 due to increased staffing at points throughout the year,
      pay
      increases and medical insurance premiums.  Electric expense increased
      $658,000 as a result of an increase in power and electric rates of approximately
      92% due to the May 2006 expiration of price caps imposed in 1999 when
      deregulation of the electric industry in Delaware was
      adopted.  Artesian Resources sought to mitigate these increases by
      signing a two-year supply contract with another provider at a fixed price in
      May
      2006.  Repair and maintenance expenses increased $546,000, due
      primarily to an increase in tank painting costs of  $175,000
      associated with a new five year agreement effective July 2006, costs for carbon
      filter water treatment replacements that increased $140,000 and other
      miscellaneous increases in the maintenance of pump and water treatment
      plants.  Administrative expenses increased by approximately $536,000,
      primarily due to an increase in temporary employment services, directors’ fees
      and employee training related to the conversion of our financial reporting
      system.  These increases were offset by a reduction of $372,000, or
      11.8%, in purchased water expense, primarily due to the expiration in December
      2006 of our purchased water contract with the City of
      Wilmington.  Non-utility operating expenses increased approximately
      $341,000, primarily as the result of more project activity as compared to the
      same period in 2006.





Percentage
                of Operating and Maintenance Expenses2007
            
            
            2006
            
            
            2005Payroll
                and Associated Expenses
            
            
            46.7
            %
            
            
            48.3
            %
            
            
            46.0
            %Purchased
                Water
            
            
            9.7
            %
            
            
            12.3
            %
            
            
            12.8
            %Repair
                and Maintenance
            
            
            7.6
            %
            
            
            6.3
            %
            
            
            5.9
            %Water
                Treatment
            
            
            3.7
            %
            
            
            3.4
            %
            
            
            3.1
            %Administrative
            
            
            26.1
            %
            
            
            24.2
            %
            
            
            22.7
            %Non-utility
                Operating
            
            
            6.2
            %
            
            
            5.5
            %
            
            
            9.5
            %Total
            
            
            100.00
            %
            
            
            100.00
            %
            
            
            100.00
            %





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Depreciation
      and amortization expense increased $552,000, or 12.0%, due to increases in
      our
      utility plant in service providing supply, treatment, storage and distribution
      of water during 2007.  Income tax expense increased $247,000, or 6.4%,
      due to higher profitability in 2007.  Our total effective income tax
      rate or ETR for 2007 and 2006 was 39.8% and 38.9%, respectively.  The
      increase in the ETR  for 2007 was due to the utilization of net
      operating losses used for the gain on the sale of land in 2006.





Other
      Income, Net





Our
      Allowance for Funds Used During Construction, or AFUDC, increased $36,000,
      or
      12.5%, as a result of higher long-term construction activity subject to
      AFUDC.  Miscellaneous Income increased $153,000, primarily due to an
      increase in the 2007 CoBank dividend and income earned on our temporary
      investments.





Interest
      Charges





Interest
      charges decreased $32,000 or 0.5%, in 2007, primarily due to less short term
      debt interest expense.  We used the proceeds from our June 2007 equity
      issuance to pay off the outstanding balances of our short term
      debt.  The average interest rate on our short term credit balance
      increased from 5.4% in 2006 to 5.9% in 2007, while our average outstanding
      balance was $5.3 million in 2007, compared to $6.1 million in 2006.





Net
      Income





For
      the
      year ended December 31, 2007, our net income applicable to common stock
      increased $192,000, or 3.2%, compared to 2006.  The increase in net
      income was primarily due to increases in Artesian Water operating revenues
      derived from the 2007 rate increases, revenues generated by our regulated
      wastewater operations and increased activity in contract operations of Artesian
      Utility.  In addition, 2006 net income included approximately $870,000
      as a result of the sale of land by Artesian Development.  If the
      impact of the sale of land in 2006 is excluded, net income increased
      approximately $1.1 million, or 20.4%.





2006
      Compared to 2005





Operating
      Revenues





Revenues
      totaled $48.6 million in 2006 and were 7.3% above revenues in 2005 of $45.3
      million, which is primarily due to an increase of $2.6 million, or 6.3% in
      water
      sales revenue, and the $1.3 million proceeds from the sale of land by Artesian
      Development.  The increase in water sales revenue reflects a 2.0%
      increase in the number of customers served, rate increases placed in effect
      in
      2006, and an adjustment in the fourth quarter reflecting the difference between
      estimated and actual customer refunds associated with the 2004 rate
      case.  We realized 91.1% of our total revenue in 2006 from the sale of
      water, compared to 91.9% in 2005.  The percentage decrease is
      primarily due to the sale of land by Artesian Development.  These
      increases in revenue were partially offset by a $849,000 decrease in non-utility
      revenue.  Non-utility revenue totaled $1.7 million in 2006 as compared
      to $2.6 million in 2005.  This revenue was primarily derived from the
      design, construction and operation of wastewater projects.  AUDI
      records non-utility revenue associated with developer financed construction
      projects based upon the percent-of-completion method.  The Company
      records deferred revenue for the unearned portion until realized or realizable
      and earned.  For the year ended December 31, 2006, $31,000 was charged
      to unearned revenue based on the stage of completion of the wastewater design
      and construction projects, as compared to $21,000 for the year ended December
      31, 2005.





Residential





Residential
      water service revenues in 2006 amounted to $27.1 million, an increase of $1.3
      million, or 5.0% over the $25.8 million recorded in 2005, primarily due to
      a
      rate increase effective July 2006.  The increase in 2006 follows an
      increase of $2.5 million, or 10.5%, in 2005.  The volume of water sold
      to residential customers increased slightly from 3,911 million gallons in 2005
      to 3,934 million gallons in 2006.  The number of residential customers
      served increased by 1,354 or 2.0% in 2006.








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Commercial





Revenues
      from commercial customers in 2006 increased by 5.9% from $10.2 million in 2005
      to $10.8 million in 2006, due to rate increases in 2006.  The number
      of commercial customers served increased by 33, or 0.9% in 2006.  We
      sold 2,272 million gallons of water to commercial customers in 2006, a marginal
      increase as compared to 2,221 million gallons sold in 2005.





Industrial





Revenues
      from industrial customers increased by 38.5% from $283,000 in 2005 to
      $392,000.  The volume of water sold to industrial customers increased
      by 51.7% from 89 million gallons in 2005 to 135 million gallons in 2006,
      primarily as a result of increased usage by one industrial
      customer.  This customer was required by contract to pay for minimum
      takes in 2005, and had a significant increase in usage in
      2006.  Therefore, the volumes of water sold increased more extensively
      than the revenues between 2006 and 2005.





Government
      and Other





Government
      and other revenues in 2006 increased by 13.2% from $5.3 million in 2005 to
      $6.0
      million in 2006.  The increase was primarily driven by revenues
      derived from fire protection services, which totaled $3.2 and $2.8 million
      in
      2006 and 2005, 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, finance/service charges and wastewater customer service revenues
      increased 18.2% in 2006, from $1.1 million in 2005 to $1.3 million in
      2006.  The increase is primarily the result of a 333% increase in
      wastewater customer service revenues, from $89,000 in 2005 to $385,000 in
      2006.





Non-Utility
      Operating Revenue





Non-utility
      operating revenue, derived from non-regulated wastewater operations, decreased
      from $2.6 million in 2005 to $1.7 million in 2006.  The decrease
      reflects lower contract revenues associated with wastewater treatment projects
      in Southern Delaware.  Although there were twelve new AUDI developer
      financed wastewater projects recording revenue in 2006, these projects were
      of a
      smaller magnitude than those in 2005.  This decrease was partially
      off-set by an increase in SLP revenues, from $210,000 in 2005 to $267,000 in
      2006.





Operating
      Expenses





Operating
      expenses, excluding depreciation and taxes, increased approximately $1.2
      million, or 4.7%, to $25.7 million in 2006.  The increase in operating
      expenses resulted primarily from increases in payroll and benefits and
      administrative expenses.  Payroll and benefits increased $1.1 million
      due to increased staffing and pay increases.  Administrative expenses
      increased by approximately $659,000.  $450,000 of this increase was a
      result of increased power and electric charges due to the May 2006 expiration
      of
      price caps imposed in 1999 when deregulation of the electric industry in
      Delaware was adopted.  Additional administrative expense increases
      occurred in outside services related to the implementation of the geographic
      information system used in system planning and operations.  This
      system was brought on-line in 2006 and the expense associated with it increased
      by $100,000 between 2005 and 2006.  These increases were off-set by a
      $891,000 decrease in non-utility operating expenses, primarily the result of
      smaller developer financed wastewater projects in AUDI.





Depreciation
      and amortization expense increased $245,000, or 5.6%, due to increases in our
      utility plant in service during 2006.  Income tax expense increased
      $540,000, or 16.1%. due to higher profitability in 2006.  Our total
      effective income tax rate or ETR for 2006 and 2005 was 38.9% and 39.9%,
      respectively.  The decrease in the ETR was due to utilization of net
      operating losses used for the gain on the sale of land.








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Other
      Income, Net





Other
      Income increased $98,000, due to higher long-term construction activity subject
      to AFUDC and recording higher patronage income associated with our investment
      in
      CoBank in the first quarter of 2006 than in the first quarter of
      2005.





Interest
      Charges





Interest
      charges increased $216,000, or 3.5%, in 2006.  Interest on our
      long-term debt increased $146,000, or 2.6%, due to higher long-term debt
      balances.  The average interest rate on our lines of credit also rose
      from 4.3% in 2005 to 5.4% in 2006, causing interest on our lines of credit
      to
      increase by $91,000 in 2006 as compared to 2005.





Net
      Income





For
      the
      year ended December 31, 2006, our net income applicable to common stock
      increased $1,036,000, or 20.6%, compared to 2005.  The increase in net
      income was primarily due to the implementation of increases in water utility
      rates to recover investments made in utility plant, as well as the gain on
      sale
      of land by Artesian Development.





Liquidity
      and Capital Resources





Overview





Our
      primary sources of liquidity for 2007 were $11.6 million provided by cash flow
      from operating activities, $6.8 million in net contributions and advances from
      developers, and $21.4 million net proceeds from the issuance of approximately
      1,219,000 shares of Class A Non-Voting Common Stock.  Cash flow from
      operating activities is primarily provided by our utility operations, and is
      impacted by the timeliness and adequacy of rate increases and changes in water
      consumption as a result of year-to-year variations in weather conditions,
      particularly during the summer.  A significant part of our ability to
      maintain and meet our financial objectives is to assure our investments in
      utility plant and equipment are recovered in the rates charged to
      customers.  As such, from time to time we file rate increase requests
      to recover increases in operating expenses and investments in utility plant
      and
      equipment.  During 2006, our cash flows from operating activities were
      impacted by the refund of temporary rates plus interest, as required by law,
      as
      a result of Artesian Water’s 2004 rate case.





We
      depend
      on the availability of capital for expansion, construction and
      maintenance.  We rely on our sources of liquidity for investments in
      our utility plant and to meet our various payment obligations.  We
      expect that our aggregate investments in our utility plant and systems in 2008
      will be approximately $36.6 million.  Our total obligations related to
      interest and principal payments on indebtedness, rental payments and water
      service interconnection agreements for 2008 are anticipated to be approximately
      $9.5 million.  We expect to fund our activities for the next year
      using our available cash balances and bank credit lines, and projected cash
      generated from operations and the capital markets.





Investment
      in Utility Plant and Systems





We
      invested $26.7 million in capital expenditures during 2007 compared to $30.9
      million invested during the same period in 2006.  Investment in
      utility plant, excluding advances and contributions in aid of construction
      received from real estate developers, was $20.9 million in 2007 compared to
      $21.9 million in 2006.  Additionally, developers financed $6.2 million
      for the installation of water mains and hydrants in 2007 compared to
      $9.3  million in 2006.  These reduced investments are
      attributable to several factors, including value engineering of capital
      projects, regionalization to avoid construction of new facilities, greater
      competition and thus lower bid prices received on construction contracts, and,
      to a lesser extent, the general slowdown in the housing market.  The
      primary focus of Artesian Water’s investment was to continue to provide high
      quality reliable service to our growing service territory.








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We
      invested approximately $8.0 million in new transmission and distribution
      facilities in 2007, including refunds of advances for developer-financed
      infrastructure.  Of the $8.0 million invested, we invested $4.9
      million in new infrastructure and $3.1 million in our rehabilitation program
      for
      transmission and distribution facilities, replacing aging or deteriorating
      mains.  Additionally, an investment of $4.4 million was made to
      enhance or improve existing treatment facilities, rehabilitate pumping equipment
      and install new wells to increase supply capabilities.





The
      following chart summarizes our investment in utility plant and systems over
      the
      past three fiscal years.


In
                thousands
            
            2007
            
            
            2006
            
            
            2005Source
                of supply
            
            $
            3,173
            
            
            $
            2,224
            
            
            $
            100Treatment
                and pumping
            
            
            1,196
            
            
            
            973
            
            
            
            1,660Transmission
                and distribution
            
            
            8,055
            
            
            
            12,998
            
            
            
            9,515General
                plant and equipment
            
            
            6,373
            
            
            
            2,581
            
            
            
            1,272Developer
                financed utility plant
            
            
            6,182
            
            
            
            9,291
            
            
            
            6,604Wastewater
                facilities
            
            
            2,081
            
            
            
            3,111
            
            
            
            1,236Allowance
                for Funds Used During Construction, AFUDC
            
            
            (324
            )
            
            
            (288
            )
            
            
            (223
            )Total
            
            $
            26,736
            
            
            $
            30,890
            
            
            $
            20,164





We
      have
      planned to invest approximately $36.6 million in utility plant in
      2008.  Developers are expected to finance an additional $15.9 million
      in utility plant construction.  Of the $36.6 million we expect to
      invest in 2008, approximately $7.2 million will be for new treatment facilities,
      equipment and wells throughout Delaware to identify, develop, treat and protect
      sources of water supply to assure uninterrupted service to our
      customers.





The
      largest portion of the projected investment in 2008, $17.3 million, will be
      in
      transmission and distribution facilities.  Approximately $6.9 million
      of this amount will be invested in the relocations of facilities as a result
      of
      government mandates and renewals associated with the rehabilitation of aging
      infrastructure.  The remaining $10.4 million of this investment in new
      transmission and distribution facilities will be to improve our system
      hydraulics and address service needs in growth areas of our service
      territory.





We
      plan
      to construct two new water storage tanks in Kent County, Delaware, investing
      $1.2 million in the Magnolia area and $1.0 million in the Clayton
      area.  We also plan to invest $1.0 million in a water storage tank in
      Sussex County, Delaware.





An
      additional expenditure of approximately $8.4 million is anticipated to complete
      the construction of a new office building addition to our corporate headquarters
      in New Castle County in 2008, to meet our growing space
      requirements.  An additional $5.6 million will be spent on wastewater
      projects in Sussex County, Delaware.  We plan to initiate capital
      investment in the growth corridor in Cecil County, Maryland, starting with
      $0.7
      million to upgrade the Artesian Maryland water system purchased from the
      Carpenters Point Water Company in 2007.  Additionally, $6.7 million is
      planned to be invested in new transmission mains to provide water supply to
      the
      Cecil County, Maryland growth area.





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 $36.6 million will be financed by our operations and external
      sources, including a combination of capital investment, short-term borrowings
      under our revolving credit agreements discussed below, as well as a debt
      issuance.  Developers are expected to finance, through contributions
      in aid of construction, an additional $15.9 million of capital 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.








28
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At
      December 31, 2007, Artesian Water had lines of credit of $20.0 million each
      with
      two separate financial institutions totaling $40.0 million to meet temporary
      cash requirements.  These revolving credit facilities are
      unsecured.  As of December 31, 2007, we had $39.1 million of available
      funds under these lines, as we used the proceeds from the June 2007 common
      stock
      issuance to pay off the then outstanding balance.  The interest rate
      for borrowings under each of these lines is the London Interbank Offering Rate,
      or “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, 2007, Artesian Utility and Artesian Wastewater had lines of credit
      with a financial institution for $3.5 million and $10.0 million, respectively,
      to meet temporary cash requirements.  These revolving credit
      facilities are unsecured.  As of December 31, 2007, 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.  Artesian
      Water’s 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 52.0% at
      December 31, 2007.





On
      June
      21, 2007, Artesian Water, Artesian Utility, and Artesian Wastewater entered
      into
      an agreement with a financial institution to invest excess funds overnight,
      with
      interest paid at the overnight $100,000 repurchase rate established each day
      by
      the bank.  As of December 31, 2007, the interest rate was
      3.0%.





We
      expect
      to fund our activities for the next twelve months using our available cash
      balances and bank credit lines, plus projected cash generated from operations
      and the capital markets.





Contractual
                Cash Obligations
            
            Payments
                Due by PeriodIn
                thousands
            
            Less
                than 1 Year
            
            
            1-3
                Years
            
            
            4-5
                Years
            
            
            After
                5 Years
            
            
            TotalFirst
                Mortgage Bonds
            
            $
            5,553
            
            
            $
            11,088
            
            
            $
            11,097
            
            
            $
            155,487
            
            
            $
            183,225State
                revolving fund loans
            
            
            590
            
            
            
            1,180
            
            
            
            1,180
            
            
            
            6,068
            
            
            
            9,018Operating
                leases
            
            
            195
            
            
            
            252
            
            
            
            91
            
            
            
            1,851
            
            
            
            2,389Unconditional
                purchase obligations
            
            
            2,836
            
            
            
            5,656
            
            
            
            5,664
            
            
            
            27,968
            
            
            
            42,124Tank
                painting contractual obligation
            
            
            374
            
            
            
            749
            
            
            
            174
            
            
            
            ---
            
            
            
            1,297Total
            
            $
            9,548
            
            
            $
            18,925
            
            
            $
            18,206
            
            
            $
            191,374
            
            
            $
            238,053





Long-term
      debt obligations reflect the maturities of certain series of our first mortgage
      bonds, which we intend to refinance when due, and also include interest payments
      on this debt.  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, this also includes
      interest.  Both the long-term debt and the state revolving fund loan
      have certain financial covenant provisions, the violation of which could result
      in default and require the obligation to be immediately repaid, including all
      interest.  We have not experienced conditions that would result in our
      default under these agreements, 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 agreement with the Chester Water
      Authority.





Commitments
            
            Committed
            
            
            Less
                than 1 Year
            
            
            1-3
                Years
            
            
            4-5
                Years
            
            
            Over
                5 YearsLines
                of Credit
            
            $
            898
            
            
            $
            898
            
            
            $
            ----
            
            
            $
            ----
            
            
            $
            ----





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.








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IMPACT
      OF RECENT ACCOUNTING PRONOUNCEMENTS





In
      December 2007, the Financial Accounting Standards Board, FASB, issued Statement
      of Financial Accounting Standards No. 160 (SFAS 160), “Noncontrolling Interests
      in Consolidated Financial Statements”-An Amendment of ARB No.
      51.  SFAS 160 establishes new accounting and reporting standards for
      the non-controlling interest in a subsidiary and for the deconsolidation of
      a
      subsidiary.  SFAS 160 is effective for fiscal years beginning on or
      after December 15, 2008.  We do not currently expect the adoption of
      SFAS 160 to have a material impact on our consolidated financial position,
      results of operations and cash flows.





In
      December 2007, the Financial Accounting Standards Board, FASB, issued Statement
      No. 141 (revised 2007), “Business Combinations.”  The objective of
      this Statement is to improve the relevance, representational faithfulness,
      and
      comparability of the information that a reporting entity provides in its
      financial reports about a business combination and its effects.  This
      Statement establishes principles and requirements for how the acquirer
      recognizes and measures in its financial statements the identifiable assets
      acquired, the liabilities assumed, and any noncontrolling interest in the
      acquiree.  This Statement also establishes requirements for how the
      acquirer recognizes and measures goodwill acquired in the business combination
      and how the acquirer determines what information to disclose to enable users
      of
      the financial statements to evaluate the nature and financial effects of the
      business combination.  This Statement applies to all transactions or
      other events in which an entity obtains control of one or more
      businesses.  This Statement applies prospectively to business
      combinations for which the acquisition date is on or after the beginning of
      the
      first annual reporting period beginning on or after December 15,
      2008.  The Company expects to adopt this statement effective January
      1, 2009 and any impact will depend on the nature and size or business
      combinations the Company consummates after the effective date.





In
      February 2007, the Financial Accounting Standards Board, FASB, issued Statement
      No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities –
Including an amendment of FASB No.115.”  This statement permits
      entities to choose to measure many financial instruments and certain other
      items
      at fair value.  The objective is to improve financial reporting by
      providing entities with the opportunity to mitigate volatility in reported
      earnings caused by measuring related assets and liabilities differently without
      having to apply complex hedge accounting provisions.  This Statement
      is effective as of the beginning of an entity’s first fiscal year that begins
      after November 15, 2007.  The Company expects to adopt this
      statement effective January 1, 2008 and does not expect it to have a material
      effect on the financial statements.





In
      September 2006, FASB issued Statement No. 157, “Fair Value
      Measurements”.  This statement defines fair value, establishes a
      framework for measuring fair value in generally accepted accounting principles
      (GAAP), and expands disclosures about fair value measurements.  This
      statement applies under other accounting pronouncements that require or permit
      fair value measurements; however, the statement does not require any new fair
      value measurements.  This statement is effective for fiscal years
      beginning after November 15, 2007 and interim periods within those
      years.  On February 12, 2008, the FASB issued FSP No. FAS 157-2,
      "Effective Date of FASB Statement No. 157," which delays the effective date
      of
      SFAS 157 for all nonfinancial assets and nonfinancial liabilities, except those
      that are recognized or disclosed at fair value in the financial statements
      on at
      least an annual basis, until January 1, 2009 for calendar year-end
      entities.  The Company does not expect it to have a material effect on
      the financial statements.








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In
      June
      2006, FASB issued Interpretation No. 48 “Accounting for Uncertainty in Income
      Taxes”, an interpretation of FASB Statement No. 109 “Accounting for Income
      Taxes”.  This Interpretation clarifies the accounting for uncertainty
      in income taxes recognized in an enterprise’s financials statements in
      accordance with FASB Statement No. 109.  The Interpretation prescribes
      a recognition threshold and measurement attribute for the financial statement
      recognition and measurement of a tax position taken or expected to be taken
      in a
      tax return.  This interpretation allows an enterprise to recognize
      economic benefits resulting from positions taken in income tax returns, as
      long
      as a more likely than not approach is taken.  This interpretation is
      effective for fiscal years beginning after December 15, 2006.  The
      Company adopted this statement effective January 1, 2007 and after its
      evaluation determined that there was no material effect on the financial
      statements (see Note 3 to our Financial
      Statements).





In
      March
      2006, FASB issued Statement No. 156, “Accounting for Servicing of Financial
      Assets”.  This statement amends FASB Statement No. 140, “Accounting
      for Transfers and Servicing of Financial Assets and Extinguishments of
      Liabilities,” with respect to the accounting for separately recognized servicing
      assets and servicing liabilities.  This statement requires an entity
      to recognize a servicing asset or servicing liability each time it undertakes
      an
      obligation to service a financial asset by entering into a servicing contract
      in
      some situations.  It also requires all separately recognized servicing
      assets and servicing liabilities to be initially measured at fair value, if
      practicable.  This statement is effective for fiscal years beginning
      after September 15, 2006.  The Company adopted this statement
      effective January 1, 2007.  It did not have a material effect on the
      financial statements.





In
      February 2006, FASB issued Statement No. 155, “Accounting for Certain Hybrid
      Financial Instruments”.  This statement amends FASB Statement No. 133,
“Accounting for Derivative Instruments and Hedging Activities,” and No. 140,
“Accounting for Transfers and Servicing of Financial Assets and Extinguishments
      of Liabilities”.  This statement permits fair value remeasurement for
      any hybrid financial instrument that contains an embedded derivative that
      otherwise would require bifurcation.  This statement is effective for
      all financial instruments acquired or issued after the beginning of an entity’s
      first fiscal year that begins after September 15, 2006.  The Company
      adopted this statement effective January 1, 2007.  It did not have a
      material effect on the financial statements.





Caution  Regarding
        forward-looking
        Statements





Statements
      in this Annual Report on Form 10-K which express our “belief,” “anticipation” or
“expectation,” as well as other statements which are not historical fact, are
      forward-looking statements within the meaning of Section 27A of the Securities
      Act, Section 21E of the Securities Exchange Act of 1934, as amended, or the
      Exchange Act and the Private Securities Litigation Reform Act of
      1995.  Statements regarding our goals, priorities, growth and
      expansion plans for our water and wastewater subsidiaries, customer base growth
      opportunities in Cecil County, Maryland, our belief regarding our capacity
      to
      provide water services for the foreseeable future to our customers, our belief
      relating to our compliance and the cost to achieve compliance with relevant
      governmental regulations, the impact of weather on our operations and the
      execution of our strategic initiatives, our expectation relating to the adoption
      of recent accounting pronouncements, contract operations opportunities, legal
      proceedings, our properties, deferred tax assets, increases to purchased water
      and electricity expense, adequacy of our available sources of financing, the
      expected recovery of expenses related toourlong-term debt, ourexpectation to be in
      compliance with
      financial covenants in our debtinstruments,plans to increase
      our wastewater treatment operations and other revenue streams less affected
      by
      weather, appropriate investment in infrastructure regarding the filing of the
      certification of sufficient sources of self-supply, expected contributions
      in
      2007 to our postretirement benefit plan, and our liquidity needs are
      forward-looking statements within the meaning of the Private Securities
      Litigation Reform Act of 1995 and involve risks and uncertainties that could
      cause actual results to differ materially from those
      projected.  Certain factors as discussed under Item 1A -Risk Factors,
      such as changes in weather, changes in our contractual obligations, changes
      in
      government policies, the timing and results of our rate requests, changes in
      economic and market conditions generally, and other matters could cause results
      to differ materially from those in the forward-looking
      statements.  While the Company may elect to update forward-looking
      statements, we specifically disclaim any obligation to do so and you should
      not
      rely on any forward-looking statement as representation of the Company’s views
      as of any date subsequent to the date of the filing of this Annual Report on
      Form 10-K.








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Item
      7A. – Quantitativeand Qualitative Disclosure About Market
      Risk.





The
      Company is subject to the risk of fluctuating interest rates in the normal
      course of business. Our policy is to manage interest rates through the use
      of
      fixed rate long-term debt and, to a lesser extent, short-term debt. The
      Company's interest rate risk related to existing fixed rate, long-term debt
      is
      not material do to the term of the majority of our First Mortgage Bonds, which
      have interest rates ranging from 4.75% to 8.17% and final maturity dates ranging
      from 2019 to 2043.








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Item
      8. -  Financial Statementsand Supplementary
      Data.





CONSOLIDATED
                BALANCE SHEETSIn
                thousandsDecember
                31,2007
            
            
            2006ASSETSUtility
                plant, at original cost less accumulated depreciation
            
            $
            274,140
            
            
            $
            253,182Current
                assetsCash
                and cash equivalents
            
            
            2,520
            
            
            
            1,414Accounts
                receivable (less reserve for bad debts 2007 - $279;
                2006-$225)
            
            
            5,499
            
            
            
            3,416Unbilled
                operating revenues
            
            
            3,198
            
            
            
            2,655Materials
                and supplies - at cost on FIFO basis
            
            
            1,192
            
            
            
            1,054Prepaid
                property taxes
            
            
            1,058
            
            
            
            924Prepaid
                expenses and other
            
            
            857
            
            
            
            75614,324
            
            
            
            10,219Other
                assetsNon-utility
                property (less accumulated depreciation 2007 - $177;
                2006-$152)
            
            
            288
            
            
            
            307Other
                deferred assets
            
            
            4,156
            
            
            
            3,7714,444
            
            
            
            4,078Regulatory
                assets, net
            
            
            1,681
            
            
            
            1,881$
            294,589
            
            
            $
            269,360LIABILITIES
                AND STOCKHOLDER'S EQUITYStockholders’
                equityCommon
                stock
            
            $
            7,300
            
            
            $
            6,086Additional
                paid-in-capital
            
            
            65,363
            
            
            
            45,052Retained
                earnings
            
            
            12,469
            
            
            
            10,662Total
                stockholders’ equity
            
            
            85,132
            
            
            
            61,800Long-term
                debt, net of current portion
            
            
            91,757
            
            
            
            92,073176,889
            
            
            
            153,873Commitments
                and contingencies (Note 10)Current
                liabilitiesLines
                of credit
            
            
            898
            
            
            
            7,906Current
                portion of long-term debt
            
            
            316
            
            
            
            310Accounts
                payable
            
            
            3,225
            
            
            
            2,790Accrued
                expenses
            
            
            2,483
            
            
            
            3,287Overdraft
                payable
            
            
            1,672
            
            
            
            1,990Income
                tax payable
            
            
            ---
            
            
            
            ---Deferred
                income taxes
            
            
            301
            
            
            
            284Interest
                accrued
            
            
            326
            
            
            
            360Customer
                deposits
            
            
            746
            
            
            
            472Other
            
            
            1,877
            
            
            
            1,72311,844
            
            
            
            19,122Deferred
                credits and other liabilitiesNet
                advances for construction
            
            
            23,840
            
            
            
            24,991Postretirement
                benefit obligation
            
            
            868
            
            
            
            927Deferred
                investment tax credits
            
            
            740
            
            
            
            765Deferred
                income taxes
            
            
            25,170
            
            
            
            21,50550,618
            
            
            
            48,188Net
                contributions in aid of construction
            
            
            55,238
            
            
            
            48,177$
            294,589
            
            
            $
            269,360


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








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CONSOLIDATED
                STATEMENTS OF
                OPERATIONSFor
                the Year Ended December 31,In
                thousands, except per share amounts
            
            2007
            
            
            2006
            
            
            2005Operating
                revenuesWater
                sales
            
            $
            48,461
            
            
            $
            44,272
            
            
            $
            41,638Other
                utility operating revenue
            
            
            1,699
            
            
            
            1,268
            
            
            
            1,073Non-utility
                operating revenue
            
            
            2,364
            
            
            
            1,725
            
            
            
            2,574Sale
                of land
            
            
            ---
            
            
            
            1,322
            
            
            
            ---52,524
            
            
            
            48,587
            
            
            
            45,285Operating
                expensesUtility
                operating expenses
            
            
            26,834
            
            
            
            24,314
            
            
            
            22,233Non-utility
                operating expenses
            
            
            1,760
            
            
            
            1,419
            
            
            
            2,310Depreciation
                and amortization
            
            
            5,162
            
            
            
            4,610
            
            
            
            4,365TaxesState
                and federal incomeCurrently
                payable
            
            
            608
            
            
            
            162
            
            
            
            111Deferred
            
            
            3,526
            
            
            
            3,725
            
            
            
            3,236Property
                and other
            
            
            2,868
            
            
            
            2,562
            
            
            
            2,38940,758
            
            
            
            36,792
            
            
            
            34,644Operating
                income
            
            
            11,766
            
            
            
            11,795
            
            
            
            10,641Other
                income, netAllowance
                for funds used during construction
            
            
            324
            
            
            
            288
            
            
            
            223Miscellaneous
            
            
            478
            
            
            
            325
            
            
            
            292802
            
            
            
            613
            
            
            
            515Income
                before interest charges
            
            
            12,568
            
            
            
            12,408
            
            
            
            11,156Interest
                charges
            
            
            6,305
            
            
            
            6,337
            
            
            
            6,121Net
                income
            
            
            6,263
            
            
            
            6,071
            
            
            
            5,035Net
                income applicable to common stock
            
            $
            6,263
            
            
            $
            6,071
            
            
            $
            5,035Income
                per common share:Basic
            
            $
            0.92
            
            
            $
            1.00
            
            
            $
            0.84Diluted
            
            $
            0.90
            
            
            $
            0.97
            
            
            $
            0.81Weighted
                average common shares outstanding:Basic
            
            
            6,787
            
            
            
            6,055
            
            
            
            5,984Diluted
            
            
            6,936
            
            
            
            6,235
            
            
            
            6,182Cash
                dividends per share of common stock
            
            $
            0.66
            
            
            $
            0.61
            
            
            $
            0.58





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





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CONSOLIDATED
                STATEMENTSOF CASH FLOWSIn
                thousands
            For
                the Year Ended December
                31,2007
            
            
            2006
            
            
            2005CASH
                FLOWS FROM OPERATING ACTIVITIESNet
                income
            
            $
            6,263
            
            
            $
            6,071
            
            
            $
            5,035Adjustments
                to reconcile net cash provided by operating activities:Depreciation
                and amortization
            
            
            5,162
            
            
            
            4,609
            
            
            
            4,364Deferred
                income taxes, net
            
            
            3,657
            
            
            
            3,711
            
            
            
            3,104Allowance
                for funds used during construction
            
            
            (324
            )
            
            
            (288
            )
            
            
            (223
            )Stock
                compensation
            
            
            196
            
            
            
            322
            
            
            
            ---Sale
                of land
            
            
            ---
            
            
            
            (1,322
            )
            
            
            ---Changes
                in assets and liabilities:Accounts
                receivable, net of reserve for bad debts
            
            
            (2,083
            )
            
            
            865
            
            
            
            (475
            )Income
                tax receivable
            
            
            ---
            
            
            
            ---
            
            
            
            ---Unbilled
                operating revenues
            
            
            (543
            )
            
            
            (281
            )
            
            
            (3
            )Materials
                and supplies
            
            
            (138
            )
            
            
            (46
            )
            
            
            (75
            )Prepaid
                property taxes
            
            
            (134
            )
            
            
            (73
            )
            
            
            (86
            )Prepaid
                expenses and other
            
            
            (101
            )
            
            
            (221
            )
            
            
            32Other
                deferred assets
            
            
            (495
            )
            
            
            (78
            )
            
            
            (240
            )Regulatory
                assets
            
            
            200
            
            
            
            (7
            )
            
            
            230Accounts
                payable
            
            
            435
            
            
            
            ---
            
            
            
            620Accrued
                expenses
            
            
            (804
            )
            
            
            1,339
            
            
            
            (83
            )State
                and federal income taxes
            
            
            ---
            
            
            
            (113
            )
            
            
            111Interest
                accrued
            
            
            (34
            )
            
            
            7
            
            
            
            ---Customer
                deposits and other, net
            
            
            428
            
            
            
            (1,602
            )
            
            
            1,634Postretirement
                benefit obligation
            
            
            (59
            )
            
            
            (170
            )
            
            
            (72
            )Net
                cash provided by operating activities
            
            
            11,626
            
            
            
            12,723
            
            
            
            13,873CASH
                FLOWS USED IN INVESTING ACTIVITIESCapital
                expenditures (net of AFUDC)
            
            
            (26,736
            )
            
            
            (30,890
            )
            
            
            (20,164
            )Proceeds
                from sale of assets
            
            
            27
            
            
            
            33
            
            
            
            6Proceeds
                from sale of land
            
            
            ---
            
            
            
            1,330
            
            
            
            ---Investments
                from unconsolidated affiliates
            
            
            2
            
            
            
            37
            
            
            
            ---Net
                cash used in investing activities
            
            
            (26,707
            )
            
            
            (29,490
            )
            
            
            (20,158
            )CASH
                FLOWS FROM FINANCING ACTIVITIESNet
                borrowings (repayments) under lines of credit agreements
            
            
            (7,008
            )
            
            
            6,120
            
            
            
            (7,427
            )Increase
                (decrease) in overdraft payable
            
            
            (318
            )
            
            
            573
            
            
            
            (394
            )Net
                advances and contributions in aid of construction
            
            
            6,839
            
            
            
            12,334
            
            
            
            7,496Proceeds
                from issuance of long-term debt
            
            
            ---
            
            
            
            ---
            
            
            
            25,000Increase
                in restricted funds
            
            
            ---
            
            
            
            ---
            
            
            
            502Increase
                (decrease) in deferred debt issuance costs
            
            
            110
            
            
            
            41
            
            
            
            (827
            )Net
                proceeds from issuance of common stock
            
            
            21,329
            
            
            
            1,766
            
            
            
            1,304Dividends
            
            
            (4,455
            )
            
            
            (3,714
            )
            
            
            (3,470
            )Principal
                repayments of long-term debt
            
            
            (310
            )
            
            
            (298
            )
            
            
            (15,757
            )Net
                cash provided by financing activities
            
            
            16,187
            
            
            
            16,822
            
            
            
            6,427Net
                increase in cash and cash equivalents
            
            
            1,106
            
            
            
            55
            
            
            
            142Cash
                and cash equivalents at beginning of year
            
            
            1,414
            
            
            
            1,359
            
            
            
            1,217Cash
                and cash equivalents at end of year
            
            $
            2,520
            
            
            $
            1,414
            
            
            $
            1,359Supplemental
                Disclosures of Cash Flow Information:Interest
                paid
            
            $
            6,230
            
            
            $
            6,228
            
            
            $
            6,001Income
                taxes paid
            
            $
            725
            
            
            $
            261
            
            
            $
            ---


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





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





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CONSOLIDATED
      STATEMENTS OF CHANGESIN STOCKHOLDERS’
EQUITY





Common
                Shares Outstanding Class A Non-Voting (1)
                (4) (5)
                (6)
            Common
                Shares Outstanding Class B Voting(2)
                (4)
            $1
                Par Value Class A Non-Voting
            $1
                Par Value Class B Voting
            Additional
                Paid-in Capital
            Retained
                Earnings (2)
            Total
                (2)In
                thousandsBalance
                as of December 31, 2004
            5,052
            882
            $3,368
            $588
            $42,222
            $8,765
            $54,943Net
                income
            
            
            
            
            
            5,035
            5,035Cash
                dividends declaredCommon
                stock
            
            
            
            
            
            (3,470)
            (3,470)Issuance
                of common stockOfficer
                bonus
            9
            
            6
            
            166
            
            172Dividend
                reinvestment plan
            15
            
            10
            
            284
            
            294Employee
                stock options and awards
            52
            
            35
            
            612
            
            647Employee
                Retirement Plan(3)
            11
            
            7
            
            185
            
            192Balance
                as of December 31, 2005
            5,139
            882
            $3,426
            $588
            $43,469
            $10,330
            $57,813Net
                income
            
            
            
            
            
            6,071
            6,071Cash
                dividends declaredCommon
                stock
            
            
            
            
            
            (3,714)
            (3,714)Issuance
                of common stockStock
                split
            
            
            1,721
            294
            
            (2,025)
            (10)Officer
                bonus
            9
            
            6
            
            183
            
            189Dividend
                reinvestment plan
            15
            
            14
            
            321
            
            335Employee
                stock options and awards
            12
            
            10
            
            551
            
            561Employee
                Retirement Plan(3)
            29
            
            27
            
            528
            
            555Balance
                as of December 31, 2006
            5,204
            882
            $5,204
            $882
            $45,052
            $10,662
            $61,800Net
                income
            
            
            
            
            
            6,263
            6,263Cash
                dividends declaredCommon
                stock
            
            
            
            
            
            (4,455)
            (4,455)Issuance
                of common stockStock
                Issuance
            1,129
            
            1,129
            
            19,290
            (1)
            20,418Officer
                bonusDividend
                reinvestment plan
            18
            
            18
            
            326
            
            344Employee
                stock options and awards
            50
            
            50
            
            374
            
            424Employee
                Retirement Plan(3)
            17
            
            17
            
            321
            
            338Balance
                as of December 31, 2007
            6,418
            882
            $6,418
            $882
            $65,363
            $12,469
            $85,132





(1)
            At
                December 31, 2007, 2006, and 2005, Class A Non-Voting Common Stock
                had
                15,000,000 shares authorized.  For the same periods, shares
                issued were 6,442,805, 5,228,284 and 5,163,165,
                respectively.(2)
            At
                December 31, 2007, 2006, and 2005, Class B Common Stock had 1,040,000
                shares authorized and 882,000 shares issued.(3)
            Artesian
                Resources Corporation registered 500,000  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 approved a three for two stock split on May
                12, 2006
                effected in the form of a 50% stock distribution.  Each
                shareholder of record on May 30, 2006 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.(5)
            Under
                the Equity Compensation Plan, effective May 25, 2005 Artesian Resources
                Corporation authorized up to 500,000 shares of Class A Non-Voting
                Common
                Stock for issuance of grants in forms of stock options, stock units,
                dividend equivalents and other stock-based awards, subject to adjustment
                in certain circumstances as discussed in the Plan.(6)
            At
                June 19, 2007 Artesian Resources Corporation completed the sale of
                1,000,000 shares and at July 10, 2007 Artesian Resources Corporation
                completed the sale of an additional 129,000 shares of its Class A
                Non-Voting Common Stock.


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





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NOTES
      TO THE CONSOLIDATEDFINANCIAL
      STATEMENTS





NOTE
      1





SUMMARY
      OF SIGNIFICANT ACCOUNTING POLICIES





Basis
      of Presentation





The
      audited Consolidated Financial Statements are presented in accordance with
      the
      requirements of Form 10-K and consequently include all the disclosures required
      in the financial statements included in the Company's annual report on Form
      10-K.





The
      consolidated financial statements include the accounts of Artesian Resources
      and
      its wholly owned subsidiaries, including its principal operating company,
      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 are maintained
      in
      accordance with the uniform system of accounts as prescribed by the Delaware
      Public Service Commission or the PSC.  The accounting records of
      Artesian Water Pennsylvania are maintained in accordance with the uniform system
      of accounts as prescribed by the Pennsylvania Public Utility Commission or
      the
      PAPUC.  The accounting records of Artesian Water Maryland are
      maintained in accordance with the uniform system of accounts as prescribed
      by
      the Maryland Public Service Commission or the MDPSC.  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





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 or AFUDC.  AFUDC, which
      represents the cost of funds devoted to construction projects through the date
      the project is placed in service, is capitalized as part of construction work
      in
      progress.  The rate used for the AFUDC calculation is based on
      Artesian Water's weighted average cost of debt and the rate of return on equity
      authorized by the PSC.  The rate used to capitalize AFUDC in 2007,
      2006, and 2005 was 8.1%, 7.8%, and 8.0%, respectively.








37
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Utility
                plant
                comprises:In
                thousands
            
            
            
            
            December
                31,Estimated
                Useful Life In Years
            
            
            2007
            
            
            2006Utility
                plant at original costUtility
                plant in serviceIntangible
                plant
            
            
            ---
            
            
            $
            140
            
            
            $
            140Source
                of supply plant
            
            
            45-85
            
            
            
            15,231
            
            
            
            14,759Pumping
                and water treatment plant (Artesian Water)
            
            
            35-62
            
            
            
            46,808
            
            
            
            42,495Transmission
                and distribution plantMains
            
            
            81
            
            
            
            155,927
            
            
            
            145,794Services
            
            
            39
            
            
            
            26,162
            
            
            
            24,528Storage
                tanks
            
            
            76
            
            
            
            17,376
            
            
            
            17,094Meters
            
            
            26
            
            
            
            10,728
            
            
            
            10,061Hydrants
            
            
            60
            
            
            
            8,359
            
            
            
            7,633Treatment
                and Disposal Plant (Artesian Wastewater)
            
            
            35-62
            
            
            
            7,646
            
            
            
            4,006General
                plant
            
            
            3-31
            
            
            
            26,971
            
            
            
            26,456Property
                held for future use
            
            
            ---
            
            
            
            7,362
            
            
            
            1,960Construction
                work in progress
            
            
            ---
            
            
            
            4,325
            
            
            
            6,188327,035
            
            
            
            301,114Less
                – accumulated depreciation
            
            
            
            
            
            
            52,895
            
            
            
            47,932$
            274,140
            
            
            $
            253,182





Depreciation
      and Amortization





For
      financial reporting purposes, depreciation is recorded 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 2.12%
      in each of the past 3 years..  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 recorded on utility plant by depreciation on utility
      property funded by Contributions in Aid of Construction, CIAC, and Advances
      for
      Construction, Advances, respectively.  This reduction in depreciation
      expense is also applied to outstanding CIAC and Advances.  Other
      deferred assets are amortized using the straight-line method over applicable
      lives, which range from 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 9to 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 with the reversal of tax
      effects of temporary differences previously flowed through to the
      customers.





Regulatory
      assets at December 31, net of amortization, comprise:





In
                thousands
            
            2007
            
            
            2006Postretirement
                benefit obligation
            
            $
            968
            
            
            $
            1,027Deferred
                income taxes recoverable in future rates
            
            
            567
            
            
            
            582Expense
                of rate proceedings
            
            
            141
            
            
            
            257Other
            
            
            5
            
            
            
            15$
            1,681
            
            
            $
            1,881





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Impairment
      or Disposal of Long-Lived Assets





A
      review
      of our long-lived assets, including Utility Plant in Service, is performed
      in
      accordance with the requirements of SFAS No. 144, "Accounting for the Impairment
      or Disposal of Long-Lived Assets".  In addition, the regulatory assets
      are reviewed for the continued application of SFAS No. 71.  The review
      determines whether there have been changes in circumstances or events that
      have
      occurred requiring adjustments to the carrying value of these
      assets.  In accordance with SFAS No. 71, adjustments to the carrying
      value of these assets would be made in instances where the inclusion in the
      rate-making process is unlikely.





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:





In
                thousands
            
            2007
            
            
            2006Debt
                issuance expense
            
            $
            2,472
            
            
            $
            2,582Other
            
            
            1,684
            
            
            
            1,189$
            4,156
            
            
            $
            3,771





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, and wastewater collection
      systems, or cash to reimburse Artesian Water and Artesian Wastewater for costs
      to construct water mains, services and hydrants, and wastewater treatment and
      disposal plant.





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 expected 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.








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Stock
      Compensation Plans





On
      May
      25, 2005, the Company’s stockholders approved a new Equity Compensation Plan,
      which authorizes up to 500,000 shares of Class A Non-Voting Common Stock for
      issuance.  Since May 25, 2005, no additional grants have been made
      under the Company’s other stock-based compensation plans that were previously
      available.  The Company applied APB Opinion No. 25 and related
      interpretations in accounting for compensation expense under all its plans
      through 2005.  Accordingly, the aggregate compensation cost incurred
      and charged against income for all plans, including bonuses, was $146,000 for
      2005.  On January 1, 2006 the Company adopted Statement of Financial
      Accounting Standards No. 123R.  Compensation costs in the amount of
      $215,000 and $499,000 for awards granted in 2007 and 2006 respectively, were
      determined based on the fair value at the grant dates and those costs are being
      charged to income over the service period associated with the
      grants.  Of the $499,000 in 2006, $240,000 was associated with stock
      awards, $177,000 was associated cash payments for taxes, and $82,000 was the
      amount amortized for stock options awarded in 2006 and 2005.  Of the
      $215,000 in 2007, $47,000 was associated with stock awards, $19,000 was
      associated cash payments for taxes, and $149,000 was the amount amortized for
      stock options awarded in 2007 and 2006.  Had compensation costs for
      the Company's plans in 2005 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:





In
                thousands, except per share data
            
            2005Net
                income applicable to common stockAs
                reported
            
            $
            5,035Add:  compensation
                expense included in net income (net of tax)
            
            
            (1
            )Deduct:  compensation
                expense using fair value based method (net of tax)
            
            
            (329
            )Pro-forma
            
            $
            4,705Basic
                net income per common shareAs
                reported
            
            $
            0.84Pro-forma
            
            $
            0.79Basic
                net income per common shareAs
                reported
            
            $
            0.81Pro-forma
            
            $
            0.76





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





The
      fair
      value of each option grant is estimated using the Black-Scholes-Merton option
      pricing model with the following weighted-average assumptions used for grants
      issued in 2007, 2006, and 2005 under the 2005 Equity Compensation Plan (as
      defined in Note 8 to our Financial Statements).  There were no options
      issued to employees in 2006 or 2007.





2007
            
            
            2006
            
            
            2005Dividend
                Yield
            
            
            3.3
            %
            
            
            2.9
            %
            
            
            3.0
            %Expected
                Volatility
            
            
            .27
            
            
            
            .24
            
            
            
            .32Director
                and Officer OptionsRisk
                Free Interest Rate
            
            
            4.69
            %
            
            
            5.03
            %
            
            
            3.97
            %Expected
                Term
            
            6.65
                years
            
            
            3.26
                years
            
            
            3.42
                yearsEmployee
                OptionsRisk
                Free Interest Rate
            
            
            ------
            
            
            
            ------
            
            
            
            2.92
            %Expected
                Term
            
            
            ------
            
            
            
            ------
            
            
            1
                year





The
      expected dividend yield was based on a 12 month rolling average of the current
      dividend yield.  The expected volatility is the standard deviation of
      the change in the natural logarithm of the stock price (expressed as an annual
      rate) for the expected term shown above.  The expected life was based
      on historic exercise patterns for similar grants.  The risk free
      interest rate for the Director and Officer Options is the 7-year Treasury
      Constant Maturity rate as of the date of the grant for 2007, and 3-year for
      2006
      and 2005 grants.


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Shares
      of
      Class A Stock have been reserved for future issuance under the 2005 Equity
      Compensation Plan.





Revenue
      Recognition and Unbilled Revenues





Water
      service revenue for financial statement purposes includes amounts billed to
      customers on a quarterly or monthly cycle basis, depending on class of customer,
      and unbilled amounts based upon estimated usage from the date of the last meter
      reading to the end of the accounting period.  The Company uses the
      percent of completion method of revenue recognition for the long-term wastewater
      contracts of designing, building and operating wastewater facilities throughout
      Delaware and surrounding areas.





Accounts
      Receivable





Accounts
      receivable are recorded at the invoiced amounts.  The reserve for bad
      debts is the Company's best estimate of the amount of probable credit losses
      in
      our existing accounts receivable, and is determined based on historical
      write-off experience.  The Company reviews the reserve for bad debts
      on a quarterly basis.  Account balances are written off against the
      reserve when it is probable the receivable will not be recovered.





Cash
      and Cash Equivalents





For
      purposes of the Consolidated Statement of Cash Flows, Artesian Resources
      considers all temporary cash investments with an original maturity of three
      months or less to be cash equivalents.  Artesian Water, Artesian
      Wastewater, 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 consolidated balance sheet in the Overdraft
      Payable account.





Use
      of Estimates in the Preparation of Consolidated Financial
      Statements





The
      consolidated financial statements were prepared in conformity with generally
      accepted accounting principles in the U.S., which require management to make
      estimates about the reported amounts of assets and liabilities including
      unbilled revenues, reserve for a 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
      May
      12, 2006, 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, 2006 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.





Capitalization
      of the Costs of Computer Software Developed or Obtained for Internal
      Use





The
      Company capitalized payroll and related expense associated with our internal
      staff’s development and configuration of our new customer information system
      programs (the “CIS programs”) and our financial reporting system to be
      implemented January 1, 2008.  In deciding to capitalize this expense,
      the Company used AICPA Statement of Position (SOP) 98-1, Accounting for the
      Costs of Computer Software Developed or Obtained for Internal Use as its
      accounting policy for recording these costs.





Reclassification





Certain
      accounts in the prior year financial statements have been reclassified for
      comparative purposes to conform with the presentation in the current year
      financial statements.  These reclassifications had no effect on net
      income or stockholders' equity.





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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, 2007 and
      2006, determined by discounting their future cash flows using current market
      interest rates on similar instruments with comparable maturities as guided
      under
      FAS 107, are shown as below :





Fair
                value of financial
                instruments at December 31, comprised:
            
            2007
            
            
            2006Carrying
                Amount
            
            
            Estimated
                Fair Value
            
            
            Carrying
                Amount
            
            
            Estimated
                Fair ValueIn
                thousandsLong-term
                debt
            
            $
            91,757
            
            
            $
            92,600
            
            
            $
            92,073
            
            
            $
            91,410





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.





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, 2007, Artesian Resources has federal net operating loss
      carry-forwards aggregating approximately $7.8 million, which will expire if
      unused by 2024.  As of December 31, 2007, Artesian Resources has
      separate company state net operating loss carry-forwards aggregating
      approximately $14.5 million.  These net operating loss carry-forwards
      will expire if unused between 2008 and 2027.  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 $121,000
      in 2006 to approximately $88,000 in 2007.





At
      December 31, 2007, for federal income tax purposes, there were alternative
      minimum tax credit carry forwards aggregating $2.5 million 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.








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In
      June
      2006, FASB issued Interpretation No. 48 “Accounting for Uncertainty in Income
      Taxes”, an interpretation of FASB Statement No. 109 “Accounting for Income
      Taxes”.  The Company adopted this statement effective January 1, 2007
      and after analyzing Artesian’s various tax positions determined that no further
      entry, recognition or derecognition were required.  The company would
      recognize, if applicable, interest accrued and penalties related to unrecognized
      tax benefits in interest expense and in accordance with the regulations of
      the
      jurisdictions involved.  There were no such charges for the period
      ended December 31, 2007.  Additionally, there were no accruals
      relating to interest or penalties as of December 31, 2007.  The
      Company remains subject to examination by federal authorities for the 2004,
      2005, 2006 and 2007 tax years and by state authorities for the tax years 2004
      through 2007.











Components
                of Income Tax ExpenseIn
                thousands
            For
                the Year Ended December 31,State
                income taxes
            
            2007
            
            
            2006
            
            
            2005Current
            
            $
            ---
            
            
            $
            42
            
            
            $
            ---Deferred
            
            
            866
            
            
            
            741
            
            
            
            733Total
                state income tax expense
            
            $
            866
            
            
            $
            783
            
            
            $
            733




For
                the Year Ended December 31,Federal
                income taxes
            
            2007
            
            
            2006
            
            
            2005Current
            
            $
            608
            
            
            $
            120
            
            
            $
            111Deferred
            
            
            2,660
            
            
            
            2,984
            
            
            
            2,503Total
                federal income tax expense
            
            $
            3,268
            
            
            $
            3,104
            
            
            $
            2,614











Reconciliation
                of effective tax rate:For
                the Year Ended December 31,In
                thousands
            
            2007
            
            
            2007
            
            
            2006
            
            
            2006
            
            
            2005
            
            
            2005Amount
            
            
            Percent
            
            
            Amount
            
            
            Percent
            
            
            Amount
            
            
            PercentReconciliation
                of effective tax rateIncome
                before federal and state income taxes
            
            $
            10,397
            
            
            
            100.0
            
            
            $
            9,993
            
            
            
            100.0
            
            
            $
            8,383
            
            
            
            100.0Amount
                computed at statutory rate
            
            
            3,535
            
            
            
            34.0
            
            
            
            3,398
            
            
            
            34.0
            
            
            
            2,850
            
            
            
            34.0Reconciling
                itemsState
                income tax-net of federal tax benefit
            
            
            571
            
            
            
            5.5
            
            
            
            466
            
            
            
            4.7
            
            
            
            481
            
            
            
            5.8Other
            
            
            28
            
            
            
            0.3
            
            
            
            23
            
            
            
            0.2
            
            
            
            16
            
            
            
            0.1Total
                income tax expense and effective rate
            
            $
            4,134
            
            
            
            39.8
            
            
            $
            3,887
            
            
            
            38.9
            
            
            $
            3,347
            
            
            
            39.9








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Deferred
      income taxes at December 31, 2007, 2006, and 2005 were comprised of the
      following:





For
                  the Year Ended December 31,In
                thousands2007
              2006
              
              
              2005Deferred
                  tax assets related to:Federal
                  alternative minimum tax credit carry forwards
              
              $
              2,550
              
              
              $
              1,941
              
              
              $
              1,822Federal
                  and state operating loss carry forwards
              
              
              3,500
              
              
              
              5,384
              
              
              
              7,105Bad
                  debt allowance
              
              
              120
              
              
              
              83
              
              
              
              70Valuation
                  allowance
              
              
              (88
              )
              
              
              (121
              )
              
              
              (323
              )Stock
                  options
              
              
              ---
              
              
              
              145
              
              
              
              145Other
              
              
              234
              
              
              
              247
              
              
              
              281Total
                  deferred tax assets
              
              $
              6,316
              
              
              $
              7,679
              
              
              $
              9,100Deferred
                  tax liabilities related to:Property
                  plant and equipment basis differences
              
              $
              (31,087
              )
              
              $
              (28,766
              )
              
              $
              (26,512
              )Expenses
                  of rate proceedings
              
              
              (56
              )
              
              
              (102
              )
              
              
              (62
              )Property
                  taxes
              
              
              (420
              )
              
              
              (368
              )
              
              
              (338
              )Other
              
              
              (224
              )
              
              
              (232
              )
              
              
              (241
              )Total
                  deferred tax liabilities
              
              $
              (31,787
              )
              
              $
              (29,468
              )
              
              $
              (27,153
              )Net
                  deferred tax liability
              
              $
              (25,471
              )
              
              $
              (21,789
              )
              
              $
              (18,053
              )
  Deferred
                  taxes, which are classified into a net current and non-current
                  balance,
                  are presented in the balance sheet as follows:Current
                  deferred tax liability
              
              $
              (301
              )
              
              $
              (284
              )
              
              $
              (269
              )Non-current
                  deferred tax liability
              
              
              (25,170
              )
              
              
              (21,505
              )
              
              
              (17,784
              )Net
                  deferred tax liability
              
              $
              (25,471
              )
              
              $
              (21,789
              )
              
              $
              (18,053
              )








44
 Table
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NOTE
      4





PREFERRED
      STOCK





As
      of
      December 31, 2007, Artesian Resources had no preferred stock
      outstanding.  The Company has 100,000 shares of $1.00 par value Series
      Preferred stock authorized but unissued.





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 Global 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.OB.  One primary source of liquidity in 2007 was $21.4 million
      net proceeds from the issuance of approximately 1,219,000 shares of Class A
      Non-Voting Common Stock.





Under
      Artesian Resources' dividend reinvestment plan, which allows for reinvestment
      of
      cash dividends and optional cash payments, stockholders were issued 17,791,
      15,388, and 14,921 shares (as adjusted for the June 30, 2006 three for two
      stock
      split) at fair market value for the investment of $344,000, $335,000, and
      $294,000 of their monies in the years 2007, 2006, and 2005,
      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, 2007, 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, 2007 and 2006 Artesian Water had $0.9 million and $7.9 million
      outstanding under these lines at average interest rates of 6.2% and 6.4%
      respectively.  The maximum amount outstanding was $7.4 million and
      $9.3 million in 2007 and  2006 respectively.  The
      twelve-month average amount outstanding was approximately $5.3 million and
      $6.1
      million at weighted average annual interest rates of 5.9% and 5.4% in 2007
      and
      2006 respectively.





At
      December 31, 2007, Artesian Utility and Artesian Wastewater had lines of credit
      with a financial institution for $3.5 million and $10 million, respectively,
      to
      meet temporary cash requirements.  These revolving credit facilities
      are unsecured.  As of December 31, 2007, we had not borrowed
      funds under these lines.  The interest rate for borrowings under each
      of these lines is the LIBOR plus 1.75%.








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As
      of
      December 31, 2007, 2006 and 2005, 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,
      2007, however, no dividend restrictions were imposed under these
      covenants.





Long-term
      debt consists of:





December 31,In
                thousands
            
            2007
            
            
            2006First
                mortgage bondsSeries
                O, 8.17%, due December 29, 2020
            
            
            20,000
            
            
            
            20,000Series
                P, 6.58%, due January 31, 2018
            
            
            25,000
            
            
            
            25,000Series
                Q, 4.75%, due December 1, 2043
            
            
            15,400
            
            
            
            15,400Series
                R, 5.96%, due December 31, 2028
            
            
            25,000
            
            
            
            25,00085,400
            
            
            
            85,400State
                revolving fund loans4.48%,
                due August 1, 2021
            
            
            3,387
            
            
            
            3,5583.57%,
                due September 1, 2023
            
            
            1,261
            
            
            
            1,3193.64%,
                due May 1, 2024
            
            
            2,025
            
            
            
            2,1066,673
            
            
            
            6,983Sub-total
            
            
            92,073
            
            
            
            92,383Less:
                current maturities (principal amount)
            
            
            316
            
            
            
            310Total
                long-term debt
            
            $
            91,757
            
            
            $
            92,073





Payments
                of principal due during the next five years and
                thereafter:In
                thousands
            
            2008
            
            
            2009
            
            
            2010
            
            
            2011
            
            
            2012
            
            
            ThereafterFirst
                Mortgage bonds
            
            $
            ---
            
            
            
            ---
            
            
            
            ---
            
            
            
            ---
            
            
            
            ---
            
            
            
            85,400State
                revolving fund loan
            
            
            323
            
            
            
            336
            
            
            
            350
            
            
            
            364
            
            
            
            380
            
            
            
            4,920Total
                payments
            
            $
            323
            
            
            
            336
            
            
            
            350
            
            
            
            364
            
            
            
            380
            
            
            
            90,320





NOTE
      7





NON-UTILITY
      OPERATING REVENUE AND EXPENSES





Non-utility
      operating revenue consisted of $1,942,000, $1,458,000, and $2,574,000 received
      by Artesian Utility in 2007, 2006 and 2005 respectively.  In addition,
      $422,000 and $267,000 was from Artesian Resource's SLP Plan in 2007 and 2006
      respectively.  In 2006, an additional $1,322,000 gain on sale of land
      by Artesian Development was recorded.





Artesian
      Utility is also 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.,
      or  "AquaStructure" that is inactive.  The purpose of
      AquaStructure was to develop and market proposals for design, construction
      and
      operation of wastewater facilities.  In 1999, we began operating a
      250,000-gallon per day wastewater facility for the town of Middletown, in
      southern New Castle County.  In 2002,
      AquaStructure  completed construction of a 2.5 million gallon per day
      wastewater facility for Middletown.  Artesian Utility now operates
      this facility for Middletown under a 20-year contract that expires on February
      1, 2021.  This agreement shall be extended for an additional twenty
      years unless advance notice is given.


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Non-utility
      operating expenses are as follows:





In
                thousands
            
            2007
            
            
            2006
            
            
            2005Artesian
                Utility
            
            $
            1,528
            
            
            $
            1,205
            
            
            $
            2,184Artesian
                Resources
            
            
            232
            
            
            
            211
            
            
            
            116Artesian
                Development
            
            
            0
            
            
            
            3
            
            
            
            10Total
            
            $
            1,760
            
            
            $
            1,419
            
            
            $
            2,310





NOTE
      8





STOCK
      COMPENSATION PLANS





In
      1992,
      the Company instituted the 1992 Non-Qualified Stock Option Plan, or the 1992
      Plan, which was subsequently amended in 1998.  Under the 1992 Plan,
      options to purchase shares of Class A Stock could 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 was
      375,000.  Employees who participated and who were not executive
      officers or directors of the Company could receive options to purchase up to
      1,000 shares.  Each director or officer who participated in any year
      could request an option to purchase 4,500 shares of Class A
      Stock.  The option price for directors and officers of the Company was
      90% of the fair market value on the date of grant.  Options granted
      under this plan to employees who were not executive officers or directors
      extended for a period of one year.  Options granted to officers and
      directors extended for a period of ten years.  All options were
      exercisable after six months of service from the date of initial grant, and
      are
      adjusted for stock dividends and splits.  Employees, officers and
      directors became eligible to exercise options under the 1992 plan after one
      year
      of service to the Company.  Effective May 25, 2005, no additional
      grants will be made from this plan.





In
      1996,
      the Company instituted the Incentive Stock Option Plan, or the ISO Plan, under
      which the Company was authorized to grant options up to 150,000 shares of Class
      A Stock to its key employees and officers.  Options were granted at
      the fair market value on the date of grant.  The option exercise
      period could not exceed ten years from the date of grant and was 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) effective
      January 1, 2006.  Effective May 25, 2005, no additional grants will be
      made from this plan.





On
      May
      25, 2005, the Company adopted the 2005 Equity Compensation Plan, or “the
      Plan.”  The Plan provides that grants may be in any of the following
      forms: incentive stock options, nonqualified stock options, stock units, stock
      awards, dividend equivalents and other stock-based awards.  The Plan
      is administered and interpreted by the Compensation Committee of the Board
      of
      Directors or the “Committee”.  The Committee has the authority to
      determine the individuals to whom grants will be made under the Plan, determine
      the type, size and terms of the grants, determine the time when grants will
      be
      made and the duration of any applicable exercise or restriction period (subject
      to the limitations of the Plan) and deal with any other matters arising under
      the Plan.  The Committee presently consists of three directors, each
      of whom is a non-employee director of the Company.  All of the
      employees of the Company and its subsidiaries are eligible for grants under
      the
      Plan.  Non-employee directors of the Company are also eligible to
      receive grants under the Plan.








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





2007
              Shares
            
            
            2007
              Weighted
              Average
              Exercise
              Price
            
            
            2006
              Shares
            
            
            2006
              Weighted
              Average
              Exercise
              Price
            
            
            2005
              Shares
            
            
            2005
              Weighted
              Average
              Exercise
              PricePlan
                optionsOutstanding
                at beginning of year
            
            
            595,699
            
            
            $
            13.832
            
            
            
            571,686
            
            
            $
            13.294
            
            
            
            498,432
            
            
            $
            11.266Granted
            
            
            33,750
            
            
            $
            19.558
            
            
            
            33,750
            
            
            $
            21.113
            
            
            
            125,611
            
            
            $
            19.679Exercised
            
            
            (48,003
            )
            
            $
            7.613
            
            
            
            (9,577
            )
            
            $
            7.283
            
            
            
            (51,796
            )
            
            $
            9.62Canceled
            
            
            (6,750
            )
            
            $
            19.558
            
            
            
            (160
            )
            
            $
            18.463
            
            
            
            (561
            )
            
            $
            13.605Outstanding
                at end of year
            
            
            574,696
            
            
            $
            14.621
            
            
            
            595,699
            
            
            $
            13.832
            
            
            
            571,686
            
            
            $
            13.294Options
                exercisable at year end
            
            
            547,696
            
            
            $
            14.377
            
            
            
            561,949
            
            
            $
            13.395
            
            
            
            569,733
            
            
            $
            13.288Weighted
                average fair value ofoptions
                granted during the year
            
            
            
            
            
            $
            19.558
            
            
            
            
            
            
            $
            21.113
            
            
            
            
            
            
            $
            19.679





The
      weighted-average grant-date fair value of options granted during 2007, 2006,
      and
      2005 were $4.847, $3.809, and $4.278, respectively.  The total
      intrinsic value of options exercised during 2007 was $561,000.  There
      were no fully vested shares granted during 2007.  During 2007, we
      received $365,000 in cash from the exercise of options, with a $509,000 tax
      benefit realized during the period.





The
      following tables summarize information about employee and director stock options
      outstanding at December 31, 2007:





Options
                OutstandingRange
                of
              Exercise
                Price
            Shares
                Outstanding
              at
                December 31, 2007
            Weighted
                Average
              Remaining
                Life
            Weighted
                Average
              Exercise
                Price$7.613
                - $14.849
            315,946
            3.22
                Years
            $11.160$16.134
                - $21.113
            258,750
            7.07
                Years
            $18.846Options
                ExercisableRange
                of
              Exercise
                Price
            Shares
                Exercisable
              at
                December 31, 2007
            Weighted
                Average
              Exercise
                Price$7.613
                - $14.849
            315,946
            $11.160$16.134
                - $21.113
            231,750
            $18.763





As
      of
      December 31, 2007, there was $61,229 of total unrecognized expense related
      to
      nonvested option shares granted under the Plan.  That cost will be
      recognized over the remaining 0.4 years vesting period of the unvested
      options.





NOTE
      9





EMPLOYEE
      BENEFIT PLANS





401(k)
      Plan





Artesian
      Resources has a defined contribution 401(k) Salary Deduction Plan, or the
“401(k) Plan,” which covers substantially all employees.  Under the
      terms of the 401(k) Plan, Artesian Resources contributed 2% of eligible salaries
      and wages and 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 2007, 2006 and 2005.  The 401(k)
      Plan expenses, which include Company contributions and administrative fees,
      for
      the years 2007, 2006 and 2005, were approximately $541,000, $527,000, and $486,000,
      respectively.


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Postretirement
      Benefit Plan





Artesian
      Water has a Postretirement Benefit Plan, or the “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 beginning in
      1993.





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 expects its SFAS 106 obligation and related
      expense recovery to cover 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 $59,000, $70,000, and
      $72,000 for 2007, 2006 and 2005, respectively.





Supplemental
      Pension Plan





Effective
      October 1, 1994, Artesian Water established a Supplemental Pension Plan, or
      the
“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 2007, 2006 and 2005 were approximately
      $288,000, $276,000, and $275,000, respectively.





The
      Company uses December 31 as the measurement date to determine the
      postretirement benefit obligation.  According to our actuarial report,
      the
      funded status of our defined benefit postretirement plan was calculated
      contemplating FAS 158 and the obligation is recorded at that
      amount.  There was no Other Comprehensive Income impact because we
      record a regulatory asset as provided by FAS 71.Additional
      disclosures required for our postretirement benefit obligation are presented
      below.








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Benefit
                Obligations and Funded StatusIn
                thousands
            
            Year
                EndingDecember
                312007
            
            
            2006Change
                in Accumulated Postretirement Benefit ObligationAccumulated
                Postretirement Benefit Obligation at the Beginning of the
                Year
            
            $
            862
            
            
            $
            909Service
                Cost
            
            
            ---
            
            
            
            ---Interest
                Cost
            
            
            49
            
            
            
            52Actuarial
                (Gain) or Loss
            
            
            126
            
            
            
            4Benefits
                Paid
            
            
            (97
            )
            
            
            (106
            )Plan
                Participant's Contributions
            
            
            4
            
            
            
            3Accumulated
                Postretirement Benefit Obligation at the End of the Year
            
            
            944
            
            
            
            862Change
                in Plan AssetsFair
                Value of Plan Assets at the Beginning of the Year
            
            
            ---
            
            
            
            ---Benefits
                Paid
            
            
            (97
            )
            
            
            (106
            )Employer
                Contributions
            
            
            93
            
            
            
            103Plan
                Participant's Contributions
            
            
            4
            
            
            
            3Fair
                Value of Assets at the End of the Year
            
            
            ---
            
            
            
            ---Net
                Amount RecognizedFunded
                Status
            
            
            (944
            )
            
            
            (862
            )Unrecognized
                Transition Obligation (Asset)
            
            
            51
            
            
            
            60Unrecognized
                Net (Gain) or Loss
            
            
            (75
            )
            
            
            (225
            )Net
                Amount Recognized:
            
            
            (968
            )
            
            
            (1,027
            )Amounts
                Recognized in the Statement of Financial PositionAccrued
                Benefit Liability-Current
            
            
            (100
            )
            
            
            (100
            )Accrued
                Benefit Liability-Noncurrent
            
            
            (868
            )
            
            
            (927
            )Net
                Amount Recognized
            
            $
            (968
            )
            
            $
            (1,027
            )Weighted
                Average Assumptions at the End of the YearDiscount
                Rate
            
            
            6.00
            %
            
            
            6.00
            %Assumed
                Health Care Cost Trend RatesHealth
                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
            
            2014
            
            
            2013





Net
                Periodic Benefit CostYear
                EndingDecember
                31In
                thousands
            
            2007
            
            
            2006
            
            
            2005Interest
                Cost
            
            $
            48
            
            
            $
            51
            
            
            $
            54Amortization
                of Net (Gain) or Loss
            
            
            (23
            )
            
            
            (27
            )
            
            
            (34
            )Amortization
                of Transition Obligation/(Asset)
            
            
            9
            
            
            
            9
            
            
            
            9Total
                Net Periodic Benefit Cost
            
            $
            34
            
            
            $
            33
            
            
            $
            29Weighted
                Average AssumptionsDiscount
                Rate
            
            
            6.00
            %
            
            
            6.00
            %
            
            
            6.00
            %Assumed
                Health Care Cost Trend RatesHealth
                Care Cost Trend Rate Assumed for Current Year
            
            
            11.00
            %
            
            
            11.00
            %
            
            
            11.00
            %Ultimate
                Rate
            
            
            5.00
            %
            
            
            5.00
            %
            
            
            5.00
            %Year
                that the Ultimate Rate is Reached
            
            2013
            
            
            2012
            
            
            2011





Impact
                of One-Percentage-Point Change in Assumed Health Care Cost Trend
                RatesIncrease
            
            
            DecreaseEffect
                on Service Cost & Interest Cost
            
            $
            3
            
            
            $
            (2
            )Effect
                on Postretirement Benefit Obligation
            
            $
            47
            
            
            $
            (44
            )





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.


50
 Table
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Contributions


Artesian
      Water expects to contribute $100,000 to its postretirement benefit plan in
      2008.


The
      following table represents the benefits expected to be paid:





In
                thousands
            
            Other
                Benefits2008
            
            $
            1002009
            
            
            1002010
            
            
            1002011
            
            
            1002012
            
            
            1002013
                through 2017
            
            
            500$
            1,000





NOTE
      10





COMMITMENTS
      AND CONTINGENCIES





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.  Rental payments for 2007, 2006 and 2005 were $11,900,
      $11,400, and $11,000, respectively.  The future minimum rental payment
      as disclosed in the following table is calculated using CPI-U as of December
      31,
      2007.





During
      1996, Artesian Water entered into a 10-year lease commitment for office space
      and this lease was further extended for two years ending February 29,
      2008.  Rent payments for 2007, 2006 and 2005 for the office space were
      $72,000, $72,000, and $76,000, respectively.  We vacated this property
      five months prior to the lease expiration as a result of unacceptable conditions
      not addressed by the landlord.  During September
      2007,  Artesian Water entered into a 3-year contract for office space
      located in New Castle County, Delaware.  This location is used as
      general office space while the Artesian Water main office space is being
      renovated.  Rent payments during 2007 were $25,000.





During
      1999, Artesian Water entered into the contract for office space located in
      Sussex County, Delaware.  This contract was terminated in October
      2006.  Rent payments for 2006 and 2005 were $24,000 and $28,000,
      respectively.  We entered into a new 3-year contract for office space
      located in Sussex County, Delaware in October 2006.  Rent payments
      during 2007 and 2006 were $43,000 and $14,000.





During
      2003, Artesian Resources, entered into a 40-year easement agreement to acquire
      an easement to access, operate, maintain, repair, improve, replace and connect
      Artesian’s water system to a well, including a parcel of land around the
      well.  Easement payments for 2007, 2006 and 2005 were $28,000, $27,000
      and $26,000, respectively.





Artesian
      Wastewater entered into a perpetual agreement for the use of approximately
      460
      acres of land in Sussex County, Delaware for wastewater
      disposal.  Beginning January 2007, Artesian Wastewater is required to
      pay a minimum of $40,000 per year for the use of this land.  Once
      disposal operations begin, the monthly fee will be contingent on the average
      number of gallons of wastewater disposed on the properties.  The
      agreement can be terminated by giving 180-day notice prior to the termination
      date.








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Future
      minimum annual rental payments under the above mentioned lease obligations
      for
      the years subsequent to 2007 are as follows:





In
                thousands2008
            
            $
            1952009
            
            
            1562010
            
            
            962011
            
            
            452012
            
            
            462013
                through 2042
            
            
            1,851$
            2,389





Artesian
      Water has one water service interconnection agreement with a neighboring
      utility, Chester Water Authority, which requires minimum annual
      purchases.  Rates charged under this agreement 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, calculated as 3 mgd times the number of calendar days in
      a
      year. The agreement is extended through the year 2021.  A previous
      interconnection agreement with the City of Wilmington expired in December
      2006.





The
      Chester Water Authority sent us a notice on February 15, 2006 of a rate
      increase, effective July 1, 2006.  We received a second notice of a
      rate increase on February 14, 2007, effective July 1, 2007.  The
      minimum annual purchase commitments for all interconnection agreements for
      2008
      through 2012 and the aggregate total for the years 2013 through 2021, calculated
      at the noticed rates, are as follows:








In
                thousands2008
            
            $
            2,8362009
            
            
            2,8282010
            
            
            2,8282011
            
            
            2,8282012
            
            
            2,8362013
                through 2021
            
            
            27,968$
            42,124





Expenses
      for purchased water were $2,775,000, $3,152,000,and $3,131,000 for the years
      ended December 31, 2007, 2006 and 2005, respectively.





In
      2005,
      Artesian Water entered into a 6-year agreement with Utility Service Co., Inc.
      to
      clean and paint tanks from 2006 to 2011 for $1,872,000.  The tank
      painting expense for 2007, 2006 and 2005 was $416,000, $241,000, and
      $254,000.  The expenditures committed for the years subsequent to 2007
      are as follows:





In
                thousands2008
            
            $
            3742009
            
            
            3752010
            
            
            3752011
            
            
            174$
            1,298





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 2008 through 2012 are as follows:








52
 Table
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In
                thousands2008
            
            $
            1,3502009
            
            
            2,5002010
            
            
            1,5002011
            
            
            1,4002012
            
            
            0$
            6,750





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





NOTE
      11





GEOGRAPHIC
      CONCENTRATION OF CUSTOMERS





Artesian
      Water, Artesian Water Pennsylvania and Artesian Maryland provide water utility
      service to customers within their established service territory in all three
      counties of Delaware and in portions of Pennsylvania and Maryland, pursuant
      to
      rates filed with and approved by the PSC, the PAPUC and the MDPSC.  As
      of December 31, 2007, Artesian Water was serving 75,100 customers, Artesian
      Water Pennsylvania was serving 39 customers and Artesian Maryland was serving
      141 customers.





Artesian
      Wastewater began providing wastewater services to a community in Sussex County,
      Delaware in July 2005.  The PSC approved the temporary rates for this
      community on July 15, 2005, and on January 24, 2006, approved the rates and
      tariff.  As of December 31, 2007, Artesian Wastewater was serving 414
      customers.





NOTE
      12





RATE
      PROCEEDINGS





In
      May
      2006, Artesian Water filed a petition with the PSC to implement new rates to
      meet a requested increase in revenue of 23%, or approximately $9.9 million,
      on
      an annualized basis.  This request was primarily due to the Company’s
      significant investment in infrastructure, as well as approximately 92% increase
      in purchased power expense due to the expiration of price caps imposed in 1999
      when deregulation of the electric industry in Delaware was
      adopted.  As permitted by law, in July 2006 we placed into effect
      temporary rates designed to generate an increase in annual operating revenue
      of
      approximately 5.9%, or $2.5 million on an annual basis, until new rates were
      approved by the PSC.





On
      December 19, 2006 the PSC approved a Settlement Agreement in this
      case.  The increase in annual revenue requirement under the Settlement
      Agreement of $6 million was recovered in two steps.  The first step
      was placed in effect January 1, 2007 to recover approximately $4.8 million
      in
      annual revenue.  The second step was placed in effect July 24,
      2007.  The second step rates were designed to recover approximately
      $1.2 million of annual revenue, which reflected the issuance of additional
      equity of approximately $20 million.





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, or 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 approval process is less costly when
      compared to the approval process for general rate increase
      requests.  The DSIC rate applied between base rate filings is capped
      at 7.5% of the amount billed to customers under otherwise applicable rates
      and
      charges, and the DSIC rate increase applied can not exceed 5% within any
      12-month period.  During 2006 we earned approximately $225,000 in
      revenue from the DSIC rate.  As required by law, the surcharge for
      DSIC was reset to zero upon the implementation of the temporary rate on July
      10,
      2006, as noted above.  We did not have DSIC in effect during
      2007.  In December 2007, we filed for a new DSIC of 0.46% to be
      applied to customers’ total bill, effective January 1, 2008, in order to recover
      the cost of non-revenue producing plant put into service between the end of
      the
      last general rate increase and October 2007.  On January 25, 2008,
      Artesian Water submitted a notice to the PSC of our intent to file an
      application for a rate increase, as is required to be submitted not less than
      60
      days prior to filing an application.


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NOTE
      13





SALE
      OF LAND





On
      September 14, 2006, Artesian Development completed the sale of a parcel of
      land
      of approximately four acres to The Commonwealth Group, Ltd.  The sale
      price was $1.4 million and the gain on the sale of the parcel of land after
      expenses, but before income taxes, was approximately $1.3 million.





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:





Years
                Ended December 31,In thousands
            2007
            2006
            2005Average common shares outstanding
                during
                theperiod
                for
                Basic computation
            6,787
            6,055
            5,984Dilutive effect of employee stock options
            149
            180
            198Average
                common shares outstanding during the period for Diluted
                computation
            6,936
            6,235
            6,182





Equity
      per common share was $12.54, $10.21, and $9.66 at December 31, 2007, 2006,
      and
      2005, 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, respectively.








NOTE
      15





SELECTED
      CONSOLIDATED QUARTERLY FINANCIAL DATA





The
      following table is derived from quarterly unaudited consolidated statements
      of
      operations for the years ended December 31, 2007 and 2006.  Quarterly
      diluted per share amounts do not add to the full year total due to
      rounding.





In
                thousands (exceptper
                share data)
            
            First
                Quarter
            
            
            Second
                Quarter
            
            
            Third
                Quarter
            
            
            Fourth
                Quarter2007
            
            
            2006
            
            
            2007
            
            
            2006
            
            
            2007
            
            
            2006
            
            
            2007
            
            
            2006Operating
                revenues
            
            $
            11,604
            
            
            $
            10,489
            
            
            $
            12,913
            
            
            $
            12,014
            
            
            $
            15,046
            
            
            $
            14,194
            
            
            $
            12,961
            
            
            $
            11,891Operating
                income
            
            $
            2,268
            
            
            $
            2,053
            
            
            $
            2,919
            
            
            $
            2,889
            
            
            $
            4,135
            
            
            $
            4,181
            
            
            $
            2,444
            
            
            $
            2,672Net
                income applicable to common stock
            
            $
            1,156
            
            
            $
            995
            
            
            $
            1,271
            
            
            $
            1,360
            
            
            $
            2,763
            
            
            $
            2,607
            
            
            $
            1,073
            
            
            $
            1,109Income
                per common shareBasic
            
            $
            0.19
            
            
            $
            0.17
            
            
            $
            0.20
            
            
            $
            0.22
            
            
            $
            0.38
            
            
            $
            0.43
            
            
            $
            0.15
            
            
            $
            0.18Diluted
            
            $
            0.18
            
            
            $
            0.16
            
            
            $
            0.19
            
            
            $
            0.22
            
            
            $
            0.37
            
            
            $
            0.42
            
            
            $
            0.14
            
            
            $
            0.17





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NOTE
      16





IMPACT
      OF RECENT ACCOUNTING PRONOUNCEMENTS





In
      December 2007, the Financial Accounting Standards Board, FASB, issued Statement
      of Financial Accounting Standards No. 160 (SFAS 160), “Noncontrolling Interests
      in Consolidated Financial Statements”-An Amendment of ARB No.
      51.  SFAS 160 establishes new accounting and reporting standards for
      the non-controlling interest in a subsidiary and for the deconsolidation of
      a
      subsidiary.  SFAS 160 is effective for fiscal years beginning on or
      after December 15, 2008.  We do not currently expect the adoption of
      SFAS 160 to have a material impact on our consolidated financial position,
      results of operations and cash flows.





In
      December 2007, the Financial Accounting Standards Board, FASB, issued Statement
      No. 141 (revised 2007), “Business Combinations.”  The objective of
      this Statement is to improve the relevance, representational faithfulness,
      and
      comparability of the information that a reporting entity provides in its
      financial reports about a business combination and its effects.  This
      Statement establishes principles and requirements for how the acquirer
      recognizes and measures in its financial statements the identifiable assets
      acquired, the liabilities assumed, and any noncontrolling interest in the
      acquiree.  This Statement also establishes requirements for how the
      acquirer recognizes and measures goodwill acquired in the business combination
      and how the acquirer determines what information to disclose to enable users
      of
      the financial statements to evaluate the nature and financial effects of the
      business combination.  This Statement applies to all transactions or
      other events in which an entity obtains control of one or more
      businesses.  This Statement applies prospectively to business
      combinations for which the acquisition date is on or after the beginning of
      the
      first annual reporting period beginning on or after December 15,
      2008.  The Company expects to adopt this statement effective January
      1, 2009 and any impact will depend on the nature and size or business
      combinations the Company consummates after the effective date.





In
      February 2007, the Financial Accounting Standards Board, FASB, issued Statement
      No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities –
Including an amendment of FASB No.115.”  This statement permits
      entities to choose to measure many financial instruments and certain other
      items
      at fair value.  The objective is to improve financial reporting by
      providing entities with the opportunity to mitigate volatility in reported
      earnings caused by measuring related assets and liabilities differently without
      having to apply complex hedge accounting provisions.  This Statement
      is effective as of the beginning of an entity’s first fiscal year that begins
      after November 15, 2007.  The Company expects to adopt this
      statement effective January 1, 2008 and does not expect it to have a material
      effect on the financial statements.





In
      September 2006, FASB issued Statement No. 157, “Fair Value
      Measurements”.  This statement defines fair value, establishes a
      framework for measuring fair value in generally accepted accounting principles
      (GAAP), and expands disclosures about fair value measurements.  This
      statement applies under other accounting pronouncements that require or permit
      fair value measurements; however, the statement does not require any new fair
      value measurements.  This statement is effective for fiscal years
      beginning after November 15, 2007 and interim periods within those
      years.  On February 12, 2008, the FASB issued FSP No. FAS 157-2,
      "Effective Date of FASB Statement No. 157," which delays the effective date
      of
      SFAS 157 for all nonfinancial assets and nonfinancial liabilities, except those
      that are recognized or disclosed at fair value in the financial statements
      on at
      least an annual basis, until January 1, 2009 for calendar year-end
      entities.  The Company does not expect it to have a material effect on
      the financial statements.








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In
      June
      2006, FASB issued Interpretation No. 48 “Accounting for Uncertainty in Income
      Taxes”, an interpretation of FASB Statement No. 109 “Accounting for Income
      Taxes”.  This Interpretation clarifies the accounting for uncertainty
      in income taxes recognized in an enterprise’s financials statements in
      accordance with FASB Statement No. 109.  The Interpretation prescribes
      a recognition threshold and measurement attribute for the financial statement
      recognition and measurement of a tax position taken or expected to be taken
      in a
      tax return.  This interpretation allows an enterprise to recognize
      economic benefits resulting from positions taken in income tax returns, as
      long
      as a more likely than not approach is taken.  This interpretation is
      effective for fiscal years beginning after December 15, 2006.  The
      Company adopted this statement effective January 1, 2007 and after its
      evaluation determined that there was no material effect on the financial
      statements (see Note 3 to our Financial
      Statements).





In
      March
      2006, FASB issued Statement No. 156, “Accounting for Servicing of Financial
      Assets”.  This statement amends FASB Statement No. 140, “Accounting
      for Transfers and Servicing of Financial Assets and Extinguishments of
      Liabilities,” with respect to the accounting for separately recognized servicing
      assets and servicing liabilities.  This statement requires an entity
      to recognize a servicing asset or servicing liability each time it undertakes
      an
      obligation to service a financial asset by entering into a servicing contract
      in
      some situations.  It also requires all separately recognized servicing
      assets and servicing liabilities to be initially measured at fair value, if
      practicable.  This statement is effective for fiscal years beginning
      after September 15, 2006.  The Company adopted this statement
      effective January 1, 2007, it did not have a material effect on the financial
      statements.





In
      February 2006, FASB issued Statement No. 155, “Accounting for Certain Hybrid
      Financial Instruments”.  This statement amends FASB Statement No. 133,
“Accounting for Derivative Instruments and Hedging Activities,” and No. 140,
“Accounting for Transfers and Servicing of Financial Assets and Extinguishments
      of Liabilities”.  This statement permits fair value remeasurement for
      any hybrid financial instrument that contains an embedded derivative that
      otherwise would require bifurcation.  This statement is effective for
      all financial instruments acquired or issued after the beginning of an entity’s
      first fiscal year that begins after September 15, 2006.  The Company
      adopted this statement effective January 1, 2007, it did not have a material
      effect on the financial statements.








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Report
      of
      IndependentRegistered Public Accounting Firm









Board
      of Directors and
      Stockholders


Artesian
      Resources
      Corporation


Newark,
      Delaware




We
      have audited the accompanying
      consolidated balance sheets of Artesian Resources Corporation as of December
      31,
      2007 and 2006 and the related consolidated statements of operations,
      stockholders’ equity, and cash flows for each of the three years in the period
      ended December 31, 2007.  In connection with our audits of the
      financial statements, we have also audited the financial statement schedules
      listed in the accompanying index.  These financial statements and
      schedules are the responsibility of the Company’s management.  Our
      responsibility is to express an opinion on these financial statements and
      schedules 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, assessing the accounting principles used and significant estimates
      made by management, as well as evaluating the overall presentation of the
      financial statements and schedules.  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 at December 31, 2007
      and 2006, and the results of its operations and its cash flows for each of
      the
      three years in the period ended December 31, 2007,in
      conformity with accounting principles
      generally accepted in the United States of America.




Also,
      in our opinion, the financial
      statement schedules, 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.




We
      also
      have audited, in accordance with the standards of the Public Company Accounting
      Oversight Board (United States), Artesian Resources Corporation's internal
      control over financial reporting as of December 31, 2007, based on criteria
      established in Internal
      Control – Integrated Frameworkissued by the Committee of Sponsoring
      Organizations of the Treadway Commission (COSO) and our report dated March
      12,
      2008 expressed an unqualified opinion thereon.








/s/BDO
      Seidman, LLP


Bethesda,
      Maryland


March
      12,
      2008








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Item
      9. – Changesin and Disagreements With Accountants on
      Accounting and Financial Disclosures.





None.





Item
      9A. - Controlsand Procedures.





(a)  Evaluation
      of Disclosure Controls and Procedures





Our
      management carried out an evaluation, under the supervision and with the
      participation of the chief executive officer and the chief financial officer,
      of
      the effectiveness of the design and operation of Artesian Resources
      Corporation’s disclosure controls and procedures (as such term is defined in
      Rules 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act
      of 1934) as of December 31, 2007, pursuant to the evaluation of these
      controls and procedures required by Rule 13a-15 of the Securities Exchange
      Act of 1934.  Based upon that evaluation, the chief executive officer
      along with the chief financial officer concluded that Artesian Resources
      Corporation’s disclosure controls and procedures as of December 31, 2007
      were (1) designed to ensure that material information relating to the
      Corporation and its subsidiaries is made known to the chief executive officer
      and the chief financial officer by others within those entities, and
      (2) effective, in that they provide reasonable assurance that information
      required to be disclosed by the Corporation in the reports that it files or
      submits under the Securities Exchange Act of 1934 is recorded, processed,
      summarized and reported within the time periods specified in the SEC’s rules and
      forms.  A control system cannot provide absolute assurance, however,
      that the objectives of the control system are met and no evaluation of controls
      can provide absolute assurance that all control issues and instances of fraud,
      if any, within a company have been detected.





(b)  Management’s
      Annual Report on Internal Control Over Financial Reporting





The
      Management of Artesian Resources Corporation is responsible for establishing
      and
      maintaining adequate internal control over its financial
      reporting.  Artesian Resources Corporation’s internal control over
      financial reporting is a process designed under the supervision of the
      Corporation’s chief executive officer and chief financial officer to provide
      reasonable assurance regarding the reliability of financial reporting and the
      preparation of the Corporation’s financial statements for external reporting
      purposes in accordance with U.S. generally accepted accounting
      principles.





Artesian
      Resources Corporation’s
      Management assessed the effectiveness of the Corporation’s internal control over
      financial reporting as of December 31, 2007 based on the criteria set forth
      by the Committee of Sponsoring Organizations of the Treadway Commission
      (COSO) in “Internal Control Integrated Framework.”  Based on this
      assessment, Management determined that at December 31, 2007, the
      Corporation’s internal control over financial reporting was
      effective.





(c)  Attestation
      Report of the Registered Public Accounting Firm





The
      effectiveness of Artesian’s internal control over financial reporting as of
      December 31, 2007 has been audited by BDO Siedman LLP, an independent registered
      public accounting firm, as stated in their report, which is included
      herein.





(d)  Change
      in Internal Control over Financial Reporting





No
      change in the Corporation’s internal
      control over financial reporting occurred during the fiscal quarter ended
      December 31, 2007 that has materially affected, or is reasonably likely to
      materially affect, the Company’s  internal control over financial
      reporting.





Date:March
      12, 2008








CHIEF
                EXECUTIVE OFFICER:
            
            
            CHIEF
                FINANCIAL OFFICER:/s/
                DIAN C. TAYLOR
            
            
            /s/
                DAVID B. SPACHTDian
                C. Taylor
            
            
            David
                B. Spacht







58
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Item
      9B. – OtherInformation.





None.





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Report
      of Independent Registered Public
      Accounting Firm


On
      Internal Control Over Financial
      Reporting




Board
      of Directors and
      Stockholders


Artesian
      Resources
      Corporation


Newark,
      Delaware




We
      have audited Artesian Resources
      Corporation’s internal control over financial reporting as of December 31, 2007,
      based on criteria established inInternal
      Control –
Integrated Frameworkissued
      by the Committee of Sponsoring Organizations of the Treadway Commission (the
      COSO criteria).  Artesian Resources Corporation’s management is
      responsible for maintaining effective internal control over financial reporting
      and for its assessment of the effectiveness of internal control over financial
      reporting, included in the accompanying “Item 9A, Management’s Annual Report on
      Internal Control Over Financial Reporting”.  Our responsibility is to
      express an opinion on the company’s internal control over financial reporting
      based on our audit.




We
      conducted our audit 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 effective internal control over
      financial reporting was maintained in all material respects.  Our
      audit included obtaining an understanding of internal control over financial
      reporting, assessing the risk that a material weakness exists, and testing
      and
      evaluating the design and operating effectiveness of internal control based
      on
      the assessed risk.  Our audit also included performing such other
      procedures as we considered necessary in the circumstances.  We
      believe that our audit provides a reasonable basis for our
      opinion.




A
      company’s internal control over
      financial reporting is a process designed to provide reasonable assurance
      regarding the reliability of financial reporting and the preparation of
      financial statements for external purposes in accordance with generally accepted
      accounting principles.  A company’s internal control over financial
      reporting includes those policies and procedures that (1) pertain to the
      maintenance of records that, in reasonable detail, accurately and fairly reflect
      the transactions and dispositions of the assets of the company; (2) provide
      reasonable assurance that transactions are recorded as necessary to permit
      preparation of financial statements in accordance with generally accepted
      accounting principles, and that receipts and expenditures of the company are
      being made only in accordance with authorizations of management and directors
      of
      the company; and (3) provide reasonable assurance regarding prevention or timely
      detection of unauthorized acquisition, use, or disposition of the company’s
      assets that could have a material effect on the financial
      statements.




Because
      of its inherent limitations,
      internal control over financial reporting may not prevent or detect
      misstatements.  Also, projections of any evaluation of effectiveness
      to future periods are subject to the risk that controls may become inadequate
      because of changes in conditions, or that the degree of compliance with the
      policies or procedures may deteriorate.




In
      our opinion, Artesian Resources
      Corporation maintained, in all material respects, effective internal control
      over financial reporting as of December 31, 2007, based on the COSO
      criteria.




We
      also have audited, in accordance with
      the standards of the Public Company Accounting Oversight Board (United States),
      the consolidated balance sheets of Artesian Resources Corporation as of December
      31, 2007 and 2006, and the related consolidated statements of operations,
      stockholders’ equity, and cash flows for each of the three years in the period
      ended December 31, 2007 and our report dated March 12, 2008 expressed an
      unqualified opinion thereon.










/s/BDO
      Seidman LLP


Bethesda,
      Maryland





March
      12,
      2008





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PART
      III





Item
      10. – Directors, Executive Officers and Corporate
      Governance.





Name
            Age
            PositionDian
                C. Taylor
            62
            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
                aunt of John R. Eisenbrey, Jr. and Nicholle R. Taylor.  She
                serves on the Executive and Strategic Planning, Budget and Finance
                Committees.Kenneth
                R. Biederman
            64
            Director
                since 1991 - Professor of Finance at the College of Business and
                Economics
                of the University of Delaware, Lerner College of Business and Economics
                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.  Currently a Director
                of the Mid -Atlantic Farm Credit Association.  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;
                Pricing; Strategic Planning, Budget and Finance; Human Resources
                and
                Compensation Committees.John
                R. Eisenbrey, Jr.
            52
            Director
                since 1993 - Owner and President of Bear Industries, Inc., a privately
                held contracting firm, for more than twenty-three years.  Mr.
                Eisenbrey is also co-owner and President of Peninsula Masonry
                Inc.   Mr. Eisenbrey is the nephew of Dian C. Taylor and
                the cousin of Nicholle R. Taylor.  He serves on the Audit;
                Pricing; Human Resources Committee; and Compensation
                Committees.Nicholle
                R. Taylor
            40
            Director
                since 2007  - Vice President of Artesian Resources Corporation
                and its Subsidiaries - Ms. Taylor has served as an officer 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 niece of Dian C. Taylor and the
                cousin of John R. Eisenbrey, Jr.





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William
                C. Wyer
            61
            Director
                since 1991 - Business Consultant with Wyer Group, Inc. since September
                2005.  Previously, Mr. Wyer served as Managing Director of
                Wilmington Renaissance Corporation (formerly Wilmington 2000) from
                January
                1998 to August 2005.  Wilmington Renaissance Corporation 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 and its’ successor National Motors Bank, FBS
                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; Pricing;
                Strategic Planning, Budget and Finance; Human Resources and Compensation
                Committees.Joseph
                A. DiNunzio
            45
            Executive
                Vice President and Corporate Secretary of Artesian Resources Corporation
                and its subsidiaries since May 2007.  Mr. DiNunzio previously
                served as Senior Vice President and Corporate Secretary of Artesian
                Resources Corporation and its Subsidiaries since March 2000 and 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
            58
            Senior
                Vice President of Engineering and Planning since May 2007.  Mr.
                Kraeuter previously served as Vice President of Engineering and Planning
                since March 1995.  He currently serves as an officer of Artesian
                Water Company, Inc., Artesian Water Maryland, Inc., Artesian Wastewater
                Management, Inc., Artesian Utility Development, 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
            51
            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
            48
            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.





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John
                M. Thaeder
            50
            Senior
                Vice President of Operations since May 2007.  Mr. Thaeder
                previous served as Vice President of Operations since February
                1998.  He currently serves as an officer of Artesian Water
                Company, Inc., Artesian Wastewater Management, Inc., Artesian Water
                Maryland, 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.





Corporate
      Governance





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.





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.  John R. Eisenbrey, Jr. and Dian C. Taylor have been
      nominated for election to the Board of Directors at the shareholders Annual
      Meeting to be held May 14, 2008.





Director
      Compensation





Directors
      receive an annual retainer fee of $12,500 paid in advance.  The chair
      of the Audit Committee receives an annual retainer of $3,500.  The
      other members of the Audit Committee receive an annual retainer fee of
      $2,500.  The chairs of the remaining standing committees receive an
      annual retainer of $1,000.  Each director receives $1,500 for each
      Board meeting attended, $1,000 for each committee meeting attended on the day
      of
      a regular board meeting and $1,500 for each committee meeting attended on any
      other day.   The Chair of the Audit Committee receives $1,500 for
      each committee meeting attended on the day of a regular board meeting and $2,000
      for each committee meeting attended on any other day.  Each director
      receives $450 per diem for workshops.  An ad hoc Pricing Committee was
      formed to review and approve the issuance price of the common stock in
      2007.  The committee chair was paid a retainer of $3,000.





In
      2007,
      our Directors, other than Dian C. Taylor whose fees as a Director are included
      in the Director Summary Compensation Table and Nicholle R. Taylor who did not
      receive any fees as a Director in 2007, received the following
      compensation:





Director
      Compensation Table – 2007





Name
            Fees
                Earned or
              Paid
                in
              Cash
              ($)
            Option
              Awards
              ($)
              (1)
            Total
              ($)Kenneth
                R. Biederman
            86,600
            29,767
            116,367John
                R. Eisenbrey, Jr.
            76,350
            29,767
            106,117Norman
                H. Taylor, Jr.
            50,200
            29,767
            79,967William
                C. Wyer
            85,600
            29,767
            115,367







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(1)
            On
                May 16, 2007 each Director received option grants of 6,750 shares
                of Class
                A Non-voting Common stock at exercise prices at the fair market value
                (last reported sale price on the grant date) or $19.558. All options
                are
                exercisable one year from the date of grant and with terms of ten
                years.
                The dollar amount recognized for financial statement reporting purposes
                with respect to the fiscal year, computed in accordance with Statement
                of
                Financial Accounting Standard No. 123R, based upon the assumptions
                made in
                the valuation as described in Note 1 of the 2007 Financial Statements
                is
                reflected in the “Option Awards” column in the table above.  The
                aggregate number of option awards outstanding at December 31, 2007
                for
                each Director is:




Option
                Shares Outstanding at December 31, 2007Kenneth
                R. Biederman
            69,000John
                R. Eisenbrey, Jr.
            55,639The
                Estate of Norman H. Taylor, Jr.
            45,000William
                C. Wyer
            69,500







Compensation
      Committee
      Interlocks and Insider Participation





During
      the year ended December 31, 2007, the members of our Compensation Committee
      were
      Kenneth R. Biederman, John R. Eisenbrey, Jr. and William C.
      Wyer.  None of our executive officers serves as a member of the
      Compensation Committee, or any other committee serving an equivalent function,
      of any entity that has one or more of its executive officers serving as members
      of our Compensation Committee.  No member of our Compensation
      Committee has ever been our employee.





Independence





In
      2007,
      the Board of Directors determined that a majority of the Board of Directors
      met
      the independence requirements prescribed by the listing standards of the Nasdaq
      Global Market.





Audit
      Committee





The
      Audit
      Committee reviews the procedures and policies relating to the internal
      accounting procedures and controls of the Company, and provides general
      oversight with respect to the accounting principles employed in the Company’s
      financial reporting.  As part of its activities, the Audit Committee
      meets with representatives of the Company’s management and independent
      accountants.  The Audit Committee has considered the extent and scope
      of non-audit services provided to the Company by its outside accountants and
      has
      determined that such services are compatible with maintaining the independence
      of the outside accountants. The Audit Committee appoints and retains the
      Company’s independent accountants.  The Audit Committee has a charter
      delineating its purpose and functions.  The Audit Committee consists
      of Kenneth R. Biederman, John R. Eisenbrey, Jr. and William C.
      Wyer.  The Board of Directors has also determined that each member of
      the Audit Committee meets the independence requirements prescribed by the
      listing standards of the Nasdaq Global Market and the rules and regulations
      of
      the Securities and Exchange Commission.  The Board of Directors has
      further determined that Mr. Biederman, a member of the Audit Committee, is
      an "audit committee financial expert" as such term is defined in Item
      407(d)(5)(ii) of Regulation S-K promulgated by the SEC.  During 2007,
      the Audit Committee met seven times.








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Compensation
      Committee





The
      Compensation Committee reviews the compensation and benefits provided to key
      management employees, officers and directors and makes recommendations as
      appropriate to the Board.  The Committee also determines whether and
      what amounts should be granted under the Equity Compensation Plan and may make
      recommendations for amendments to the Plan.  The Compensation
      Committee has a charter delineating its purpose and functions.  The
      Compensation Committee is comprised of Kenneth R. Biederman, John R. Eisenbrey,
      Jr. and William C. Wyer, three independent directors.  During 2007,
      the Compensation Committee met four times.





Consideration
      of Director
      Candidates





Given
      the
      size of the current Board and the ability for the independent directors to
      act
      within existing committees on director nominations, the Company has not deemed
      it appropriate or necessary to appoint a standing Nominating
      Committee.  The Board, however, has adopted a resolution to document
      and formalize the Company’s nominating procedures.  As part of the
      formalized nominating procedures, director nominees are recommended to the
      full
      Board by a majority of independent directors.  Director candidates
      nominated by stockholders are considered in the same manner, provided the
      nominations are submitted on a timely basis and in accordance with the Company’s
      by-laws.  Nominations for the election of directors for the 2008
      Annual Stockholders’ Meeting were approved by the Compensation Committee, which
      consists entirely of independent directors.





Code
      of
      Ethics





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.  The information on the
      website listed above is not and should not be considered part of this Annual
      Report on Form 10-K and is intended to be an inactive textual reference
      only.








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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 2007, 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 holders of more than
      ten
      percent (10%) of either class of our outstanding common stock ten percent (10%)
      stockholders and copies of the reports that they filed with the Securities
      and
      Exchange Commission.





Item
      11. – ExecutiveCompensation.





Compensation
      Discussion and Analysis





The
      objective of the Company’s compensation program is to provide competitive levels
      of total compensation to attract and retain qualified executive
      officers.  The program rewards overall qualitative contributions and
      performance of each individual towards company goals and objectives for
      financial performance and shareholder returns; superior customer service;
      increases in utility franchised service territory and development of our
      wastewater and contract operation business lines; and employee professional
      development.  In determining competitive levels of compensation, the
      Compensation Committee considers publicly available information regarding the
      compensation of executive officers of other U.S. investor-owned water utilities
      and information available from studies periodically performed by compensation
      consultants for the Company.  The Compensation Committee also
      considers recommendations made by the Chief Executive Officer regarding
      compensation for other executive officers.





Compensation
      elements include a base cash level of compensation, possible cash bonus awards,
      and discretionary amounts of equity compensation as may be awarded by the Board
      of Directors under the 2005 Equity Compensation Plan.  In recent
      years, with the exception of 2007, most performance-based compensation was
      awarded in equity rather than in cash.  The 2005 Equity Compensation
      Plan provides for the grants of stock options, stock units, stock awards,
      dividend equivalents and other stock-based awards to encourage recipients of
      such grants to contribute materially to the growth of the Company, for the
      benefit of the Company’s shareholders, and to align the economic interests of
      the recipients with those of shareholders.





Compensation
      paid to each executive officer, including cash bonuses in 2007 and stock bonuses
      in 2006, was based on the Compensation Committee’s review and consideration of
      aggregate levels of compensation paid to executives of comparable companies
      and
      the individual qualitative contributions and performance of each executive
      officer.  The stock bonus portion of the compensation awarded in 2006
      also served beneficially to further align the interests of the executive
      officers with that of shareholders.  No grants of stock options were
      made to any other executive officer in 2007 or 2006, except that Ms. Dian C.
      Taylor, in her capacity as a Director, received stock grants as described
      below.





Generally,
      each May, the Compensation Committee of the Board of Directors considers the
      grant of stock options for Directors, including Ms. Dian C.
      Taylor.  Consistent with the grant made to all Directors, on May 16,
      2007 and May 12, 2006, Ms. Dian C. Taylor received grants of 6,750 shares of
      Class A Non-voting Common stock, as adjusted for the June 30, 2006 three for
      two
      stock split, at an exercise price at the fair market value (last reported sale
      price on that date), exercisable one year from the date of grant and with terms
      of ten years from the date of grant.





Ms.
      Dian
      C. Taylor also receives compensation for her service as a Director, which
      compensation is equivalent to that provided to all other Directors for retainers
      and Board meeting fees.  See “Director Compensation.”








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There
      are
      no severance or other post-termination agreements with the executive officers
      of
      the Company.  The executive officers do not receive any
      post-retirement benefits other than those generally available to all employees
      through participation in the Company’s 401(k) retirement plan, the
      Postretirement Benefit Plan and the Supplemental Pension Plan.  The
      Company does not provide any defined benefit pension plan benefits, any
      supplemental executive retirement plan benefits, or any non-qualified deferred
      compensation.  There are no contracts, agreements, plans or
      arrangements that provide for a payment to any executive officer at or following
      the termination of employment of the executive officer for any reason, including
      change in control of the Company.





Compensation
      Committee
      Report





The
      Compensation Committee has reviewed and discussed the Compensation Discussion
      and Analysis with management and, based on the review and discussions, the
      Compensation Committee recommended to the Board of Directors that the
      Compensation Discussion and Analysis be included in the Company’s Annual Report
      on Form 10-K.





William
      C. Wyer, Chairman


Kenneth
      R. Biederman


John
      R.
      Eisenbrey, Jr.








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The
      following table sets forth a summary of the compensation earned by the Chief
      Executive Officer, Chief Financial Officer and the next three highest paid
      executive officers whose annual salaries and bonuses exceeded $100,000 for
      the
      fiscal year 2007.





Summary
      Compensation Table
      for 2007:





Name
                and Principal Position
            Year
            Salary
                ($)
            Bonus
                ($)
            Stock
                Awards ($)(1)
            Option
                Awards ($)(2)
            All
                Other Compensation ($)(1),(3),(4),(5)
            Total
                ($)Dian
                C. Taylor, Chair, CEO & President
            2007
            353,076
            81,450
            N/A
            29,767
            75,044
            539,3372006
            320,369
            1,330
            47,400
            16,412
            118,127
            503,638David
                B. Spacht, Chief Financial Officer & Treasurer
            2007
            211,999
            36,450
            N/A
            N/A
            25,492
            273,9412006
            178,308
            4,150
            23,700
            N/A
            41,310
            247,468Joseph
                A. DiNunzio, Executive Vice President & Secretary
            2007
            249,629
            35,700
            N/A
            N/A
            23,015
            308,3442006
            231,631
            700
            23,700
            N/A
            41,541
            297,571Bruce
                P. Kraeuter, Senior Vice President of Engineering &
                Planning
            2007
            214,460
            36,450
            N/A
            N/A
            22,917
            273,8272006
            185,385
            1,330
            23,700
            N/A
            38,842
            249,257John
                M. Thaeder, Senior Vice President of Operations
            2007
            227,922
            35,700
            N/A
            N/A
            13,524
            277,1462006
            192,308
            700
            23,700
            N/A
            33,970
            250,678








(1)
            On
                April 26, 2006, the Compensation Committee awarded stock bonuses
                to
                executive officers under the 2005 Equity Compensation Plan as reflected
                in
                the “Stock Awards” column above, along with a cash payment to reimburse
                for the payment of taxes resulting from the stock bonus, which cash
                payment is included in the “All Other Compensation” column
                above.  The shares awarded were valued at the closing share
                price on the date of award.  The number of Class A Non-voting
                Common stock shares, as adjusted for a three for two stock split
                on June
                30, 2006, and cash awarded were:





Shares
            Reimbursement
                for TaxDian
                C. Taylor
            2,250
            $33,065David
                B. Spacht
            1,125
            $18,457Joseph
                A. DiNunzio
            1,125
            $17,238Bruce
                P. Kraeuter
            1,125
            $18,418John
                M. Thaeder
            1,125
            $18,377





(2)
            On
                May 16, 2007 and May 12, 2006, Ms. Dian C. Taylor received option
                grants
                of 6,750 shares of Class A Non-voting Common stock at exercise prices
                at
                fair market value (last reported sale price on the date of grant),
                exercisable one year from the date of grant and with a term of ten
                years.  The dollar amount recognized for financial statement
                reporting purposes with respect to the fiscal year, computed in accordance
                with Statement of Financial Accounting Standard No. 123, based upon
                the
                assumptions made in the valuation as described in Note 1 of the 2007
                Financial Statements is reflected in the “Option Awards” column in the
                table above.











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(3)
            Under
                the defined contribution
                401(k) Plan, the Company contributes two percent of an eligible employee's
                gross earnings.  The Company also matches fifty percent of the
                first six percent of the employee's gross earnings that the employee
                contributes to the 401(k) Plan.  In addition, all employees
                hired before April 26, 1994 and under the age of sixty at that date
                are
                eligible for additional contributions to the 401(k)
                Plan.  Employees over the age of sixty at that date receive
                Company paid medical, dental and life insurance benefitsupon retirement.  The
                Company will not provide such benefits to any other current or future
                employees.  In 2007, Company contributions to the 401(k) Plan
                under terms available to all other employees based upon their years
                of
                service and plan eligibility were made in the amounts
                of:





Dian
                C.
                Taylor
            
            $
            22,500David
                B.
                Spacht
            
            $
            23,320Joseph
                A.
                DiNunzio
            
            $
            22,500Bruce
                P.
                Kraeuter
            
            $
            21,446John
                M.
                Thaeder
            
            $
            11,250





(4)
            Executive
                officers are reimbursed for eligible medical expenses not otherwise
                covered by the Company’s medical insurance plan under the Officer’s
                Medical Reimbursement Plan.  Amounts reimbursed are included in
                the “All Other Compensation” column in the table above.  Ms.
                Dian C. Taylor received reimbursements of $9,540 in 2007.





(5)
            Also
                included in the “All Other Compensation” column in the table above are
                amounts received by Ms. Dian C. Taylor as compensation for attendance
                at
                meetings of the Board and its committees in 2007 totaling $39,100,
                security provided at her personal residence and personal use of a
                company-owned vehicle.











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Grants
      of
      Plan-Based Awards Table – 2007





Name
            Grant
                Date
            All
                Other Stock Awards: Number of Shares of Stock or Units (#)
            All
                Other Option Awards: Number of Securities Underlying Options
                (#)
            Exercise
                or Base Price of Option Awards ($/share)
            Grant
                Date Fair Value of Stock & Option Awards ($)Dian
                C. Taylor
            May
                16, 2007
            N/A
            6,750
            19.558
            32,715





Ms.
      Dian
      C. Taylor was granted an option award on May 16, 2007 as noted in the table
      above.  The Class A Non-voting Common stock shares available under the
      grant become exercisable one year after the date of grant, are for a term of
      ten
      years from the date of grant, and automatically terminate upon the first
      occurrence of:




(i)
            The
                expiration of the 90-day period after Ms. Dian C. Taylor ceases to
                provide
                service to the Company, if the termination of service is for any
                reason
                other than Disability, death or Cause (as defined in the
                award);




(ii)
            The
                expiration of the one-year period after Ms. Dian C. Taylor ceases
                to
                provide service to the Company on account of her
                Disability;




(iii)
            The
                expiration of the one-year period after Ms. Dian C. Taylor ceases
                to
                provide service to the Company, if she dies while providing service
                to the
                Company or within 90 days after the she ceases to provide such services
                on
                account of a termination described in (i) above;
                or




(iv)
            The
                date on which Ms. Dian C. Taylor ceases to provide service to the
                Company
                for Cause.  In addition, notwithstanding the prior provisions,
                if Ms. Dian C. Taylor engages in conduct that constitutes Cause after
                her
                employment or service terminates, the Option shall immediately
                terminate.




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Outstanding
      Equity Awards at Fiscal Year-End Table – 2007









Option
                AwardsName
            Number
                of Securities Underlying Unexercised
                Options(#) Exercisable
            Number
                of Securities Underlying Unexercised Options
              (#) Unexercisable
            Option
                Exercise Price($)
            Option
                Expiration DateDian
                C. Taylor
            3,750
            0
            7.613
            5/27/20086,750
            0
            8.500
            5/18/20096,750
            0
            9.275
            5/31/20106,750
            0
            9.760
            5/30/20116,750
            0
            12.400
            6/5/20126,750
            0
            13.300
            5/21/20136,750
            0
            16.134
            5/26/201411,250
            0
            19.700
            12/20/20156,750
            0
            21.113
            5/12/20166,750(1)
            19.588
            5/16/2017David
                B. Spacht
            5,425
            0
            9.333
            5/18/20096,750
            0
            10.278
            5/31/20106,750
            0
            10.845
            5/30/20116,750
            0
            12.400
            6/5/20126,750
            0
            14.849
            5/21/20136,750
            0
            16.134
            5/26/201411,250
            0
            19.700
            12/20/2015Joseph
                A. DiNunzio
            5,625
            0
            9.333
            5/18/20096,750
            0
            10.278
            5/31/201011,250
            0
            10.845
            5/30/20116,750
            0
            12.400
            6/5/20126,750
            0
            14.849
            5/21/20136,750
            0
            16.134
            5/26/201411,250
            0
            19.700
            12/20/2015Bruce
                P. Kraeuter
            3,950
            0
            7.613
            5/27/20083,750
            0
            9.333
            5/18/20096,750
            0
            10.278
            5/31/20106,750
            0
            10.845
            5/30/20116,750
            0
            12.400
            6/5/20126,750
            0
            14.849
            5/21/20136,750
            0
            16.134
            5/26/201411,250
            0
            19.700
            12/20/2015John
                M. Thaeder
            4,207
            0
            10.278
            5/31/20106,750
            0
            10.845
            5/30/20116,750
            0
            12.400
            6/5/20126,750
            0
            14.849
            5/21/20136,750
            0
            16.134
            5/26/201411,250
            0
            19.700
            12/20/2015







(1)           
      The option grant for 6,750 will vest on May 16, 2008.




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Option
      Exercises and Stock Vested Table – 2007





Option
                Awards
            
            Stock
                AwardsName
            Number
                of Shares Acquired on Exercise (#)
            Value
                Realized on Exercise ($)
            
            Number
                of Shares Acquired on Vesting (#)
            Value
                Realized on Vesting ($)Dian
                C. Taylor
            9,750
            121,308
            
            N/A
            N/ADavid
                B. Spacht
            1,741
            20,831
            
            N/A
            N/AJoseph
                A. DiNunzio
            6,750
            77,912
            
            N/A
            N/ABruce
                P. Kraeuter
            2,800
            33,441
            
            N/A
            N/AJohn
                M. Thaeder
            9,712
            100,097
            
            N/A
            N/A








Item
      12. –  SecurityOwnership of Certain Beneficial
      Owners and Management and Related Stockholder Matters.





The
      following table sets forth the beneficial ownership of the equity securities
      of
      the Company, as of February 29, 2008 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.








Class
                A Non-Voting
              Common
                Stock(1)
            
            Class
                B Common
              Stock(1)Shares
            Percent(2)
            
            Shares
            Percent(2)Dian
                C. Taylor(3)
              664
                Churchmans Road
              Newark,
                Delaware 19702
            142,940
            2.2
            
            157,722
            17.9Kenneth
                R. Biederman (3)(4)
            76,125
            1.2John
                R. Eisenbrey, Jr. (3)(5)(6)
              15
                Albe Drive
              Newark,
                Delaware 19702
            94,640
            1.5
            
            45,707
            5.2Nicholle
                R. Taylor (3)
            26,626
            
            
            6,391The
                Estate of
              Norman
                H. Taylor, Jr. (3)
              1597
                Porter Road
              Bear,
                Delaware 19701
            82,956
            1.3
            
            273,085
            31.0


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William
                C. Wyer (3)
            72,250
            1.1Joseph
                A. DiNunzio (3)
                (8)
            69,959
            1.1
            
            103Bruce
                P. Kraeuter (3)
            73,669
            1.1David
                B. Spacht (3)
            58,642
            
            
            189John
                M. Thaeder (3)
            63,536
            1.0
            
            1,350Louisa
                Taylor Welcher(9)
              219
                Laurel Avenue
              Newark,
                DE  19711
            52,052
            
            
            136,006
            15.4Directors
                and Executive Officers as a Group (10 Individuals)(3)
            724,684
            10.4
            
            211,462
            24.0








(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 29, 2008.(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 29, 2008, 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.
                D. Taylor (62,250 shares); Mr. Biederman (62,250 shares);
                Mr. Eisenbrey (48,889 shares); Ms. N. Taylor (20,625); The Estate of
                Norman Taylor (45,000 shares); Mr. Wyer (58,750 shares); Mr. DiNunzio
                (55,125 shares); Mr. Kraeuter (50,100 shares); Mr. Spacht (50,425
                shares);
                and Mr. Thaeder (42,457 shares).(4)
            16,875
                shares were pledged as collateral for Mr. Biederman’s margin
                account.(5)
            39,611
                shares were pledged by Mr. Eisenbrey, Jr. as collateral for a
                loan.(6)
            Includes
                780 shares of the Class B Stock owned by a trust, of which Mr. Eisenbrey,
                Jr. is a trustee and has a beneficial ownership interest, and 1,555
                shares
                of the Class B Stock held in custodial accounts for Mr. Eisenbrey,
                Jr.’s
                daughters.(7)
            Includes
                30 shares of the Class A Stock held in custodial accounts for Mr.
                DiNunzio’s sons.(8)
            Includes
                144 shares of the Class B Stock held jointly by Ms. Welcher’s husband and
                son, and 371 shares of the Class A Stock held by Ms. Welcher’s husband for
                which Ms. Welcher disclaims beneficial ownership.








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Item
      13. – CertainRelationships and Related Transactions, and
      Director Independence.





We
      have
      three directors who are considered independent under the NASDAQ listing
      standards:  Kenneth R. Biederman, William C. Wyer, and John R.
      Eisenbrey, Jr.





Item
      14. – PrincipalAccountant Fees and Services.





Fees
      Billed by IndependentRegistered Public Accounting Firm





The
      following table sets forth the
      aggregate fees billed to the Company for the fiscal year 2007 and 2006 by the
      independent registered public accounting firm, BDO Seidman
      LLP:





(In
                thousands)
            
            2007
            
            
            2006Audit
                Fees
            
            $
            548
            
            
            $
            370Audit-Related
                Fees
            
            
            ---
            
            
            
            ---Tax
                Fees
            
            
            ---
            
            
            
            ---All
                Other
                Fees
            
            
            ----
            
            
            
            ----Total
                Fees
            
            $
            548
            
            
            $
            370





Approximately
      60% of the total hours
      spent on audit and audit-related services for the Company for the year ended
      December 31, 2007 was spent by McBride, Shopa and Company, one of the members
      of
      the BDO Alliance network of firms.  Such members are not full time,
      permanent employees of BDO.  McBride, Shopa and Company was, however,
      directly engaged to perform the Company’s 401(k) Plan audit for the fiscal years
      ended 2007 and 2006.  The fees billed to the Company for the 401(k)
      Plan’s audit was $16,000 and $14,000 for 2007 and 2006
      respectively.





Audit
      Fees:consist primarily of
      fees for year-end audit including audit of the Company’s internal control over
      financial reportingand
      the review of the financial
      statements included in the registrant’s Form 10-Qs.





Audit-Related
      Fees: consist primarily of
      fees billed for assurance, compliance with Section 404 of the Sarbanes-Oxley
      Act
      of 2002 and related services that are reasonably related to the performance
      of
      the audit or review of the registrant’s financial
      statements.





Tax
      Fees:consist of fees for
      professional services for tax compliance, tax advice and tax
      planning.  These services include assistance regarding federal and
      state tax compliance, return preparation and tax audits.





All
      Other Fees:consist of fees for
      services other than described above.  The independent registered
      public accounting firm did not provide any other services to the Company in
      2007
      and 2006.





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 registered public accounting
      firm.  Any changes in the amounts quoted are also subject to
      pre-approval by the committee.  All of the tax fees paid in 2007 and
      2006 were pre-approved by the committee.





The
      Audit Committee of the Company’s
      Board of Directors has considered whether BDO’s provision of the services
      described above for the fiscal year ended December 31, 2007, is compatible
      with
      maintaining its independence.  In addition, the Audit Committee also
      considered services performed by McBride, Shopa and Company to determine its
      compatibility with maintaining independence.





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PART
      IV





Item
      15. – Exhibitsand Financial Statement
      Schedules.


The
                following documents are filed as part of this report:
            Page(s)*(1)
            Financial
                Statements:Reports
                of Independent Registered Public Accountants
            57Consolidated
                Balance Sheets at December 31, 2007 and 2006
            33Consolidated
                Statements of Operations for the three years ended December 31,
                2007
            34Consolidated
                Statements of Cash Flows for the three years ended December 31,
                2007
            35Consolidated
                Statements of Changes in Stockholders’ Equity for the three years ended
                December 31, 2007
            36Notes
                to Consolidated Financial Statements
            37
                – 56(2)
            Financial
                Statement Schedule:Schedule
                II: Valuation and Qualifying Accounts
            81(3)
            Exhibits:  see
                the exhibit list below
            76
                – 77*
                Page number shown refers to page number in this Report on Form
                10-K





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          Of Contents


ARTESIAN
      RESOURCES CORPORATION


FORM
      10-K
      ANNUAL REPORT


YEAR
      ENDED DECEMBER 31, 2007





EXHIBIT
                LISTExhibit
              Number
            Description3.1
            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
            Eighteenth
                Supplemental Indenture dated as of August 1, 2005, between Artesian
                Water
                Company, Inc., subsidiary of the Company, and Wilmington Trust Company,
                as
                Trustee.
              Incorporated
                by reference to Exhibit 10.1 to the Company's Quarterly Report on
                Form
                10-Q for the quarter ended June 30, 2005.4.2
            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, 2003.4.3
            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, 2003.4.4
            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, 2002.4.5
            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, 1997.4.6
            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, 1995.4.7
            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, 1992.4.8
            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
            Agreement
                of Sale between Artesian Development Corporation and The Commonwealth
                Group, dated as of August 5, 2005.  Incorporated by reference to
                Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the
                quarter ended June 30, 2005.


76
 Table
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10.2
            Artesian
                Resources Corporation 2005 Equity Compensation
                Plan.  Incorporated by reference to Exhibit 4.1 to the Company's
                Quarterly Report on Form 10-Q for the quarter ended June 30, 2005.
                **10.3
            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.**10.4
            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.**10.5
            Artesian
                Resources Corporation Incentive Stock Option Plan.  Incorporated
                by reference to Exhibit 10(e) filed with the Company's Annual Report
                on
                Form 10-K for the year ended December 31, 1995.**10.6
            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.**21
            Subsidiaries
                of the Company as of December 31, 2007.23.1
            Consent
                of BDO Seidman LLP24.1
            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.





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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
                12, 2008
            By:
                /s/ DAVID B. SPACHTDavid
                B. Spacht, Vice President, ChiefFinancial
                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.











Signature
            Title
            DatePrincipal
                Executive Officer:/s/
                DIAN C. TAYLORDian
                C. Taylor
            President
                and Chief Executive Officer
            March
                12, 2008Principal
                Financial and Accounting Officer:/s/
                DAVID B. SPACHTDavid
                B. Spacht
            Vice
                President, Chief Financial Officer and Treasurer
            March
                12, 2008Directors:/s/
                DIAN C. TAYLORDian
                C. Taylor
            Director
            March
                12, 2008/s/
                KENNETH R. BIEDERMANKenneth
                R. Biederman
            Director
            March
                12, 2008/s/
                WILLIAM C. WYERWilliam
                C. Wyer
            Director
            March
                12, 2008/s/
                JOHN R. EISENBREY, JR.John
                R. Eisenbrey, Jr.
            Director
            March
                12, 2008/s/
                NICHOLLE R. TAYLORNicholle
                R. Taylor
            Director
            March
                12, 2008





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ARTESIAN
      RESOURCES CORPORATION


FORM
      10-K
      ANNUAL REPORT


YEAR
      ENDED DECEMBER 31, 2007





INDEX
                TO EXHIBITSExhibit
              Number
            Description3.1
            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
            Eighteenth
                Supplemental Indenture dated as of August 1, 2005, between Artesian
                Water
                Company, Inc., subsidiary of the Company, and Wilmington Trust Company,
                as
                Trustee.
              Incorporated
                by reference to Exhibit 10.1 to the Company's Quarterly Report on
                Form
                10-Q for the quarter ended June 30, 2005.4.2
            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, 2003.4.3
            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, 2003.4.4
            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, 2002.4.5
            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, 1997.4.6
            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, 1995.4.7
            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, 1992.4.8
            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
            Agreement
                of Sale between Artesian Development Corporation and The Commonwealth
                Group, dated as of August 5, 2005.  Incorporated by reference to
                Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the
                quarter ended June 30, 2005.


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10.2
            Artesian
                Resources Corporation 2005 Equity Compensation
                Plan.  Incorporated by reference to Exhibit 4.1 to the Company's
                Quarterly Report on Form 10-Q for the quarter ended June 30, 2005.
                **10.3
            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.**10.4
            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.**10.5
            Artesian
                Resources Corporation Incentive Stock Option Plan.  Incorporated
                by reference to Exhibit 10(e) filed with the Company's Annual Report
                on
                Form 10-K for the year ended December 31, 1995.**10.6
            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.**21
            Subsidiaries
                of the Company as of December 31, 2007.23.1
            Consent
                of BDO Seidman LLP24.1
            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.


80


ARTESIAN
      RESOURCES CORPORATION


SCHEDULE
      II - VALUATIONAND QUALIFYING ACCOUNTS





Additions
            Balance
                at Beginning Of Period
            Charged
                to Costs and Expenses
            Charged
                to Other Accounts
            Deductions
            Balance
                at End of PeriodClassificationFor
                the Year Ended December 31, 2007
              Valuation
                allowance for deferred tax assets
            $121,000
            ---
            ---
            $33,000
            $88,000For
                the Year Ended December 31, 2006
              Valuation
                allowance for deferred tax assets
            $323,000
            ---
            ---
            $202,000
            $121,000For
                the Year Ended December 31, 2005
              Valuation
                allowance for deferred tax assets
            $482,000
            ---
            ---
            $159,000
            $323,000


81