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, 2008
 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, 2008 was $115,025,000
        and $11,300,000, 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, 2008.  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, 2008, which trade date was April 2, 2008.
 
 As
        of
        March 6, 2009, 6,531,736 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
                  SchedulesSIGNATURESExhibit
                  21-Subsidiaries of the CompanyExhibit
                  23.1-Consent of BDO Seidman
                  LLPExhibit
                  31.1-Certification of Chief Executive
                  OfficerExhibit
                  31.2-Certification of Chief Financial
                  OfficerExhibit
                  32- Certification of Chief Executive Officer and
                  Chief Financial Officer
  Table
            of Contents
  PART
        I
 
 Item
        1. Business
 
 General
        Information
 
 Our
        principal subsidiary, Artesian Water Company, Inc., is the oldest and largest
        investor-owned public water utility on the Delmarva Peninsula, and has been
        providing superior water service since 1905.  We distribute and sell
        water, including water for public and private fire protection, to residential,
        commercial, industrial, governmental, municipal and utility customers throughout
        the State of Delaware within our 263 square mile franchise area, which has
        doubled in the past 10 years.  In addition, we design and build water
        and wastewater infrastructure and provide contract water and wastewater
        services.  Our common stock is listed on NASDAQ Global Market and
        trades under the symbol "ARTNA."
 
 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,” Artesian Wastewater Maryland, Inc., or “Artesian
        Wastewater Maryland,” each a regulated public utility, and three non-regulated
        subsidiaries; Artesian Utility Development, Inc., or “Artesian Utility,”
Artesian Development Corporation, or “Artesian Development,” and Artesian
        Consulting Engineers, Inc., or “Artesian Consulting,” doing business as Meridian
        Architects and Engineers.  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.
 
 Our
        Market
 
 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 873,000 at July 1, 2008.  According to the US Census
        Bureau, Delaware's population increased an estimated 11.4% from 2000 to 2008,
        as
        compared to the nationwide growth rate of approximately
        8.0%.  Substantial portions of Delaware, particularly outside of New
        Castle County, are not served by a public water or wastewater system and
        represent potential opportunities for Artesian Water and Artesian Wastewater
        to
        obtain new exclusive franchised service areas.  We continue to focus
        resources on developing and serving existing service territories and obtaining
        new territories throughout the State.
 
 In
        addition, we have expanded the provision of our services into
        Maryland.  Cecil County, Maryland, or 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% 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 for the sale
        of water with the towns of Elkton and Chesapeake City,
        Maryland.  Construction of the transmission main to Elkton is complete
        and we anticipate supplying water to the town in the second quarter of
        2009.  Additional approvals are necessary to construct the
        transmission line to Chesapeake City.  We have also signed agreements
        with Cecil County to purchase specific water and wastewater facilities, which
        are discussed below.  The existing water and wastewater systems in the
        agreements serve approximately 3,400 customers.  Closing on the
        agreements is expected to occur on or before June 30, 2009.
 
 In
        2008,
        we added approximately 38square miles of
        franchised water service area and approximately 2 square miles of franchised
        wastewater service area.
 2
 Table
            of Contents
  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.  Artesian Water distributes and sells water to
        residential, commercial, industrial, governmental, municipal and utility
        customers throughout the State of Delaware.  As of December 31, 2008,
        we had approximately 75,800 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 2008 was approximately
        $50.1 million, which was 89.2% of total operating revenues for the consolidated
        group.  Our water customer base is diversified among residential,
        commercial, industrial, sale for re-sale and bulk sales
        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 55% of our total
        revenue, 22% is from commercial entities and the remaining 23% is from
        industrial and other customers.
 
 Artesian
        Water
        Maryland
 
 Artesian
        Water Maryland began operations in August 2007 following the acquisition
        of
        Carpenters Point Water Company.  It serves a 141 home community in
        Cecil County, near the Interstate 95 growth corridor between Philadelphia
        and
        Baltimore and has sufficient groundwater supply and elevated water storage
        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 Maryland Public Service Commission, or
        MDPSC.  In addition, we are required to provide to the MDPSC any
        plans, permits, maps and proof of ownership of easements for our
        facilities.
 
 On
        August
        1, 2008, Artesian Water Maryland completed its acquisition of all the
        outstanding membership interests of Mountain Hill Water Company, LLC, or
        Mountain Hill, from its sole member, Sunrise Holdings, L.P., or Sunrise,
        for a
        purchase price of approximately $7.1 million, of which $4.8 million was paid
        in
        cash and $2.3 million was paid through the granting of a note to Sunrise,
        payable in four equal annual installments.  The acquisition included a
        0.3 million gallon per day, or “mgd,” water treatment facility, four wells with
        a capacity of up to 500,000 gallons per day, a 500,000 gallon elevated storage
        tank and approximately eight miles of main, all situated within the core
        of
        Cecil County’s designated growth corridor.  The acquisition provides
        Artesian Water Maryland the right to serve the entire 8,000 acres owned by
        Sunrise or its associates.  Mountain Hill serves three commercial
        accounts in the Principio Business Park, located within Cecil County’s
        designated growth corridor.  Mountain Hill will also provide water
        service to future customers in the Principio Business Park and will provide
        water service to the proposed 660 home residential development of Charlestown
        Crossing as well as the surrounding area.  Expanded water service is
        expected for the 172 residents of Whitaker Woods, a development located in
        the
        Mountain Hill service area.  This expanded franchise area was approved
        by the MDPSC in the Mountain Hill acquisition.
 
 On
        October 7, 2008, Artesian Water Maryland signed an agreement, or the Water
        Asset
        Purchase Agreement, to purchase from Cecil County all of Cecil County’s rights,
        title and interest in and to the Meadowview, Pine Hills, Harbourview and
        the
        Route 7 water facilities and the associated parcels of real property, easement
        rights and water transmission and distribution systems.  Pursuant to
        the Water Asset Purchase Agreement, Artesian Water Maryland will pay to Cecil
        County a price equal to the net asset value of the purchased assets, which
        was
        approximately $2.2 million as of June 30, 2008, and assume certain liabilities
        at closing.  This sum may be paid by Artesian Water Maryland to Cecil
        County in cash at closing or, upon mutual agreement, by a note payable to
        Cecil
        County.  Closing on this transaction is expected to occur on or before
        June 30, 2009, subject to the satisfaction of customary closing conditions,
        including, among other matters, the completion of Artesian Resources’ due
        diligence and the approval of the MDPSC.  Under the Water Asset
        Purchase Agreement, either party may terminate such agreement, subject to
        certain exceptions, in the event of uncured breach by the other party, or
        if the
        closing has not occurred by December 31, 2009.
 3
 Table
            of Contents
  Artesian
        Water
        Pennsylvania
 
 Artesian
        Water Pennsylvania began operations upon receiving recognition as a regulated
        public water utility by the Pennsylvania Public Utility Commission, or PAPUC,
        in
        2002.  It provides water service to a residential community consisting
        of 38 customers in Chester County.  Artesian Water Pennsylvania filed
        an application with the PAPUC to increase our service area in Pennsylvania,
        which was approved and a related order was entered on February 4,
        2005.  This application involved specific developments, in which we
        expect modest future growth.  Home construction in these developments
        has not progressed yet pending resolution of developer related township
        approvals.
  Artesian
        Wastewater
 
 Artesian
        Wastewater owns wastewater collection and treatment infrastructure and provides
        wastewater services to customers in Delaware as a regulated public wastewater
        service company.  Artesian Wastewater currently owns and operates five
        wastewater treatment facilities, which are capable of treating approximately
        750,000 gallons per day and can be expanded to treat approximately 1.6
        mgd.  Artesian Wastewater has been granted an exclusive franchise for
        each of its existing wastewater systems by the Delaware Public Service
        Commission, or DEPSC.  In Delaware, a Certificate of Public
        Convenience and Necessity, or “CPCN”, grants a wastewater company the exclusive
        right to serve all existing and new customers within a designated
        area.  The DEPSC has the authority to regulate non-governmental
        wastewater utilities having fifty or more customers in the aggregate and
        such
        authority includes granting and revoking CPCN’s, setting rates charged for
        wastewater service, approval of the issuance of securities and other
        matters.
 
 According
        to DEPSC rules, regulations and procedures, CPCNs are not transferable, and
        a
        wastewater utility must obtain the approval of the DEPSC 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 DEPSC 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 DEPSC 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
        DEPSC on March 8, 2005, and began providing service to a planned 725 home
        residential community in Sussex County, Delaware, or Sussex County, in July
        2005.  Artesian is now providing wastewater service to eight
        communities in Sussex County.  As of December 31, 2008, Artesian
        Wastewater provided wastewater services to 632 residential
        customers.
 
 Artesian
        Resources has completed the preliminary engineering and design work on a
        regional wastewater treatment and disposal facility that will provide service
        for up to 40,000 homes in the northern Sussex County area.  This
        facility is strategically situated to provide service to the growing population
        in the Georgetown, Ellendale and Milton area, as well as to neighboring
        municipal systems.  This facility was granted conditional use approval
        by Sussex County Council to serve the Elizabethtown subdivision of approximately
        4,000 homes and 439,000 square feet of proposed commercial space, as well
        as
        seven additional projects comprising approximately 3,000 residential
        units.  The facility will also be capable of offering wastewater
        services to local municipalities.  Artesian Utility signed an
        agreement on June 30, 2008 with Northern Sussex Regional Water Recycling
        Complex, LLC, or NSRWRC, for the design, construction and operation of this
        facility.  Once constructed it will be operated by Artesian
        Wastewater.
 
 In
        July
        2008, Artesian Wastewater and the Town of Georgetown, or Georgetown, finalized
        a
        wastewater service agreement establishing a long term arrangement that will
        meet
        the future wastewater treatment and disposal needs in Georgetown’s growth and
        annexation areas.  Artesian Wastewater will provide up to 1 million
        gallons per day of wastewater capacity for the town within the next 10
        years.
 4
 Table
            of Contents
  Artesian
        Wastewater
        Maryland
 
 Artesian
        Wastewater Maryland was incorporated on June 3, 2008 to provide regulated
        wastewater services in the state of Maryland.  On October 7, 2008,
        Artesian Wastewater Maryland signed an agreement, or the Meadowview Wastewater
        Asset Purchase Agreement, to purchase from Cecil County the wastewater
        facilities known as the Meadowview Wastewater Facility and the Highlands
        Wastewater Facility and the associated parcels of real property, easement
        rights
        and wastewater collection systems with respect to each
        facility.  Pursuant to the Meadowview Wastewater Asset Purchase
        Agreement, Artesian Wastewater Maryland will pay to Cecil County a price
        equal
        to the net asset value of the purchased assets, which was approximately $7.8
        million as of June 30, 2008, and assume certain liabilities at
        closing.  The majority of the purchase price shall be paid by Artesian
        Wastewater Maryland’s assumption of the principal amount due by Cecil County
        with respect to a tax-exempt Cecil County Sanitary District Bond, Series
        2004B,
        or the Bond, as payable under the loan agreement dated October 12, 2004 by
        and
        between Maryland Water Quality Financing Administration and Cecil County,
        or the
        Bond Indebtedness.  The debt associated with the Bond was
        approximately $7.2 million.  Artesian Wastewater Maryland will pay
        down the Bond at such times and in such amounts as Cecil County is required
        to
        pay the same in accordance with the terms of the Bond.  In the event
        that the net asset value of the purchased assets as of the closing exceeds
        the
        Bond Indebtedness to be paid by Artesian Wastewater Maryland, then the positive
        difference (if any) shall be paid by Artesian Wastewater Maryland to Cecil
        County in cash at closing or, upon mutual agreement, by a note payable to
        Cecil
        County.
 
 On
        October 7, 2008, Artesian Wastewater Maryland signed an agreement, or the
        Cherry
        Hill Wastewater Asset Purchase Agreement, to purchase from Cecil County the
        wastewater facilities known as the Cherry Hill Wastewater Facility and the
        Harbourview Wastewater Facility and the associated parcels of real property,
        easement rights and wastewater collection systems with respect to each
        facility.  Pursuant to the Cherry Hill Wastewater Asset Purchase
        Agreement, Artesian Wastewater Maryland will pay to Cecil County a sum equal
        to
        the net asset value of the purchased assets, which was approximately $3.8
        million as of June 30, 2008, and assume certain liabilities at closing, and
        Cecil County shall immediately upon receipt of such payment, pay to its
        creditors an amount sufficient to pay all indebtedness of Cecil County in
        respect of the Cherry Hill and Harbourview Wastewater facilities, or the
        Indebtedness.  If the amount of the purchase price under the Cherry
        Hill Wastewater Asset Purchase Agreement shall be less than the Indebtedness,
        Cecil County shall pay out of its own funds any amount sufficient to pay
        and
        discharge in full the Indebtedness in excess of the purchase price;
        alternatively, if the purchase price exceeds the amount necessary for Cecil
        County to pay the Indebtedness, the portion of the purchase price that
        represents such excess may not be required to be paid by Artesian Wastewater
        Maryland at the closing, but may be financed through a note payable to Cecil
        County.
 
 Closings
        on the transactions above are expected to occur on or before June 30, 2009,
        subject to the satisfaction of customary closing conditions, including, among
        other matters, the completion of Artesian Resources’ due diligence and the
        approval of the MDPSC.  Under each of the Asset Purchase Agreements,
        either party may terminate such agreement, subject to certain exceptions,
        in the
        event of uncured breach by the other party, or if the closing has not occurred
        by December 31, 2009.  The existing water and wastewater systems
        subject to the Asset Purchase Agreements serve approximately 3,400
        customers.
 
 Artesian
        Utility
 
 Artesian
        Utility, one of our non-regulated subsidiaries, was formed in
        1996.  It 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 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.
 
 We
        currently operate a 2.5 million gallon per day wastewater facility for the
        town
        of Middletown, in Southern New Castle County, or Middletown, under a 20-year
        contract that expires on February 1, 2021.  Artesian Utility also
        operates an approximately 250,000 gallon per day wastewater facility in
        Middletown.  In addition, we operate an additional wastewater facility
        in Middletown in order to support the 2.5 million gallon per day wastewater
        facility described above.
 5
 Table
            of Contents
  We
        currently provide contract water and wastewater operation services to private,
        municipal and governmental institutions in the southeastern part of Pennsylvania
        as a result of our acquisition of TMH Environmental Services, Inc., or TMH,
        in
        May 2007.
 
 On
        June
        30, 2008, Artesian Utility signed an agreement with Northern Sussex Regional
        Water Recycling Complex, LLC, or NSRWRC, for the design, construction and
        operation of the Northern Sussex Regional Water Recycling Complex, a wastewater
        treatment facility to be located in Sussex County, Delaware, or the
        Facility.  NSRWRC was created for the purpose of developing the
        treatment facility site, which once constructed, will be operated by Artesian
        Wastewater.  Under the terms of the agreement, Artesian Resources acts
        as the guarantor of a $10 million construction loan.  The loan, from a
        financial institution to NSRWRC, is secured by the 75 acre parcel of land,
        upon
        which the Facility will be constructed, which was purchased by NSRWRC on
        July 1,
        2008 for approximately $5 million.  The interest rate on the
        construction loan is variable based on LIBOR Advantage Rate plus 225 basis
        points.  In the event of default by NSRWRC, Artesian Resources shall
        pay NSRWRC's obligations due to the financial institution, or, on demand
        of the
        financial institution, immediately deposit all amounts due under the
        obligation.  As of December 31, 2008, approximately $6.7 million has
        been drawn on the loan by NSRWRC, which is included in the Lines of Credit
        on
        our Consolidated Balance Sheet.  For reimbursement of NSRWRC’s cost to
        acquire the Facility Site, Artesian Utility has agreed to provide NSRWRC
        with
        ten annual $300,000 payments.  In addition to the annual payments,
        Artesian Utility will provide certain monthly payments to NSRWRC consisting
        of a
        portion of fees received from new customers once the Facility is successfully
        constructed and operating.
 
 Artesian
        Development
 
 Artesian
        Development owns an approximately six-acre parcel of land zoned for office
        buildings located immediately adjacent to our corporate headquarters and
        2
        nine-acre parcels of land located in Sussex County.
 
 On
        October 8, 2007, Artesian Development purchased approximately eighteen 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.  In
        January 2008 we received the approved Soils Investigation Report and in July
        2008 we received the approved Preliminary Groundwater Impact Assessment and
        Groundwater Mounding Analysis from the Delaware Department of Natural Resources
        and Environmental Control, or “DNREC.”  We are in the process of
        completing designs for submittal to DNREC, along with supplying additional
        information to increase the number of units approved to be served at the
        site
        from 400 units to approximately 1,600 units.  We have current requests
        for service from three local developments.  We should complete the
        permitting process by the second quarter of 2009.
 
 Artesian
        Consulting
 
 Artesian
        Consulting provides engineering services to developers for residential and
        commercial development.  Artesian Resources has routinely employed
        engineering firms to design infrastructure for water and wastewater
        systems.  On June 6, 2008, Artesian Consulting acquired all the assets
        of Meridian Architects and Engineers, or Meridian, for a purchase price of
        $130,000.  The acquisition includes the assignment of certain current
        contract agreements to provide engineering services to developers and includes
        services to be provided to Artesian Water.  Meridian’s thirteen
        employees, which include one architect, three licensed professional engineers,
        two licensed surveyors and three computer-aided design professionals, have
        been
        offered and accepted continued employment with Artesian Consulting.
 
 Meridian
        is a leading provider of engineering services in Delaware, particularly in
        Sussex County.  This acquisition provides Artesian Resources with
        enhanced design and engineering capabilities that we believe will significantly
        decrease our reliance on outside engineering firms for similar
        services.  In addition, we believe that Meridian’s ability to offer
        engineering services to design on-site water and wastewater systems for
        developers, as well as offsite wastewater collection systems in Sussex County,
        will provide additional revenues that are not weather sensitive, thus making
        the
        acquisition immediately accretive to Artesian Resources’
earnings.  During 2008, Artesian Consulting contributed $332,000 to
        our total revenue.
 6
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            of Contents
 
 Additional
        General
        Information
 
 Seasonality
 
 Substantially
        all of our water customers are metered, which allows us to measure and bill
        for
        our customers’ water consumption.  Demand for water during the warmer
        months is generally greater than during cooler months 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.
 
 Competition
 
 Our
        business in our franchised service areas are substantially free from direct
        competition with other public utilities, municipalities and other
        entities.  However, our ability to provide additional water and
        wastewater services is subject to competition from other public utilities,
        municipalities and other entities. Even though our regulated utilities have
        been
        granted an exclusive franchise for each of our existing community water and
        wastewater systems, our ability to expand service areas can be affected by
        the
        DEPSC, the MDPSC or the PAPUC, awarding franchises to other regulated water
        or
        wastewater utilities with whom we compete for such franchises.
 
 Regulation
 
 A
        Certificate of Public Convenience and Necessity, or “CPCN,” grants a water or
        wastewater company the exclusive right to serve all existing and new customers
        within a designated area.  The applicable state Public Service
        Commission has the authority to issue and revoke these CPCNs.  In this
        Form 10-K, we may refer to CPCNs as "franchises" or "service
        territories."
 
 For
        a
        water company, the applicable state Public Service Commission 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 applicable state Public Service
        Commission 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 applicable
        state
        Public Service Commission to abandon a service territory.
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  For
        a
        wastewater company, the applicable state Public Service Commission has
        jurisdiction over non-governmental wastewater utilities having fifty or more
        customers in the aggregate.  Wastewater regulations imposed by the
        DEPSC and MDPSC include, rates charged for wastewater service, issuance of
        securities and other matters.  CPCNs are not transferable, and a
        wastewater utility must obtain the approval of the DEPSC or MDPSC 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 DEPSC
        or
        MDPSC 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, along with that
        of
        Artesian Wastewater Maryland, can be affected by the DEPSC or MDPSC awarding
        franchises to other regulated wastewater utilities with whom we compete for
        such
        franchises.
 
 We
        hold
        CPCNs for approximately 263 square miles of exclusive water service territory
        and approximately 17 square miles of wastewater service territory, most of
        which
        is in Delaware and some in Maryland.  Our largest connected regional
        water system, consisting of approximately 98.6 square miles and 67,000
        customers, is located in northern Delaware.  A significant portion of
        our exclusive service territory in Delaware remains undeveloped, and if and
        when
        development occurs and there is population growth in these areas, along with
        the
        anticipated population growth in Maryland, we will increase our customer
        base by
        providing water service to the newly developed areas and new
        customers.
 
 Artesian
        Water and Artesian Wastewater, as  public utilities, are regulated by
        the DEPSC 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.
 
 Our
        water
        and wastewater utilities in Maryland are subject to regulation by the
        MDPSC.  If we are seeking new franchise areas, we must first seek
        approval from the county government and this franchise area must be included
        in
        that county’s master water and sewer plan.  The authority to exercise
        these franchise areas must then be obtained from the MDPSC.  In
        Maryland, if utilities want to construct a new plant, approvals must be obtained
        from the Maryland Department of the Environment, the county government and
        the
        MDPSC.  Also, soil and erosion plans must be approved and easement
        agreements with affected parties must be obtained.  The MDPSC also
        approves rates and charges for service, acquisitions, mergers, issuance of
        securities and other matters.
 
 We
        currently derive our water service revenues from water distribution, upon
        which
        base rates are applied.  In May 2006, Artesian Water filed a petition
        with the DEPSC 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 were approved by the DEPSC.
 
 On
        December 19, 2006, the DEPSC 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.
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  On
        April
        22, 2008, Artesian Water filed a petition with the DEPSC to implement new
        rates
        to meet a requested increase in revenue of 28.8%, or approximately $14.2
        million, on an annualized basis. On July, 11, 2008, pursuant to the DEPSC’s
        minimum filing requirements, Artesian filed a supplemental filing with the
        DEPSC
        to update financial schedules for actual experience through March 31, 2008
        and
        to reflect additional changes affecting the requested increase.  The
        overall result was a reduction to the requested increase in revenue of 1.5%,
        to
        27.3% or approximately $13.5 million, on an annualized basis.
 
 As
        permitted by law, on June 21, 2008, we placed temporary rates into effect,
        designed to generate an increase in annual operating revenue of approximately
        5.0%, or $2.5 million on an annualized basis, until new rates are approved
        by
        the DEPSC.  Also pursuant to law, on December 17, 2008, we placed
        temporary rates into effect, designed to generate an additional increase
        in
        annual operating revenue of approximately 10% or $5.0 million on an annualized
        basis, given that the rate case had not been concluded in a seven month
        period.  Evidentiary hearings were held on December 8-9, 2008 and a
        final Commission decision is anticipated in the third quarter of 2009 in
        reference to the implementation of our requested rate increase.
 
 In
        December 2008, the MDPSC approved an application for Artesian Water Maryland
        to
        construct a water system from the Delaware state line, interconnecting with
        the
        Artesian Water system, to the Town of Elkton, as the Town of Elkton desired
        an
        additional source of water supply.
 
 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 customers
        of the Delaware Electric Cooperative, 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 Holdings, Inc. in
        April
        of 2008.  This new pricing is included in our most recent request for
        rate relief filed with the DEPSC.
 
 On
        March
        20, 2007, the DEPSC 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.  The DEPSC has indicated that in the March 2009 proceedings they
        intend to recommend that a utility provide water service to a new proposed
        service territory within five years.  These proposed rules have not
        been adopted and they may not be adopted or could be modified prior to
        adoption.  As of December 31, 2008, no final decision had been made by
        the DEPSC.
 
 Environment
 
 Our
        water
        and wastewater operations are subject to federal, state, and local requirements
        relating to environmental protection.  The United States Environmental
        Protection Agency, or the EPA, the Delaware Department of Natural Resources
        and
        Environmental Control, or DNREC, and the Delaware Division of Public Health
        or
        the DPH, regulate the water quality of our treatment and distribution systems
        in
        Delaware, as do the EPA and the Maryland Department of the Environment, or
        MDE,
        with respect to our operations in Maryland.  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.  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.
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 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, arsenic removal, nitrate removal
        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.
 
 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, Delaware system.  The purchased surface water is
        blended with our groundwater supply for distribution to our
        customers.  Nearly 85% of the overall 7.5 billion gallons of water we
        distributed in all of our Delaware systems during 2008came from our
        groundwater wells, while the remaining 15% came from interconnections with
        other
        utilities and municipalities.  During 2008, our average rate of water
        pumped was approximately 17.9 million gallons per day, or mgd, from our
        groundwater wells and approximately 3.0 mgd was supplied from
        interconnections.  Our peak water supply capacity currently is
        approximately 59.0 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
        Delaware state laws and regulations, we are required to file applications
        with
        DNREC, for water allocation permits for each of our operating wells pumping
        greater than 50,000 gallons per day.  We have 119 operating and 56
        observation and monitoring wells in our systems.  At December 31,
        2008, we had allocation permits for 82 wells, permit applications pending
        for 13
        wells, and 24 wells that do not require a permit.  Our access to
        aquifers within our service territory is not exclusive.  Water
        allocation permits control the amount of water that can be drawn from water
        resources and are granted with specific restrictions on water level draw
        down
        limits, annual, monthly and daily pumpage limits, and well field allocation
        pumpage limits.  We are also subject to water allocation regulations
        that control the amount of water that we can draw from water
        sources.  As a result, if new or more restrictive water allocation
        regulations are imposed,
        they could have an adverse effect on our ability to supply the demands of
        our
        customers, and in turn, our water supply revenues and results of
        operations.  Our ability to supply the demands of our customers
        historically has not been affected by private usage of the aquifers by
        landowners or the limits imposed by the state of Delaware.  Because of
        the extensive regulatory requirements relating to the withdrawal of any
        significant amounts of water from the aquifers, we believe that third party
        usage of the aquifers within our service territory will not interfere with
        our
        ability to meet the present and future demands of our customers.  In
        2003, Delaware passed legislation requiring all water utilities to certify
        by
        July 2006, and each three years thereafter, that they had sufficient sources
        of
        self-supply to serve their respective systems.  We filed our
        certification of self-sufficiency of supply with the DEPSC on March 8,
        2005.  The review was completed on June 20, 2006, and the DEPSC
        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 DEPSC a new certification of self-sufficiency
        for
        the period through 2009.  On July 24, 2007, after completion of their
        review the DEPSC accepted our certification of sufficient water supply through
        2009.  As required, we will file a new certification of
        self-sufficiency with the DEPSC by June 30, 2009, for the period through
        2012.
 
 As
        required by the Safe Drinking Water Act, the EPA has established maximum
        contaminant levels for various substances found in drinking water to ensure
        that
        the water is safe for human consumption.  These limits are known as
        Maximum Contaminant Levels and Maximum Residual Disinfection
        Levels.  The EPA also regulates how often public water systems monitor
        their water for contaminants and report the monitoring results to the individual
        state agencies or the EPA.  Generally, the larger the population
        served by a water system, the more frequent the monitoring and reporting
        requirements.  The Safe Water Drinking Act applies to all 50
        states.
 
 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.
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  The
        MDE
        ensures that water quality and quantity at all public water systems in Maryland
        meet the needs of the public and are in compliance with federal and state
        regulations.  The MDE also ensures that public drinking water systems
        provide safe and adequate water to all current and future users in Maryland,
        and
        that appropriate usage, planning, and conservation policies are implemented
        for
        Maryland’s water resources.  The MDE oversees the development of
        Source Water Assessments for water supplies, and issues water appropriation
        permits for public drinking water systems.  In order to appropriate
        water for municipal, commercial, industrial or other non-domestic uses, a
        Water
        Appropriation Permit must be obtained.  Issuance of the permit
        involves evaluating the needs of the user and the potential impact of the
        withdrawal on neighboring users and the water source in order to maximize
        beneficial use of the water of the State of Maryland.  Permits for
        large appropriations often involve conducting pump tests to measure adequacy
        of
        an aquifer and safe yield of a well, or reviewing stream flow records to
        determine the adequacy of a surface water source.  Regulations were
        finalized in 1999 that require all new community water systems to have
        sufficient technical, managerial and financial capacity to provide safe drinking
        water to their consumers prior to being issued a Construction
        Permit.  Also, in 2007, capacity management guidance was
        finalized.  Capacity limiting factors can include, source capacity,
        treatment capacity and appropriation permit quantity.  As of December
        31, 2008, we have 5 wells that pump groundwater to 2 separate water treatment
        facilities located in Cecil County, Maryland.
 
 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 aesthetically
        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.
 
 The
        Clean
        Water Act has established the foundation for wastewater discharge control
        in the
        United States.  The Clean Water Act established a control program for
        ensuring that communities have clean water by regulating the release of
        contaminants into waterways.  Permits that limit the amounts of
        pollutants discharged are required of all wastewater dischargers under the
        National Pollutant Discharge Elimination System permit program.  The
        Clean Water Act also requires that wastewater treatment plant discharges
        meet a
        minimum of secondary treatment.  The secondary treatment process can
        remove up to 90% of the organic matter in wastewater.  Over 30% of the
        nation’s wastewater treatment facilities produce cleaner discharges by providing
        even greater levels of treatment.  We operate environmentally friendly
        wastewater systems that meet or exceed all requirements of federal, state
        and
        local standards.
 
 Interconnections
        and
        Storage
 
 Most
        of
        our New Castle County, Delaware water system is interconnected.  In
        the remainder of the State of Delaware, we have several satellite systems
        that
        have not yet been connected by transmission and distribution
        facilities.  We intend to join these systems into larger integrated
        regional systems through the construction of a transmission and distribution
        network as development continues and our expansion efforts provide us with
        contiguous exclusive service territories.
 
 We
        have
        19 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, 2008, 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.  All of the interconnections provide Artesian Water the
        ability to sell water to neighboring water utilities or
        municipalities.
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  As
        of
        December 31, 2008, we were serving customers through approximately
        1,112 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 5,226 hydrants installed throughout our service
        territories.
 
 We
        have
        29 storage tanks, most of which are elevated, providing total system storage
        of
        42 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 mgd.  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.  In Cecil
        County  we have 2 elevated storage tanks capable of storing
        approximately 0.6 million gallons.
 
 Employees
 
 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, 2008, we employed 238 full-time and 7 part-time
        employees.  Of these employees, 14 were officers and managers; 143
        were employed as operations personnel, including engineers, technicians,
        draftsman, maintenance and repair persons, meter readers and utility personnel;
        and 64 were employed in the accounting, budgeting, information systems, human
        resources, customer relations, public relations and conservation
        departments.  The remaining 11 employees were administrative
        personnel.  In addition, we hired 13 employees that accepted continued
        employment with the Company after the Meridian Architects and Engineers
        acquisition in June 2008, which includes one architect, three licensed
        professional engineers, two licensed surveyors and three computer-aided design
        professionals.  We believe that our employee relations are
        good.
 
 Available
        Information
 
 We
        are a
        Delaware corporation with our principal executive offices located at 664
        Churchmans Road, Newark, Delaware, 19702.  Our telephone number is
        (302) 453-6900 and our website address is www.artesianwater.com.  We
        make available free of charge through 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.
 
 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 1-800-SEC-0330.  The SEC maintains an Internet site,
        www.sec.gov, that contains reports, proxy and information statements, and
        other
        information regarding issuers that file electronically with the
        SEC.
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  Item
        1A. Risk Factors
 
 We
        are
        exposed to a variety of risks and uncertainties.  Most are general
        risks and uncertainties applicable to all water utility
        companies.  Our financial position and results of operations may be
        affected by factors that are either not currently known to us or which we
        currently consider immaterial to our business.  We describe below some
        of the specific known risk factors that could negatively affect our business,
        financial condition or results of operations.  If one or more of these
        or other risks or uncertainties materialize, actual results may vary materially
        from our projections.  All forward-looking statements made by us in
        this Annual Report to the Securities and Exchange Commission on Form 10-K,
        in
        our Annual Report to Shareholders and in our subsequently filed quarterly
        and
        current reports to the Securities and Exchange Commission, as well as in
        our
        press releases and other public communications, are qualified by the risks
        described below.
 
 Our
        operating revenue is
        primarily from water sales.  The rates that we charge our customers
        are subject to the regulations of the Public Service Commissions in the states
        in which we operate.  Additionally, our business requires significant
        capital expenditures on an annual basis and these expenditures are made for
        additions and replacement of property.  If a Public Service Commission
        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
        Public Service Commission, the ensuing administrative and hearing process
        may be
        lengthy and costly.  We can provide no assurances that any future rate
        increase request will be approved by the DEPSC, MDPSC or PAPUC, and if approved,
        we cannot guarantee that these rate increases will be granted in a timely
        manner
        and/or will be sufficient in amount to cover the investments 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 the
        event that 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 and
        government imposed water use restrictions may impact our ability to serve
        our
        current and future customers, and may impact our customers’ use of our water,
        which may adversely affect our financial condition and results of
        operations.
 
 We
        believe that we have in place sufficient capacity to provide water service
        for
        the foreseeable future to all existing and new customers in all of our service
        territories.  However, severe drought conditions could interfere with
        our sources of water supply and could adversely affect our ability to supply
        water in sufficient quantities to our existing and future
        customers.  This may adversely affect our revenues and
        earnings.  Moreover, governmental restrictions on water usage during
        drought conditions may result in a decreased demand for water, which may
        adversely affect our revenue and earnings.
 
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  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.
 
 We
        face competition from
        other water and wastewater utilities for the acquisition of new exclusive
        service territories.
 
 Water
        and
        wastewater utilities competitively pursue the right to exclusively serve
        territories in Delaware and Maryland by entering into agreements with
        landowners, developers or municipalities and, under current law, then applying
        to the DEPSC or the MDPSC for a CPCN, which grants a water or wastewater
        utility
        the exclusive right to serve all existing and new customers of a water or
        wastewater utility within a designated area.  Typically, water and
        wastewater 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 or wastewater
        utility, generally it may not be suspended or terminated unless the DEPSC
        or
        MDPSC 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 and wastewater 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 or Maryland, our ability
        to expand may be significantly impeded.
 
 We
        depend on the
        availability of capital for expansion, construction and
        maintenance.  Weaknesses in capital and credit markets may limit our
        access to capital.
 
 Our
        ability to continue our expansion efforts and fund our utility construction
        and
        maintenance program depends on the availability of adequate
        capital.  There is no guarantee that we will be able to obtain
        sufficient capital in the future on favorable terms and conditions for
        expansion, construction and maintenance.  Current economic conditions
        and disruptions have caused substantial volatility in capital markets, including
        credit markets and the banking industry and have increased the cost and
        significantly reduced the availability of credit from financing sources,
        which
        may continue or worsen in the future.  In the event our lines of
        credit are not renewed or we are unable to refinance our first mortgage bonds
        when due and the borrowings are called for payment, we will have to seek
        alternative financing sources, although there can be no assurance that these
        alternative financing sources will be available on terms acceptable to
        us.  In the event we are unable to obtain sufficient capital, our
        expansion efforts could be curtailed, which may affect our growth and may
        affect
        our future results of operations.
 
 14
 Table
            of Contents
  General
        economic conditions
        may materially and adversely affect our financial condition and results of
        operations.
 
 A
        general
        economic downturn such as the one the U.S. economy is currently experiencing
        may
        lead to a number of impacts on our business that may materially and adversely
        affect our financial condition and results of operations.  Such
        impacts may include a reduction in discretionary and recreational water use
        by
        our residential water customers, particularly during the summer months; a
        decline in usage by industrial and commercial customers as a result of decreased
        business activity and commerce in our customers’ businesses; an increased
        incidence of customers’ inability, bankruptcy or delay in paying their bills
        which may lead to higher bad debt expense and reduced cash flow; and a lower
        natural customer growth rate may result as compared to what had been experienced
        before the economic downturn due to a decline in new housing starts, and
        a
        possible slight decline in the number of active customers due to housing
        vacancies or abandonments.
 
 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.
 
 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.
 15
 Table
            of Contents
 
 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 owns approximately 6 acres of land in New Castle County, Delaware
        zoned for office development and approximately 18 acres of land in Sussex
        County, Delaware for an office facility, water and wastewater treatment
        facilities and elevated water storage.  On June 30, 2008, Artesian
        Utility signed an agreement with NSRWRC, under the terms of the agreement,
        Artesian Resources acts as the guarantor of a $10 million construction
        loan.  The loan, from a financial institution to NSRWRC, is secured by
        a 75 acre parcel of land purchased by NSRWRC on July 1, 2008 for approximately
        $5 million.
 
 Artesian
        Water owns land, transmission and distribution mains, pump facilities, treatment
        plants, storage tanks, meters, vehicles, land, easements and related equipment
        and 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, 2008.
 
 Utility
                  plant
                  comprises:$
                  In thousandsEstimated
                  Useful Life(In
                  Years)
              
              
              2008Utility
                  plant at original costUtility
                  plant in service-WaterIntangible
                  plant
              
              
              ---
              
              
              $
              140Source
                  of supply plant
              
              
              45-85
              
              
              
              15,785Pumping
                  and water treatment plant
              
              
              35-62
              
              
              
              53,205Transmission
                  and distribution plantMains
              
              
              81
              
              
              
              169,311Services
              
              
              39
              
              
              
              28,016Storage
                  tanks
              
              
              76
              
              
              
              22,214Meters
              
              
              26
              
              
              
              12,508Hydrants
              
              
              60
              
              
              
              9,018General
                  plant
              
              
              3-31
              
              
              
              41,627Utility
                  plant in service-WastewaterTreatment
                  and Disposal Plant
              
              
              35-62
              
              
              
              11,308Collection
                  Mains and Lift Stations
              
              
              81
              
              
              
              4,059General
                  plant
              
              
              3-31
              
              
              
              602Property
                  held for future use
              
              
              ---
              
              
              
              1,976Construction
                  work in progress
              
              
              ---
              
              
              
              7,082376,851Less
                  – accumulated depreciation
              
              
              
              
              
              
              58,608$
              318,243
 
 In
        aggregate, we own land, rights-of-way and easements totaling approximately
        722
        acres.  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.  As of December 31, 2008, no other utility
        plant has been pledged as security for loans.
 
 16
 Table
            of Contents
  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.
  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 2008.
 
 17
 Table
            of Contents
  PART
        II
 
 Item
        5. - Marketfor Registrant’s Common Equity, Related
        Stockholder Matters and Issuer Purchases of Equity Securities.
 
 Market
        Information for the
        Company’s Common Equity
 Artesian
        Resources' Class A Non-Voting Common Stock, or “Class A Stock,” is listed on
        NASDAQ Global Market and trades under the symbol "ARTNA."  On March 2,
        2009, the last closing sale price as reported by the NASDAQ Global Market
        was
        $13.95 per share.  On March 2, 2009, there were 829 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 Share2007First
                  Quarter
              
              $
              20.60
              
              
              $
              18.71
              
              
              $
              0.16Second
                  Quarter
              
              
              20.59
              
              
              
              18.71
              
              
              
              0.17Third
                  Quarter
              
              
              19.50
              
              
              
              18.41
              
              
              
              0.17Fourth
                  Quarter
              
              
              19.49
              
              
              
              18.68
              
              
              
              0.172008First
                  Quarter
              
              $
              19.24
              
              
              $
              18.05
              
              
              $
              0.17Second
                  Quarter
              
              
              19.00
              
              
              
              18.00
              
              
              
              0.18Third
                  Quarter
              
              
              18.50
              
              
              
              16.61
              
              
              
              0.18Fourth
                  Quarter
              
              
              16.84
              
              
              
              13.95
              
              
              
              0.18
 
 
 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 2, 2009, the last reported
        trade of the Class B Stock on the OTC Bulletin Board was at a price of $18.75
        per share on February 13, 2009.  As of March 2, 2009, 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,
        2008, we did not issue any unregistered shares of our Class A or Class B
        stock.
 
 18
 Table
            of Contents
 
 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, 2008
        under the Company’s shareholder approved stock plans.
 
 Equity
                  Compensation Plan InformationPlan
                  category
              
              Number
                  of securities to be issued upon exercise of outstanding options
                  (a)
              
              
              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))Equity
                  compensation plans approved by security holders
              
              
              530,921
              
              
              $
              15.16
              
              
              
              534,000Equity
                  compensation plans not approved by security holders
              
              
              -----
              
              
              
              
              
              
              
              -----Total
              
              
              530,921
              
              
              
              
              
              
              
              534,000
  19
 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 2003
        (assuming a $100 investment on December 31, 2003, and the reinvestment of
        any
        dividends):
  
  INDEXED
                    RETURNSBase
                    Period
                Years
                    Ending December 31Company
                    Name / Index
                2003
                2004
                2005
                2006
                2007
                2008Artesian
                    Resources Corporation
                100
                103.96
                112.67
                115.81
                115.21
                100.81S&P
                    500 Index
                100
                110.88
                116.33
                134.70
                142.10
                89.53Peer
                    Group
                100
                115.46
                151.57
                151.76
                146.03
                140.96
 
 The
          Peer
          Group includes American States Water Company, Aqua America, Inc., BIW LTD
          (included through January 16, 2008. Acquired by S.C. Connecticut Regional
          Water
          Authority on January, 17, 2008) California Water Service Group, Connecticut
          Water Service, Inc., Middlesex Water Company, Pennichuck Corporation, SJW
          Corporation, Southwest Water Company, and York Water Company.
 20
 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, 2008 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
                
                2008
                
                
                2007
                
                
                2006
                
                
                2005
                
                
                2004STATEMENT
                    OF OPERATIONS DATAOperating
                    revenuesWater
                    sales
                
                $
                50,101
                
                
                $
                48,461
                
                
                $
                44,272
                
                
                $
                41,638
                
                
                $
                37,985Other
                    utility operating revenue
                
                
                2,019
                
                
                
                1,699
                
                
                
                1,268
                
                
                
                1,073
                
                
                
                867Non-utility
                    operating revenue
                
                
                4,065
                
                
                
                2,364
                
                
                
                1,725
                
                
                
                2,574
                
                
                
                730Sale
                    of land
                
                
                ---
                
                
                
                ---
                
                
                
                1,322
                
                
                
                ---
                
                
                
                ---Total
                    operating revenues
                
                $
                56,185
                
                
                $
                52,524
                
                
                $
                48,587
                
                
                $
                45,285
                
                
                $
                39,582Operating
                    expensesOperating
                    and maintenance
                
                $
                30,871
                
                
                $
                28,594
                
                
                $
                25,733
                
                
                $
                24,543
                
                
                $
                20,700Depreciation
                    and amortization
                
                
                5,782
                
                
                
                5,162
                
                
                
                4,610
                
                
                
                4,365
                
                
                
                4,046State
                    and federal income taxes
                
                
                4,427
                
                
                
                4,134
                
                
                
                3,887
                
                
                
                3,347
                
                
                
                2,892Property
                    and other taxes
                
                
                3,199
                
                
                
                2,868
                
                
                
                2,562
                
                
                
                2,389
                
                
                
                2,070Total
                    operating expenses
                
                $
                44,279
                
                
                $
                40,758
                
                
                $
                36,792
                
                
                $
                34,644
                
                
                $
                29,708Operating
                    income
                
                $
                11,906
                
                
                $
                11,766
                
                
                $
                11,795
                
                
                $
                10,641
                
                
                $
                9,874Other
                    income, net
                
                
                1,125
                
                
                
                802
                
                
                
                613
                
                
                
                515
                
                
                
                471Total
                    income before interest charges
                
                $
                13,031
                
                
                $
                12,568
                
                
                $
                12,408
                
                
                $
                11,156
                
                
                $
                10,345Interest
                    charges
                
                $
                6,613
                
                
                $
                6,305
                
                
                $
                6,337
                
                
                $
                6,121
                
                
                $
                5,943Net
                    income
                
                $
                6,418
                
                
                $
                6,263
                
                
                $
                6,071
                
                
                $
                5,035
                
                
                $
                4,402Dividends
                    on preferred stock
                
                
                0
                
                
                
                0
                
                
                
                0
                
                
                
                0
                
                
                
                2Net
                    income applicable to common stock
                
                $
                6,418
                
                
                $
                6,263
                
                
                $
                6,071
                
                
                $
                5,035
                
                
                $
                4,400Net
                    income per share of common stock:Basic
                
                $
                0.87
                
                
                $
                0.92
                
                
                $
                1.00
                
                
                $
                0.84
                
                
                $
                0.75Diluted
                
                $
                0.86
                
                
                $
                0.90
                
                
                $
                0.97
                
                
                $
                0.81
                
                
                $
                0.72Avg.
                    shares of common stock outstandingBasic
                
                
                7,353
                
                
                
                6,787
                
                
                
                6,055
                
                
                
                5,984
                
                
                
                5,904Diluted
                
                
                7,427
                
                
                
                6,936
                
                
                
                6,235
                
                
                
                6,182
                
                
                
                6,099Cash
                    dividends per share of common stock
                
                $
                0.71
                
                
                $
                0.66
                
                
                $
                0.61
                
                
                $
                0.58
                
                
                $
                0.55BALANCE
                    SHEET DATAUtility
                    plant, at original costless
                    accumulated depreciation
                
                $
                318,243
                
                
                $
                272,396
                
                
                $
                253,182
                
                
                $
                227,566
                
                
                $
                212,152Total
                    assets
                
                $
                348,706
                
                
                $
                294,589
                
                
                $
                269,360
                
                
                $
                243,854
                
                
                $
                227,380Lines
                    of credit
                
                $
                20,286
                
                
                $
                898
                
                
                $
                7,906
                
                
                $
                1,786
                
                
                $
                9,213Long-term
                    obligations andredeemable
                    preferred stock,including
                    current portions
                
                $
                109,071
                
                
                $
                92,073
                
                
                $
                92,383
                
                
                $
                92,680
                
                
                $
                83,438Stockholders’
                    equity
                
                $
                87,794
                
                
                $
                85,132
                
                
                $
                61,800
                
                
                $
                57,813
                
                
                $
                54,943Total
                    capitalization
                
                $
                195,349
                
                
                $
                176,889
                
                
                $
                153,873
                
                
                $
                150,192
                
                
                $
                137,299
  21
 Table
              of Contents
  OPERATING
                    DATAAverage
                    water sales per customer
                
                $
                661
                
                
                $
                645
                
                
                $
                600
                
                
                $
                575
                
                
                $
                535Water
                    pumped (millions of gallons)
                
                
                7,526
                
                
                
                7,755
                
                
                
                7,608
                
                
                
                7,468
                
                
                
                7,166Number
                    of metered customers
                
                
                75,800
                
                
                
                75,149
                
                
                
                73,814
                
                
                
                72,383
                
                
                
                70,993Miles
                    of water main
                
                
                1,112
                
                
                
                1,086
                
                
                
                1,051
                
                
                
                1,001
                
                
                
                977
  22
 Table
              of Contents
  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.  Gross water sales comprises 89.2% 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 2008 and 2007 by rate increases approved
          by the
          DEPSC.
 
 Artesian
          Water, Artesian Water Maryland and Artesian Water Pennsylvania provide
          water
          service to residential, commercial, industrial, governmental, municipal
          and
          utility customers.  Our largest operating subsidiary, Artesian Water,
          accounted for approximately 92% of our total operating revenues in 2008
          and
          serves approximately 29% of Delaware’s total population.  In October
          2008, Artesian Water Maryland signed an agreement with Cecil County to
          purchase
          four water facilities, with closing expected to occur by June 30,
          2009.  In December 2008, the MDPSC approved an application for
          Artesian Water Maryland to construct a water system from the Delaware state
          line, interconnecting with the Artesian Water system, to the Town of
          Elkton.  The Town of Elkton desired an additional source of water
          supply.
 
 Artesian
          Wastewater, owns wastewater infrastructure and began providing wastewater
          services in Delaware in July 2005.  Artesian Wastewater Maryland was
          incorporated on June 3, 2008 to provide regulated wastewater services in
          the
          state of Maryland.  In October 2008, Artesian Wastewater Maryland
          signed two asset purchase agreements with Cecil County to purchase four
          wastewater facilities in Maryland.  Closings on these transactions are
          expected to occur on or before June 30, 2009.  Our wastewater
          customers are billed a flat monthly fee, which contributes to providing
          a
          revenue stream unaffected by weather.
 
 Artesian
          Utility provides contract water and wastewater operation services to 23
          private,
          municipal and governmental institutions in the southeastern part of
          Pennsylvania.  Artesian Utility currently operates a 2.5 million
          gallon per day wastewater facility for Middletown under a 20-year contract
          that
          expires on February 1, 2021.  Artesian Utility also operates an
          approximately 250,000 gallon per day wastewater facility in
          Middletown.  In addition, we operate an additional wastewater facility
          in Middletown in order to support the 2.5 million gallon per day wastewater
          facility described above.
 
 On
          June
          30, 2008, Artesian Utility signed an agreement with Northern Sussex Regional
          Water Recycling Complex, LLC, or NSRWRC, for the design, construction and
          operation of the Northern Sussex Regional Water Recycling Complex, a wastewater
          treatment facility to be located in Sussex County, Delaware.  NSRWRC
          was created for the purpose of developing the treatment facility site,
          which
          once constructed, will be operated by Artesian Wastewater.
 
 Artesian
          Development owns an approximately six-acre parcel of land zoned for office
          buildings located immediately adjacent to our corporate
          headquarters.  In 2007, Artesian Development purchased approximately
          eighteen acres of land, in Sussex County, to construct an office facility,
          a
          water treatment plant and a wastewater facility.
 
 Artesian
          Consulting provides engineering services to developers for residential
          and
          commercial development.  The acquisition of Meridian in June 2008
          included the assignment of certain current contract agreements to provide
          engineering services to developers and includes services to be provided
          to
          Artesian Water.
 
 23
 Table
              of Contents
  In
          addition to services discussed above, Artesian Resources initiated a Water
          Service Line Protection Plan, or WSLP Plan, in March 2005.  The WSLP
          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, 2008, approximately 13,100, or 20.5%, of our 64,000 eligible
          water customers had signed up for the WSLP Plan.  The WSLP Plan was
          expanded in the second quarter of 2008 to include maintenance or repair
          to
          customers’ sewer lines.  This plan, Sewer Service Line Protection
          Plan, or SSLP Plan, covers all parts, material and labor required to repair
          or
          replace participants’ leaking or clogged sewer lines up to an annual
          limit.  As of December 31, 2008, approximately 4,800, or 10.5%, of our
          46,000 eligible customers had signed up for the SSLP 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.  As a result of the general economic downturn, we my not
          be able to increase our contract operations and wastewater services at
          the rate
          we had previously expected.  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, and
          each
          three years thereafter, 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 DEPSC.  The
          review was completed on June 20, 2006, and the DEPSC 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 DEPSC a new certification of self-sufficiency
          for
          the period through 2009.  After completion of their review, on July
          24, 2007, the DEPSC accepted our certification of sufficient water supply
          through 2009.  As required, we will file a new certification of
          self-sufficiency with the DEPSC by June 30, 2009, for the period through
          2012.
  Water
          Industry
 
 The
          Federal Environmental Protection Agency’s September 2008 report states that the
          United States’ water industry is comprised of approximately 52,000 community
          water systems, 78% of which serve less than 3,300 customers.  There
          are currently 13 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 11.4% from 2000 to
          2008, as
          compared to the nationwide growth rate of approximately 8.0%.  General
          economic conditions, particularly in the housing market, resulted in a
          much
          lower rate of new customer additions than experienced in many
          years.
 
 Interest
          rates for mortgages have fallen from 6.69% on average in December 2001
          to 5.51%
          through December 2008.  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 6.05% at the end of 2008.
 
 24
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  Wastewater
          Industry
 
 The
          Federal Environmental Protection Agency’s September 2004 report states that over
          75% of the United States’ population is served by centralized wastewater
          collection and treatment systems, the remaining 25% of the population uses
          decentralized wastewater treatment systems, or on-site
          systems.  Approximately 16,000 municipal wastewater treatment
          facilities are in operation in the United States.  Approximately
          701,000 people are served by publicly owned wastewater treatment facilities
          in
          Delaware, with an estimated growth to approximately
          846,000.  Approximately 41,000 people are served by publicly owned
          wastewater treatment facilities in Cecil County, Maryland, with an estimated
          growth to approximately 52,000.
 
 The
          Clean
          Water Act has established the foundation for wastewater discharge control
          in the
          United States.  The Clean Water Act established a control program for
          ensuring that communities have clean water by regulating the release of
          contaminants into waterways.  Permits that limit the amounts of
          pollutants discharged are required of all wastewater dischargers under
          the
          National Pollutant Discharge Elimination System permit program.  The
          Clean Water Act also requires that wastewater treatment plant discharges
          meet a
          minimum of secondary treatment.  The secondary treatment process can
          remove up to 90% of the organic matter in wastewater.  Over 30% of the
          wastewater treatment facilities produce cleaner discharges by providing
          even
          greater levels of treatment.  We operate environmentally friendly
          wastewater systems that meet or exceed all requirements of federal, state
          and
          local standards.
 
 The
          Federal Environmental Protection Agency’s September 2004 Clean Watersheds Needs
          Survey report estimates that nationwide capital investment needs for wastewater
          pollution control in the United States is $134.4 billion for wastewater
          treatment and collection systems.  The increase in overall national
          needs is due to a combination of population growth, more protective water
          quality standards, and aging infrastructure.  Our capital plan for the
          next five years includes projects for wastewater treatment plant improvements,
          additions and acquisitions in both Delaware and Maryland.  Capital
          improvements are planned and budgeted to meet anticipated changes in regulations
          and needs for increased capacity related to projected growth.  The
          DEPSC and MDPSC have generally recognized the operating and capital costs
          associated with these improvements in setting wastewater rates for current
          customers and capacity charges for new customers.
 
 Strategic
          Direction
 
 Our
          strategy is to significantly increase customer growth, revenues, earnings
          and
          dividends by expanding our water and wastewater services across the Delmarva
          Peninsula.  We remain focused on providing superior service to our
          customers and continuously seeking ways to improve our efficiency and
          performance.  By providing both water and wastewater services, we are
          positioned as the primary resource for developers and communities throughout
          the
          Delmarva Peninsula seeking to fill both needs simultaneously.  We have a proven ability
          to acquire and
          integrate high growth, established utilities, through which we have captured
          additional service territories that will serve as a base for future
          revenue.  We have completed four acquisitions during the past two
          years, to include our integration of their operations, infrastructure,
          technology and employees.  We believe this experience presents a
          strong platform for further expansion and that our success to date also
          produces
          positive relationships and credibility with regulators, municipalities,
          developers and customers in both existing and prospective service
          areas.
 
 In
          our
          regulated water division, our strategy is to focus on a wide spectrum of
          activities, which include identifying new and dependable sources of supply;
          developing the wells, treatment plants and delivery systems to get water
          to
          customers and educating customers on the wise use of water.  Our
          strategy includes focusing our efforts to expand in new regions added to
          our
          Delaware service territory over the last 10 years, where growth is strong
          and
          demand is increasing.  In addition, we believe growth will be
          developed in the Maryland counties on the Delmarva Peninsula.  We plan
          to expand our regulated water service area in the Cecil County designated
          growth
          corridor and to expand our business through the design, construction, operation
          and management, as well as acquisition, of additional water
          systems.  The expansion of our exclusive franchise areas elsewhere in
          Maryland and the award of additional contracts will similarly enhance our
          operations within the state.
 
 25
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  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,
          have provided for nearly all of our customer growth in Artesian Water,
          providing
          approximately 99% of our growth in customers in 2008.  We expect
          continued growth in these regions.  This shift in growth is primarily
          the result of the build out of our service area in northern New Castle
          County.  In 2008, we increased our customer base by 1.0% and increased
          our service territory by approximately 18.2 square miles.  We have
          also 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%
          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.  Artesian Water Maryland signed an
          agreement in October 2008 with Cecil County for the purchase of specific
          water
          facilities, which is expected to close by June 30, 2009.  Once
          completed, this will add four water facilities to our service
          area.  We continue to increase our sources of supply to assure we have
          adequate high quality water supply to meet our customer growth expectations
          in
          all of the states in which we provide water.
 
 In
          our
          regulated wastewater division, we foresee significant growth opportunities
          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, Maryland and the surrounding
          areas.  Artesian Wastewater completed an agreement with Georgetown,
          Delaware in July 2008 to provide wastewater treatment and disposal services
          for
          Georgetown’s growth and annexation areas.  Artesian Wastewater will
          provide up to 1 mgd of wastewater capacity for the town within the next
          10
          years.  Artesian Wastewater Maryland signed two agreements in October
          2008 with Cecil County for the purchase of specific wastewater facilities,
          which
          are expected to close by June 30, 2009.  Once completed, these
          acquisitions will add four wastewater facilities to our service
          area.
 
 We
          will
          continue to seek acquisitions of water and wastewater contract operations
          on the
          Delmarva Peninsula.  The purchase of water and wastewater operations
          agreements assists in our expansion efforts in water and wastewater
          activity.  We will continue to expand our contract design and
          construction services of water and wastewater facilities for developers,
          municipalities and other utilities and will continue to actively pursue
          water
          and wastewater operation contracts with municipalities across the Delmarva
          Peninsula.
 
 In
          our
          non-regulated division, we are actively pursuing opportunities to expand
          our
          contract operations in southern Delaware.  Artesian Development
          purchased eighteen acres of land, also located in Sussex County, Delaware,
          which
          will allow for construction of an office facility, water treatment facility
          and
          wastewater treatment facility.  Artesian Consulting continues to
          provide engineering services to design on-site and off-site water and wastewater
          systems for developers as demand increases.  Also, with the expansion
          efforts in our water and wastewater divisions, Artesian Consulting will
          provide
          increased design and engineering services.
 
 Regulatory
          Matters and Inflation
 
 Our
          water
          and wastewater utility operations are subject to regulation by their respective
          state regulatory commissions, which have broad administrative power and
          authority to regulate rates charged for service, determine franchise areas
          and
          conditions of service, approve acquisitions, authorize the issuance of
          securities and other matters.  The profitability of our utility
          operations is influenced to a great extent by the timeliness and adequacy
          of
          rate allowances we are granted by the respective regulatory commissions
          or
          authorities in the states in which we operate.
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              of Contents
  We
          are
          subject to regulation by the following state regulatory
          commissions:  The DEPSC regulates both Artesian Water and Artesian
          Wastewater, Artesian Water Maryland and Artesian Wastewater Maryland are
          subject
          to the regulatory jurisdiction of the MDPSC, and Artesian Water Pennsylvania
          is
          subject to the regulatory jurisdiction of the PAPUC.
 
 As
          of
          December 31, 2008, we had approximately 75,800 metered water customers
          and 632
          wastewater customers in Delaware, 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 a portion
          of the
          increase in our operating revenues.  Water customers increased by
          approximately 700, while wastewater customers increased by approximately
          220.
 
 Our
          regulated utilities periodically seek rate increases to cover the cost
          of
          increased operating expenses, increased financing expenses due to additional
          investments in utility plant and other costs of doing business.  In
          Delaware, utilities are permitted by law to place rates into effect, under
          bond,
          on a temporary basis pending completion of a rate increase
          proceeding.  The first temporary increase may be up to the lesser of
          $2.5 million on an annual basis or 15% of gross water sales.  Should
          the rate case not be completed within seven months, by law, the utility
          may put
          the entire requested rate relief, up to 15% of gross water sales, in effect
          under bond until a final resolution is ordered and placed into
          effect.  If any such rates are found to be in excess of rates the
          DEPSC finds to be appropriate, the utility must refund 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.
 
 As
          permitted under Delaware law, an interim increase in rates designed to
          increase
          annualized revenues by $2.5 million was placed in effect July 10, 2006
          pending
          conclusion of our filing with the DEPSC for rate relief.  On December
          19, 2006, the DEPSC approved a Settlement Agreement in this case.  The
          increase in annual revenue requirement under the Settlement Agreement of
          $6
          million was 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.
 
 On
          January 25, 2008, Artesian Water submitted a notice to the DEPSC of our
          intent
          to file an application for a rate increase.  On April 22, 2008,
          Artesian Water filed a petition with the DEPSC to implement new rates to
          meet a
          requested increase in revenue of 28.8%, or approximately $14.2 million,
          on an
          annualized basis.  On July, 11, 2008, pursuant to the DEPSC’s minimum
          filing requirements, Artesian filed a supplemental filing with the DEPSC
          to
          update financial schedules for actual experience through March 31, 2008
          and to
          reflect additional changes affecting the requested increase.  The
          overall result was a reduction to the requested increase in revenue of
          1.5%, to
          27.3% or approximately $13.5 million, on an annualized basis.
 
 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.  In December 2007, Artesian Water filed an
          application with the DEPSC for approval to collect a 0.46% increase, effective
          January 1, 2008, to recover the costs of eligible non-revenue producing
          improvements made since the last rate increase in 2006.  The DEPSC
          approved the DSIC effective January 1, 2008 subject to audit at a later
          date.  During 2008, we earned approximately $99,000 in DSIC
          revenue.  On June 21, 2008, the Company discontinued the collection of
          DSIC pursuant to Delaware law which requires the Company to discontinue
          a DSIC
          when new base rates are put into effect.  We did not have DSIC in
          effect during 2007.
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  As
          permitted by law, on June 21, 2008, we placed temporary rates into effect,
          designed to generate an increase in annual operating revenue of approximately
          5.0%, or $2.5 million on an annualized basis, until new rates are approved
          by
          the DEPSC.  Also pursuant to law, on December 17, 2008, we placed
          temporary rates into effect, designed to generate an additional increase
          in
          annual operating revenue of approximately 10% or $5.0 million on an annualized
          basis, given that the rate case had not been concluded in a seven month
          period.  Evidentiary hearings were held on December 8-9, 2008 and a
          final Commission decision is anticipated in the third quarter of 2009 in
          reference to the implementation of our requested rate increase.
 
 In
          2003,
          legislation was enacted in Delaware requiring all water utilities serving
          within
          northern New Castle County, Delaware to certify by July 2006, and each
          three
          years thereafter, that they have sufficient sources of self-supply to serve
          their respective systems.  On June 30, 2006, Artesian Water filed our
          certification related to the adequacy of our water supply through
          2009.  After completion of their review, on July 24, 2007, the DEPSC
          accepted our certification of sufficient water supply.  As required,
          we will file a new certification of self-sufficiency with the DEPSC by
          June 30,
          2009, for the period through 2012.
 
 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.  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 Holdings, Inc. in May of 2006 and another
          in April
          of 2008.  This new pricing is included in our most recent request for
          rate relief filed with the DEPSC.
 
 On
          April
          10, 2006, the DEPSC 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.  On April 8, 2008,
          the DEPSC reopened this docket to assess the effectiveness of the 2006
          rules and
          regulations requiring water utilities to collect contributions in aid of
          construction.  We anticipate this proceeding to continue into
          2009.
 
 On
          March
          20, 2007, the DEPSC 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.  The DEPSC has indicated that in the March 2009 proceedings they
          intend to recommend that a utility provide water service to a new proposed
          service territory within five years.  These proposed rules have not
          been adopted and they may not be adopted or could be modified prior to
          adoption.  As of December 31, 2008, no final decision had been made by
          the DEPSC.
 
 Our
          water
          and wastewater utilities in Maryland are subject to regulation by the
          MDPSC.  If we are seeking new franchise areas, we must first seek
          approval from the county government and this franchise area must be included
          in
          that county’s master sewer and water plan.  Final granting of these
          franchise areas must then be obtained by the MDPSC.  In Maryland, if
          utilities want to construct a new plant, approvals must be obtained from
          the
          Maryland Department of the Environment, the county government and the
          MDPSC.  Also, soil and erosion plans must be approved and easement
          agreements with affected parties must be obtained.  The MDPSC also
          approves rates and charges for service, acquisitions, mergers, issuance
          of
          securities and other matters.
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 Table
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  In
          December 2008, the MDPSC approved an application for Artesian Water Maryland
          to
          construct a water  system from the Delaware state line,
          interconnecting with the Artesian Water system, to the Town of
          Elkton.  The Town of Elkton desired an additional source of water
          supply.
 
 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.  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 DEPSC, MDPSC and PAPUC.  As the utility
          incurs certain costs, such as expenses related to rate case applications,
          a
          deferred regulatory asset is created.  Adjustments to these deferred
          regulatory assets are made when the DEPSC, MDPSC or PAPUC determines whether
          the
          expense is recoverable in rates, the length of time over which an expense
          is
          recoverable, or, because of changes in circumstances, whether a remaining
          balance of deferred expense is recoverable in rates charged to
          customers.  Adjustments to reflect changes in recoverability of
          certain deferred regulatory assets may have a material effect on our financial
          results.
 
 Goodwill
          is recorded in accordance with Statement of Financial Accounting Standards
          No.
          142, “Goodwill and Other Intangible Assets,” (“SFAS 142”).  We will
          test goodwill annually for impairment.  Goodwill is approximately
          $370,000 as of the year ended December 31, 2008, which is entirely associated
          with the acquisition of Mountain Hill in August 2008 and is currently being
          amortized on a straight-line basis over a period of fifty years.  The
          purchase price of Mountain Hill included reimbursement of all carrying
          costs
          through the date of acquisition, which resulted in the recognition of
          goodwill.
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 Table
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  Results
          of Operations
 
 2008
          Compared to 2007
 
 Operating
          Revenues
 
 Revenues
          totaled $56.2 million in 2008 and were 7.0% above revenues in 2007 of $52.5
          million, which is partially due to an increase of $1.6 million, or 3.4%
          in total
          water sales revenue.  The increase in water sales revenue in Artesian
          Water reflects a 1.0% increase in the number of customers served, rate
          increases
          placed in effect in 2007 and temporary rate increases of 5% and 10% placed
          into
          effect on June 21, 2008 and December 17, 2008, as permitted under Delaware
          law,
          until new rates are approved by the DEPSC.  We realized 89.2% of our
          total revenue in 2008 from the sale of water.  During 2007 we realized
          92.2% of our total revenue from water sales.  Non-utility revenue
          totaled $4.1 million in 2008 as compared to $2.4 million in
          2007.  This increase is attributable to increased contract revenues in
          Artesian Utility, primarily due to: increased soil evaluation and testing
          services totaling $705,000; design services totaling $284,000 performed
          for a
          developer in Southern New Castle County, Delaware; additional water and
          wastewater operations contract revenue in Pennsylvania of $269,000; and
          design
          and permitting services totaling $250,000 performed for a developer in
          Sussex
          County, Delaware.  The increase in non-utility revenue also reflects
          an increase of $196,000 and $179,000, respectively, in water and wastewater
          Service Line Protection Plan revenue earned by Artesian
          Resources.  The Service Line Protection Plans provide coverage for all
          material and labor required to repair or replace participants’ leaking water and
          leaking or clogged wastewater service lines up to an annual limit.
 
 Percentage
                    of Operating Revenues2008
                
                
                2007
                
                
                2006Water
                    SalesResidential
                
                
                55.3
                
                
                
                57.6
                
                
                
                55.8Commercial
                
                
                21.4
                
                
                
                22.3
                
                
                
                22.2Industrial
                
                
                0.5
                
                
                
                0.7
                
                
                
                0.8Government
                    and Other
                
                
                12.0
                
                
                
                11.7
                
                
                
                12.3Other
                    utility operating revenues
                
                
                3.6
                
                
                
                3.2
                
                
                
                2.6Non-utility
                    operating revenues
                
                
                7.2
                
                
                
                4.5
                
                
                
                3.6Sale
                    of land
                
                
                0.0
                
                
                
                0.0
                
                
                
                2.7Total
                
                
                100.0
                
                
                
                100.0
                
                
                
                100.0
 
 Residential
 
 Residential
          water service revenues in 2008 amounted to $31.0 million, an increase of
          $0.8
          million, or 3.0% over the $30.2 million recorded in 2007, primarily due
          to rate
          increases effective January 1, 2007 and July 24, 2007 and a temporary rate
          increase of 5% placed in effect on June 21, 2008.  The increase in
          2008 follows an increase of $3.1 million, or 11.4%, in 2007.  The
          volume of water sold to residential customers decreased slightly to 3,935
          million gallons in 2008 compared to 3,947 million gallons in
          2007.  The number of residential customers served increased by 690, or
          1.0%, in 2008.  However, per capita demand has declined for the year
          ended December 31, 2008 in comparison to the year ended December 31, 2007,
          thereby reducing the effect of the temporary rate increase.
 
 Commercial
 
 Water
          service revenues from commercial customers in 2008 increased by 2.8%, from
          $11.7
          million in 2007 to $12.0 million in 2008, due to rate increases in 2007
          and a
          temporary rate increase in 2008.  We sold 2,202 million gallons of
          water to commercial customers in 2008, a marginal increase as compared
          to 2,197
          million gallons sold in 2007.
 
 Industrial
 
 Water
          service revenues from industrial customers decreased by 30.0%, from $381,000
          in
          2007 to $266,000 in 2008.  The volume of water sold to industrial
          customers decreased by 36.0%, from 116 million gallons in 2007 to 74 million
          gallons in 2008, primarily as a result of decreased usage by one industrial
          customer.
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              of Contents
 Government
          and Other
 
 Government
          and other water service revenues in 2008 increased by 10.0%, from $6.1
          million
          in 2007 to $6.7 million in 2008.  This increase in revenue resulted
          from increased consumption by irrigation customers, slightly offset by
          a
          reduction in government agency 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 18.8% in 2008, from $1.7 million in 2007 to $2.0 million in
          2008.  The increase, approximately $224,000, is primarily the result
          of increased service charges derived from proactive policies for delinquent
          paying customers, which resulted in increased charges for the restoration
          of
          shut off service.
 
 Non-Utility
          Operating Revenue
 
 Non-utility
          operating revenue, derived from non-regulated water and wastewater operations,
          increased from $2.4 million in 2007 to $4.1 million in 2008.  This
          increase is attributable to increased contract revenues in Artesian Utility,
          primarily due to: increased soil evaluation and testing services totaling
          $705,000; design services totaling $284,000 performed for a developer in
          Southern New Castle County, Delaware; additional water and wastewater operations
          contract revenue in Pennsylvania of $269,000; and design and permitting
          services
          totaling $250,000 performed for a developer in Sussex County,
          Delaware.  This increase in non-utility revenue also reflects an
          increase of $196,000 and $179,000, respectively, in water and wastewater
          Service
          Line Protection Plan revenue earned by Artesian Resources.
 
 Operating
          Expenses
 
 Operating
          expenses, excluding depreciation and taxes, increased approximately $2.6
          million, or 8.3%, to $34.1 million in 2008.  Payroll and benefits
          increased $1.1 million due to increased staffing, pay increases and increased
          medical insurance premiums.  Purchased water expense increased
          approximately $181,000, primarily due to a 1.1% increase in rates effective
          July
          2007 and a 7.8% increase in rates effective in July 2008.  Non-utility
          operating expenses increased approximately $957,000, primarily the result
          of
          more project activity in Artesian Utility as compared to the same period
          in 2007
          and the addition of Artesian Consulting, which contributed approximately
          $221,000 to the increase.
 
 Percentage
                    of Operating and Maintenance Expenses2008
                
                
                2007
                
                
                2006Payroll
                    and Associated Expenses
                
                
                46.8
                
                
                
                46.7
                
                
                
                48.3Administrative
                
                
                24.1
                
                
                
                26.1
                
                
                
                24.2Purchased
                    Water
                
                
                9.6
                
                
                
                9.7
                
                
                
                12.3Repair
                    and Maintenance
                
                
                7.2
                
                
                
                7.6
                
                
                
                6.3Water
                    Treatment
                
                
                3.4
                
                
                
                3.7
                
                
                
                3.4Non-utility
                    Operating
                
                
                8.9
                
                
                
                6.2
                
                
                
                5.5Total
                
                
                100.0
                
                
                
                100.0
                
                
                
                100.0
 
 31
 Table
              of Contents
  Depreciation
          and amortization expense increased $620,000, or 12.0%, due to increases
          in our
          utility plant in service providing supply, treatment, storage and distribution
          of water and the addition of the new office building during
          2008.  Income tax expense increased $293,000, or 7.1%, due to higher
          taxable income in 2008.  Our total effective income tax rate, or ETR,
          for 2008 and 2007 was 40.6% and 39.8%, respectively.
 
 Other
          Income, Net
 
 Our
          Allowance for Funds Used During Construction, or AFUDC, increased $435,000,
          or
          134.2%, as a result of higher long-term construction activity subject to
          AFUDC,
          of which a large portion is related to the new office building
          construction.  Miscellaneous Income decreased $112,000, primarily due
          to a decrease in the income earned on our temporary investments.
 
 Interest
          Charges
 
 Interest
          charges increased $308,000 or 4.9%, in 2008, primarily due to higher short
          term
          debt interest expense as a result of higher borrowing on our lines of credit
          in
          2008 compared to 2007.  The average interest rate on our short term
          credit balance decreased from 5.9% in 2007 to 3.4% in 2008, while our average
          outstanding balance was $12.7 million in 2008, compared to $5.3 million
          in
          2007.  In December 2008, we issued a First Mortgage Bond, Series S, in
          the amount of $15 million at an interest rate of 6.73%.
 
 Net
          Income
 
 For
          the
          year ended December 31, 2008, our net income applicable to common stock
          increased $155,000, or 2.5%, compared to 2007.  The increase in net
          income was primarily due to increases in Artesian Water operating revenues
          derived from the 2007 rate increases, a temporary rate increase of 5% in
          June
          2008, an additional temporary rate increase of 10% in December 2008, revenues
          generated by our regulated wastewater operations and increased activity
          in
          contract operations of Artesian Utility.
 
 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 was 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.
 
 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.
 32
 Table
              of Contents
  Commercial
 
 Water
          service 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 was primarily a result of the
          medical industry, which had a decrease of 34 million gallons sold.
 
 Industrial
 
 Water
          service 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 the result of decreased usage by one industrial
          customer.
 
 Government
          and Other
 
 Government
          and other water service 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 was primarily the result of a 107% increase in
          wastewater customer service revenues, from $385,000 in 2006 to $796,000
          in 2007,
          which included 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
          reflected higher contract revenues associated with wastewater treatment
          projects
          in southern Delaware.  The increase was 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, included contract service revenue
          in
          Artesian Utility, a result of the TMH acquisition.  The increase in
          revenue also included an increase in Service Line Protection Plan revenue,
          of
          approximately $154,000, from $267,000 in 2006 to $421,000 in
          2007.
 33
 Table
              of Contents
  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 increased 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.
 
 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%.
 34
 Table
              of Contents
  Liquidity
          and Capital Resources
 
 Overview
 
 Some
          primary sources of our liquidity for 2008 were $18.2 million provided by
          cash
          flow from operating activities, $15.0 million from a new bond issuance
          in
          December 2008 and $2.7 million in net contributions and advances from
          developers.  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.  In
          2008, we implemented proactive policies for delinquent paying customers
          in order
          to improve our accounts receivable balance, which helped contribute to
          our
          liquidity by approximately $1.3 million.  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.
 
 The
          Company’s lines of credit have increased by $19.4 million, also contributing to
          our liquidity for 2008, primarily as a result of investments made in utility
          plant detailed below and the $6.7 million investment made in non-utility
          property associated with a new regional wastewater facility in Sussex County,
          Delaware. In addition, increases in accounts payable of $1.3 million and
          increases in accrued expenses of $0.4 million are also associated with
          the
          Company’s investment in utility plant.
 
 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 2009
          will be approximately $31.9 million.  Our total obligations related to
          interest and principal payments on indebtedness, rental payments and water
          service interconnection agreements for 2009 are anticipated to be approximately
          $11.0 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.  Current economic
          conditions and disruptions have caused substantial volatility in capital
          markets, including credit markets and the banking industry and have increased
          the cost and significantly reduced the availability of credit from financing
          sources.  In the event our lines of credit are not renewed, we will
          have to seek alternative financing sources, although there can be no assurance
          that these alternative financing sources will be available on terms acceptable
          to us.  We believe that internally generated funds along with existing
          credit facilities will be adequate to provide sufficient working capital
          to
          maintain normal operations and to meet our financing requirements.
 
 Investment
          in Plant and Systems
 
 We
          invested $45.1 million in capital expenditures during 2008 compared to
          $26.7
          million invested during the same period in 2007.  Investment in
          utility plant, excluding advances and contributions in aid of construction
          received from real estate developers, was $42.4 million in 2008 compared
          to
          $20.9 million in 2007.  Additionally, developers financed $2.7 million
          for the installation of water mains and hydrants in 2008 compared to $6.2
          million in 2007.  The reduction in developer financing is primarily
          the result of slower growth in new homes.  The primary focus of
          Artesian Water’s investment was to continue to provide high quality reliable
          service to our growing service territory.
 
 We
          invested approximately $13.4 million in new transmission and distribution
          facilities in 2008, including refunds of advances for developer-financed
          infrastructure.  Of the $13.4 million invested, we invested $9.4
          million in new infrastructure and $4.0 million in our rehabilitation program
          for
          transmission and distribution facilities, replacing aging or deteriorating
          mains.  Additionally, an investment of $7.7 million was made to
          enhance or improve existing treatment facilities, rehabilitate pumping
          equipment
          and install new wells to increase supply capabilities.  We also
          invested $11.5 million towards the construction of a new office building
          addition to our corporate headquarters in New Castle County in
          2008.  Another $7.0 million was invested into NSRWRC for land for the
          regional wastewater treatment facility.  In addition, on August 1,
          2008 Artesian Water Maryland invested $4.8 million for the acquisition
          of
          Mountain Hill.
 35
 Table
              of Contents
  The
          following chart summarizes our investment in plant and systems over the
          past
          three fiscal years.
 In
                    thousands
                
                2008
                
                
                2007
                
                
                2006Source
                    of supply
                
                $
                1,665
                
                
                $
                3,173
                
                
                $
                2,224Treatment
                    and pumping
                
                
                6,094
                
                
                
                1,196
                
                
                
                973Transmission
                    and distribution
                
                
                13,381
                
                
                
                8,055
                
                
                
                12,998General
                    plant and equipment
                
                
                13,980
                
                
                
                6,373
                
                
                
                2,581Developer
                    financed utility plant
                
                
                3,178
                
                
                
                6,182
                
                
                
                9,291Wastewater
                    facilities
                
                
                490
                
                
                
                2,081
                
                
                
                3,111NSRWRC
                
                
                7,028
                
                
                
                ---
                
                
                
                ---Allowance
                    for Funds Used During Construction, AFUDC
                
                
                (759
                )
                
                
                (324
                )
                
                
                (288
                )Total
                
                $
                45,057
                
                
                $
                26,736
                
                
                $
                30,890Mountain
                    Hill
                
                
                4,772
                
                
                
                ---
                
                
                
                ---
 
 We
          have
          planned to invest approximately $31.9 million in utility plant in
          2009.  Developers are expected to finance an additional $8.3 million
          in utility plant construction.  Of the $31.9 million we expect to
          invest in 2009, approximately $7.6 million will be invested in transmission
          and
          distribution facilities.  Approximately $1.0 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.  We also plan to invest $1.7 million in order to
          provide an additional 21,000 feet of main to increase supply and offer
          additional fire protection in the Middletown/Townsend Area of New Castle
          County,
          Delaware.  The remaining $4.9 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.  In addition, we plan to invest another $2.0 million 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.  Also, included in the total investments
          above is approximately $1.1 million we plan to invest for a booster station
          and
          4,000 feet of main for our Delaware water utility to provide water to our
          Maryland water utility in order to supply water service to the Cecil County
          growth corridor.
 
 An
          additional expenditure of approximately $1.8 million is anticipated to
          complete
          the renovation of our existing office building in New Castle County in
          2009.  An additional $2.9 million will be spent on wastewater projects
          in Sussex County, Delaware.  We plan to continue our investment in the
          growth corridor in Cecil County, Maryland, investing $3.9 million to upgrade
          the
          Artesian Water Maryland water system following the purchase of water assets
          from
          Cecil County in 2009.  Additionally, $11.7 million is planned to be
          invested in Artesian Wastewater Maryland following the purchase of wastewater
          assets from the Cecil County in 2009.  Our projected capital
          expenditures and other investments are subject to periodic review and revision
          to reflect changes in economic conditions and other factors.
 
 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 $31.9 million will be financed by our operations and external
          sources, including a combination of capital investment as well as short-term
          borrowings under our revolving credit agreements discussed
          below.  Developers are expected to finance, through contributions in
          aid of construction, an additional $8.3 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 DEPSC.
 
 36
 Table
              of Contents
  At
          December 31, 2008, Artesian Water and Artesian Water Maryland had two shared
          lines of credit of $20 million each to meet temporary cash
          requirements.  These revolving credit facilities are
          unsecured.  As of December 31, 2008, we had $32.2 million of available
          funds under these lines.  The interest rate for borrowings under one
          of these lines is the London Interbank Offering Rate, or “LIBOR,” plus 0.75% or,
          at our discretion, the bank’s federal funds rate plus 1.00%.  The
          interest rate for borrowings under the other line of credit is the LIBOR
          plus
          1.00% or, at our discretion, the bank’s federal funds rate plus
          1.00%.  Each bank reviews all of their facilities annually for
          renewal.
 
 At
          December 31, 2008, 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, 2008, Artesian
          Wastewater had $4.2 million of available funds while Artesian Utility had
          not
          borrowed funds under its line of credit. The interest rate for borrowings
          under
          each of these lines is the LIBOR plus 1.75%.  The bank reviews its
          facilities annually for renewal.
 
 Although
          we believe we will continue to be able to renew these facilities, there
          is no
          assurance that they will be renewed, or what the terms of any such renewal
          will
          be.  Current economic conditions and disruptions have caused
          substantial volatility in capital markets, including credit markets and
          the
          banking industry.  We believe that internally generated funds along
          with existing credit facilities will be adequate to provide sufficient
          working
          capital to maintain normal operations and to meet our financing
          requirements.
 
 On
          June
          30, 2008, Artesian Utility signed an agreement with Northern Sussex Regional
          Water Recycling Complex, LLC, or NSRWRC.  Under the terms of the
          agreement, Artesian Resources acts as the guarantor of NSRWRC’s $10 million
          construction loan secured by land.  As of December 31, 2008 NSRWRC had
          $3.3 million of available funds under the construction loan.  The
          interest rate on this guaranteed debt is variable based on LIBOR Advantage
          Rate
          plus 225 basis points.  In the event of a default by NSRWRC, Artesian
          Resources shall pay the bank the amount due of the obligations or, on demand
          of
          the bank, immediately deposit all amounts due under the obligation.
 
 Line
                    of Credit Commitments
                
                Commitment
                    Due by PeriodIn
                    thousands
                
                Less
                    than
                  1
                    Year
                
                
                1-3
                    Years
                
                
                4-5
                    Years
                
                
                Over
                    5 YearsLines
                    of Credit (in thousands)
                
                $
                20,286
                
                
                $
                -----
                
                
                $
                -----
                
                
                $
                -----
 
 On
          August
          1, 2008, Artesian Water Maryland executed a promissory note in the amount
          of
          approximately $2.3 million to Sunrise, that bears interest at a variable
          interest rate based upon the London Interbank Offering Rate plus 150 basis
          points.  The Note is payable in four equal installments, commencing on
          the first anniversary of the closing date.  The Note is secured by a
          first lien security interest in all of Mountain Hill’s assets in favor of
          Sunrise and is guaranteed by Artesian Resources.
 
 37
 Table
              of Contents
  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.  However,
          due to current economic conditions and disruptions in the financial markets,
          which have increased the cost and significantly reduced the availability
          of debt
          and equity financing, there is a higher than usual risk that we may be
          unable to
          raise additional funds on acceptable terms or at all.  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 55.8% at December 31,
          2008.
 
 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, 2008, the interest rate was
          0.1%.
 
 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
                    Obligations
                
                Payments
                    Due by PeriodIn
                    thousands
                
                Less
                    than
                  1 Year
                
                
                1-3
                  Years
                
                
                4-5
                  Years
                
                
                After
                    5
                  Years
                
                
                TotalFirst
                    Mortgage Bonds (Principal and Interest)
                
                $
                6,568
                
                
                $
                13,135
                
                
                $
                13,144
                
                
                $
                185,413
                
                
                $
                218,260State
                    revolving fund loans
                
                
                590
                
                
                
                1,180
                
                
                
                1,180
                
                
                
                5,479
                
                
                
                8,429Note
                    Payable (Principal and Interest)
                
                
                660
                
                
                
                1,240
                
                
                
                580
                
                
                
                ---
                
                
                
                2,480Operating
                    leases
                
                
                177
                
                
                
                142
                
                
                
                94
                
                
                
                1,802
                
                
                
                2,215Unconditional
                    purchase obligations
                
                
                3,050
                
                
                
                6,100
                
                
                
                6,109
                
                
                
                24,412
                
                
                
                39,671Tank
                    painting contractual obligation
                
                
                374
                
                
                
                562
                
                
                
                ---
                
                
                
                ---
                
                
                
                936Total
                    contractual cash obligations
                
                $
                11,419
                
                
                $
                22,360
                
                
                $
                21,107
                
                
                $
                217,106
                
                
                $
                271,992
 
 Long-term
          debt obligations reflect the maturities of certain series of our first
          mortgage
          bonds, which we intend to refinance when due.  Current economic
          conditions and disruptions have caused substantial volatility in capital
          markets, including credit markets and the banking industry and have increased
          the cost and significantly reduced the availability of credit from financing
          sources, which may continue or worsen in the future.  In the event we
          are unable to refinance our first mortgage bonds when due and the borrowings
          are
          called for payment, we will have to seek alternative financing sources,
          although
          there can be no assurance that these alternative financing sources will
          be
          available on terms acceptable to us.  The state revolving fund loan
          obligation has an amortizing mortgage payment payable over a 20-year period,
          and
          will be refinanced as future securities are issued.  Both the
          long-term debt and the state revolving fund loan have certain financial
          covenant
          provisions, 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.
 
 On
          December 1, 2008, Artesian Water Company and CoBank, ACB, or CoBank, entered
          into a Bond Purchase Agreement, or the Agreement, relating to the issue
          and sale
          by the Company to CoBank of a $15 million principal amount First Mortgage
          Bond,
          or the Bond, Series S, due December 31, 2033, or the Maturity
          Date.  The Bond was issued pursuant to the Company’s Indenture of
          Mortgage dated as of July 1, 1961, as amended and supplemented by supplemental
          indentures, including the Twentieth Supplemental Indenture, dated as of
          December
          1, 2008 or the Supplemental Indenture, from the Company to Wilmington Trust
          Company, as Trustee, or the Indenture.  The Indenture is a first
          mortgage lien against substantially all of the Company’s utility
          plant.  Proceeds of the sale of the Bond were used to repay short-term
          indebtedness which was used to finance the expansion of the Company’s
          headquarters building in New Castle County, Delaware.  The issuance of
          the Bond was approved by the Delaware Public Service Commission on November
          21,
          2008.
 38
 Table
              of Contents
  The
          Bond
          carries an annual interest rate of 6.73% through March 1, 2016, or the
          Initial
          Period.  After March 16, 2016, the Company can request that the annual
          interest rate be fixed by CoBank in its sole and absolute discretion for
          a
          period through the Maturity Date or for such shorter periods as mutually
          agreed
          by the Company and CoBank.  Interest is payable on the first business
          day of January, April, July and October in each year, beginning with the
          first
          business day of January 2009, until the Company’s obligation with respect to the
          payment of such principal and interest shall be discharged.  In
          addition, the Bond is subject to redemption in a principal amount equal
          to
          $150,000 per calendar quarter, payable on the first business day of January,
          April, July and October in each year, beginning with the first business
          day of
          January 2009, with all remaining principal due and payable on December
          31,
          2033.  Overdue payments of such principal and interest shall bear
          interest as provided in the Supplemental Indenture.
 
 The
          Agreement contains customary default provisions where the Bond will become
          due
          and payable no less than 30 days from notice received by CoBank, referred
          to as
“Events of Redemption.”  In the event that any Event of Redemption
          should occur and be continuing, CoBank shall have the right to require
          the
          Company, and the Company shall be obligated, to redeem all bonds then held
          by
          CoBank.  The bonds shall be redeemed at a price equal to the sum of
          (i) the aggregate principal amount to be redeemed, (ii) the interest accrued
          thereon through the date of redemption and (iii) a make-whole amount as
          described in the Supplemental Indenture.  The Bond was issued in a
          private placement in reliance on exemptions from registration under the
          Securities Act of 1933, pursuant to the terms of the Bond Purchase
          Agreement.
 
 Off-Balance
          Sheet Arrangements
 
 In
          connection with the purchase of the treatment facility site, as of June
          30,
          2008, Artesian Utility agreed to commit $3.0 million, payable over 10 years,
          to
          NSRWRC.  The net present value of this obligation as of December 31,
          2008 is approximately $2.2 million.
 39
 Table
              of Contents
  IMPACT
          OF RECENT ACCOUNTING PRONOUNCEMENTS
 
 In
          September 2006, the Financial Accounting Standards Board, 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 of assets and liabilities.  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
          January 1, 2008, we adopted the provisions of SFAS 157, except as it applies
          to
          non-financial assets and non-financial liabilities for which the effective
          date
          has been delayed by one year as described below.  The adoption of SFAS
          157 did not have a material effect on our financial position or results
          of
          operations.
 
 SFAS
          157
          defines fair value as the exchange price that would be received for an
          asset or
          paid to transfer a liability (an exit price) in the principal or most
          advantageous market for the asset or liability in an orderly transaction
          between
          market participants on the measurement date.  SFAS 157 also
          establishes a fair value hierarchy which requires an entity to maximize
          the use
          of observable inputs and minimize the use of unobservable inputs when measuring
          fair value.  The standard describes three levels of inputs that may be
          used to measure fair value:
 
 Level
          1 -
          Quoted prices in active markets for identical assets or
          liabilities.
 
 Level
          2 -
          Observable inputs other than Level 1 prices such as quoted prices for similar
          assets or liabilities; quoted prices in markets that are not active; or
          other
          inputs that are observable or can be corroborated by observable market
          data for
          substantially the full term of the assets or liabilities.
 
 Level
          3 -
          Unobservable inputs that are supported by little or no market activity
          and that
          are significant to the fair value of the assets or liabilities.
 
 
 In
          December 2007, the FASB issued SFAS No. 141(R), “Business Combinations,” which
          replaces SFAS No. 141.  SFAS No. 141(R) establishes
          principles for recognizing assets and liabilities acquired in a business
          combination, contractual contingencies and certain acquired contingencies
          to be
          measured at their fair values at the acquisition date.  This statement
          requires that acquisition-related costs and restructuring costs be recognized
          separately from the business combination.  SFAS No. 141(R) is
          effective for fiscal years beginning January 1, 2009.  The Company
          expects to adopt this statement effective January 1, 2009 and does not
          expect it
          to have a material effect on the financial statements.
 
 In
          December 2007, the FASB issued SFAS No.160, “Noncontrolling Interests in
          Consolidated Financial Statements — an amendment of ARB No. 51.”  This
          statement establishes accounting and reporting standards for the noncontrolling
          interest in a subsidiary, the amount of consolidated net income attributable
          to
          the parent and to the noncontrolling interest, changes in a parent’s ownership
          interest and the valuation of retained noncontrolling equity investments
          when a
          subsidiary is deconsolidated.  This statement requires expanded
          disclosures in the consolidated financial statements that clearly identify
          and
          distinguish between the interest of the parent and the interest of the
          noncontrolling owners.  SFAS No. 160 is effective for fiscal years
          beginning January 1, 2009. The adoption of this statement will not have
          a
          material impact on the Company’s results of operations or financial
          position.
 
 On
          February 12, 2008, the FASB issued FSP No. SFAS 157-2, "Effective Date
          of FASB
          Statement No. 157," which delays the effective date of SFAS 157 for all
          non-financial assets and non-financial 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.
 40
 Table
              of Contents
  In
          March
          2008, the FASB issued Statement No. 161, “Disclosures about Derivative
          Instruments and Hedging Activities – Including an amendment of FASB
          No.133.”  This statement changes the disclosure requirements for
          derivative instruments and hedging activities.  Entities are required
          to provide enhanced disclosures about (a) how and why a company used derivative
          instruments, (b) how derivative instruments and related hedge items are
          accounted for under Statement 133 and its related interpretations and (c)
          how
          derivative instruments and related hedged items affect an entity’s financial
          position, financial performance, and cash flow. This Statement is effective
          for
          financial statements issued for fiscal years and interim periods beginning
          after
          November 15, 2008.  The Company expects to adopt this statement
          effective January 1, 2009 and does not expect it to have a material effect
          on
          the financial statements.
 
 In
          May of
          2008, the FASB issued Statement No. 162, “The Hierarchy of Generally Accepted
          Accounting Principles.”  This statement identifies the sources of
          accounting principles and the framework for selecting the principles to
          be used
          in the preparation of financial statements of nongovernmental entities
          that are
          presented in conformity with GAAP in the United States (the GAAP
          hierarchy).  This statement is effective 60 days following the SEC’s
          approval of the Public Company Accounting Oversight Board amendments to
          AU
          Section 411, “The Meaning of Present Fairly in Conformity With Generally
          Accepted Accounting Principles”.  The Company does not expect this
          Statement will have a material impact 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 debt instruments,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 future
          contributions 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.
 
 41
 Table
              of Contents
 
 Item
          7A. – Quantitative andQualitative Disclosure About Market
          Risk.
 
 The
          Company is subject to the risk of fluctuating interest rates in the normal
          course of business. Our policy is to manage interest rates through the
          use of
          fixed rate long-term debt and, to a lesser extent, short-term debt. The
          Company's exposure to interest rate risk related to existing fixed rate,
          long-term debt is due to the term of the majority of our First Mortgage
          Bonds,
          which have interest rates ranging from 4.75% to 8.17% and final maturity
          dates
          ranging from 2019 to 2043. We are also exposed to market risk associated
          with
          changes in commodity prices. Our risks associated with price increases
          in
          chemicals, electricity and other commodities are mitigated by our ability
          to
          recover our costs through rate increases to our customers. We have also
          sought
          to mitigate future significant electric price increases by signing a two
          year
          supply contract, at a fixed price.
 
 
 42
 Table
              of Contents
 
 Item
          8. -  Financial Statementsand Supplementary
          Data.
 
 CONSOLIDATED
                    BALANCE SHEETSIn
                    thousandsASSETS
                
                December
                    31, 2008
                
                
                December
                    31, 2007Utility
                    plant, at original cost less accumulated depreciation
                
                $
                318,243
                
                
                $
                272,396Current
                    assetsCash
                    and cash equivalents
                
                
                2,894
                
                
                
                2,520Accounts
                    receivable (less reserve for bad debts 2008 - $106;
                    2007-$283)
                
                
                4,224
                
                
                
                5,499Unbilled
                    operating revenues
                
                
                3,597
                
                
                
                3,198Materials
                    and supplies (at cost on FIFO basis)
                
                
                1,147
                
                
                
                1,192Prepaid
                    property taxes
                
                
                1,119
                
                
                
                1,058Prepaid
                    expenses and other
                
                
                491
                
                
                
                857Total
                    current assets
                
                
                13,472
                
                
                
                14,324Other
                    assetsNon-utility
                    property (less accumulated depreciation 2008-$179;
                    2007-$177)
                
                
                9,436
                
                
                
                2,032Other
                    deferred assets
                
                
                4,992
                
                
                
                4,156Total
                    other assets
                
                
                14,428
                
                
                
                6,188Regulatory
                    assets, net
                
                
                2,563
                
                
                
                1,681$
                348,706
                
                
                $
                294,589LIABILITIES
                    AND STOCKHOLDERS'
                    EQUITYStockholders'
                    equityCommon
                    stock
                
                $
                7,401
                
                
                $
                7,300Preferred
                    stock
                
                
                ---
                
                
                
                ---Additional
                    paid-in capital
                
                
                66,699
                
                
                
                65,363Retained
                    earnings
                
                
                13,694
                
                
                
                12,469Total
                    stockholders' equity
                
                
                87,794
                
                
                
                85,132Long-term
                    debt, net of current portion
                
                
                107,555
                
                
                
                91,757195,349
                
                
                
                176,889Current
                    liabilitiesLines
                    of credit
                
                
                20,286
                
                
                
                898Current
                    portion of long-term debt
                
                
                1,516
                
                
                
                316Accounts
                    payable
                
                
                4,556
                
                
                
                3,225Accrued
                    expenses
                
                
                2,868
                
                
                
                2,483Overdraft
                    payable
                
                
                784
                
                
                
                1,672Deferred
                    income taxes
                
                
                363
                
                
                
                301Interest
                    accrued
                
                
                1,251
                
                
                
                326Customer
                    deposits
                
                
                556
                
                
                
                746Other
                
                
                2,197
                
                
                
                1,877Total
                    current liabilities
                
                
                34,377
                
                
                
                11,844Commitments
                    and contingencies (Note 10)Deferred
                    credits and other liabilitiesNet
                    advances for construction
                
                
                21,089
                
                
                
                23,840Postretirement
                    benefit obligation
                
                
                812
                
                
                
                868Deferred
                    investment tax credits
                
                
                715
                
                
                
                740Deferred
                    income taxes
                
                
                29,523
                
                
                
                25,170Total
                    deferred credits and other liabilities
                
                
                52,139
                
                
                
                50,618Net
                    contributions in aid of construction
                
                
                66,841
                
                
                
                55,238$
                348,706
                
                
                $
                294,589
 The
          notes are an integral part of
          the consolidated financial statements.
  43
 Table
              of Contents
 
 CONSOLIDATED
                    STATEMENTS OF
                    OPERATIONSIn
                    thousands, except per share amountsFor
                    the Year Ended December 31,2008
                
                
                2007
                
                
                2006Operating
                    revenuesWater
                    sales
                
                $
                50,101
                
                
                $
                48,461
                
                
                $
                44,272Other
                    utility operating revenue
                
                
                2,019
                
                
                
                1,699
                
                
                
                1,268Non-utility
                    operating revenue
                
                
                4,065
                
                
                
                2,364
                
                
                
                1,725Sale
                    of land
                
                
                ---
                
                
                
                ---
                
                
                
                1,32256,185
                
                
                
                52,524
                
                
                
                48,587Operating
                    expensesUtility
                    operating expenses
                
                
                28,154
                
                
                
                26,834
                
                
                
                24,314Non-utility
                    operating expenses
                
                
                2,717
                
                
                
                1,760
                
                
                
                1,419Depreciation
                    and amortization
                
                
                5,782
                
                
                
                5,162
                
                
                
                4,610TaxesState
                    and federal incomeCurrent
                
                
                74
                
                
                
                608
                
                
                
                162Deferred
                
                
                4,353
                
                
                
                3,526
                
                
                
                3,725Property
                    and other
                
                
                3,199
                
                
                
                2,868
                
                
                
                2,56244,279
                
                
                
                40,758
                
                
                
                36,792Operating
                    income
                
                
                11,906
                
                
                
                11,766
                
                
                
                11,795Other
                    income, netAllowance
                    for funds used during construction
                
                
                759
                
                
                
                324
                
                
                
                288Miscellaneous
                
                
                366
                
                
                
                478
                
                
                
                3251,125
                
                
                
                802
                
                
                
                613Income
                    before interest charges
                
                
                13,031
                
                
                
                12,568
                
                
                
                12,408Interest
                    charges
                
                
                6,613
                
                
                
                6,305
                
                
                
                6,337Net
                    income
                
                
                6,418
                
                
                
                6,263
                
                
                
                6,071Net
                    income applicable to common stock
                
                $
                6,418
                
                
                $
                6,263
                
                
                $
                6,071Income
                    per common share:Basic
                
                $
                0.87
                
                
                $
                0.92
                
                
                $
                1.00Diluted
                
                $
                0.86
                
                
                $
                0.90
                
                
                $
                0.97Weighted
                    average common shares outstanding:Basic
                
                
                7,353
                
                
                
                6,787
                
                
                
                6,055Diluted
                
                
                7,427
                
                
                
                6,936
                
                
                
                6,235Cash
                    dividends per share of common stock
                
                $
                0.71
                
                
                $
                0.67
                
                
                $
                0.61
 The
          notes are an integral part of the consolidated financial
          statements.
  44
 Table
              of Contents
 
 CONSOLIDATED
                    STATEMENTS OF CASH FLOWSIn
                    thousands
                
                For
                    the Year Ended December 31,2008
                
                
                2007
                
                
                2006CASH
                    FLOWS FROM OPERATING ACTIVITIESNet
                    income
                
                $
                6,418
                
                
                $
                6,263
                
                
                $
                6,071Adjustments
                    to reconcile net income to net cash  provided by operating
                    activities:Depreciation
                    and amortization
                
                
                5,782
                
                
                
                5,162
                
                
                
                4,609Deferred
                    income taxes, net
                
                
                4,390
                
                
                
                3,657
                
                
                
                3,711Stock
                    compensation
                
                
                122
                
                
                
                196
                
                
                
                322Allowance
                    for funds used during construction
                
                
                (759
                )
                
                
                (324
                )
                
                
                (288
                )Sale
                    of land
                
                
                ---
                
                
                
                ---
                
                
                
                (1,322
                )Changes
                    in assets and liabilities:Accounts
                    receivable, net of reserve for bad debts
                
                
                1,275
                
                
                
                (2,083
                )
                
                
                865Unbilled
                    operating revenues
                
                
                (399
                )
                
                
                (543
                )
                
                
                (281
                )Materials
                    and supplies
                
                
                45
                
                
                
                (138
                )
                
                
                (46
                )Income
                    tax receivable
                
                
                ---
                
                
                
                ---
                
                
                
                ---Prepaid
                    property taxes
                
                
                (61
                )
                
                
                (134
                )
                
                
                (73
                )Prepaid
                    expenses and other
                
                
                366
                
                
                
                (101
                )
                
                
                (221
                )Other
                    deferred assets
                
                
                (836
                )
                
                
                (495
                )
                
                
                (78
                )Regulatory
                    assets
                
                
                (882
                )
                
                
                200
                
                
                
                (7
                )Accounts
                    payable
                
                
                1,331
                
                
                
                435
                
                
                
                ---Accrued
                    expenses
                
                
                385
                
                
                
                (804
                )
                
                
                1,339State
                    and federal income taxes
                
                
                ---
                
                
                
                ---
                
                
                
                (113
                )Interest
                    accrued
                
                
                925
                
                
                
                (34
                )
                
                
                7Customer
                    deposits and other, net
                
                
                129
                
                
                
                428
                
                
                
                (1,602
                )Postretirement
                    benefit obligation
                
                
                (56
                )
                
                
                (59
                )
                
                
                (170
                )NET
                    CASH PROVIDED BY OPERATING ACTIVITIES
                
                
                18,175
                
                
                
                11,626
                
                
                
                12,723CASH
                    FLOWS USED IN INVESTING ACTIVITIESCapital
                    expenditures (net of AFUDC)
                
                
                (45,057
                )
                
                
                (26,736
                )
                
                
                (30,890
                )Investments
                    in acquisitions
                
                
                (4,772
                )
                
                
                ---
                
                
                
                ---Proceeds
                    from sale of assets
                
                
                62
                
                
                
                27
                
                
                
                33Proceeds
                    from sale of land
                
                
                ---
                
                
                
                ---
                
                
                
                1,330Investments
                    from unconsolidated affiliates
                
                
                ---
                
                
                
                2
                
                
                
                37NET
                    CASH USED IN INVESTING ACTIVITIES
                
                
                (49,767
                )
                
                
                (26,707
                )
                
                
                (29,490
                )CASH
                    FLOWS FROM FINANCING ACTIVITIESNet
                    borrowings (repayments) under lines of credit agreements
                
                
                19,388
                
                
                
                (7,008
                )
                
                
                6,120(Decrease)
                    increase in overdraft payable
                
                
                (888
                )
                
                
                (318
                )
                
                
                573Net
                    advances and contributions in aid of construction
                
                
                2,667
                
                
                
                6,839
                
                
                
                12,334Increase
                    in deferred debt issuance costs
                
                
                1
                
                
                
                110
                
                
                
                41Net
                    proceeds from issuance of common stock
                
                
                1,314
                
                
                
                21,329
                
                
                
                1,766Dividends
                
                
                (5,193
                )
                
                
                (4,455
                )
                
                
                (3,714
                )Issuance
                    of long-term debt
                
                
                15,000
                
                
                
                ---
                
                
                
                ---Principal
                    repayments of long-term debt
                
                
                (323
                )
                
                
                (310
                )
                
                
                (298
                )NET
                    CASH PROVIDED BY FINANCING ACTIVITIES
                
                
                31,966
                
                
                
                16,187
                
                
                
                16,822NET
                    INCREASE IN CASH AND CASH EQUIVALENTS
                
                
                374
                
                
                
                1,106
                
                
                
                55CASH
                    AND CASH EQUIVALENTS AT BEGINNING OF YEAR
                
                
                2,520
                
                
                
                1,414
                
                
                
                1,359CASH
                    AND CASH EQUIVALENTS AT END OF YEAR
                
                $
                2,894
                
                
                $
                2,520
                
                
                $
                1,414Supplemental
                    Disclosures of Cash Flow Information:Utility
                    plant received as construction advances and contributions
                
                $
                7,101
                
                
                $
                ---
                
                
                $
                ---Artesian
                    Water Maryland, Inc. acquired all the outstandingmembership
                    interests of Mountain Hill Water Company, LLCfor
                    approximately $7.1 million.  In conjunction with
                    theacquisition,
                    liabilities were assumed as follows:Fair
                    value of assets acquired
                
                $
                7,093
                
                
                $
                ---
                
                
                $
                ---Cash
                    paid for membership interests
                
                
                (4,772
                )
                
                
                ---
                
                
                
                ---Liabilities
                    assumed
                
                $
                2,321
                
                
                $
                ---
                
                
                $
                ---Supplemental
                    Disclosures of Cash Flow Information:Interest
                    paid
                
                $
                5,576
                
                
                $
                6,230
                
                
                $
                6,228Income
                    taxes paid
                
                $
                ---
                
                
                $
                725
                
                
                $
                261
 The
          notes are an integral part of the consolidated financial
          statements.
  45
 Table
              of Contents
 
 CONSOLIDATED
          STATEMENTS OF CHANGES IN STOCKHOLDERS’
EQUITY
 In
          thousands
 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)Balance
                    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
                )
                
                
                20,418Dividend
                    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
                
                
                $
                85,132Net
                    income
                
                
                ---
                
                
                
                ---
                
                
                
                ---
                
                
                
                ---
                
                
                
                ---
                
                
                
                6,418
                
                
                
                6,418Cash
                    dividends declaredCommon
                    stock
                
                
                ---
                
                
                
                ---
                
                
                
                ---
                
                
                
                ---
                
                
                
                ---
                
                
                
                (5,193
                )
                
                
                (5,193
                )Issuance
                    of common stockDividend
                    reinvestment plan
                
                
                18
                
                
                
                ---
                
                
                
                18
                
                
                
                ---
                
                
                
                299
                
                
                
                ---
                
                
                
                317Employee
                    stock options and awards
                
                
                60
                
                
                
                ---
                
                
                
                60
                
                
                
                ---
                
                
                
                674
                
                
                
                ---
                
                
                
                734Employee
                    Retirement Plan(3)
                
                
                23
                
                
                
                ---
                
                
                
                23
                
                
                
                ---
                
                
                
                363
                
                
                
                ---
                
                
                
                386Balance
                    as of December 31, 2008
                
                
                6,519
                
                
                
                882
                
                
                $
                6,519
                
                
                $
                882
                
                
                $
                66,699
                
                
                $
                13,694
                
                
                $
                87,794
 
 (1)
                At
                    December 31, 2008, 2007, and 2006, Class A Non-Voting Common
                    Stock had
                    15,000,000 shares authorized.  For the same periods, shares
                    issued were 6,543,606, 6,442,805 and 5,228,284,
                    respectively.(2)
                At
                    December 31, 2008, 2007, and 2006, 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.
 46
 Table
              of Contents
  NOTES
          TO THE CONSOLIDATED FINANCIAL
          STATEMENTS
 
 NOTE
          1
 
 SUMMARY
          OF SIGNIFICANT ACCOUNTING POLICIES
 
 Basis
          of Presentation
 
 The
          audited consolidated financial statements are presented in accordance with
          the
          requirements of Form 10-K and 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
          Corporation, or Artesian Resources, and its wholly owned subsidiaries,
          including
          its principal operating company, Artesian Water Company, Inc., or Artesian
          Water.  In the opinion of the Company, the accompanying consolidated
          financial statements reflect all normal recurring adjustments necessary
          to
          present fairly the Company's balance sheet position as of December 31,
          2008 and
          the results of operations for the twelve month periods ended December 31,
          2008,
          2007 and 2006 and cash flows for the twelve month periods ended December
          31,
          2008, 2007 and 2006.  In addition, in accordance with Financial
          Accounting Standards Board Interpretation No. 46(R), “Consolidation of Variable
          Interest Entities, an interpretation of ARB No, 51,” or FIN 46(R), the Company
          consolidates variable interest entities for which it is deemed to be the
          primary
          beneficiary.  All inter-company transactions and balances have been
          eliminated in consolidation (refer to Note 11 “Northern Sussex Regional Water
          Recycling Complex, LLC”).
 
 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.
 
 Utility
          Subsidiary Accounting
 
 The
          accounting records of Artesian Water and Artesian Wastewater Management,
          Inc, or
          Artesian Wastewater, are maintained in accordance with the uniform system
          of
          accounts as prescribed by the Delaware Public Service Commission or the
          DEPSC.  The accounting records of Artesian Water Pennsylvania, Inc.,
          or Artesian Water Pennsylvania, are maintained in accordance with the uniform
          system of accounts as prescribed by the Pennsylvania Public Utility Commission
          or the PAPUC.  The accounting records of Artesian Water Maryland,
          Inc., or Artesian Water Maryland, and Artesian Wastewater Maryland, Inc.,
          or
          Artesian Wastewater Maryland, are maintained in accordance with the uniform
          system of accounts as prescribed by the Maryland Public Service Commission
          or
          the MDPSC.  All five 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.
 47
 Table
              of Contents
  In
          accordance with a rate order issued by the DEPSC, 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 DEPSC.  The rate used to capitalize AFUDC in 2008,
          2007, and 2006 was 7.9%, 8.1%, and 7.8%, respectively.
 
 Utility
                    plant
                    comprises:In
                    thousands
                
                
                
                
                December
                    31,Estimated
                    Useful Life In Years
                
                
                2008
                
                
                2007Utility
                    plant at original costUtility
                    plant in service-WaterIntangible
                    plant
                
                
                ---
                
                
                $
                140
                
                
                $
                140Source
                    of supply plant
                
                
                45-85
                
                
                
                15,785
                
                
                
                15,231Pumping
                    and water treatment plant
                
                
                35-62
                
                
                
                53,205
                
                
                
                46,808Transmission
                    and distribution plantMains
                
                
                81
                
                
                
                169,311
                
                
                
                155,927Services
                
                
                39
                
                
                
                28,016
                
                
                
                26,162Storage
                    tanks
                
                
                76
                
                
                
                22,214
                
                
                
                17,376Meters
                
                
                26
                
                
                
                12,508
                
                
                
                10,728Hydrants
                
                
                60
                
                
                
                9,018
                
                
                
                8,359General
                    plant
                
                
                3-31
                
                
                
                41,627
                
                
                
                26,727Utility
                    plant in service-WastewaterTreatment
                    and Disposal Plant
                
                
                35-62
                
                
                
                11,308
                
                
                
                7,563Collection
                    Mains & Lift Stations
                
                
                81
                
                
                
                4,059
                
                
                
                83General
                    plant
                
                
                3-31
                
                
                
                602
                
                
                
                244Property
                    held for future use
                
                
                ---
                
                
                
                1,976
                
                
                
                5,618Construction
                    work in progress
                
                
                ---
                
                
                
                7,082
                
                
                
                4,325376,851
                
                
                
                325,291Less
                    – accumulated depreciation
                
                
                
                
                
                
                58,608
                
                
                
                52,895$
                318,243
                
                
                $
                272,396
 
 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 2.24%,
          2.12% and 2.12% for 2008, 2007 and 2006, respectively.  In a rate
          order issued by the DEPSC, the Company was directed effective January 1,
          1998 to
          begin using revised depreciation rates for utility plant.  In rate
          orders issued by the DEPSC, Artesian Water was directed, effective May
          28, 1991
          and August 25, 1992, to offset depreciation recorded on utility plant by
          depreciation on utility property funded by Contributions in Aid of Construction,
          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.
 48
 Table
              of Contents
  Regulatory
          Assets
 
 In
          accordance with SFAS No. 71, certain expenses are recoverable through rates
          charged to our customers, without a return on investment, and are deferred
          and
          amortized during future periods using various methods as permitted by the
          DEPSC,
          the MDPSC, and the PAPUC.  Expenses related to rate proceedings and
          applications to increase rates are amortized on a straight-line basis over
          a
          period of two years.  The postretirement benefit obligation (see Note
          9 “Employee Benefit Plans”), which is being amortized over twenty years, is
          adjusted for the difference between the net periodic postretirement benefit
          costs and the cash payments.  The deferred income taxes will be
          amortized over future years as the tax effects of temporary differences
          previously flowed through to the customers reverse.  Goodwill is the
          result of the Mountain Hill acquisition, as described in Note 13, and is
          currently being amortized on a straight-line basis over a period of fifty
          years
          in accordance with SFAS No. 71.  SFAS No.71 stipulates generally
          accepted accounting principles for companies whose rates are established
          by or
          are subject to approval by a third-party regulatory agency.  Deferred
          acquisition costs are the result of due diligence costs related to the
          proposed
          purchase agreements for water and wastewater facilities in Cecil County,
          Maryland, which are expected to close on or before June 30, 2009.
 
 Regulatory
          assets at December 31, net of amortization, comprise:
 
 In
                    thousands
                
                2008
                
                
                2007Postretirement
                    benefit obligation
                
                $
                924
                
                
                $
                968Deferred
                    income taxes recoverable in future rates
                
                
                552
                
                
                
                567Goodwill
                
                
                370
                
                
                
                ---Deferred
                    acquisition costs
                
                
                341
                
                
                
                ---Expense
                    of rate proceedings
                
                
                376
                
                
                
                141Other
                
                
                ---
                
                
                
                5$
                2,563
                
                
                $
                1,681
 
 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, which range
          from
          10 to 30 years.  The investment in Co-Bank, which is a cooperative
          bank, is related to certain outstanding First Mortgage Bonds and is a required
          investment in the bank based on the underlying long term debt
          agreements.  Other deferred assets increased by approximately $0.6
          million, primarily in relation to the Mountain Hill acquisition.
 
 49
 Table
              of Contents
  Other
          deferred assets at December 31, net of amortization, comprise:
 
 In
                    thousands
                
                2008
                
                
                2007Debt
                    issuance cost
                
                $
                2,471
                
                
                $
                2,472Investment
                    in Co-Bank
                
                
                1,660
                
                
                
                1,411Other
                
                
                861
                
                
                
                273$
                4,992
                
                
                $
                4,156
 
 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 treatment
          facilities and collection systems, or cash to reimburse our water and wastewater
          divisions for costs to construct water mains, services and hydrants, and
          wastewater treatment and disposal plant.
 
 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 Company adopted FASB Interpretation No. 48 “Accounting
          for Uncertainty in Income Taxes”, an interpretation of FASB Statement No. 109
“Accounting for Income Taxes” effective January 1, 2007 and after analyzing our
          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.
 
 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.
 
 50
 Table
              of Contents
  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, referred to as the 2005 Equity Compensation Plan.  Since May
          25, 2005, no additional grants have been made under the Company’s other
          stock-based compensation plans that were previously available.  On
          January 1, 2006 the Company adopted Statement of Financial Accounting Standards
          No. 123R “Share-Based Payment.”  Compensation costs in the amount of
          $127,000, $215,000 and $499,000 for awards and options granted in 2008,
          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.  Of the
          $127,000 in 2008, $8,000 was associated with stock awards, $5,000 was associated
          cash payments for taxes, and $114,000 was the amount amortized for stock
          options
          awarded in 2008 and 2007.
 
 There
          was
          no stock 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 2008, 2007 and 2006 under the 2005 Equity Compensation Plan (See
          Note
          8 “Stock Compensation Plans”).
 
 
 2008
                
                
                2007
                
                
                2006Dividend
                    Yield
                
                
                3.6
                %
                
                
                3.3
                %
                
                
                2.9
                %Expected
                    Volatility
                
                
                .25
                
                
                
                .27
                
                
                
                .24Risk
                    Free Interest Rate
                
                
                3.45
                %
                
                
                4.69
                %
                
                
                5.03
                %Expected
                    Term
                
                6.93
                    years
                
                
                6.65
                    years
                
                
                3.26
                    years
 
 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 is the 7-year Treasury Constant Maturity rate as of the date
          of
          the grant for 2008 and 2007, and 3-year for 2006 grants.
 
 Shares
          of
          Class A Stock have been reserved for future issuance under the 2005 Equity
          Compensation Plan.
 
 51
 Table
              of Contents
  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.
 
 Non-utility
          operating revenue is primarily derived from the design, construction and
          operation of contract water and wastewater projects.  The Company
          recognizes non-utility operating revenue ratably over the service period
          with
          markup for overhead and profit.  The Company records contract monthly
          fees for non-utility operating revenue when billed to the customer.
 
 Other
          operating revenue includes wastewater service revenue derived from monthly
          fixed
          fees billed to customers, and which is recorded when billed.  Service
          line protection plan revenues are billed quarterly and the revenue recognized
          when billed.
 
 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.  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.  The allowance for doubtful accounts was $0.1 million at
          December 31, 2008 and $0.3 million at December 31, 2007.  The
          corresponding expense is for the year ended December 31, 2008 and 2007
          was $0.2
          million and $0.3 million, respectively.  The following table
          summarizes the changes in the Company’s accounts receivable
          balance:
 
 December
                    31,In
                    thousands
                
                2008
                
                
                2007Customer
                    Accounts Receivable – Water
                
                $
                2,637
                
                
                $
                4,437Other
                
                
                1,693
                
                
                
                1,3454,330
                
                
                
                5,782Less
                    allowance for doubtful accounts
                
                
                106
                
                
                
                283Net
                    accounts receivable
                
                $
                4,224
                
                
                $
                5,499
 
 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 our books, the net liability is recorded as
          a current
          liability on the consolidated balance sheet in the Overdraft Payable
          account.
  Concentration
            s of Credit Risk
 
 Financial
            instruments that potentially subject the Company to concentrations of
            credit
            risk consist principally of operating cash in excess of FDIC insured
            limits and
            temporary cash investments.
 
 52
 Table
              of Contents
  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.
 
  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, 2008 and
          2007, determined by discounting their future cash flows using current market
          interest rates on similar instruments with comparable maturities as guided
          under
          SFAS 107, are shown as below:
 
 In
                    thousands
                December
                    31,2008
                
                2007Carrying
                    amount
                
                $
                107,555
                
                
                $
                91,757Estimated
                    fair value
                
                
                113,214
                
                
                
                92,600
 
 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.  The fair
          value of Advances for Construction would be less than the carrying amount
          because these financial instruments are non-interest bearing.
 
 53
 Table
              of Contents
  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, 2008, Artesian Resources has federal net operating loss
          carry-forwards aggregating approximately $12.4 million, which will expire
          if
          unused by 2028.  As of December 31, 2008, Artesian Resources has
          separate company state net operating loss carry-forwards aggregating
          approximately $19.9 million.  These net operating loss carry-forwards
          will expire if unused between 2009 and 2028.  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 $88,000
          in 2007 to approximately $71,000 in 2008.
 
 At
          December 31, 2008, 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 prior years.  These alternative
          minimum tax credit carry-forwards may be carried forward indefinitely to
          offset
          future regular federal income taxes.
 
 
 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, 2008.  Additionally, there were no accruals
          relating to interest or penalties as of December 31, 2008.  The
          Company remains subject to examination by federal and state authorities
          for tax
          years 2005 through 2008.
  Components
                    of Income Tax ExpenseIn
                    thousands
                For
                    the Year Ended December 31,State
                    income taxes
                
                2008
                
                
                2007
                
                
                
                2006Current
                
                $
                74
                
                
                $
                ---
                
                
                
                $
                42Deferred
                
                
                887
                
                
                
                866
                
                
                
                
                741Total
                    state income tax expense
                
                $
                961
                
                
                $
                866
                
                
                
                $
                783For
                    the Year Ended December 31,Federal
                    income taxes
                
                2008
                
                
                2007
                
                
                
                2006Current
                
                $
                ---
                
                
                $
                608
                
                
                
                $
                120Deferred
                
                
                3,466
                
                
                
                2,660
                
                
                
                
                2,984Total
                    federal income tax expense
                
                $
                3,466
                
                
                $
                3,268
                
                $
                
                $
                3,104
  54
 Table
              of Contents
 
 Reconciliation
                    of effective tax rate:For
                    the Year Ended December 31,In
                    thousands
                
                2008
                
                
                2008
                
                
                2007
                
                
                2007
                
                
                2006
                
                
                2006Amount
                
                
                Percent
                
                
                Amount
                
                
                Percent
                
                
                Amount
                
                
                PercentReconciliation
                    of effective tax rateIncome
                    before federal and state income taxes
                
                $
                10,899
                
                
                
                100.0
                
                
                $
                10,397
                
                
                
                100.0
                
                
                $
                9,993
                
                
                
                100.0Amount
                    computed at statutory rate
                
                
                3,706
                
                
                
                34.0
                
                
                
                3,535
                
                
                
                34.0
                
                
                
                3,398
                
                
                
                34.0Reconciling
                    itemsState
                    income tax-net of federal tax benefit
                
                
                678
                
                
                
                6.2
                
                
                
                571
                
                
                
                5.5
                
                
                
                466
                
                
                
                4.7Other
                
                
                43
                
                
                
                0.4
                
                
                
                28
                
                
                
                0.3
                
                
                
                23
                
                
                
                0.2Total
                    income tax expense and effective rate
                
                $
                4,427
                
                
                
                40.6
                
                
                $
                4,134
                
                
                
                39.8
                
                
                $
                3,887
                
                
                
                38.9
  Deferred
          income taxes at December 31, 2008, 2007, and 2006 were comprised of the
          following:
 For
                    the Year Ended December 31,In
                    thousands
                
                2008
                
                
                2007
                
                
                2006Deferred
                    tax assets related to:Federal
                    alternative minimum tax credit carry-forwards
                
                $
                2,495
                
                
                $
                2,550
                
                
                $
                1,941Federal
                    and state operating loss carry-forwards
                
                
                5,330
                
                
                
                3,500
                
                
                
                5,384Bad
                    debt allowance
                
                
                83
                
                
                
                120
                
                
                
                83Valuation
                    allowance
                
                
                (71
                )
                
                
                (88
                )
                
                
                (121
                )Stock
                    options
                
                
                ---
                
                
                
                ---
                
                
                
                145Other
                
                
                242
                
                
                
                234
                
                
                
                247Total
                    deferred tax assets
                
                $
                8,079
                
                
                $
                6,316
                
                
                $
                7,679Deferred
                    tax liabilities related to:Property
                    plant and equipment basis differences
                
                $
                (37,151
                )
                
                $
                (31,087
                )
                
                $
                (28,766
                )Expenses
                    of rate proceedings
                
                
                (149
                )
                
                
                (56
                )
                
                
                (102
                )Property
                    taxes
                
                
                (445
                )
                
                
                (420
                )
                
                
                (368
                )Other
                
                
                (220
                )
                
                
                (224
                )
                
                
                (232
                )Total
                    deferred tax liabilities
                
                $
                (37,965
                )
                
                $
                (31,787
                )
                
                $
                (29,468
                )Net
                    deferred tax liability
                
                $
                (29,886
                )
                
                $
                (25,471
                )
                
                $
                (21,789
                )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
                
                $
                (363
                )
                
                $
                (301
                )
                
                $
                (284
                )Non-current
                    deferred tax liability
                
                
                (29,523
                )
                
                
                (25,170
                )
                
                
                (21,505
                )Net
                    deferred tax liability
                
                $
                (29,886
                )
                
                $
                (25,471
                )
                
                $
                (21,789
                )
  55
 Table
              of Contents
  NOTE
          4
 
 PREFERRED
          STOCK
 
 As
          of
          December 31, 2008 and 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 $20.4 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 18,209,
          17,791 and 15,388 shares (as adjusted for the June 30, 2006 three for two
          stock
          split) at fair market value for the investment of $317,000, $344,000, and
          $335,000 of their monies in the years 2008, 2007, and 2006,
          respectively.
 
 NOTE
          6
 
 DEBT
 
 Artesian
          Water and Artesian Water Maryland have available two shared unsecured lines
          of
          credit, with no financial covenant restrictions, totaling $40.0 million
          at
          December 31, 2008, which are renewable annually at each of the bank’s
          discretion.  The interest rate for borrowings under one of these lines
          is the London Interbank Offering Rate, or “LIBOR,” plus 0.75% or, at our
          discretion, the bank’s federal funds rate plus 1.00%.  The interest
          rate for borrowings under the other line of credit is the LIBOR plus 1.00%
          or,
          at our discretion, the bank’s federal funds rate plus 1.00%.  Each
          bank reviews all of their facilities annually for renewal.
 
 At
          December 31, 2008 and 2007 we had $7.0 million and $0.9 million outstanding
          under these lines at average interest rates of 2.0% and 6.2%,
          respectively.  The maximum amount outstanding was $18.0 million and
          $7.4 million in 2008 and 2007, respectively.  The twelve-month average
          amount outstanding was approximately $12.7 million and $5.3 million at
          weighted
          average annual interest rates of 3.4% and 5.9% in 2008 and 2007,
          respectively.
 
 56
 Table
              of Contents
  At
          December 31, 2008, 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, 2008, Artesian
          Wastewater had $4.2 million of available funds while Artesian Utility had
          not
          borrowed funds under its line of credit. The interest rate for borrowings
          under
          each of these lines is the LIBOR plus 1.75%.  The bank reviews its
          facilities annually for renewal.
 
 On
          June
          30, 2008, Artesian Utility signed an agreement with Northern Sussex Regional
          Water Recycling Complex, LLC, or NSRWRC.  Under the terms of the
          agreement, Artesian Resources acts as the guarantor of NSRWRC’s $10 million
          construction loan secured by land.  As of December 31, 2008 NSRWRC had
          $3.3 million of available funds under the construction loan.  The
          interest rate on the guarantee is variable based on LIBOR Advantage Rate
          plus
          225 basis points.  In the event of a default by NSRWRC, Artesian
          Resources shall pay the bank the amount due of the obligations or, on demand
          of
          the bank, immediately deposit all amounts due under the obligation.
 
 On
          August
          1, 2008, Artesian Water Maryland executed a promissory note, the Note,
          in the
          amount of approximately $2.3 million to Sunrise, that bears interest at
          a
          variable interest rate based upon the London Interbank Offering Rate plus
          150
          basis points.  The Note is payable in four equal installments,
          commencing on the first anniversary of the closing date.  The Note is
          secured by a first lien security interest in all of Mountain Hill’s assets in
          favor of Sunrise and is guaranteed by Artesian Resources.
 
 On
          December 1, 2008, Artesian Water Company and CoBank, ACB, entered into
          a Bond
          Purchase Agreement, or the Agreement, relating to the issue and sale by
          the
          Company to CoBank of a $15 million principal amount First Mortgage Bond,
          or the
          Bond, Series S, due December 31, 2033, or the Maturity Date.  The Bond
          was issued pursuant to the Company’s Indenture of Mortgage dated as of July 1,
          1961, as amended and supplemented by supplemental indentures, including
          the
          Twentieth Supplemental Indenture, dated as of December 1, 2008 or the
          Supplemental Indenture, from the Company to Wilmington Trust Company, as
          Trustee, or the Indenture.  The Indenture is a first mortgage lien
          against substantially all of the Company’s utility plant.  Proceeds of
          the sale of the Bond were used to repay short-term indebtedness which was
          used
          to finance the expansion of the Company’s headquarters building in New Castle
          County, Delaware.  The issuance of the Bond was approved by the
          Delaware Public Service Commission on November 21, 2008.
 
 The
          Bond
          carries an annual interest rate of 6.73% through March 1, 2016, or the
          Initial
          Period.  After March 16, 2016, the Company can request that the annual
          interest rate be fixed by CoBank in its sole and absolute discretion for
          a
          period through the Maturity Date or for such shorter periods as mutually
          agreed
          by the Company and CoBank.  Interest is payable on the first business
          day of January, April, July and October in each year, beginning with the
          first
          business day of January, 2009, until the Company’s obligation with respect to
          the payment of such principal and interest shall be discharged.  In
          addition, the Bond is subject to redemption in a principal amount equal
          to
          $150,000 per calendar quarter, payable on the first business day of January,
          April, July and October in each year, beginning with the first business
          day of
          January, 2009, with all remaining principal due and payable on December
          31,
          2033.  Overdue payments of such principal and interest shall bear
          interest as provided in the Supplemental Indenture.
 
 The
          Agreement contains customary default provisions where the Bond will become
          due
          and payable no less than 30 days from notice received by CoBank, referred
          to as
“Events of Redemption.”  In the event that any Event of Redemption
          should occur and be continuing, CoBank shall have the right to require
          the
          Company, and the Company shall be obligated, to redeem all bonds then held
          by
          CoBank.  The bonds shall be redeemed at a price equal to the sum of
          (i) the aggregate principal amount to be redeemed, (ii) the interest accrued
          thereon through the date of redemption and (iii) a make-whole amount as
          described in the Supplemental Indenture.  The Bond was issued in a
          private placement in reliance on exemptions from registration under the
          Securities Act of 1933, pursuant to the terms of the Bond Purchase
          Agreement.
 
 As
          of
          December 31, 2008, 2007 and 2006, 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
          662⁄3% 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, 2008, however, no dividend restrictions
          were imposed under these covenants.
 57
 Table
              of Contents
  Long-term
          debt consists of:
 
 December
                    31,In
                    thousands
                
                2008
                
                
                2007First
                    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
                
                
                
                25,000Series
                    S, 6.73%, due December 31, 2033
                
                
                15,000
                
                
                
                ---100,400
                
                
                
                85,400State
                    revolving fund loans4.48%,
                    due August 1, 2021
                
                
                3,209
                
                
                
                3,3873.57%,
                    due September 1, 2023
                
                
                1,201
                
                
                
                1,2613.64%,
                    due May 1, 2024
                
                
                1,940
                
                
                
                2,0256,350
                
                
                
                6,673Notes
                    PayablePromissory
                    Note, variable interest, due August 1, 2012
                
                
                2,321
                
                
                
                ---2,321
                
                
                
                ---Sub-total
                
                
                109,071
                
                
                
                92,073Less:
                    current maturities (principal amount)
                
                
                1,516
                
                
                
                316Total
                    long-term debt
                
                $
                107,555
                
                
                $
                91,757
 
 Payments
                    of principal due during the next five years and
                    thereafter:In
                    thousands
                
                2009
                
                
                2010
                
                
                2011
                
                
                2012
                
                
                2013
                
                
                ThereafterFirst
                    Mortgage bonds
                
                $
                600
                
                
                
                600
                
                
                
                600
                
                
                
                600
                
                
                
                600
                
                
                
                97,400State
                    revolving fund loans
                
                
                336
                
                
                
                350
                
                
                
                364
                
                
                
                380
                
                
                
                395
                
                
                
                4,526Notes
                    Payable
                
                
                580
                
                
                
                580
                
                
                
                580
                
                
                
                580
                
                
                
                ---
                
                
                
                ---Total
                    payments
                
                $
                1,516
                
                
                
                1,530
                
                
                
                1,544
                
                
                
                1,560
                
                
                
                995
                
                
                
                101,926
  58
 Table
              of Contents
  NOTE
          7
 
 NON-UTILITY
          OPERATING REVENUE AND EXPENSES
 
 Non-utility
          operating revenue consisted of $2,937,000, $1,942,000, and $1,458,000 recognized
          by Artesian Utility in 2008, 2007 and 2006, respectively.  In
          addition, $796,000 and $422,000 was from Artesian Resource's water and
          wastewater Service Line Protection Plans in 2008 and 2007
          respectively.  The Service Line Protection Plans provide coverage for
          all material and labor required to repair or replace participants’ leaking water
          and leaking or clogged wastewater service lines up to an annual
          limit.  An additional $332,000 in revenue was recognized in 2008 from
          Artesian Consulting for design and engineering services to developers for
          residential and commercial development
 
 Artesian
          Utility was formerly a one-third participant in a limited liability company
          called AquaStructure Delaware, L.L.C., or AquaStructure, that was dissolved
          on
          May 30, 2008.  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.
 
 Non-utility
          operating expenses are as follows:
 
 In
                    thousands
                
                2008
                
                
                2007
                
                
                2006Artesian
                    Utility
                
                $
                1,934
                
                
                $
                1,528
                
                
                $
                1,205Artesian
                    Resources
                
                
                562
                
                
                
                232
                
                
                
                211Artesian
                    Consulting
                
                
                221
                
                
                
                ---
                
                
                
                ---Artesian
                    Development
                
                
                ---
                
                
                
                ---
                
                
                
                3Total
                
                $
                2,717
                
                
                $
                1,760
                
                
                $
                1,419
 
 NOTE
          8
 
 STOCK
          COMPENSATION PLANS
 
 In
          1992,
          the Company instituted the 1992 Non-Qualified Stock Option Plan, which
          was
          subsequently amended in 1998.  The number of authorized shares was
          375,000.  Options to purchase shares of Class A Stock were granted to
          employees and directors of the Company.  Employees who were not
          executive officers or directors were eligible to receive options priced
          at not
          less than 85% of the fair market value on the date of grant, option prices
          for
          directors and officers of the Company was 90% of the fair market
          value.  Effective May 25, 2005, no additional grants will be made from
          this plan.
 
 59
 Table
              of Contents
  In
          1996,
          the Company instituted the Incentive Stock Option 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 Company accelerated vesting for certain
          incentive stock options held by officers and directors in anticipation
          of the
          Company’s adoption of SFAS 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.
  The
          following summary reflects changes in the shares of Class A Stock under
          option:
 
 2008
                  Shares
                
                
                2008
                  Weighted
                  Average
                  Exercise
                  Price
                
                
                2007
                  Shares
                
                
                2007
                  Weighted
                  Average
                  Exercise
                  Price
                
                
                2006
                  Shares
                
                
                2006
                  Weighted
                  Average
                  Exercise
                  PricePlan
                    optionsOutstanding
                    at beginning of year
                
                
                574,696
                
                
                $
                14.62
                
                
                
                595,699
                
                
                $
                13.83
                
                
                
                571,686
                
                
                $
                13.29Granted
                
                
                33,750
                
                
                $
                18.43
                
                
                
                33,750
                
                
                $
                19.56
                
                
                
                33,750
                
                
                $
                21.11Exercised
                
                
                (59,525
                )
                
                $
                10.46
                
                
                
                (48,003
                )
                
                $
                7.61
                
                
                
                (9,577
                )
                
                $
                7.28Canceled
                
                
                (18,000
                )
                
                $
                20.23
                
                
                
                (6,750
                )
                
                $
                19.56
                
                
                
                (160
                )
                
                $
                18.46Outstanding
                    at end of year
                
                
                530,921
                
                
                $
                15.14
                
                
                
                574,696
                
                
                $
                14.62
                
                
                
                595,699
                
                
                $
                13.83Options
                    exercisable at year end
                
                
                497,171
                
                
                $
                14.92
                
                
                
                547,696
                
                
                $
                14.38
                
                
                
                561,949
                
                
                $
                13.40Weighted
                    average fair value ofoptions
                    granted during the year
                
                
                
                
                
                $
                18.43
                
                
                
                
                
                
                $
                19.56
                
                
                
                
                
                
                $
                21.11
 
 The
          weighted-average grant-date fair value of options granted during 2008,
          2007, and
          2006 were $3.60, $4.85, and $3.81 respectively.  The total intrinsic
          value of options exercised during 2008 was $432,000.  There were no
          fully vested shares granted during 2008.  During 2008, we received
          $622,000 in cash from the exercise of options, with a $418,000 tax benefit
          realized during the period.
 
 60
 Table
              of Contents
  The
          following tables summarize information about employee and director stock
          options
          outstanding at December 31, 2008:
 
 Options
                    OutstandingRange
                    of
                  Exercise
                    Price
                Shares
                    Outstanding
                  at
                    December 31, 2008
                Weighted
                    Average
                  Remaining
                    Life
                Weighted
                    Average
                  Exercise
                    Price$8.50
                    - $16.13
                330,671
                3.25
                    Years
                $12.40$18.43
                    - $21.11
                200,250
                7.62
                    Years
                $19.66Options
                    ExercisableRange
                    of
                  Exercise
                    Price
                Shares
                    Exercisable
                  at
                    December 31, 2008
                Weighted
                    Average
                  Exercise
                    Price$8.50
                    - $16.13
                330,671
                $12.40$18.43
                    - $21.11
                166,500
                $19.91
 
 As
          of
          December 31, 2008, there was $44,604 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 2008, 2007 and 2006.  The 401(k)
          Plan expenses, which include Company contributions and administrative fees,
          for
          the years 2008, 2007 and 2006, were approximately $617,000, $541,000, and $527,000,
          respectively.
 
 61
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              of Contents
  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 DEPSC 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 $44,000, $59,000, and
          $70,000 for 2008, 2007 and 2006, 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 2008, 2007 and 2006 were approximately
          $276,000, $288,000, and $276,000, 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 SFAS 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 SFAS 71.Additional
          disclosures required for our postretirement benefit obligation are presented
          below.
  62
 Table
              of Contents
 
 Benefit
                    Obligations and Funded StatusIn
                    thousands
                
                Year
                    EndingDecember
                    312008
                
                
                2007Change
                    in Accumulated Postretirement Benefit ObligationAccumulated
                    Postretirement Benefit Obligation at the Beginning of the
                    Year
                
                $
                944
                
                
                $
                862Service
                    Cost
                
                
                ---
                
                
                
                ---Interest
                    Cost
                
                
                53
                
                
                
                49Actuarial
                    (Gain) or Loss
                
                
                (91
                )
                
                
                126Benefits
                    Paid
                
                
                (109
                )
                
                
                (97
                )Plan
                    Participant's Contributions
                
                
                4
                
                
                
                4Accumulated
                    Postretirement Benefit Obligation at the End of the Year
                
                
                801
                
                
                
                944Change
                    in Plan AssetsFair
                    Value of Plan Assets at the Beginning of the Year
                
                
                ---
                
                
                
                ---Benefits
                    Paid
                
                
                (109
                )
                
                
                (97
                )Employer
                    Contributions
                
                
                105
                
                
                
                93Plan
                    Participant's Contributions
                
                
                4
                
                
                
                4Fair
                    Value of Assets at the End of the Year
                
                
                ---
                
                
                
                ---Net
                    Amount RecognizedFunded
                    Status
                
                
                (801
                )
                
                
                (944
                )Unrecognized
                    Transition Obligation (Asset)
                
                
                43
                
                
                
                51Unrecognized
                    Net (Gain) or Loss
                
                
                (166
                )
                
                
                (75
                )Net
                    Amount Recognized:
                
                
                (924
                )
                
                
                (968
                )Amounts
                    Recognized in the Statement of Financial PositionAccrued
                    Benefit Liability-Current
                
                
                (112
                )
                
                
                (100
                )Accrued
                    Benefit Liability-Noncurrent
                
                
                (812
                )
                
                
                (868
                )Net
                    Amount Recognized
                
                $
                (924
                )
                
                $
                (968
                )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
                
                2015
                
                
                2014
   63
 Table
              of Contents
  Net
                    Periodic Benefit CostYear
                    EndingDecember
                    31In
                    thousands
                
                2008
                
                
                2007
                
                
                2006Interest
                    Cost
                
                $
                53
                
                
                $
                48
                
                
                $
                51Amortization
                    of Net (Gain) or Loss
                
                
                ---
                
                
                
                (23
                )
                
                
                (27
                )Amortization
                    of Transition Obligation/(Asset)
                
                
                9
                
                
                
                9
                
                
                
                9Total
                    Net Periodic Benefit Cost
                
                $
                62
                
                
                $
                34
                
                
                $
                33Weighted
                    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
                
                2015
                
                
                2014
                
                
                2013
 
 Impact
                    of One-Percentage-Point Change in Assumed Health Care Cost Trend
                    RatesIncrease
                
                
                DecreaseEffect
                    on Service Cost & Interest Cost
                
                $
                3
                
                
                $
                (3
                )Effect
                    on Postretirement Benefit Obligation
                
                $
                35
                
                
                $
                (33
                )
 
 Contributions
 Artesian
          Water expects to contribute $112,000 to its postretirement benefit plan
          in
          2009.
 The
          following table represents the benefits expected to be paid:
 In
                    thousands
                
                Other
                    Benefits2009
                
                $
                1122010
                
                
                1122011
                
                
                1122012
                
                
                1122013
                
                
                1122014
                    through 2018
                
                
                500$
                1,060
  64
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  NOTE
          10
 
 COMMITMENTS
          AND CONTINGENCIES
 
 Leases
 
 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 2008 and 2007 were $77,000 and $25,000, respectively.
 
 In
          October 1997, Artesian Water entered into a 33-year operating lease for
          a parcel
          of land with improvements located in South Bethany, a municipality in Sussex
          County, Delaware.  The annual lease payments increase each year by the
          most recent increase in the Consumer Price Index for Urban Workers, CPI-U,
          as
          published by the U.S. Department of Labor, Bureau of Labor
          Statistics.  Rental payments for 2008, 2007 and 2006 were $12,600,
          $11,900, and $11,400, respectively.  The future minimum rental payment
          as disclosed in the following table is calculated using CPI-U as of October
          31,
          2008.
 
 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 2008, 2007 and 2006 were $29,000, $28,000
          and $27,000, respectively.
 
 During
          2006, Artesian Water entered into a 3-year contract for office space located
          in
          Sussex County, Delaware.  Rent payments for 2008 and 2007 were $46,000
          and $43,000, 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.  Payments
          for 2008 and 2007 were $40,000 each year.  The agreement can be
          terminated by giving 180-day notice prior to the termination date.
  Future
          minimum annual rental payments under the above mentioned lease obligations
          for
          the years subsequent to 2008 are as follows:
 
 In
                    thousands2009
                
                $
                1772010
                
                
                972011
                
                
                452012
                
                
                472013
                
                
                472014
                    through 2042
                
                
                1,802$
                2,215
  65
 Table
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  Interconnections
 
 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.
 
 The
          Chester Water Authority sent us a notice on February 14, 2007 of a rate
          increase, effective July 1, 2007.  We received a second notice of a
          rate increase on February 19, 2008, effective July 1, 2008.  The
          minimum annual purchase commitments for all interconnection agreements
          for 2009
          through 2013 and the aggregate total for the years 2014 through 2021, calculated
          at the noticed rates, are as follows:
 
 
 In
                    thousands2009
                
                $
                3,0502010
                
                
                3,0502011
                
                
                3,0502012
                
                
                3,0592013
                
                
                3,0502014
                    through 2021
                
                
                24,412$
                39,671
 
 Expenses
          for purchased water were $2,960,000, $2,775,000, and $3,152,000 for the
          years
          ended December 31, 2008, 2007 and 2006, respectively.
 
 Other
          Commitments
 
 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 2008, 2007 and 2006 was $425,000, $416,000, and
          $241,000.  The expenditures committed for the years subsequent to 2008
          are as follows:
 
 In
                    thousands2009
                
                $
                3752010
                
                
                3752011
                
                
                174$
                924
  66
 Table
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  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 2009 through 2013 are as follows:
 
 In
                    thousands2009
                
                $
                5642010
                
                
                2,4102011
                
                
                1,2502012
                
                
                1,2252013
                
                
                1,000$
                6,449
 
 The
          exact
          timing and extent of these relocation projects is controlled primarily
          by the
          Delaware Department of Transportation.
 
 NOTE
          11
 
 NORTHERN
          SUSSEX REGIONAL WATER RECYCLING COMPLEX, LLC
 
 On
          June
          30, 2008, Artesian Utility signed an agreement with Northern Sussex Regional
          Water Recycling Complex, LLC, or NSRWRC, for the design, construction and
          operation of the Northern Sussex Regional Water Recycling Complex, a wastewater
          treatment facility to be located in Sussex County, Delaware.  NSRWRC
          was created for the sole purpose of developing the treatment facility site,
          which once constructed, will be operated by the Company.  The Company
          has determined that NSRWRC constitutes a variable interest entity, or VIE,
          as
          defined by Financial Accounting Standards Board Interpretation No. 46(R)
          “Consolidation of Variable Interest Entities,” or FIN 46(R).  The
          Company is the primary beneficiary of NSRWRC by contract and, accordingly,
          consolidates the results of NSRWRC in its financial statements as required
          under
          FIN 46(R).  All inter-company balances and transactions related to the
          VIE have been eliminated in consolidations in accordance with the guidance
          set
          forth in Accounting Research Bulletin No. 51 “Consolidated Financial
          Statements,” or ARB 51.
 
 The
          Company, by contract, has control over the design and construction of the
          treatment facility.  NSRWRC is financially responsible for designing
          and building the treatment facility.  Under the terms of the
          agreement, Artesian Resources acts as the guarantor of a $10 million
          construction loan, secured by a 75 acre parcel purchased by NSRWRC on July
          1,
          2008 for approximately $5 million.  The interest rate on the
          construction loan is variable based on LIBOR Advantage Rate plus 225 basis
          points.  The line of credit includes provisions that require Artesian
          Resources to assume the debt and all liabilities arising from that debt
          under
          certain circumstances, including the bankruptcy of NSRWRC.  In the
          event of default by NSRWRC, Artesian Resources shall pay NSRWRC's obligations
          due to the financial institution; or on demand of the financial institution
          immediately deposit all amounts due under the obligation.  As of
          December 31, 2008, approximately $6.7 million has been drawn on the loan,
          which
          is included in the Lines of Credit on our Consolidated Balance
          Sheet.  As of December 31, 2008, approximately $6.8 million is
          included in non-utility property and was comprised of the land and construction
          in progress of the facility.  The entire capitalization of NSRWRC is
          comprised of the amounts borrowed against the $10 million construction
          loan.  In connection with the purchase of the treatment facility site,
          as of June 30, 2008, Artesian Utility agreed to commit $3.0 million, payable
          over 10 years, to NSRWRC.  The net present value of this obligation as
          of December 31, 2008 is approximately $2.2 million.  There has been a
          nominal investment in NSRWRC by the owner of NWRWRC.  The treatment
          facility will be owned by NSRWRC until the initial loan to the treatment
          facility is repaid.  At that time, the treatment facility will be
          transferred to the Company for nominal value as contributed
          property.  Immediately following the transfer of the treatment
          facility and extinguishment of debt, NSRWRC will be dissolved.
 
 67
 Table
              of Contents
  NOTE
          12
 
 RELATED
          PARTY TRANSACTIONS
 
 The
          Company has entered into transactions in the normal course of business
          with
          related parties.  The owner of NSRWRC is the sole owner of Meridian
          Architects and Engineers, LLC, or Meridian Architects, and Meridian Enterprises,
          LLC, or Meridian Enterprises.  The Company has utilized Meridian
          Architects and Meridian Enterprises for various consulting services during
          the
          year ended December 31, 2008.  As of December 31, 2008, approximately
          $450,000 was paid to Meridian Architects and approximately $488,000 was
          paid to
          Meridian Enterprises in connection with these consulting
          services.  Approximately $35,000 was paid to Meridian Enterprises as
          of December 31, 2008 for office space rental.  Also, as of December
          31, 2008, the Company had accounts receivable balances for engineering
          services
          due from the following entities, all of which are owned by the owner of
          NSRWRC:  Meridian Architects of approximately $51,000, Landlock, LLC
          of approximately $109,000, and Peninsula Square, LLC of approximately
          $9,000.  All services were provided in the ordinary course of business
          at fees and on terms and conditions that the Company believes are the same
          as
          those that would result from arm’s-length negotiations between unrelated
          parties.
 
 NOTE
          13
 
 ACQUISITION
          OF MOUNTAIN HILL WATER COMPANY
 
 On
          August
          1, 2008, Artesian Water Maryland completed its acquisition of all the
          outstanding membership interests of Mountain Hill, from its sole member,
          Sunrise, for a purchase price of approximately $7.1 million.  The
          purchase price included reimbursement of all carrying costs through the
          date of
          acquisition, which resulted in the recognition of goodwill.  The
          acquisition included a 0.3 million gallon per day water treatment facility,
          four
          wells with a capacity of up to 500,000 gallons per day, a 500,000 gallon
          elevated storage tank and approximately eight miles of main, all situated
          within
          the core of Cecil County, Maryland’s designated growth corridor.  The
          acquisition provides Artesian Water Maryland the right to serve the entire
          8,000
          acres owned by Sunrise or its associates.  Mountain Hill serves two
          commercial accounts in the Principio Business Park, located within Cecil
          County’s designated growth corridor.  Mountain Hill will also provide
          water service to future customers in the Principio Business Park and will
          provide water service to the proposed 660 home residential development
          of
          Charlestown Crossing as well as the surrounding area.
 
 Approximately
          $4.8 million of the total purchase price was paid at closing.  The
          $4.8 million is comprised of a down payment of $0.6 million, payment of
          the
          closing debt of $4.0 million and an easement payment of $0.2
          million.  The cash used at closing came from the Company’s available
          line of credit.  In addition, on the closing date, Artesian Water
          Maryland executed a promissory note in the amount of approximately $2.3
          million
          to Sunrise, or the Note, that bears interest at a variable interest rate
          based
          upon the London Interbank Offering Rate plus 150 basis points.  The
          Note is payable in four equal installments, commencing on the first anniversary
          of the closing date.  The Note is secured by a first lien security
          interest in all of Mountain Hill’s assets in favor of Sunrise and is guaranteed
          by Artesian Resources.
 
 Assets
          acquired and liabilities assumed are recorded in the accompanying consolidated
          balance sheet at their estimated fair values as of August 1, 2008.  A
          summary of the allocation of purchase price to the assets acquired and payments
          made as of August 1, 2008 is presented in the table below.
  (In
                    thousands)
                
                August
                    1, 2008Current
                    assets
                
                $
                10Property,
                    plant and equipment
                
                
                6,507Intangible
                    assets
                
                
                204Goodwill
                
                
                372Purchase
                    Price
                
                $
                7,093Down
                    payment
                
                $
                (580
                )Closing
                    debt payment
                
                
                (3,992
                )Easement
                    Payment
                
                
                (200
                )Promissory
                    Note
                
                
                (2,321
                )Total
                    Payments
                
                $
                (7,093
                )
 68
 Table
              of Contents
 
 NOTE
          14
 
 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 DEPSC, the PAPUC and the
          MDPSC.  As of December 31, 2008, Artesian Water was serving 75,800
          customers, Artesian Water Pennsylvania was serving 38 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 DEPSC 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, 2008, Artesian Wastewater was serving 632
          customers.
 
 NOTE
          15
 
 RATE
          PROCEEDINGS
 
 Our
          water
          and wastewater utilities generate operating revenue from customers based
          on
          rates that are established by state Public Service Commissions through
          a rate
          setting process that may include public hearings, evidentiary hearings
          and the
          submission of evidence and testimony in support of the requested level
          of rates
          by our company.
 
 In
          May
          2006, Artesian Water filed a petition with the DEPSC 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 DEPSC.
 
 On
          December 19, 2006, the DEPSC 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.
 
 69
 Table
              of Contents
  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.  In December 2007, we filed for a 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.  During 2008, we earned
          approximately $99,000 in DSIC revenue.  On June 21, 2008, the Company
          discontinued the collection of DSIC pursuant to Delaware law which requires
          the
          Company to discontinue a DSIC when new base rates are put into
          effect.  We did not have DSIC in effect during 2007.
 
 On
          January 25, 2008, Artesian Water submitted a notice to the DEPSC of our
          intent
          to file an application for a rate increase, as is required to be submitted
          prior
          to filing an application.  On April 22, 2008, Artesian Water filed a
          petition with the DEPSC to implement new rates to meet a requested increase
          in
          revenue of 28.8%, or approximately $14.2 million, on an annualized
          basis.  On July, 11, 2008, pursuant to the DEPSC’s minimum filing
          requirements, Artesian filed a supplemental filing with the DEPSC to update
          financial schedules for actual experience through March 31, 2008 and to
          reflect
          additional changes affecting the requested increase.  The overall
          result was a reduction to the requested increase in revenue of 1.5%, to
          27.3% or
          approximately $13.5 million, on an annualized basis.  This request was
          primarily due to the Company’s significant investment in infrastructure to
          improve and ensure water quality and service reliability.  This
          includes capital expenditures for additional supply, storage, water main
          replacements, hydraulic improvements, installation of automated meter reading
          equipment in the service territory south of the Chesapeake & Delaware canal,
          or C&D Canal, and additional space to house our critical operations and
          office support functions.  The rate request was also filed due to
          increases in various operating and maintenance costs, including increased
          costs
          associated with depreciation, purchased power, purchased water, additional
          building space and postage.  Additional reasons for this request
          include expenses related to new water system additions, the implementation
          of
          monthly billing to customers below the C&D Canal and creation of new water
          consumption blocks to provide the company an opportunity to achieve a fair
          rate
          of return.
 
 As
          permitted by law, on June 21, 2008, we placed temporary rates into effect,
          designed to generate an increase in annual operating revenue of approximately
          5.0%, or $2.5 million on an annualized basis, until new rates are approved
          by
          the DEPSC.  Also, pursuant to law, on December 17, 2008, we placed
          temporary rates into effect, designed to generate an additional increase
          in
          annual operating revenue of approximately 10% or $5.0 million on an annualized
          basis, given that the rate case had not been concluded in a seven month
          period.  Evidentiary hearings were held on December 8-9, 2008 and a
          final Commission decision is anticipated in the third quarter of 2009 in
          reference to the implementation of our requested rate increase.
 
 In
          December 2008, the MDPSC approved an application for Artesian Water Maryland
          to
          construct a water system from the Delaware state line, interconnecting
          with the
          Artesian Water system, to the Town of Elkton.  The Town of Elkton
          desired an additional source of water supply.
 
 Price
          caps instituted by electric restructuring legislation in Delaware in 1999
          were
          lifted in 2005 for customers of the Delaware Electric Cooperative, 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 Holdings, Inc. in April of 2008.  This new pricing is
          included in our most recent request for rate relief filed with the
          DEPSC.
 
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  NOTE
          16
 
 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
                
                2008
                
                
                2007
                
                
                2006Average
                    common shares outstanding during theperiod
                    for Basic computation
                
                
                7,353
                
                
                
                6,787
                
                
                
                6,055Dilutive
                    effect of employee stock options
                
                
                74
                
                
                
                149
                
                
                
                180Average
                    common shares outstanding during theperiod
                    for Diluted computation
                
                
                7,427
                
                
                
                6,936
                
                
                
                6,235
 
 Equity
          per common share was $11.94, $12.54, and $10.21 at December 31, 2008, 2007,
          and
          2006, 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
          17
 
 SELECTED
          CONSOLIDATED QUARTERLY FINANCIAL DATA (UNAUDITED)
 
 The
          following table is derived from quarterly unaudited consolidated statements
          of
          operations for the years ended December 31, 2008 and 2007.  Quarterly
          basic per share amounts do not add to the full year total due to
          rounding.
 
 First
                    Quarter
                
                
                Second
                    Quarter
                
                
                Third
                    Quarter
                
                
                Fourth
                    QuarterIn
                    thousands (except per share data)
                
                2008
                
                
                2007
                
                
                2008
                
                
                2007
                
                
                2008
                
                
                2007
                
                
                2008
                
                
                2007Operating
                    revenues
                
                $
                12,270
                
                
                $
                11,604
                
                
                $
                13,903
                
                
                $
                12,913
                
                
                $
                15,656
                
                
                $
                15,046
                
                
                $
                14,356
                
                
                $
                12,961Operating
                    income
                
                $
                1,936
                
                
                $
                2,268
                
                
                $
                2,917
                
                
                $
                2,919
                
                
                $
                4,030
                
                
                $
                4,135
                
                
                $
                3,023
                
                
                $
                2,444Net
                    income applicable to common stock
                
                $
                999
                
                
                $
                1,156
                
                
                $
                1,529
                
                
                $
                1,271
                
                
                $
                2,593
                
                
                $
                2,763
                
                
                $
                1,297
                
                
                $
                1,073Income
                    per common shareBasic
                
                $
                0.14
                
                
                $
                0.19
                
                
                $
                0.21
                
                
                $
                0.20
                
                
                $
                0.35
                
                
                $
                0.38
                
                
                $
                0.18
                
                
                $
                0.15Diluted
                
                $
                0.13
                
                
                $
                0.18
                
                
                $
                0.21
                
                
                $
                0.19
                
                
                $
                0.35
                
                
                $
                0.37
                
                
                $
                0.17
                
                
                $
                0.14
 
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              of Contents
 
 NOTE
          18
 
 IMPACT
          OF RECENT ACCOUNTING PRONOUNCEMENTS
 
 In
          September 2006, the Financial Accounting Standards Board, 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 of assets and liabilities.  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
          January 1, 2008, we adopted the provisions of SFAS 157, except as it applies
          to
          non-financial assets and non-financial liabilities for which the effective
          date
          has been delayed by one year as described below.  The adoption of SFAS
          157 did not have a material effect on our financial position or results
          of
          operations.
 
 SFAS
          157
          defines fair value as the exchange price that would be received for an
          asset or
          paid to transfer a liability (an exit price) in the principal or most
          advantageous market for the asset or liability in an orderly transaction
          between
          market participants on the measurement date.  SFAS 157 also
          establishes a fair value hierarchy which requires an entity to maximize
          the use
          of observable inputs and minimize the use of unobservable inputs when measuring
          fair value.  The standard describes three levels of inputs that may be
          used to measure fair value:
 
 Level
          1 -
          Quoted prices in active markets for identical assets or
          liabilities.
 
 Level
          2 -
          Observable inputs other than Level 1 prices such as quoted prices for similar
          assets or liabilities; quoted prices in markets that are not active; or
          other
          inputs that are observable or can be corroborated by observable market
          data for
          substantially the full term of the assets or liabilities.
 
 Level
          3 -
          Unobservable inputs that are supported by little or no market activity
          and that
          are significant to the fair value of the assets or liabilities.
  In
          December 2007, the FASB issued SFAS No. 141(R), “Business Combinations,” which
          replaces SFAS No. 141.  SFAS No. 141(R) establishes principles
          for recognizing assets and liabilities acquired in a business combination,
          contractual contingencies and certain acquired contingencies to be measured
          at
          their fair values at the acquisition date.  This statement requires
          that acquisition-related costs and restructuring costs be recognized separately
          from the business combination.  SFAS No. 141(R) is effective for
          fiscal years beginning January 1, 2009.  The Company expects to adopt
          this statement effective January 1, 2009 and does not expect it to have
          a
          material effect on the financial statements.
 
 In
          December 2007, the FASB issued SFAS No.160, “Noncontrolling Interests in
          Consolidated Financial Statements — an amendment of ARB No. 51.”  This
          statement establishes accounting and reporting standards for the noncontrolling
          interest in a subsidiary, the amount of consolidated net income attributable
          to
          the parent and to the noncontrolling interest, changes in a parent’s ownership
          interest and the valuation of retained noncontrolling equity investments
          when a
          subsidiary is deconsolidated.  This statement requires expanded
          disclosures in the consolidated financial statements that clearly identify
          and
          distinguish between the interest of the parent and the interest of the
          noncontrolling owners.  SFAS No. 160 is effective for fiscal years
          beginning January 1, 2009. The adoption of this statement will not have
          a
          material impact on the Company’s results of operations or financial
          position.
 
 72
 Table
              of Contents
  On
          February 12, 2008, the FASB issued FSP No. SFAS 157-2, "Effective Date
          of FASB
          Statement No. 157," which delays the effective date of SFAS 157 for all
          non-financial assets and non-financial 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.
 
 In
          March
          2008, the FASB issued Statement No. 161, “Disclosures about Derivative
          Instruments and Hedging Activities – Including an amendment of FASB
          No.133.”  This statement changes the disclosure requirements for
          derivative instruments and hedging activities.  Entities are required
          to provide enhanced disclosures about (a) how and why a company used derivative
          instruments, (b) how derivative instruments and related hedge items are
          accounted for under Statement 133 and its related interpretations and (c)
          how
          derivative instruments and related hedged items affect an entity’s financial
          position, financial performance, and cash flow. This Statement is effective for
          financial statements issued for fiscal years and interim periods beginning
          after
          November 15, 2008.  The Company expects to adopt this statement
          effective January 1, 2009 and does not expect it to have a material effect
          on
          the financial statements.
 
 In
          May of
          2008, the FASB issued Statement No. 162, “The Hierarchy of Generally Accepted
          Accounting Principles.”  This statement identifies the sources of
          accounting principles and the framework for selecting the principles to
          be used
          in the preparation of financial statements of nongovernmental entities
          that are
          presented in conformity with GAAP in the United States (the GAAP
          hierarchy).  This statement is effective 60 days following the SEC’s
          approval of the Public Company Accounting Oversight Board amendments to
          AU
          Section 411, “The Meaning of Present Fairly in Conformity With Generally
          Accepted Accounting Principles”.  The Company does not expect this
          Statement will have a material impact on the financial statements.
  73
 Table
              of Contents
  Report
          of
          Independent Registered PublicAccounting Firm
   Board
          of Directors and
          Stockholders
 Artesian
          Resources
          Corporation
 Newark,
          Delaware
  We
            have audited the accompanying
            consolidated balance sheets of Artesian Resources Corporation, (“the Company”)
            as of December 31, 2008 and 2007 and the related consolidated statements
            of
            operations, stockholders’ equity, and cash flows for each of the three years in
            the period ended December 31, 2008.  In connection with our audits of
            the consolidated financial statements, we have also audited the financial
            statement schedule listed in the accompanying index.  These financial
            statements and schedule are the responsibility of the Company’s
            management.  Our responsibility is to express an opinion on these
            consolidated 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 also 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
            consolidated financial statements and schedule.  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, 2008
            and 2007, and the results of its operations and its cash flows for each
            of the
            three years in the period ended December 31, 2008,in
            conformity with accounting principles
            generally accepted in the United States of America.
  Also,
            in our opinion, the financial
            statement schedule, when considered in relation to the basic consolidated
            financial statements taken as a whole, presents fairly, in all material
            respects, the information set forth therein.
  We
            also
            have audited, in accordance with the standards of the Public Company
            Accounting
            Oversight Board (United States), Artesian Resources Corporation’sinternal
            control over financial reporting as of December 31, 2008, 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,
            2009 expressed an unqualified opinion thereon.
 /s/BDO
          Seidman, LLP
 Bethesda,
          Maryland
 March
          12,
          2009
 
 74
 Table
              of Contents
 
 Item
          9. – Changesin and Disagreements With Accountants on
          Accounting and Financial Disclosures.
 
 None.
   75
 Table
              of Contents
  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, 2008, 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, 2008
          were (1) designed to ensure that material information relating to the
          Company 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 Company 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 Company’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 Company’s internal control over
          financial reporting as of December 31, 2008 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, 2008, 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, 2008 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 Company’s internal
          control over financial reporting, occurred during the fiscal quarter ended
          December 31, 2008 that has materially affected, or is reasonably likely
          to
          materially affect, the Company’s  internal control over financial
          reporting.
 
 Date:March
          12, 2009
 
 
 CHIEF
                    EXECUTIVE OFFICER:
                
                
                CHIEF
                    FINANCIAL OFFICER:/s/
                    DIAN C. TAYLOR
                
                
                /s/
                    DAVID B. SPACHTDian
                    C. Taylor
                
                
                David
                    B. Spacht
 
 76
 Table
              of Contents
  
 Item
          9B. – OtherInformation.
 
 None.
 
 77
 Table
              of Contents
  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 (“the Company”) internal control over financial reporting as of
            December 31, 2008, 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, 2008, 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, 2008 and 2007, and the related
            consolidated statements of operations, changes in stockholders’ equity, and cash
            flows for each of the three years in the period ended December 31, 2008
            and our
            reportdated
            March 12, 2009 expressedan
            unqualifiedopinionthereon.
  /s/BDO
          Seidman LLP
 Bethesda,
          Maryland
 
 March
          12,
          2009
 
 78
 Table
              of Contents
  PART
          III
 
 Item
          10. – Directors, ExecutiveOfficers and Corporate
          Governance.
 
 Name
                Age
                PositionDian
                    C. Taylor
                63
                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
                65
                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;
                    Strategic Planning, Budget and Finance; Governance and Nominating;
                    and
                    Compensation Committees.John
                    R. Eisenbrey, Jr.
                53
                Director
                    since 1993 - Owner and President of Bear Industries, Inc., a
                    privately
                    held contracting firm, for more than twenty-four 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;
                    Governance and Nominating;; and Compensation
                    Committees.Nicholle
                    R. Taylor
                41
                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.
   79
 Table
              of Contents
  William
                    C. Wyer
                62
                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; Strategic
                    Planning, Budget and Finance; Governance and Nominating; and
                    Compensation
                    Committees.Joseph
                    A. DiNunzio
                46
                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
                59
                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
                52
                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
                49
                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.
   80
 Table
              of Contents
 
 John
                    M. Thaeder
                51
                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.  Kenneth R. Biederman has been nominated for election to the
          Board of Directors at the shareholders Annual Meeting to be held May 19,
          2009.
 
 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.
 
 In
          2008,
          our Directors, other than Dian C. Taylor and Nicholle R. Taylor, whose
          fees as
          Directors are included in the Summary Compensation Table, received the
          following
          compensation:
 
 Director
          Compensation Table – 2008
 
 Name
                
                Fees
                    Earned or
                  Paid
                    in
                  Cash
                  ($)
                
                
                Option
                  Awards
                  ($)
                  (1)
                
                
                All
                    other Compensation
                  ($)
                
                
                Total
                  ($)Kenneth
                    R. Biederman
                
                
                67,450
                
                
                
                27,624
                
                
                
                ---
                
                
                
                95,074John
                    R. Eisenbrey, Jr.
                
                
                60,450
                
                
                
                27,624
                
                
                
                ---
                
                
                
                88,074William
                    C. Wyer
                
                
                64,950
                
                
                
                27,624
                
                
                
                ---
                
                
                
                92,574
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  (1)
                On
                    May 14, 2008 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 $18.430. On May
                    16, 2007,
                    all Directors, other than Nicholle R. Taylor, also received option
                    grants
                    of 6,750 shares of Class A Non-voting Common stock at exercise
                    prices at
                    the fair market value 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 SFAS No. 123R, based
                    upon the
                    assumptions made in the valuations as described in Note 1 of
                    the 2008
                    Financial Statements is reflected in the “Option Awards” column in the
                    table above.  The aggregate number of option awards outstanding
                    at December 31, 2008 for each Director is:
  Option
                      Shares Outstanding at December 31, 2008Kenneth
                      R. Biederman
                  72,000John
                      R. Eisenbrey, Jr.
                  62,389William
                      C. Wyer
                  72,000
  Compensation
            Committee
            Interlocks and Insider Participation
 
 During
          the year ended December 31, 2008, 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
          2008,
          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.
 
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  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 2008,
          the Audit Committee met seven times.
  Compensation
          Committee
 
 The
          Compensation Committee reviews the compensation and benefits provided to
          key
          management employees, officers and directors and makes recommendations
          as
          appropriate to the Board.  The 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 2008,
          the Compensation Committee met five times.
 
 Consideration
          of Director
          Candidates
 
 The
          Governance and Nominating Committee is comprised of three independent directors.
          As part of the formalized nominating procedures, the committee makes
          recommendations for Director Nominations to the full Board.  Director
          candidates nominated by stockholders are considered in the same manner,
          provided
          the nominations are submitted to the Chairman of the committee on a timely
          basis
          and in accordance with the Company’s by-laws.  Nominations for the
          election of directors for the 2009 Annual Stockholders’ Meeting were approved by
          the Governance and Nominating Committee.
 
 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 2008, 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 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.  In their analysis, the Company’s
          consultants, Astron Solutions, used salary survey data from water utility
          companies of a similar revenue size, customer base and corporate structure
          to
          make recommendations for appropriate salary ranges for the executive
          officers.  In addition, salary survey data for all organizations of a
          similar size in the Company’s immediate geographical area was
          used.  The Committee used the ranges provided by the consultants as a
          guide in determining the individual compensation levels of the executive
          officers, as well as the overall contributions made by executive towards
          the
          Company’s major objectives.  The Compensation Committee also considers
          recommendations made by the Chief Executive Officer regarding compensation
          for
          other executive officers.  The Chief Executive Officer also considers
          individual contributions made toward the Company’s objectives when making
          compensation recommendations.  The compensation levels of all
          executive officers fall within the recommended salary ranges as determined
          by
          the consultant.
 
 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.  Prior to 2007,
          most performance-based bonus 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 2008 and 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 2008,
          2007
          or 2006, except that Dian C. Taylor and Nicholle R. Taylor, in their capacity
          as
          Directors, received stock options as described below.  Ms. Nicholle R.
          Taylor was appointed to the Board of Directors in December 2007.
 
 Generally,
          each May, the Compensation Committee of the Board of Directors considers
          the
          grant of stock options for Directors.  Consistent with the grant made
          to all Directors, Ms. Dian C. Taylor and Ms. Nicholle R. Taylor on May
          14, 2008
          received grants of 6,750 shares of Class A Non-voting stock 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 received grants of 6,750 shares of
          Class A Non-voting Common stock on May 16, 2007 and May 12, 2006 under
          the same
          terms as the 2008 options.
 
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  Both
          Ms.
          Dian C. Taylor and Ms. Nicholle R. Taylor receive compensation for their
          services as Directors, which compensation is equivalent to that provided
          to all
          other Directors for retainers and Board meeting fees.  See “Director
          Compensation.”
 
 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.
 
 
 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 2008.
 
 Summary
          Compensation Table
          for 2008:
 
 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
                2008
                380,801
                72,300
                N/A
                27,624
                97,149
                577,8742007
                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, Vice President, Chief Financial Officer &
                    Treasurer
                2008
                232,356
                37,300
                N/A
                N/A
                28,019
                297,6752007
                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
                2008
                265,004
                35,700
                N/A
                N/A
                26,606
                327,3092007
                249,629
                35,700
                N/A
                N/A
                23,015
                308,3442006
                231,631
                700
                23,700
                N/A
                41,541
                297,571John
                    M. Thaeder, Senior Vice President of Operations
                2008
                249,415
                35,700
                N/A
                N/A
                18,508
                303,6242007
                227,922
                35,700
                N/A
                N/A
                13,524
                277,1462006
                192,308
                700
                23,700
                N/A
                33,970
                250,678Nicholle
                    R. Taylor, Vice President
                2008
                185,885
                35,700
                N/A
                15,378
                50,161
                287,125
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 Table
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 (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
                $17,238John
                    M. Thaeder
                1,125
                $18,377
 
 (2)
                On
                    May 14, 2008 Dian C. Taylor and  Nicholle R.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.  On May 16, 2007 and May 12, 2006, Dian C. Taylor
                    received option grants of 6,750 shares of Class A Non-voting
                    Common stock
                    under the same terms as the 2008 options.  The dollar amount
                    recognized for financial statement reporting purposes with respect
                    to the
                    fiscal year, computed in accordance with SFAS 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.
 
 (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 2008, 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
                $23,000David
                    B.
                    Spacht
                $25,300Joseph
                    A.
                    DiNunzio
                $23,000John
                    M.
                    Thaeder
                $11,500Nicholle
                    R.
                    Taylor
                $18,588
 
 (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 $17,822 in 2008.
 
 (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 2008 totaling $30,450,
                    security provided at her personal residence and personal use
                    of a
                    company-owned vehicle.
 
 Also
          included in the “All Other Compensation” column in the table above, Nicholle R.
          Taylor received $29,500 in compensation for attendance at meetings of the
          Board.
 
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 Table
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 Grants
          of
          Plan-Based Awards Table – 2008
 
 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
                    14, 2008
                N/A
                6,750
                18.43
                24,299Nicholle
                    R. Taylor
                May
                    14, 2008
                N/A
                6,750
                18.43
                24,299
 
 Ms.
          Dian
          C. Taylor and Nicholle R. Taylor were granted option awards on May 14,
          2008 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 the Grantee 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 Grantee ceases to provide
                    service
                    to the Company on account of her
                    Disability;
  (iii)
                The
                    expiration of the one-year period after Grantee 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 Grantee ceases to provide service to the Company
                    for
                    Cause.  In addition, notwithstanding the prior provisions, if
                    Grantee engages in conduct that constitutes Cause after her employment
                    or
                    service terminates, the Option shall immediately
                    terminate.
  
 87
 Table
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  Outstanding
          Equity Awards at Fiscal Year-End Table – 2008
  Option
                    AwardsName
                Number
                    of Securities Underlying Unexercised
                    Options(#) Exercisable
                Number
                    of Securities Underlying Unexercised Options
                  (#) Unexercisable
                Option
                    Exercise Price($)
                Option
                    Expiration DateDian
                    C. Taylor
                3,925
                0
                8.50
                5/18/20096,750
                0
                9.28
                5/31/20106,750
                0
                9.76
                5/30/20116,750
                0
                12.40
                6/5/20126,750
                0
                13.30
                5/21/20136,750
                0
                16.13
                5/26/201411,250
                0
                19.70
                12/20/20156,750
                0
                21.11
                5/12/20166,750
                0
                19.59
                5/16/20176,750(1)
                18.43
                5/14/2018David
                    B. Spacht
                2,425
                0
                9.33
                5/18/20096,750
                0
                10.28
                5/31/20106,750
                0
                10.85
                5/30/20116,750
                0
                12.40
                6/5/20126,750
                0
                14.85
                5/21/20136,750
                0
                16.13
                5/26/201411,250
                0
                19.70
                12/20/2015Joseph
                    A. DiNunzio
                6,750
                0
                10.28
                5/31/201011,250
                0
                10.85
                5/30/20116,750
                0
                12.40
                6/5/20126,750
                0
                14.85
                5/21/20136,750
                0
                16.13
                5/26/201411,250
                0
                19.70
                12/20/2015John
                    M. Thaeder
                4,207
                0
                10.28
                5/31/20106,750
                0
                10.85
                5/30/20116,750
                0
                12.40
                6/5/20126,750
                0
                14.85
                5/21/20136,750
                0
                16.13
                5/26/201411,250
                0
                19.70
                12/20/2015Nicholle
                    R. Taylor
                2,625
                0
                9.33
                5/18/20096,750
                0
                16.13
                5/26/1411,250
                0
                19.70
                12/20/20156,750(1)
                18.43
                5/14/2018
  (1)              
          The option grant for 6,750 will vest on May 14, 2009.
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 Option
          Exercises and Stock Vested Table – 2008
 
 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
                6,575
                57,090
                
                N/A
                N/ADavid
                    B. Spacht
                3,000
                27,247
                
                N/A
                N/AJoseph
                    A. DiNunzio
                5,625
                51,571
                
                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 March 2, 2009 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
                150,148
                2.3
                
                157,722
                17.9Kenneth
                    R. Biederman (3)(4)
                82,125
                1.2John
                    R. Eisenbrey, Jr. (3)(5)(6)
                  15
                    Albe Drive
                  Newark,
                    Delaware 19702
                101,390
                1.5
                
                45,707
                5.2Nicholle
                    R. Taylor (3)(7)(8)
                  206
                    Rothwell Drive
                  Wilmington,
                    Delaware 19804
                26,639
                
                
                279,476
                31.7William
                    C. Wyer (3)
                75,750
                1.1Joseph
                    A. DiNunzio (3)(9)
                64,339
                1.0
                
                103David
                    B. Spacht (3)
                55,655
                
                
                189John
                    M. Thaeder (3)
                65,339
                1.0
                
                1,350Louisa
                    Taylor Welcher(10)
                  219
                    Laurel Avenue
                  Newark,
                    DE  19711
                56,992
                
                
                136,006
                15.4Directors
                    and Executive Officers as a Group (10 Individuals)(3)
                739,682
                10.5
                
                484,547
                55.0
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 Table
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  (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 March 2, 2009.(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 March 2, 2009, 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 (61,425 shares); Mr. Biederman (65,250 shares);
                    Mr. Eisenbrey (55,639 shares); Ms. N. Taylor (20,625 shares);Mr.
                    Wyer
                    (62,250 shares); Mr. DiNunzio (49,500 shares); Mr. Spacht (47,425
                    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)
                100,202
                    shares were pledged by Ms. Taylor as collateral for a loan.(8)
                Includes
                    3 shares of the Class A Stock held in a custodial account for
                    Ms. Taylor’s
                    daughter.(9)
                Includes
                    16 shares of the Class A Stock held in a custodial account for
                    Mr.
                    DiNunzio’s son.(10)
                Includes
                    144 shares of the Class B Stock held jointly by Ms. Welcher’s husband and
                    son, and 391 shares of the Class A Stock held by Ms. Welcher’s husband for
                    which Ms. Welcher disclaims beneficial ownership.
 
 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.
 
 90
 Table
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  Item
          14. – Principal
          AccountantFees 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 2008 and 2007
          by the
          independent registered public accounting firm, BDO Seidman
          LLP:
 
 (In
                    thousands)
                
                2008
                
                
                2007Audit
                    Fees
                
                $
                395
                
                
                $
                548Audit-Related
                    Fees
                
                
                ---
                
                
                
                ---Tax
                    Fees
                
                
                ---
                
                
                
                ---All
                    Other
                    Fees
                
                
                ----
                
                
                
                ----Total
                    Fees
                
                $
                395
                
                
                $
                548
 
 Approximately
          60% of the total hours
          spent on audit and audit-related services for the Company for the year
          ended
          December 31, 2008 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 2008 and 2007.  The fees billed to the Company for the 401(k)
          Plan’s audit was $16,400 and $16,000 for 2008 and 2007
          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 2008
          and 2007.
 
 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 2008 and
          2007 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, 2008, 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.
 
 91
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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
                74Consolidated
                    Balance Sheets at December 31, 2008 and
                    2007
                43Consolidated
                    Statements of Operations for the three
                    years ended December 31, 2008
                44Consolidated
                    Statements of Cash Flows for the three years
                    ended December 31, 2008
                45Consolidated
                    Statements of Changes in
                    Stockholders’ Equity for the three years ended December 31,
                    2008
                46Notes
                    to Consolidated Financial
                    Statements
                47
                    - 73(2)
                Financial
                    Statement Schedule:Schedule
                    II: Valuation and Qualifying
                    Accounts
                98(3)
                Exhibits:  see
                    the exhibit list
                    below
                93
                    - 94*
                    Page number shown refers to page number in this Report on Form
                    10-K
  92
 Table
              of Contents
  ARTESIAN
          RESOURCES CORPORATION
 FORM
          10-K
          ANNUAL REPORT
 YEAR
          ENDED DECEMBER 31, 2008
  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
                  Twentieth
                      Supplemental Indenture dated as of December 1, 2008, between
                      Artesian
                      Water Company, Inc., subsidiary of the Company, and Wilmington
                      Trust
                      Company, as Trustee.  Incorporated by reference to Exhibit 4.1
                      filed with the Company's Form 8-K filed on December 4,
                      2008.4.2
                  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,
                      2005.4.3
                  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, 2003.4.4
                  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,
                      2003.4.5
                  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,
                      2002.4.6
                  Bond
                      Purchase Agreement, dated December 1, 2008 by and between Artesian
                      Water
                      Company, Inc., subsidiary of the Company, and CoBank,
                      ACB.  Incorporated by reference to exhibit 4.2 filed with the
                      Company’s form 8-K filed on December 4, 2008.10.1
                  Asset
                      Purchase Agreement between Artesian Water Maryland, Inc., subsidiary
                      of
                      the Company, and Cecil County, Maryland, dated October 7,
                      2008.  Incorporated by reference to exhibit 10.1 filed with the
                      Company’s form 8-K filed on October 10, 2008.10.2
                  Asset
                      Purchase Agreement between Artesian Wastewater Maryland, Inc.,
                      subsidiary
                      of the Company, and Cecil County, Maryland, dated October 7,
                      2008.  Incorporated by reference to exhibit 10.2 filed with the
                      Company’s form 8-K filed on October 10,
                      2008.  93
 Table
                  of Contents
  10.3
                  Asset
                      Purchase Agreement between Artesian Wastewater Maryland, Inc.,
                      subsidiary
                      of the Company, and Cecil County, Maryland, dated October 7,
                      2008.  Incorporated by reference to exhibit 10.3 filed with the
                      Company’s form 8-K filed on October 10, 2008.10.4
                  Limited
                      Liability Interest Purchase Agreement between Artesian Water
                      Maryland,
                      Inc., subsidiary of the Company, and Mountain Hill Water Company,
                      LLC,
                      dated May 5, 2008.  Incorporated by reference to exhibit 10.1
                      filed with the Company’s form 8-K filed on May 9, 2008.10.5
                  Wastewater
                      Services Agreement between Artesian Utility Development, Inc.,
                      subsidiary
                      of the Company, and Northern Sussex Regional Water Recharge
                      Complex, LLC,
                      dated June 30, 2008.  This exhibit is subject to an order
                      granting confidential treatment issued by the SEC and therefore
                      certain
                      confidential portions have been omitted as indicated by the
                      bracketed
                      language [CONFIDENTIAL PORTION DELETED].  Incorporated by
                      reference to exhibit 10.1 filed with the Company’s form 10-Q for the
                      quarter ended June 30, 2008.10.6
                  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, 2005.10.7
                  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.
                      **10.8
                  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.**10.9
                  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.**10.10
                  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.**10.11
                  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, 2008.  Valuation and
                      qualifying accounts for the years ended December 31, 2008,
                      2007 and 2006.
                      *23.1
                  Consent
                      of BDO Seidman LLP *24.1
                  Power
                      of Attorney (included on signature page). *31.1
                  Certification
                      of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
                      Act of 2002. *31.2
                  Certification
                      of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
                      Act of 2002. *32
                  Certification
                      of Chief Executive Officer and Chief Financial Officer pursuant
                      to Section
                      906 of the Sarbanes-Oxley Act of 2002. **
                  Filed
                      herewith.**
                  Compensation
                      plan or arrangement required to be filed or incorporated as
                      an
                      exhibit.
  94
 Table
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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, 2009
                By:
                    /s/ DAVID B. SPACHTDavid
                    B. SpachtChief
                    Financial Officer and Treasurer
 
 Pursuant
          to the requirements of the Securities Exchange Act of 1934, this report
          has been
          signed below by the following persons on behalf of the Registrant and in
          the
          capacities and on the dates indicated.
  
 Signature
                Title
                DatePrincipal
                    Executive Officer:/s/
                    DIAN C. TAYLORDian
                    C. Taylor
                President
                    and Chief Executive Officer
                March
                    12, 2009Principal
                    Financial and Accounting Officer:/s/
                    DAVID B. SPACHTDavid
                    B. Spacht
                Chief
                    Financial Officer and Treasurer
                March
                    12, 2009Directors:/s/
                    DIAN C. TAYLORDian
                    C. Taylor
                Director
                March
                    12, 2009/s/
                    KENNETH R. BIEDERMANKenneth
                    R. Biederman
                Director
                March
                    12, 2009/s/
                    WILLIAM C. WYERWilliam
                    C. Wyer
                Director
                March
                    12, 2009/s/
                    JOHN R. EISENBREY, JR.John
                    R. Eisenbrey, Jr.
                Director
                March
                    12, 2009/s/
                    NICHOLLE R. TAYLORNicholle
                    R. Taylor
                Director
                March
                    12, 2009
   95
 Table
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 ARTESIAN
          RESOURCES CORPORATION
 FORM
          10-K
          ANNUAL REPORT
 YEAR
          ENDED DECEMBER 31, 2008
 
 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
                Twentieth
                    Supplemental Indenture dated as of December 1, 2008, between
                    Artesian
                    Water Company, Inc., subsidiary of the Company, and Wilmington
                    Trust
                    Company, as Trustee.  Incorporated by reference to Exhibit 4.1
                    filed with the Company's Form 8-K filed on December 4,
                    2008.4.2
                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,
                    2005.4.3
                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, 2003.4.4
                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,
                    2003.4.5
                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,
                    2002.4.6
                Bond
                    Purchase Agreement, dated December 1, 2008 by and between Artesian
                    Water
                    Company, Inc., subsidiary of the Company, and CoBank,
                    ACB.  Incorporated by reference to exhibit 4.2 filed with the
                    Company’s form 8-K filed on December 4, 2008.10.1
                Asset
                    Purchase Agreement between Artesian Water Maryland, Inc., subsidiary
                    of
                    the Company, and Cecil County, Maryland, dated October 7,
                    2008.  Incorporated by reference to exhibit 10.1 filed with the
                    Company’s form 8-K filed on October 10, 2008.10.2
                Asset
                    Purchase Agreement between Artesian Wastewater Maryland, Inc.,
                    subsidiary
                    of the Company, and Cecil County, Maryland, dated October 7,
                    2008.  Incorporated by reference to exhibit 10.2 filed with the
                    Company’s form 8-K filed on October 10,
                    2008.  96
 Table
                of Contents
  10.3
                Asset
                    Purchase Agreement between Artesian Wastewater Maryland, Inc.,
                    subsidiary
                    of the Company, and Cecil County, Maryland, dated October 7,
                    2008.  Incorporated by reference to exhibit 10.3 filed with the
                    Company’s form 8-K filed on October 10, 2008.10.4
                Limited
                    Liability Interest Purchase Agreement between Artesian Water
                    Maryland,
                    Inc., subsidiary of the Company, and Mountain Hill Water Company,
                    LLC,
                    dated May 5, 2008.  Incorporated by reference to exhibit 10.1
                    filed with the Company’s form 8-K filed on May 9, 2008.10.5
                Wastewater
                    Services Agreement between Artesian Utility Development, Inc.,
                    subsidiary
                    of the Company, and Northern Sussex Regional Water Recharge Complex,
                    LLC,
                    dated June 30, 2008.  This exhibit is subject to an order
                    granting confidential treatment issued by the SEC and therefore
                    certain
                    confidential portions have been omitted as indicated by the bracketed
                    language [CONFIDENTIAL PORTION DELETED].  Incorporated by
                    reference to exhibit 10.1 filed with the Company’s form 10-Q for the
                    quarter ended June 30, 2008.10.6
                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, 2005.10.7
                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.
                    **10.8
                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.**10.9
                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.**10.10
                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.**10.11
                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, 2008.  Valuation and
                    qualifying accounts for the years ended December 31, 2008, 2007
                    and 2006.
                    *23.1
                Consent
                    of BDO Seidman LLP *24.1
                Power
                    of Attorney (included on signature page). *31.1
                Certification
                    of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
                    Act of 2002. *31.2
                Certification
                    of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
                    Act of 2002. *32
                Certification
                    of Chief Executive Officer and Chief Financial Officer pursuant
                    to Section
                    906 of the Sarbanes-Oxley Act of 2002. **
                Filed
                    herewith.**
                Compensation
                    plan or arrangement required to be filed or incorporated as an
                    exhibit.




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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, 2008
                Valuation
                  allowance for deferred tax assets
              $88,000
              ---
              ---
              $17,000
              $71,000For
                  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
              $121,000






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