U.S. Securities and Exchange Commission

Washington, D.C. 20549

(X)	ANNUAL REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES AND EXCHANGE ACT OF 1934 (Fee Required)

|For the fiscal year ended September 30, 2003
|--------------------------------------------
|Commission file number                      

|Corning Natural Gas Corporation               
|----------------------------------------------
|(Name of small business issuer in its charter)

|New York                       |  | 16-0397420         
|------------------------------ |  | -------------------
|State or other jurisdiction of |  | (I.R.S. Employer   
|incorporation or organization) |  | Identification No.)

|330 W. William St., Corning NY           |  | 14830     
|---------------------------------------- |  | ----------
|(Address of principal executive offices) |  | (Zip Code)

|Issuers telephone number |  | (607) 936-3755
|------------------------ |  | --------------

Securities registered under Section 12(b) of the Exchange Act: None

Securities registered under Section 12(g) of the Exchange Act:

Common Stock - $5.00 par value

(Title of Class)



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

Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B is not contained in this form, and no disclosure will be contained, to the best of registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSV. (X)

Revenues for 12 month period ended September 30, 2003 $27,932,000

The aggregate market value of the 435,943 shares of the Common Stock held by non-affiliates of the Registrant at the $12.10 average of bid and asked prices as of December 1, 2003 was 5,274,910.

Number of shares of Common Stock outstanding as of the close of business on December 1, 2003 = 508,191.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of Registrants Annual Report to Shareholders for the twelve month period ended September 30, 2003, and definitive proxy statement and notice of annual meeting of shareholders, dated January 2, 2004 are incorporated by reference into Part I, Part II and Part III hereof.

Information contained in this Form 10-KSB and the Annual Report to

shareholders for fiscal 2003 period which is incorporated by reference contains certain forward looking comments which may be impacted by factors beyond the control of the Company, including but not limited to natural gas supplies, regulatory actions and customer demand. As a result, actual conditions and results may differ from present expectations.



CORNING NATURAL GAS CORPORATION

FORM 10-KSB

For the 12 Month Period Ended September 30, 2003

Part I

ITEM 1 - DESCRIPTION OF BUSINESS

(a) Business Development

Corning Natural Gas Corporation (the "Company" or "Registrant"), incorporated in 1904, is a natural gas utility. The Gas Company purchases its entire supply of gas, and distributes it through its own pipeline distribution and transmission systems to residential, commercial, industrial and municipal customers in the Corning, New York area and to two other gas utilities which service the Elmira and Bath, New York areas. The Gas Company is under the jurisdiction of the Public Service Commission of New York State which oversees and sets rates for New York gas distribution companies. Effective September 15, 2003, the Company operates as five operating segments, the Gas Company, Tax Center International, Corning Mortgage, Corning Realty and Foodmart Plaza. The Tax Center provides tax preparation, accounting and payroll services to approximately 1200 clients. Corning Realty is a residential and commercial real estate business with approximately 70 agents operating in three neighboring counties. Foodmart Plaza is a retail complex consisting of eight tenants under multi-year leases anchored by a major supermarket. An equal joint venture between Elmira Savings & Loan(a local commercial bank) and Corning Mortgage Company, LLC has been formed to start a mortgage lending services company, Choice One Lending LLC.

Discontinued Operations

The assets of the Appliance Company were sold to a small group of primarily local investors and the transaction was completed in mid-September 2003. The assets, which consisted primarily of rented appliances in service, inventory, displays, equipment and vehicles were sold for $1,992,400 including the $240,000 discussed below. The Company received $1,152,400 in cash and loaned the buyers $600,000 with interest at the rate of 6.25% which is to be repaid within five years. The remaining $240,000 is to be received in $80,000 increments at the conclusion of each of three years if the newly formed Company attains specific revenue levels during each of those three periods. Assuming revenue levels are achieved, the Company could experience a pre-tax profit of $364,740 on the sale of this business of which $124,740 was recognized during fiscal 2003.

(b) Business of Issuer

(1) The Gas Company maintains a gas supply portfolio of numerous contracts and is not dependent on a single supplier. Additionally, the Gas Company has capabilities for storing 662,050 Dt through storage operations with two of its suppliers. The Gas Company had no curtailments during fiscal 2003 and expects to have an adequate supply available for its customers during fiscal 2004 providing that no abnormal conditions or actions occur.

(2) The Gas Company is franchised to supply gas service in all of the political subdivisions in which it operates.

(3) Since the Gas Companys business is seasonal by quarters, sales for each quarter of the year vary and are not comparable. Sales for different periods vary depending on variations in temperature, but the Companys Weather Normalization Clause (WNC) serves to stabilize net revenue from the effects of temperature variations. The WNC allows the Company to adjust customer billings to compensate for fluctuations in net revenue caused by temperatures which are higher or lower than the thirty year average temperature for the period. Degree days, which represent the number of degrees that the average daily temperature falls below 65 degrees Fahrenheit, totaled 7,434 for the period October 1, 2002 through September 30, 2003 and 5,629 for the same period ended September 30, 2002.

(4) The Gas Company has three major customers, Corning Incorporated, New York State Electric & Gas (NYSEG), and Bath Electric, Gas & Water Systems (BEGWS). The loss of any of these customers could have a significant impact on the Gas Companys financial results.

(5) Historically, the Gas Companys competition in the residential market has been primarily from electricity in cooking, water heating and clothes drying, and to a very small degree, in heating. The price of gas remains low in comparison to that of electricity in the Gas Companys service territory and the Gas Companys competitive position in the residential market continues to be very strong. Approximately 99% of the Gas Companys general service customers heat with gas.

Competition from oil still exists in the industrial market. The Gas Company has been able to counteract much of this competition, to date, through the transportation of customer owned gas for a transportation charge. The customer arranges for their own gas supply, then moves it through the Companys facilities for a transportation fee. The Gas Companys transportation rate is equal to the lowest unit rate of the appropriate rate classification, exclusive of gas costs, hence the profit margin is maintained.



The real estate business is a highly competitive market in which Corning Realty is well positioned. Prudential Ambrose & Shoemaker Real Estate maintains approximately 45% of the local market. Local economy and interest rates play a factor in the outcome of the market, however, Corning Realty continues to perform well. Corning Realty is the areas largest residential real estate business that is involved in over 1,000 real estate closings annually.

There is a considerable amount of competition in the mortgage lending business, however, the business plan for Choice One Lending was compiled recognizing that this company will utilize the relationships with Corning Realty.

The impact of competition is less material in the other two segments of our business. The commercial property rented out at our Foodmart Plaza is in demand with limited competition. The services provided by the Tax Center are available from various competitors. The Tax Center has maintained a steady growth of clients regardless of that competition.

(6) The Gas Company believes compliance with present federal, state and local provisions relating to the protection of the environment will not have any material adverse effect on capital expenditures, earnings and financial position of the Company and its subsidiaries.

(7) Seventy-three persons were employed by the Company in 2003 and ninety-two in 2002.

(8)	The Gas Company expects no shortage of raw materials to impact our business over the next 5 - 10 years. The Energy Information Administration indicates an increase in the efficiency of gas exploration and development is expected to result in increased gas productive capacity. As for the availability of the necessary pipes and valves for safe distribution of natural gas, the Gas Company likewise anticipates no shortages and continues to receive both gas supply and material inventory from various reliable sources.



ITEM 2 - DESCRIPTION OF PROPERTY

The Companys headquarters are located at 330 West William Street, Corning, NY. This structure is physically connected to the operations center.

The Gas Companys pipeline system is thoroughly surveyed each year. Any necessary replacements are included in the construction budget. Approximately 107 miles of transmission main, 299 miles of distribution main, 13,744 services and 89 measuring and regulating stations, along with various other property are owned by the Gas Company, except for one short section of 10" gas main which is under a long-term lease and is used primarily to serve Corning Incorporated. All of the above described property, which is owned by the Gas Company, is adequately insured and is subject to the lien of the Companys first mortgage indenture.

The Foodmart Plaza is a retail/commercial complex consisting of a major grocery store and several other businesses located on an approximately 7 acre lot at 328 Park Avenue, South Corning, NY. The main building includes 2 retail stores which covers 48,300 square feet and an additional 6 buildings totaling 10,775 square feet house 7 other businesses. The property is well maintained and its overall condition remains very good. All of the above described property, which is owned by the Appliance Company, is adequately insured and is subject to a lien agreement with a local bank.

The Tax Center and Realty businesses are operated out of the Companys West William Street complex in combination with rented office space in various locations. The Tax Center and Realty companies own no buildings at this time.

ITEM 3 - LEGAL PROCEEDINGS

The Company is not a party to any material pending legal proceedings, nor is the Company aware of any cases of any consequence which it anticipates may result in legal proceedings.

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

No matters were submitted to a vote of security holders during the fourth quarter of fiscal 2003.



Additional Item

Executive Officers of the Registrant

(Including Certain Significant Employees)

|                    |     | Business Experience                | Years Served  
|------------------- | --- | ---------------------------------- | --------------
|Name                | Age | During Past 5 Years                | In This Office
|                    |     |                                    |               
|Thomas K. Barry     | 58  | Chairman of the Board of Directors | 10            
|                    |     | President & C.E.O                  | 19            
|                    |     |                                    |               
|Russell S. Miller   | 40  | Vice President - Operations        | 4             
|                    |     | Gas Supply Manager                 | 4             
|                    |     |                                    |               
|Kenneth J. Robinson | 59  | Executive Vice President           | 12            
|                    |     |                                    |               
|Gary K. Earley      | 49  | Secretary & Treasurer              | 1             
|                    |     | Treasurer                          | 11            
|                    |     |                                    |               
|Stanley G. Sleve    | 53  | Vice President-Business Dev        | 6             

Term of office is one year.(Normally from February to February)

Part II

ITEM 5 - MARKET FOR THE REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

The principal market on which the Registrants common stock is traded, the range of high and low bid quotations for each quarterly period during the past two years, the amount and frequency of dividends, and a description of restrictions upon the Registrants ability to pay dividends, appear in the table below. The number of stockholders of record of the Registrants Common

Stock was 294 September 30, 2003. The high and low bid quotations reflect inter-dealer prices, without retail markup, markdown or commission and may not represent actual transactions.

MARKET PRICE - (OTC)

|                   |  |       |       | Dividend
|------------------ |  | ----- | ----- | --------
|Quarter Ended      |  | High  | Low   | Declared
|December 31, 2001  |  | 21.25 | 18.75 | $.325   
|March 31, 2002     |  | 24.00 | 21.00 | .325    
|June 30, 2002      |  | 22.00 | 18.50 | 0.00    
|September 30, 2002 |  | 19.25 | 11.00 | 0.00    
|December 31, 2002  |  | 12.25 | 11.10 | 0.00    
|March 31, 2003     |  | 14.50 | 11.75 | 0.00    
|June 30, 2003      |  | 14.00 | 13.30 | 0.00    
|September 30, 2003 |  | 15.00 | 14.00 | 0.00    





Under the terms of a $4,700,000 senior note issued September 5, 1997, the Company may not declare or pay any dividend, or cause any other payment from retained earnings except to the extent that consolidated tangible net worth of the Company exceeds $2,000,000.

ITEM 6 - MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Managements discussion of financial condition and results of operations of the Company appears in the 2003 Annual Report to Shareholders which is incorporated by reference.

Managements Plans:

Management believes that the following items will contribute to both a return to positive earnings and cash flow for the coming year: 1) Fiscal year 2003 results do not reflect the total benefit to be derived from the rate increase approved by the New York State Public Service Commission (the "Commission") in our previously settled rate case. Since the effective date was January 11, 2003 three months of the increase were not included in the fiscal year 2003 results from operations. This amount is estimated to be in excess of $100,000. 2) The Company was not permitted by the Commission to record up to $174,000 of revenues until certain milestones were met at the end of the rate year, December 31, 2003. The Company will petition the Commission to include these revenues in fiscal 2004. 3) The Joint Proposal in the rate case contains certain provisions allowing the Company to petition for relief if the desired financial results are not attained. The Company expects to petition for such relief at the conclusion of the rate year, December 31, 2003. 4) The Commission disallowed interest expense incurred in the prior year of $121,000, there is no such expected event for fiscal 2004. In addition, management expects that the renegotiated debt instruments will lead to reduced interest expense, and management restructuring and reduced discretionary spending in 2004 will positively impact the financial condition of the Company. The ability of the Company to achieve profitable operations and positive cash flow is dependent upon the Companys successful implementation of Managements plans.



ITEM 7 - FINANCIAL STATEMENTS

The consolidated financial statements, together with the independent auditors report thereon of Deloitte & Touche LLP dated January 6, 2004 are included in the 2003 Annual Report to Shareholders attached hereto, and are incorporated in this Form 10-KSB by reference thereto.

ITEM 8 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

No disagreements with accountants related to financial disclosure exist.



Part III

ITEM 9 - DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS

The information required regarding the executive officers of the Registrant is included in Part 1 under "Additional Item".

ITEM 10 - EXECUTIVE COMPENSATION

The information required regarding the compensation of the executive officers appears in the Definitive Proxy Statement attached hereto.

ITEM 11 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information required regarding the security ownership of certain beneficial owners and management appears in the Definitive Proxy Statement attached hereto.

ITEM 12 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information required regarding certain relationships and related transactions appears in the Definitive Proxy Statement attached hereto.







Part IV

ITEM 13 - EXHIBITS AND REPORTS ON FORM 8-K

(a)	Exhibits

The following exhibits are filed with this Form 10-KSB or incorporated herein by reference: (Exhibit numbers correspond to numbers assigned to exhibits in Item 601 of Regulation S-B)





|Exhibit |  | Name of Exhibit                                                    
|------- |  | -------------------------------------------------------------------
|3       |  | A copy of the Corporations Articles of Incorporation,              
|        |  | as currently in effect, including all amendments, was              
|        |  | filed with the Companys Form 10-KSB for December 31, 1987.         
|        |  |                                                                    
|3       |  | A copy of the Corporations complete by-laws, as                    
|        |  | currently in effect, was filed with the Corporations               
|        |  | report on Form 10-QSB for the quarter ended March 31, 1984.        
|        |  |                                                                    
|10      |  | A copy of the "Agreement Between Corning Natural Gas               
|        |  | Corporation and Local 139", dated September 1, 1998                
|        |  | was filed with Form 10-KSB for December 31, 1998.                  
|        |  |                                                                    
|10      |  | Consulting Agreement and Employment Contracts with                 
|        |  | three executive officers were filed with the Companys              
|        |  | Form 10-KSB for December 31, 1987.                                 
|        |  |                                                                    
|10      |  | A copy of the Service Agreement with CNG                           
|        |  | Transmission Corporation was filed with the Companys               
|        |  | Form 10-KSB for December 31, 1993.                                 
|        |  |                                                                    
|10      |  | A copy of the Sales Agreement with Bath Electric, Gas              
|        |  | and Water was filed with the Companys Form 10-KSB for              
|        |  | December 31, 1989.                                                 
|        |  |                                                                    
|10      |  | A copy of the Transportation Agreement between the Company         
|        |  | and New York State Electric and Gas Corporation was filed          
|        |  | with the Companys Form 10-KSB for December 31, 1992                
|        |  |                                                                    
|10      |  | A copy of the Transportation Agreement between the                 
|        |  | Company and Corning Incorporated was filed with the                
|        |  | Companys Form 10-KSB for December 31, 1992.                        
|        |  |                                                                    
|10      |  | A copy of the Service Agreement with Columbia Gas                  
|        |  | Transmission Co. was filed with the Companys                       
|        |  | 10-KSB for December 31, 1993.                                      
|13      |  | A copy of the Corporations Annual Report to                        
|        |  | Shareholders for 2003, is filed herewith.                          
|        |  |                                                                    
|22      |  | Information regarding the Companys sole subsidiary was             
|        |  | filed as Exhibit 22 with the Companys Form 10-KSB for              
|        |  | the period ended December 31, 1981.                                
|        |  |                                                                    
|28      |  | Corning Natural Gas Corporation Proxy Statement is filed herewith. 
|        |  |                                                                    
|99      |  | Order from the U.S. Bankruptcy Court, Northern District of New York
|        |  | re: Approval of Acquisition of Finger Lakes Gas Company was filed  
|        |  | with the Companys 10-KSB for the period ended December 31, 1995.   
|        |  |                                                                    
|99      |  | Order from the Public Service Commission of New York State         
|        |  | re: Approval of Acquisition of Finger Lakes Gas Company was filed .
|        |  | with the Companys 10-KSB for the period ended December 31, 1995    
|        |  |                                                                    
|(b)     |  | Reports on Form 8-K                                                

The Company filed a report on Form 8-K for the Appliance Corporation sale of assets during the three month period ended September 30, 2003.

Code Of Ethics

"The Company has adopted a Code of Ethics applicable to all employees. The   Code of Ethics will be posted shortly on the Companys website at http:\\www.corninggas.com.  Any person may obtain, without charge, a copy of the Companys Code of Ethics.  The Code of Ethics will be furnished upon request made in writing to:



Thomas K. Barry

Chairman of the Board of Directors

Corning Natural Gas Corporation

330 W. William Street

P.O. Box 58

Corning, New York  14830"



SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.



CORNING NATURAL GAS CORPORATION 							(Registrant)





|Date | December 29, 2003 | THOMAS K. BARRY                        
|---- | ----------------- | ---------------------------------------
|     |                   | Thomas K. Barry, Chairman of the Board,
|     |                   | President and C.E.O.                   
|     |                   |                                        
|     |                   |                                        
|Date | December 29, 2003 | GARY K. EARLEY                         
|     |                   | Gary K. Earley, Treasurer              
|     |                   |                                        







In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.



|Date | December 29, 2003 | K.J. ROBINSON              
|---- | ----------------- | ---------------------------
|     |                   | K.J. Robinson, Director    
|     |                   |                            
|Date | December 29, 2003 | DONALD R. PATNODE          
|     |                   | Donald R. Patnode, Director
|     |                   |                            
|Date | December 29, 2003 | T.H. BILODEAU              
|     |                   | T.H. Bilodeau, Director    







CERTIFICATION

I, Thomas K. Barry, certify that:

1. I have reviewed this annual report on Form 10-KSB of Corning Natural Gas Corporation;

2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;

4. The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

a) Designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

b) Evaluated the effectiveness of the registrants disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and

c) Presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5. The registrants other certifying officer and I have disclosed, based on our most recent evaluation, to the registrants auditors and the audit committee of registrants board of directors (or persons performing the equivalent function):

a) All significant deficiencies in the design or operation of internal controls which could adversely affect the registrants ability to record, process, summarize and report financial data and have identified for the registrants auditors any material weaknesses in internal controls; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal controls; and

6. The registrants other certifying officer and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.





Date: December 29, 2003 /s/ Thomas K. Barry

President and Chief Executive Officer



CERTIFICATION

I, Gary K. Earley, certify that:

1. I have reviewed this annual report on Form 10-KSB of Corning Natural Gas Corporation;

2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;

4. The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

a) Designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

b) Evaluated the effectiveness of the registrants disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and

c) Presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5. The registrants other certifying officer and I have disclosed, based on our most recent evaluation, to the registrants auditors and the audit committee of registrants board of directors (or persons performing the equivalent function):

a) All significant deficiencies in the design or operation of internal controls which could adversely affect the registrants ability to record, process, summarize and report financial data and have identified for the registrants auditors any material weaknesses in internal controls; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal controls; and

6. The registrants other certifying officer and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.





Date: December 29, 2003 /s/ Gary K. Earley

Treasurer



EXHIBIT 99.3



CORNING NATURAL GAS CORPORATION

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002





In connection with the Annual Report of Corning Natural Gas Corporation (the "Company") on Form 10-KSB for the period ending September 30, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Thomas K. Barry, Chairman of the Board of Directors, President and Chief Executive Officer of the Company, certify, pursuant to U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:





/s/ Thomas K Barry

Chairman of the Board,

President and Chief Executive Officer

December 29, 2003







EXHIBIT 99.4

CORNING NATURAL GAS CORPORATION

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002





In connection with the Annual Report of Corning Natural Gas Corporation (the "Company") on Form 10-KSB for the period ending September 30, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Gary K. Earley, Treasurer of the Company, certify, pursuant to U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:







/s/ Gary K. Earley Treasurer

December 29, 2003







|Highlights-12 Months Ended September 30
|---------------------------------------
|                                       
|Operating Revenue                      
|Net (Loss) Income                      
|(Loss) Earnings Per Common Share       
|Gas Deliveries( Mcf )                  
|Degree Days                            
|Total Customers                        
|Consolidated Capital Expenditures      
|Property, Plant and Equipment          
|                                       



# REPORT TO SHAREHOLDERS

As Robert Burns wrote "The best laid schemes o mice and men gang aft a-gley" which loosely translated means that no matter how well one plans for an event many things can and do go wrong. Going back to mid 2001 the Gas Companys accounting staff began preparing a major rate application to be filed with the New York State Public Service Commission (PSC) by the end of that year. In last years Annual Report shareholders were advised that this application was filed on December 31, 2001 but that it would take a full year to obtain a final decision from the Commission, as this is the legally prescribed process in New York State. This application, which is referred to as a rate case was rather complex and dealt with many issues. At the end of the case the Company was provided with a revenue figure that was designed to allow a rate of return on equity of 10.5 percent and would prevent, under normal circumstances, the Company from any additional filing for a period of three years. Unfortunately, the Commission dealt a serious blow to the Companys Appliance subsidiary in this proceeding as it allocated an additional $363,000 in expenses from the utility operations onto the appliance operations. Over the past decade earnings derived from the sale and rental of appliances along with the appliance service business provided approximately $200,000 to $250,000 toward consolidated after-tax profits. At the beginning of 2003 the Company examined alternative methods of operating this business and concluded that all avenues led toward significant net losses. It was clear at this point that the interests of the shareholders would best be served by selling the assets of the Appliance Company, exclusive of the non-appliance related subsidiary companies. In the meantime, losses at the rate of over $23,000 per month from appliance operations began to accumulate as the higher allocations were instituted beginning in January 2003. The results of this sale will be reviewed later on in this report. Our Company was only one of the last two utility companies in the State that still operated a successful appliance division.

Thus, our long anticipated plan for a successful 2003 began to deteriorate shortly after the new year began. Getting directly to the point, consolidated net income for fiscal 2003 amounted to a very disappointing net loss of $91,500 or a negative 19 cents per share. The Gas Company experienced a loss of $208,400 while the Appliance Company also lost $145,800 before the assets could be sold to the new owners in September 2003. On the other hand, the other subsidiaries had net earnings totaling $262,700 representing an improvement of 45 percent. We have explained the difficulties that the rate case decision imposed on the Appliance Company and how this was eventually resolved. Thus, while we will no longer enjoy the earnings historically generated from this source, we will also no longer experience further losses that most certainly would result had this Company not been sold. Let us now examine what affected the Gas operations and later on we will outline the successes of each of the other subsidiaries. First of all, it is important to understand that a slow economy did not have much of an effect upon gas deliveries. Last winter was relatively long and cold and gas deliveries to residential and commercial customers were 17 percent higher than the prior year. Total deliveries to all classes of customers in the amount of 8,272,000 Mcf were 10 percent higher than the prior year. The Company has a weather normalization clause that is meant to minimize the impact of the fluctuations in degree days from average. In 2003 the Company returned $194,000 to customers as compared with collecting an additional $249,000 in the prior year due to warmer than average weather in that period. The lack of earnings then can only be attributed to either increased expenses or a deficiency in rates charged to customers for delivery services. Examination of the Companys major expense accounts indicates that costs were well controlled in almost every instance compared with the prior year with one large exception. Two categories within the administrative and general expenses account had significant negative results. Regulated employee pensions expense increased by $326,706 and FAS 106 (post retirement benefits) expense increased by $282,803 over the prior year. The pension expense problem is directly related to the downward swing in the financial marketplace where the pension funds are invested. As the market improves this situation will eventually improve. Corporations across the country that have defined benefit pension funds were hit hard by the downturn in the economy due to this same situation. The FAS 106 expense increase was a result of accounting for this expense that was derived from the recent rate case. Management has no direct control of the $609,509 (combined) in increased expenses that are non-cash items.

In addition to the items just reviewed, the Company may not have received enough revenue allowance from the prior rate case to adequately meet its requirements and produce a reasonable rate of return. There is a provision in the joint proposal with the PSC that permits the Company to petition the Commission for relief if the actual return on equity falls below 5.5 percent. With the sale of the Appliance Company assets just before the end of the Companys fiscal year there has been some significant restructuring of employment levels and various other expenses. It is now necessary to create a complete twelve-month proforma income statement to determine if the newly restructured Gas Company has adequate rate recovery in place. Regardless, management is reviewing its option to petition the Commission for relief on other deferred accounts and anticipated large increases in areas such as property taxes and health insurance.



## Capital Additions

The utility company completed another rather ambitious capital expenditures program amounting to $1,232,000 in 2003 that compares with expenditures of $1,162,000 in 2002. These amounts are significant for a company this size and cannot continue every year into the future without financial restructuring. The great majority of these expenditures went toward replacing portions of older, bare, unprotected pipelines that had a history of corrosion and leaks. The Company installed 800 feet of 12 inch, 400 feet of 10 inch and 100 feet of 8 inch pipeline on transmission line (TL) #6 that supplies the Town of Caton, Southport and Elmira. This project replaced 1,200 feet of bare, corroded pipeline installed in 1954 and placed it in a new alignment to move it 200 feet away from the nearest dwelling. The Company replaced 8,000 feet of 6 inch bare steel pipe that operates at a pressure of 275 psig, originally installed in 1932, with 8 inch plastic coated steel pipe on TL #15. This pipeline serves approximately 3,500 customers on the Bath Municipal system and an additional 300 customers on the Hammondsport system. During September of 2003 the Company replaced 1,500 feet of bare 8 inch steel pipe operating at 124 psig that was installed in 1957 on TL #11 located near a residential section in the Town of Erwin. These three major projects were installed using a process that allows for the continuous operation of the system with absolutely no interruption to customers.



## Corning Natural Gas Appliance Corporation

At the beginning of 2003 management began to interview various prospective purchasers of the assets of the Appliance Corporation. This was a time consuming process due to the size of the business assets to be sold and the limited number of potential buyers. The Company was eventually sold to a small group of investors, primarily local, and the transaction was completed in mid-September, 2003. The assets, which consisted primarily of rented appliances in service, inventory, displays, equipment and vehicles were sold for $1,992,400 including the $240,000 discussed below. The Company received $1,152,400 in cash and loaned the buyers $600,000 which will be amortized and paid within five years. The remaining $240,000 will be paid in $80,000 increments at the conclusion of each of three years if the newly formed Company attains specified revenue levels during each of those three periods. Assuming revenue levels are achieved, the Company ultimately will show a pre-tax profit of $364,740 on the sale of this business of which $124,740 was earned during fiscal 2003 and $80,000 will then be earned in each of the following three years. The new owners rent space from the Company as they continue operations in the same three locations that existed before the sale. Additionally, almost all of the Appliance Corporations employees were retained by the new owners to operate the newly formed business.



## Tax Center International

The accounting and tax service business improved its revenues to $622,000 this year, an increase of over 26 percent from the prior year. Net earnings increased over 20 percent to $153,000 for fiscal 2003. When this Company was purchased in mid 1998 there were only five employees including the owner/manager, Firouzeh Sarhangi. She has more than doubled the revenues and net earnings of this organization since the first full year under current ownership and has accomplished this without advertising. Other than maintaining a very interesting web site there is no formal advertising for TCI as the business grows about as quickly as the Company can find and train employees. TCI currently employs a total of 11 people and looks forward to continued profitability and controlled growth.

## Corning Realty

The Companys real estate franchise, Prudential Ambrose & Shoemaker Real Estate, continued to improve and place itself in a better position for the future. Total gross income surpassed the $4 million mark in a relatively slow market representing an increase of nearly 12 percent over the prior year. Net earnings of $39,700 for the year were a definite improvement over a loss of $16,300 in the prior year. Management continues to strive for more overhead controls to create additional earnings in the future. In 2003, Realty combined its Elmira and Horseheads office sites into one new, modern facility also located in Horseheads. The lease on one of these offices does not expire until the end of calendar 2003, thus there are duplicate expenses plus the costs to relocate and upgrade the communication and computer systems. In short, it has been an expensive process during 2003 that will provide both financial and efficiency benefits in 2004 and beyond. Realty must continue its goal to provide improved services, training and other benefits to its real estate agents if it expects to grow and improve market share.



## Corning Mortgage Company

This business has been developed to support the real estate business and consists of two parts. Choice One Lending is a mortgage lending business that exists primarily to provide mortgage capital to the clients of Prudential real estate. Town & Country LLC is a title insurance company that provides title insurance not only to the same clients but others as well. Both of these businesses are part of a partnership with a local lending institution. Additionally, both are in a growth mode as more of the Prudential real estate agents and brokers become better educated and develop a relationship with mortgage lending. These two businesses produced net earnings of $30,500 during 2003 compared with a net profit of only $1,500 in the prior year. Thus, the total real estate related businesses provided over $70,000 of net earnings during a period that included onetime reorganization expenses and growth. Our market share for the entire three-county Multiple Listing Service area has increased from 36.7 percent in 2002 to 39.3 percent for 2003. We believe this improvement is related to the efforts of our highly trained and professional sales staff and the efforts of the Company to provide resources and ancillary services that make home buying and selling a good experience in an often confusing and obstacle laden environment.



## Economy

Without going into great detail, it is safe to state that the local economy has stabilized and that there appear to be no plans for additional job losses. Corning Inc., the areas major employer, has returned to profitability in the quarter ending September 30, 2003 as they had predicted. Their future looks improved, although there is little optimism for rapid growth. There is very little new housing or commercial construction since the national and local economy took a downturn, however, there is a significant amount of housing turnaround. This does help to stimulate businesses such as real estate, service providers, hardware, furniture and related goods. The general mood appears to be improving and the local economy appears to be moving in a positive direction along with the national economy.



## Summary

There was a great deal accomplished during fiscal 2003 but with very little to show to shareholders at the end. Understanding that one cannot change history, it is best to put strategies in place to improve the future. The sale of the Appliance Company is now behind us. While we depended upon its profit contribution for nearly a half century, in 2003 it was in a serious losing position. That has been stopped. In its place we now have several well run, profitable subsidiary companies and they are improving. They will be closely monitored and carefully groomed to become even better producers. The utility operations need additional attention. In the process of selling the Appliance Company the utility operations were restructured. In the coming months, management will carefully examine the accounting and ratemaking processes to determine what is not included within the current rate structure. Knowing that, we will implement a plan to review problem areas with state regulators and seek appropriate rate adjustments. Regardless of where we ended up in fiscal 2003 all of the Companys staff and management are to be commended for their tireless efforts and contributions. On behalf of the Board of Directors, we would like to express our appreciation to our customers and shareholders who continue to support our efforts throughout this restructuring process.

Sincerely,

Thomas K. Barry

Chairman of the Board,

President and CEO



# MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS



## Operations

Consolidated net (loss) income amounted to $ (91,500) or $ (.19) per share in 2003 compared to $526,200 or $1.14 per share in 2002. The consolidated loss in 2003 results from a loss of $208,400 experienced by the Gas Company, a loss of $145,800 by the Appliance Company, and net income of $39,700, $39,400 and $30,500 for Corning Realty, Foodmart Plaza and Corning Mortgage respectively, and is discussed in detail in the Letter to Shareholders section of this report.



## Operating Revenue

Utility operating revenue increased $3,320,300 or 19 percent due primarily to a substantial increase in gas costs. Such increases are charged to customers through the Companys Gas Adjustment Clause discussed in note 1(d) to the financial statements. Additionally, a rate increase went into effect in January 2003, providing approximately $600,000 in utility revenue. Further discussion of utility operating revenue appears in the Letter to Shareholders section of this report.

Unregulated revenue increased $764,900 or 12 percent due primarily to increased activity in the residential and commercial marketplace of the Companys real estate operating segment. Additionally, the Tax Center operating segment experienced a $128,800 revenue increase as the result of additional consulting revenue from such areas as estate planning, asset protection and retirement planning. A complete discussion of the segment results appears in the Letter to Shareholders section of this report. Revenue by operating segment can be found in note 3 to the financial statements.



## Utility Operating Expenses

Purchased gas expense increased $2,767,700 or 26 percent as the result of a substantial market increase in the cost of natural gas. The Companys average cost of gas increased to $7.20 per mcf in 2003 from $5.99 per mcf the previous year.

Other operating and maintenance expense increased 24 percent due primarily to increased post-retirement expense. Federal income taxes declined $239,000 as the result of the net loss of the Gas Company. Taxes other than federal income taxes increased 6 percent due to the increase in utility operating revenue. The Company is subject to the New York public utilities gross receipts tax that is levied on all revenue.



## Operating Segments

A description of the Companys five operating segments can be found in note 3 to the financial statements, which also contains the results by segment for fiscal year 2003 and 2002. In addition, a detailed discussion of the operating segments can be found in the Letter to Shareholders at the beginning of this report.



## Liquidity and Capital Resources

The Company financed its 2003 capital additions of $1,251,000 through a combination of internally generated funds and short-term borrowing. The Company experienced a significant increase in gas stored underground and in short-term debt at September 30 as the result of an increase in the cost of gas during 2003. The Company has a total of $7,750,000 under lines of credit at local banks, the terms of which are disclosed in note 6 to the financial statements. The amount outstanding under these lines at September 30, 2003 is $6,550,000. The company is in the process of seeking long-term financing to be implemented in 2004 for the purpose of financing accumulated capital additions.



## Regulatory Matters

On December 31, 2001 the Company filed a rate increase request with the New York Public Service Commission. The Company was granted a rate increase designed to produce additional annual revenue of $700,000 and became effective January 11, 2003. As discussed in the Letter to Shareholders, the rate case settlement agreement provides for no further rate increases for the next two years, but the Company is reviewing its options for possible relief under the settlements hardship provisions.



## Critical Accounting Policies

The Companys significant accounting policies are described in the notes to the Consolidated Financial Statements. It is increasingly important to understand that the application of generally accepted accounting principles involve certain assumptions, judgements and estimates that affect reported amounts of assets, liabilities, revenues and expenses. Thus, the application of these principles can result in varying results from company to company. The most significant principles that impact the Company are discussed below.



Accounting for Utility Revenue and Cost of Gas Recognition.

The Company records revenues from residential and commercial customers based on meters read on a cycle basis throughout each month, while certain large industrial and utility customers meters are read at the end of each month. The Company does not accrue revenue for gas delivered but not yet billed as the New York PSC requires that such accounting must be adopted during a rate proceeding, which the Company has not done. The Companys tariffs contain mechanisms that provide for the recovery of the cost of gas applicable to firm customers. Under these mechanisms, the Company periodically adjusts its rates to reflect increases and decreases in the cost of gas. Annually, the Company reconciles the difference between the total gas costs collected from customers and the cost of gas. The Company defers any excess or deficiency and subsequently either recovers it from, or refunds it to, customers over the following twelve-month period.



Accounting for Regulated Operations - Regulatory Assets and Liabilities.

A significant portion of the Companys business is subject to regulation. The Companys regulated utility records the results of its regulated activities in accordance with Statement of Financial Accounting Standards (SFAS) No. 71, Accounting for the Effects of Certain Types of Regulation, which results in differences in the application of generally accepted accounting principles between regulated and non-regulated businesses. SFAS No. 71 requires the recording of regulatory assets and liabilities for certain transactions that would have been treated as revenue and expense in non-regulated businesses. In certain circumstances, SFAS No. 71 allows entities whose rates are determined by third-party regulators to defer costs as "regulatory" assets in the balance sheet to the extent that the entity expects to recover these costs in future rates. Management believes that currently available facts support the continued application of SFAS No. 71 and that all regulatory assets and liabilities are recoverable or refundable through the regulatory environment.



Accounting or Income Taxes.

The Company accounts for income taxes in accordance with SFAS No. 109, Accounting for Income Taxes. Under SFAS No. 109, the Company recognizes deferred income taxes for all temporary differences between the financial statement and tax basis of assets and liabilities at currently enacted income tax rates. SFAS No. 109 also requires recognition of the additional deferred income tax assets and liabilities for temporary differences when regulators have flowed through income tax benefits or costs to ratepayers. Regulatory assets or liabilities corresponding to such additional deferred tax assets or liabilities may be recorded to the extent the Company believes they will be recoverable from or payable to customers through the ratemaking process. Amounts applicable to income taxes due from and due to customers primarily represent differences between the book and tax basis of net utility plant in service.



## Cautionary Statement Regarding Forward-Looking Statements

This report contains statements which, to the extent they are not recitations of historical facts, constitute "forwardlooking statements" within the meaning of the Securities Litigation Reform Act of 1995 (Reform Act). In this respect, the words "estimate", "project", "anticipate", "expect", "intend", "believe" and similar expressions are intended to identify forward-looking statements. All such forward-looking statements are intended to be subject to the safe harbor protection provided by the Reform Act. A number of important factors affecting the Companys business and financial results could cause actual results to differ materially from those stated in the forward-looking statements.







### CORNING NATURAL GAS CORPORATION AND SUBSIDIARY Consolidated Statements of Operations For the Years Ended September 30, 2003 and 2002

|Utility Operations                                            |           | 2003        | 2002       
|------------------------------------------------------------- | --------- | ----------- | -----------
|                                                              |           |             |            
|Operating revenue:                                            |           |             |            
|Residential, commercial and industrial                        |           | $14,435,494 | $12,096,506
|Transportation                                                |           | 5,882,752   | 5,142,463  
|Capacity assignment                                           |           | 243,681     | 2,646      
|                                                              |           |             |            
|Total operating revenue                                       |           | 20,561,927  | 17,241,615 
|                                                              |           |             |            
|Operating expenses and taxes:                                 |           |             |            
|Natural gas purchased                                         |           | 13,531,489  | 10,763,813 
|Operating and maintenance                                     |           | 4,345,722   | 3,491,141  
|Taxes other than federal income taxes                         |           | 1,353,956   | 1,265,162  
|Depreciation                                                  |           | 519,089     | 513,278    
|Federal income taxes                                          |           | (151,931)   | 87,537     
|                                                              |           |             |            
|Total operating expenses and taxes                            |           | 19,598,325  | 16,120,931 
|                                                              |           |             |            
|Operating income from utility operations                      |           | 963,602     | 1,120,684  
|                                                              |           |             |            
|                                                              |           |             |            
|Unregulated Operations                                        |           |             |            
|                                                              |           |             |            
|Unregulated revenue                                           |           | 4,968,136   | 4,310,724  
|Unregulated expenses(includes interest expense of             | 4,705,449 | 4,129,406  
|$176,570 for 2003 and $143,446 for 2002)                      |           |             |            
|Operating income from unregulated operations                  |           | 262,687     | 181,318    
|                                                              |           |             |            
|Other income (includes net realized gain on marketable        |           |            
|securities of $37,006 in 2003 and $28,197 in 2002)            | 17,853    | 24,696     
|                                                              |           |             |            
|Income before interest expense                                |           | 1,244,142   | 1,326,698  
|                                                              |           |             |            
|Interest expense - regulated                                  |           | 1,189,816   | 926,868    
|                                                              |           |             |            
|Net income from continuing operations                         |           | 54,326      | 399,830    
|                                                              |           |             |            
|(Loss) income from discontinued operations, net of income tax | (220,757) | 126,323    
|Gain on disposal of discontinued operations, net income tax   | 74,919    | 0          
|                                                              |           |             |            
|Net (loss) income                                             |           | ($91,512)   | $526,153   
|                                                              |           |             |            
|Weighted average number of shares outstanding-                |           |             |            
|basic and diluted                                             |           | 482,900     | 460,000    
|                                                              |           |             |            
|Basic and diluted (loss) earnings per common share:           |           |            
|From continuing operations                                    |           | $0.11       | $0.87      
|Discontinued operations                                       |           | (0.30)      | 0.27       
|Earnings per share                                            |           | ($0.19)     | $1.14      
|                                                              |           |             |            
|See accompanying notes to consolidated financial statements.  |           |            



CORNING NATURAL GAS CORPORATION AND SUBSIDIARY Consolidated Balance Sheets September 30, 2003 and 2002

|Assets                                                         | 2003        | 2002       
|-------------------------------------------------------------- | ----------- | -----------
|                                                               |             |            
|Plant:                                                         |             |            
|Utility property, plant and equipment                          | $24,953,757 | $23,980,978
|Non-utility property, plant and equipment                      | 1,803,271   | 1,519,623  
|Equipment of discounted operations, net                        | 0           | 1,109,827  
|Less accumulated depreciation                                  | 9,617,894   | 9,081,223  
|Total plant utility and non-utility net                        | 17,139,134  | 17,529,205 
|                                                               |             |            
|Investments:                                                   |             |            
|Marketable securities available for sale at fair value         | 1,741,050   | 1,249,551  
|Investment in joint venture and associated companies           | 201,151     | 200,416    
|                                                               |             |            
|Total investments                                              | 1,942,201   | 1,449,967  
|                                                               |             |            
|Current assets:                                                |             |            
|Cash and cash equivalents                                      | 266,160     | 281,036    
|Customer accounts receivable, (net of allowance for            |             |            
|uncollectible accounts of $80,000 in 2003 and $97,000 in 2002) | 1,274,897   | 979,673    
|Notes Receivable                                               | 43,000      | 0          
|Gas stored underground, at average cost                        | 3,175,948   | 1,599,178  
|Gas and appliance inventories                                  | 231,217     | 249,024    
|Prepaid expenses                                               | 707,510     | 635,321    
|Prepaid income taxes                                           | 0           | 35,478     
|Current assets of discontinued operations                      | 0           | 824,638    
|                                                               |             |            
|Total current assets                                           | 5,698,732   | 4,604,348  
|                                                               |             |            
|Deferred debits and other assets:                              |             |            
|Regulatory assets:                                             |             |            
|Income taxes recoverable through rates                         | 1,016,661   | 1,016,661  
|Unrecovered gas costs                                          | 1,151,694   | 761,172    
|Deferred pension and other                                     | 1,134,986   | 1,257,567  
|Goodwill (net of accumulated amortization of $521,294          |             |            
|in 2003 and 2002)                                              | 1,493,719   | 1,493,719  
|Unamortized debt issuance cost (net of accumulated             |             |            
|amortization of $254,489 in 2003 and $232,931 in 2002)         | 285,084     | 306,642    
|Other                                                          | 873,705     | 434,700    
|Total deferred debits and other assets                         | 5,955,849   | 5,270,461  
|                                                               |             |            
|Total assets                                                   | $30,735,916 | $28,853,981
|                                                               |             |            
|See accompanying notes to consolidated financial statements.   |             |            



CORNING NATURAL GAS CORPORATION AND SUBSIDIARY Consolidated Balance Sheets September 30, 2003 and 2002

|Capitalization and liabilities:                              | 2003        | 2002       
|------------------------------------------------------------ | ----------- | -----------
|                                                             |             |            
|Common stockholders equity:                                  |             |            
|Common stock (common stock $5.00 par                         |             |            
|value per share. Authorized 1,000,000 shares;                |             |            
|issued and outstanding 482,900 in 2003 and                   |             |            
|460,000 shares in 2002)                                      | $2,415,000  | $2,300,000 
|Other paid-in capital                                        | 790,886     | 653,346    
|Retained earnings                                            | 2,008,540   | 2,352,592  
|Accumulated other comprehensive loss                         | (1,750,483) | (1,137,098)
|                                                             |             |            
|Total common stockholders equity                             | 3,463,943   | 4,168,840  
|                                                             |             |            
|Long-term debt, less current installments                    | 10,539,867  | 10,504,123 
|                                                             |             |            
|Current liabilities:                                         |             |            
|Current portion of long term debt                            | 309,977     | 416,005    
|Borrowings under lines-of-credit                             | 6,550,000   | 5,475,000  
|Accounts payable                                             | 2,136,859   | 2,058,431  
|Accrued expenses                                             | 511,267     | 506,691    
|Customer deposits and accrued interest                       | 1,300,797   | 795,061    
|Deferred income taxes                                        | 570,083     | 254,804    
|Accrued general taxes                                        | 0           | 57,513     
|Supplier refunds                                             | 0           | 59,212     
|Current liabilities of discontinued operations               | 0           | 510,244    
|                                                             |             |            
|Total current liabilities                                    | 11,378,983  | 10,132,961 
|                                                             |             |            
|Deferred credits and other liabilities:                      |             |            
|Deferred income taxes                                        | 1,171,966   | 1,386,862  
|Deferred compensation and post-retirement                    |             |            
|benefits                                                     | 1,600,187   | 1,724,658  
|Deferred pension costs                                       | 2,241,547   | 422,660    
|Other                                                        | 339,423     | 229,588    
|Non-current liabilities of discontinued operations           | 0           | 284,289    
|                                                             |             |            
|Total deferred credits and other liabilities                 | 5,353,123   | 4,048,057  
|                                                             |             |            
|Concentrations and commitments (notes 3 and 10)              |             |            
|                                                             |             |            
|Total capitalization and liabilities                         | $30,735,916 | $28,853,981
|                                                             |             |            
|See accompanying notes to consolidated financial statements. |             |            



#### CORNING NATURAL GAS CORPORATION AND SUBSIDIARY

Consolidated Statements of Stockholders Equity

#### For the Years Ended September 30, 2003 and 2002

|                                                             |            |  |            |  |            |  |               |  |            
|------------------------------------------------------------ | ---------- |  | ---------- |  | ---------- |  | ------------- |  | -----------
|                                                             |            |  |            |  |            |  | Accumulated   |  |            
|                                                             |            |  | Additional |  |            |  | Other         |  |            
|                                                             | Common     |  | Paid in    |  | Retained   |  | Comprehensive |  |            
|                                                             | Stock      |  | Capital    |  | Earnings   |  | Income (Loss) |  | Total      
|                                                             |            |  |            |  |            |  |               |  |            
|Balances at October 1, 2001                                  | $2,300,000 |  | $653,346   |  | $1,975,939 |  | (39,630)      |  | $4,889,655 
|Comprehensive Income:                                        |            |  |            |  |            |  |               |  |            
|Change in unrealized loss on                                 |            |  |            |  |            |  |               |  |            
|securities available for sale, net of                        |            |  |            |  |            |  |               |  |            
|income tax credits of $38,809                                | -          |  | -          |  | -          |  | (75,334)      |  | (75,334)   
|Minimum pension liability                                    | -          |  | -          |  | -          |  | (1,022,134)   |  | (1,022,134)
|Net income                                                   | -          |  | -          |  | (526,153)  |  | -             |  | (526,153)  
|                                                             |            |  |            |  |            |  |               |  |            
|Total comprehensive income                                   |            |  |            |  |            |  |               |  | (571,315)  
|Cash Dividends                                               | -          |  | -          |  | (149,500)  |  | -             |  | (149,500)  
|Balances at September 30, 2002                               | 2,300,000  |  | 653,346    |  | 2,352,592  |  | (1,137,098)   |  | 4,168,840  
|                                                             |            |  |            |  |            |  |               |  |            
|Comprehensive Income:                                        |            |  |            |  |            |  |               |  |            
|Change in unrealized gain on                                 |            |  |            |  |            |  |               |  |            
|securities available for sale, net of                        |            |  |            |  |            |  | 192,738       |  | 192,738    
|income taxes of $99,289                                      | -          |  | -          |  | -          |  |               |  |            
|Minimum pension liability                                    | -          |  | -          |  | -          |  | (806,123)     |  | (806,123)  
|Net loss                                                     | -          |  | -          |  | (91,512)   |  | -             |  | (91,512)   
|                                                             |            |  |            |  |            |  |               |  |            
|Total comprehensive income                                   |            |  |            |  |            |  |               |  | (704,897)  
|Stock Dividends                                              | 115,000    |  | 137,540    |  | (252,540)  |  | -             |  | -          
|Balances at September 30, 2003                               | $2,415,000 |  | $790,886   |  | $2,008,540 |  | ($1,750,483)  |  | $3,463,943 
|                                                             |            |  |            |  |            |  |               |  |            
|See accompanying notes to consolidated financial statements. |            |  |            |  |           







CORNING NATURAL GAS CORPORATION AND SUBSIDIARY Consolidated Statements of Cash Flows For the Years Ended September 30, 2003 and 2002

|                                                                   | 2003        | 2002       
|------------------------------------------------------------------ | ----------- | -----------
|Cash flows from operating activities:                              |             |            
|Net (loss) income                                                  | ($91,512)   | $526,153   
|Adjustments to reconcile net (loss) income to net cash provided by |             |            
|operating activities:                                              |             |            
|Depreciation and amortization                                      | 832,451     | 933,297    
|Loss on sale of marketable securities                              | 37,006      | 28,197     
|Deferred income taxes                                              | (35,898)    | (15,884)   
|Gain on sale of discontinued operations                            | (74,919)    | -          
|                                                                   |             |            
|Changes in assets and liabilities:                                 |             |            
|(Increase) decrease in:                                            |             |            
|Accounts receivable                                                | 123,599     | (154,375)  
|Gas stored underground                                             | (1,576,770) | (1,110,307)
|Gas and appliance inventories                                      | 423,622     | (19,047)   
|Prepaid expenses                                                   | (72,189)    | 10,155     
|Unrecovered gas costs                                              | (390,522)   | 782,220    
|Prepaid income taxes                                               | 35,478      | 291,404    
|Deferred charges - pension and other                               | 149         | 95,297     
|Increase (decrease) in:                                            |             |            
|Accounts payable                                                   | (126,037)   | 99,622     
|Customer deposit liability                                         | 505,736     | (116,409)  
|Accrued general taxes                                              | (57,513)    | 11,180     
|Supplier refunds                                                   | (59,212)    | (14,883)   
|Other liabilities and deferred credits                             | (97,055)    | (546,404)  
|Net cash (used in) provided by operating activities                | (623,586)   | 800,216    
|                                                                   |             |            
|Cash flow from investing activities:                               |             |            
|Purchase of securities available for sale                          | (208,055)   | (196,116)  
|Investment in joint venture                                        | 0           | (5,250)    
|Investment other                                                   | 0           | 2,388      
|Capital expenditures, net of minor disposals                       | (1,250,736) | (1,365,964)
|Cash received from sale of discontinued operations                 | 1,152,400   | -          
|Net cash used in investing activities                              | (306,391)   | (1,564,942)
|                                                                   |             |            
|Cash flows from financing activities:                              |             |            
|Net borrowings under lines-of-credit                               | 1,075,000   | 1,549,767  
|Dividends paid                                                     | 0           | (299,000)  
|Repayment of long-term debt                                        | (159,899)   | (430,244)  
|Net cash provided by financing activities                          | 915,101     | 820,523    
|Net (decrease) increase in cash                                    | (14,876)    | 55,797     
|                                                                   |             |            
|Cash and cash equivalents at beginning of period                   | 281,036     | 225,239    
|                                                                   |             |            
|Cash and cash equivalents at end of period                         | $266,160    | $281,036   
|                                                                   |             |            
|                                                                   |             |            
|Supplemental disclosures of cash flow information:                 |             |            
|Cash paid during the period for:                                   |             |            
|Interest                                                           | $1,323,476  | $1,078,486 
|                                                                   |             |            
|Income taxes                                                       | $227,148    | $167,207   
|                                                                   |             |            
|Non cash transaction:                                              |             |            
|The Company received a note for a portion of the sale of           |             |            
|assets of the Appliance Company                                    | $600,000    | -          
|                                                                   |             |            
|                                                                   |             |            
|See accompanying notes to consolidated financial statements.       |             |            



## CORNING NATURAL GAS CORPORATION AND SUBSIDIARY Notes to Consolidated Financial Statements For the Years Ended September 30, 2003 and 2002

(1) Summary of Significant Accounting Policies

Corning Natural Gas Corporation (the Company) is a gas distribution company providing gas on a commodity and transportation basis to its customers in the Southern Tier of New York State. The Company follows the Uniform System of Accounts prescribed by the Public Service Commission of the State of New York (PSC) which has jurisdiction over and sets rates for New York State gas distribution companies. The Companys regulated operations meet the criteria and accordingly, follow the accounting and reporting of Statement of Financial Accounting Standards No. 71 (SFAS No. 71) Accounting for the Effects of Certain Types of Regulation.The Companys consolidated financial statements contain the use of estimates and assumptions for reporting certain assets, liabilities, revenue and expenses and actual results could differ from the estimates. The more significant accounting policies of the Company are summarized below.

(a) Principles of Consolidation and Presentation

The consolidated financial statements include the Company and its wholly owned subsidiary, the Corning Natural Gas Appliance Corporation. The Corning Natural Gas Appliance Corporation owns four businesses which have been established as New York State limited liability subsidiary corporations, as follows: Tax Center International, LLC; The Foodmart Plaza, LLC; Corning Realty Associates, LLC and Corning Mortgage, LLC. Hereinafter the Appliance Corporation and its limited liability subsidiary corporations are collectively referred to as "Appliance Corporation". All significant inter-company accounts and transactions have been eliminated in consolidation. The results of the Appliance Corporation are reported separately as unregulated operations in the consolidated statements of income. Shared expenses are allocated to the Appliance Corporation.

It is the Companys policy to reclassify amounts in the prior year financial statements to conform with the current year presentation.

(b) Property, Plant and Equipment

Utility plant is stated at the historical cost of construction. Those costs include payroll, fringe benefits, materials and supplies and transportation costs. The Company charges normal repairs to maintenance expense. The Appliance Corporation capitalizes the cost of appliances and the original installation to rented gas appliances. Subsequent repairs are expensed.

(c) Depreciation

The Company provides for depreciation for accounting purposes using a straight-line method based on the estimated economic lives of property, which ranges from 3 to 55 years for all assets except utility plant. The depreciation rate used for utility plant, expressed as an annual percentage of depreciable property, was 2.7% in 2003 and 2.6% in 2002. At the time utility properties are retired, the original cost plus costs of removal less salvage, are charged to accumulated depreciation

|Non-utility property, plant and equipment |   |           |   |          
|----------------------------------------- | - | --------- | - | ---------
|                                          |   | 2003      |   | 2002     
|Rented appliances                         | $ | -         | $ | 2,658,563
|Structures and improvements               |   | 1,242,558 |   | 1,251,606
|Land                                      |   | 214,555   |   | 214,555  
|Furniture and equipment                   |   | 346,158   |   | 269,731  
|Total:                                    | $ | 1,803,271 | $ | 4,394,455



(d) Revenue and Natural Gas Purchased

The Company records revenues from residential and commercial customers based on meters read on a cycle basis throughout each month, while certain large industrial and utility customers meters are read at the end of each month. The Company does not accrue revenue for gas delivered but not yet billed as the New York PSC requires that such accounting must be adopted during a rate proceeding, which the Company has not done. Pursuant to the most recent rate order, capacity assignment revenue is recorded at a rate of 15% of the amount received from released capacity and is recognized upon notification of capacity release from the pipeline company while the remaining 85% is returned to customers through reduced gas cost. The Company secured a weather normalization clause in the last major rate filing as protection against severe weather fluctuations. This affects space heating customers and is activated when degree days are 2.2% greater or less than a 30 year average. As a result, the effect on revenue fluctuations in weather related gas sales is somewhat moderated.

Gas purchases are recorded on readings of suppliers meters as of the end of the month. The Companys rate tariffs include a Gas Adjustment Clause (GAC) which adjusts rates to reflect changes in gas costs from levels established in the rate setting process. In order to match such costs and revenue, the PSC has provided for an annual reconciliation of recoverable GAC costs with applicable revenue billed. Any excess or deficiency in GAC revenue billed is deferred and the balance at the reconciliation date is either refunded to or recovered from customers over a subsequent 12-month period.

Real estate commissions are recognized at closing while professional services revenues are recognized as services are performed.

(e) Marketable Securities

Marketable securities, which are intended to fund the Companys deferred compensation plan, are classified as available for sale at September 30, 2003 and 2002. Such securities are reported at fair value based on quoted market prices, with unrealized gains and losses, net of the related income tax effect, excluded from income, and reported as a component of accumulated other comprehensive income in stockholders equity until realized. The cost of securities sold was determined using the specific identification method.

A summary of the marketable securities at September 30, 2003 and 2002 is as follows:

|     | Market     | Cost       | Unrealized | Unrealized | Unrealized 
|---- | ---------- | ---------- | ---------- | ---------- | -----------
|     | Value      | Basis      | Gains      | Losses     | Gain/(Loss)
|     |            |            |            |            |            
|2003 | $1,741,050 | $1,623,211 | $182,519   | ($68,490)  | $114,029   
|2002 | $1,249,551 | $1,423,739 | $121,649   | ($295,837) | ($174,188) 



(f ) Investment in Joint Venture

Corning Mortgage, a subsidiary of The Corning Natural Gas Appliance Corporation holds a 50% equity interest in a joint venture, Choice One Lending, which began operations in August, 2000. Investment by the Company in the joint venture is recorded using the equity method of accounting. The Companys pro-rata share of the results of operations of the joint venture was a profit of $37,246 in 2003 and a profit of $10,022 in 2002.

(g) Inventories

Inventories are stated at the lower of cost or market, cost being determined on a first-in, first-out basis.

(h) Federal Income Tax

The Company uses the asset and liability method to establish deferred tax assets and liabilities for the temporary differences between the financial reporting basis and the tax basis of the Companys assets and liabilities at enacted tax rates expected to be in effect when such amounts are realized or settled. In addition, such deferred tax assets and liabilities will be adjusted for the effects of enacted changes in tax laws and rates.

(i) Dividends

Dividends are accrued when declared by the Board of Directors. A stock dividend of 5% was paid in fiscal 2003 and a cash dividend of $ 0.65 per share was paid in 2002.

Under the most restrictive long-term debt covenants, the Company may not declare or pay annual dividends except to the extent that consolidated net worth exceeds $2,000,000.

(j) Goodwill

Goodwill represents the excess of purchase price over the fair value of the identified net assets of acquired businesses and primarily applies to the Corning Realty. Goodwill in excess of associated expected operating cash flows is considered to be impaired and is written down to fair value, which is determined based on undiscounted future cash flows. In accordance with Statement of Financial Accounting Standards No. 142 ("SFAS No. 142"), Goodwill and Other Intangible Assets, no amortization expense was recorded in 2003.

(k) Accounting for Impairment

Statement of Financial Accounting Standards No. 144 ("SFAS No. 144"), Accounting for the Impairment or Disposal of Long-Lived Assets establishes accounting standards to account for the impairment of long-lived assets, and certain identifiable intangibles. Under SFAS No. 144 the Company reviews assets for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. SFAS No. 144 also requires that a rate regulated enterprise recognize an impairment when regulatory assets are no longer probable of recovery. No impairment losses were incurred for the years ended September 30, 2003 and 2002.

(l) Comprehensive Income

Statement of Financial Accounting Standards No. 130 ("SFAS No. 130"), Reporting Comprehensive Income establishes standards for reporting and presentation of comprehensive income and its components in a full set of financial statements. Under SFAS No. 130, the Companys comprehensive income consists of net income, net unrealized gains (losses) on securities and minimum pension liability and is presented in the consolidated statements of stockholders equity.

(2) Information About Operating Segments

The Companys reportable segments have been determined based upon the nature of the products and services offered, customer base, availability of discrete internal financial information, homogeneity of products, delivery channel and other factors.

The Corning Natural Gas Corporation (the Gas Company) is a gas distribution company providing gas on a commodity and transportation basis to its customers in the Southern Tier of New York State. The Appliance Corporation sells, rents and services primarily gas burning appliances. The Tax Center provides tax preparation, accounting and payroll services to approximately 1,000 clients. Corning Realty is a residential and commercial real estate business with approximately 70 agents operating in three neighboring counties. Foodmart Plaza is a retail complex consisting of eight tenants under multi-year leases anchored by a major supermarket. Corning Mortgage is a mortgage service company working closely with the realty relationship.



The following table reflects the results of the segments consistent with the Companys internal financial reporting process. The following results are used in part, by management, both in evaluating the performance of, and in allocating resources to, each of the segments.

|Gas                            |             | Appliance   | Tax      | Corning    | Foodmart  | Corning  |             
|------------------------------ | ----------- | ----------- | -------- | ---------- | --------- | -------- | ------------
|Company                        |             | Corporation | Center   | Realty     | Plaza     | Mortgage | Consolidated
|Revenue:(1)                    |             |             |          |            |           |          |             
|2003                           | $20,561,927 | $2,401,642  | $621,975 | $4,021,089 | $262,287  | $62,785  | $27,931,705 
|2002                           | $17,241,615 | $2,294,107  | $493,225 | $3,594,443 | $267,073  | $18,909  | $23,909,372 
|Net income (loss):(1)          |             |             |          |            |           |          |             
|2003                           | (208,360)   | (145,838)   | 153,084  | 39,703     | 39,351    | 30,548   | (91,512)    
|2002                           | 218,512     | 126,323     | 126,927  | (16,309)   | 69,251    | 1,449    | 526,153     
|Interest income:(1)            |             |             |          |            |           |          |             
|2003                           | 25,725      | 70,871      | 10,544   | -          | 51        | -        | 107,191     
|2002                           | 59,434      | 77,321      | 9,552    | -          | 56        | -        | 146,363     
|Interest expense:(1)           |             |             |          |            |           |          |             
|2003                           | 1,199,108   | 20,244      | 121      | 86,629     | 58,665    | 10,911   | 1,375,678   
|2002                           | 926,869     | 14,394      | -        | 115,488    | 63,294    | 13,194   | 1,133,239   
|Total assets:                  |             |             |          |            |           |          |             
|2003                           | 26,253,570  | 934,901     | 328,184  | 1,694,824  | 1,126,633 | -        | 30,338,112  
|2002                           | 23,577,027  | 2,120,033   | 218,862  | 1,797,444  | 1,140,615 | -        | 28,853,981  
|Depreciation and amortization: |             |             |          |            |           |          |             
|2003                           | 512,395     | 212,286     | 14,661   | 61,245     | 31,864    | -        | 832,451     
|2002                           | 513,278     | 198,285     | 12,986   | 177,947    | 30,802    | -        | 933,298     
|Federal income tax expense:    |             |             |          |            |           |          |             
|2003                           | (151,931)   | (117,196)   | -        | 24,247     | (23,673)  | 15,770   | (252,783)   
|2002                           | 87,537      | 63,089      | 61,021   | (8,770)    | 36,968    | 1,146    | 240,991     

(1)Before elimination of intercompany interest.



Interest income and expense have been displayed in the segment in which it has been earned or incurred. Segment interest expense other than the Gas Company is included within unregulated expenses in the consolidated statements of income.



(3) Major Customers

The Company has three major customers, Corning Incorporated, New York State Electric & Gas (NYSEG) and Bath Electric Gas & Water Systems (BEGWS). The loss of any of these customers could have a significant impact on the Companys financial results. Total revenue and deliveries to these customers were as follows:

|                              |           | Deliveries |            |        |            | Revenue    |   
|----------------------------- | --------- | ---------- | ---------- | ------ | ---------- | ---------- | --
|                              | Mcf       |            | % of Total | Amount |            | % of Total
|Corning Inc.                  |           |            |            |        |            |            |   
|Year ended September 30, 2003 | 1,704,000 |            | 21         |        | $990,000   |            | 5 
|Year ended September 30, 2002 | 1,985,000 |            | 26         |        | $855,000   |            | 5 
|NYSEG                         |           |            |            |        |            |            |   
|Year ended September 30, 2003 | 2,906,000 |            | 35         |        | $291,000   |            | 1 
|Year ended September 30, 2002 | 2,345,000 |            | 31         |        | $286,000   |            | 2 
|BEGWS                         |           |            |            |        |            |            |   
|Year ended September 30, 2003 | 740,000   |            | 9          |        | $2,757,000 |            | 13
|Year ended September 30, 2002 | 650,000   |            | 9          |        | $2,279,000 |            | 13

(4) Regulatory Matters

Certain costs are deferred and recognized as expenses when they are reflected in rates and recovered from customers as permitted by SFAS No. 71. These costs are shown as deferred debits and other assets. Such costs arise from the traditional cost-of-service rate setting approach whereby all prudently incurred costs are generally recoverable through rates. Deferral of these costs is appropriate while the Companys rates are regulated under a cost-of-service approach.

In a purely competitive environment, such costs might not have been incurred or deferred. Accordingly, if the Companys rate setting were changed from a cost-of-service approach and it was no longer allowed to defer these costs under SFAS No. 71, certain of these assets may not be fully recoverable. However, the Company cannot predict the impact, if any, of competition and continues to operate in a cost-of-service based regulatory environment. Accordingly, the Company believes that accounting under SFAS No. 71 is still appropriate.

Below is a summarization of the Companys regulatory assets as of September 30, 2003 and 2002:

|                                            | 2003       | 2002      
|------------------------------------------- | ---------- | ----------
|Deferred pension and other                  | $1,134,986 | $1,257,567
|Deferred debits
accounting for income taxes | 1,016,661  | 1,016,661 
|Unrecovered gas costs                       | 1,151,693  | 761,172   
|Total regulatory assets                     | $3,303,340 | $3,035,400



Deferred pension and other: Approximately $800,000 of these balances represents deferred pension and post-retirement costs in excess of the amounts currently recoverable through rates at September 30, 2003 and 2002. The PSC requires such excess costs to be deferred. Remaining balances represent miscellaneous regulatory assets.

Deferred debits: These amounts represent the expected future recovery from accounting for income taxes ratepayers of the tax consequences of temporary differences between the financial reporting basis and tax basis of assets and liabilities

Unrecovered gas costs: These costs are recoverable over future years and arise from an annual reconciliation of certain gas revenue and costs (as described in Note 1).

The Company expects that its regulatory assets will be fully recoverable from customers.



(5) Long-term Debt

|A summary of long-term debt at September 30, 2003 and 2002 follows:  |             |            
|-------------------------------------------------------------------- | ----------- | -----------
|                                                                     | 2002        | 2003       
|Unsecured senior note: 7.9%, due serially with annual payments of    |             |            
|$355,000 beginning in 2006 through 2016 and $795,500 due in 2017     | $4,700,000  | $4,700,000 
|First mortgage bonds: 8.25%, series all due 2018, secured by         |             |            
|substantially all utility plant                                      | 3,100,000   | 3,100,000  
|Unsecured senior note: 9.83%, due serially with annual payments of   |             |            
|$100,000 beginning in 2007 through 2015 and $700,000 due in 2016     | 1,600,000   | 1,600,000  
|Mortgage note: 8.02% monthly installments through April 2008         | 801,876     | 840,853    
|Unsecured promissory note: 6.5%                                      | 70,650      | 0          
|Note payable: 6.5% monthly installments through January 2004 secured |             |            
|by assets of Corning Realty                                          | 23,614      | 160,060    
|Note payable :                                                       |             |            
|7.75% monthly installments through January 2009 secured              |             |            
|by assets of Corning Realty                                          | 69,774      | 319,828    
|                                                                     |             |            
|Mortgage note payable: 9.24% monthly installments through 2010       | 88,930      | 94,002     
|Note payable at the prime rate, 4.00% at September 2003              | 125,000     | 125,000    
|Note payable at the prime rate, 4.00% at September 2003              | 70,000      | 70,000     
|Total long-term debt                                                 |             |            
|                                                                     | 10,849,844  | 11,009,743 
|                                                                     |             |            
|Less current installments                                            | 309,977     | 416,005    
|Long-term debt less current installments                             | $10,539,867 | $10,593,738



The aggregate maturities of long-term debt for each of the five years subsequent to September 30, 2003 are as follows:

|2004 | $309,977 | 2005 | $97,211    | 2006 | $458,880       |           
|---- | -------- | ---- | ---------- | ---- | -------------- | ----------
|2007 | $566,948 | 2008 | $1,183,357 | 2009 | and thereafter | $8,233,469



(6) Lines of Credit

The Company has consolidated lines of credit with local banks to borrow up to $7,750,000 on a short-term basis. Last year, before the sale of the Appliance Corporation assets, the company had $8,500,000 available. Borrowings outstanding under these lines were $6,550,000 and $5,475,000 at September 30, 2003 and 2002, respectively. The maximum amount outstanding during the year ended September 30, 2003 and 2002 was $6,800,000 and $8,240,000 respectively. The lines of credit are unsecured and payable on demand with interest at rates which range from the prime rate (3.25% on September 30, 2003) to the prime rate less 3/4%. The weighted average interest rates on outstanding borrowings during fiscal 2003 and 2002 were 3.48% and 4.15% respectively.



(7) Income Taxes

Income tax expense (benefit) for the years ended September 30 is as follows:

|                         | 2003       | 2002      
|------------------------ | ---------- | ----------
|Utility Operations:      |            |           
|Current                  | ($77,616)  | ($223,561)
|Deferred                 | (82,922)   | 321,801   
|Investment Tax Credits   | 0          | 0         
|                         | (160,538)  | 98,240    
|                         |            |           
|Unregulated Operations:  |            |           
|Current                  | 151,909    | 203,654   
|Deferred                 | (94,120)   | (4,802)   
|                         | 57,789     | 198,852   
|                         |            |           
|Total Income Tax Expense | ($102,749) | $297,092  



Actual income tax expense differs from the expected tax expense (computed by applying the federal corporate tax rate of 34% to income before income tax expense) as follows:

|                             | 2003       | 2002    
|---------------------------- | ---------- | --------
|                             |            |         
|Expected federal tax expense | ($66,049)  | $279,903
|State tax expense            | (14,552)   | 45,070  
|Other, net                   | (22,148)   | (27,881)
|                             |            |         
|Actual tax expense           | ($102,749) | $297,092



The tax effects of temporary differences that result in deferred income tax assets and liabilities at September 30 are as follows:

|                                                  |   | 2003      |   | 2002     
|------------------------------------------------- | - | --------- | - | ---------
|Deferred income tax assets:                       |   |           |   |          
|Unbilled revenue                                  | $ | 26,372    | $ | 21,725   
|Deferred compensation reserve                     |   | 592,083   |   | 510,142  
|Post-retirement benefit obligations               |   | 262,140   |   | 220,394  
|Allowance for uncollectible accounts              |   | 31,952    |   | 38,422   
|Inventories                                       |   | 79,562    |   | 19,542   
|Comprehensive income                              |   | 941,829   |   | 661,415  
|Other                                             |   | 90,725    |   | 36.562   
|Total deferred income tax assets 2003 2002        |   | 2,024,663 |   | 1,508,202
|                                                  |   |           |   |          
|Deferred income tax liabilities:                  |   |           |   |          
|Property, plant and equipment, principally due to |   |           |   |          
|differences in depreciation                       |   | 2,453,532 |   | 2,242,951
|Pension benefit obligations                       |   | 666,583   |   | 733,467  
|Deficiency of GAC revenue billed                  |   | 135,975   |   | 64,726   
|Other                                             |   | 414,127   |   | 522,182  
|                                                  |   |           |   |          
|Total deferred income tax liabilities             |   | 3,670,217 |   | 3,563,326
|                                                  |   |           |   |          
|Net deferred income tax liability                 | $ | 1,645,554 | $ | 2,055,124



Beginning January 1, 2000, the regulated operations of the Company became subject to state income tax. Based on the results of these regulated operations, and because of the states prescribed method regarding how the new tax rules are to be adopted, the effect of this tax on the results of 2003 and 2002 operations is immaterial.



(8) Pension and Other Post-retirement Benefit Plans

In 1997, the Company established a trust to fund a deferred compensation plan for certain officers. The fair market value of assets in the trust was $1,741,050 and $1,249,551 at September 30, 2003 and 2002, respectively, and the plan liability, which is included in deferred compensation, postretirement benefits and other credits on the balance sheet, was $1,482,430 and $1,287,911 at September 30, 2003 and 2002, respectively. The assets of the trust are available to general creditors in the event of insolvency.

The Company has defined benefit pension plans covering substantially all of its employees. The benefits are based on years of service and the employees highest average compensation during a specified period. The Company makes annual contributions to the plans equal to amounts determined in accordance with the funding requirements of the Employee Retirement Security Act of 1974. Contributions are intended to provide for benefits attributed for service to date, and those expected to be earned in the future.

In addition to the Companys defined benefit pension plans, the Company offers post-retirement benefits comprised of medical and life coverages to its employees who meet certain age and service criteria. Currently, the retirees under age 65 pay 60% of their health care premium until Medicare benefits commence at age 65. After age 65, Medicare supplemental coverage is offered with Company payment of the premium. For participants who retire on or after September 2, 1992, the Company cost, as stated above, shall not exceed $150 per month. In addition, the Company offers limited life insurance coverage to active employees and retirees. The post-retirement benefit plan is not funded. The Company accrues the cost of providing post-retirement benefits during the active service period of the employee.



The following table shows reconciliations of the Companys pension and post-retirement plan benefits as of September 30:

|                                                         |                  |             |                 |            
|-------------------------------------------------------- | ---------------- | ----------- | --------------- | -----------
|                                                         | Pension Benefits |             | Post-retirement |            
|Benefits                                                 |                  |             |                 |            
|                                                         | 2003             | 2002        | 2003            | 2002       
|Change in benefit obligations                            |                  |             |                 |            
|Benefit obligation at beginning of year                  | $10,769,929      | $9,804,568  | $1,170,079      | $1,065,806 
|Service cost                                             | 374,664          | 318,367     | 34,726          | 28,103     
|Interest cost                                            | 736,337          | 714,793     | 79,533          | 77,510     
|Participant contributions                                | -                | -           | 89,750          | 84,128     
|Actuarial loss                                           | 1,247,377        | 449,884     | (8,182)         | 63,270     
|Benefits paid                                            | (534,387)        | (517,683)   | (155,628)       | (148,738)  
|Amendments                                               | -                | -           | -               | -          
|Benefit obligation at end of year                        | $12,593,920      | $10,769,929 | $1,210,278      | $1,170,079 
|Change in plan assets                                    |                  |             |                 |            
|Fair value of plan assets at beginning of year           | $8,385,260       | $10,152,874 | -               | -          
|Actual return on plan assets                             | 322,062          | (1,159,171) | -               | -          
|Company contributions                                    | 131,381          | -           | 65,878          | 64,610     
|Participant contributions                                | -                | -           | 89,750          | 84,128     
|Benefits paid                                            | (559,582)        | (608,443)   | (155,628)       | (148,738)  
|Fair value of plan assets at end of year                 | $8,279,121       | $8,385,260  | -               | -          
|Funded status                                            | (4,314,799)      | (2,384,669  | (1,210,278)     | (1,170,079)
|Unrecognized actuarial loss (gain)                       | 4,799,777        | 3,466,367   | (124,415)       | (128,148)  
|Unrecognized PSC adjustment                              | 171,422          | 211,757     |                 | -          
|Unrecognized prior service cost                          | 658,480          | 772,533     | 21,703          | 27,128     
|Unrecognized net transition asset (obligation) (167,916) |                  | (207,426)   | 574,250         | 631,250    
|Accrued contribution                                     | 40,000           | 40,000      | -               | -          
|Additional minimum liability                             | (3,428,566)      | (2,321,221) | -               | -          
|(Accrued) prepaid benefit cost                           | ($2,241,602)     | ($422,659)  | ($738,740)      | ($640,849) 
|Weighted average assumptions as of                       |                  |             |                 |            
|September 30, 2003 and 2002                              |                  |             |                 |            
|Discount rate                                            | 6.00%            | 7.00%       | 6.00%           | 7.00%      
|Expected return on assets                                | 8.00%            | 8.00%       | -               | -          
|Rate of compensation increase                            | 4.50%            | 5.00%       | -               | -          



For measurement purposes, a 12% annual rate of increase in the per capita cost of covered benefits (health care cost trend rate) was assumed for 2003. The rate is assumed to decrease gradually to 5% by the year 2010 and remain at that level thereafter. A 1% increase in the actual health care cost trend would result in approximately a 4.1% increase in the service and interest cost components of the annual net periodic post-retirement benefit cost and a 4.0% increase in the accumulated post-retirement benefit obligation. A 1% decrease in the actual health care cost trend would result in approximately a 3.5% decrease in the service and interest cost components of the annual net periodic post-retirement benefit cost and a 3.4% decrease in the accumulated post-retirement benefit obligation.

|                                                  |  |          |           |          |           | Pension Benefits |          |          | Post-retirement Benefits
|------------------------------------------------- |  | -------- | --------- | -------- | --------- | ---------------- | -------- | -------- | ------------------------
|                                                  |  |          |           |          | 2003      |                  | 2002     |          | 2003                    
|Components of net periodic benefit cost (benefit) |  |          |           |          |           |                  |         
|Service cost                                      |  |          |           | $374,664 |           | $318,367         |          | $34,726  |                         
|Interest cost                                     |  |          |           | 736,337  |           | 714,793          |          | 79,533   |                         
|Expected return on plan assets                    |  |          | (655,554) |          | (790,311) |                  | ------   |          | ------                  
|Amortization of prior service                     |  |          | 114,053   |          | 114,053   |                  | 5,425    |          | 5,425                   
|Amortization of transition obligation             |  | (39,510) |           | (39,510) |           | 57,000           |          | 57,000  
|Amortization of PSC adjustment                    |  |          | 40,335    |          | 40,335    |                  | ------   |          | ------                  
|Amortization of unrecognized actuarial            |  |          |           |          |           |                  |          |         
|(gain)loss                                        |  |          |           |          | 272,654   |                  | (88,890) |          | (12,915)                
|Net periodic benefit cost (benefit)               |  | $842,979 |           | $268,837 |           | $163,769         |          | $146,658



For ratemaking and financial statement purposes, pension expense represents the amount approved by the PSC in the Companys most recently approved rate case. Pension expense (benefit) for ratemaking and financial statement purposes was approximately $214,385 and ($112,321) for the years ended September 30, 2003 and 2002 respectively. The difference between the pension expense (benefit) for ratemaking and financial statement purposes, and the amount computed above has been deferred and is not included in the prepaid pension cost noted above. Such balances equal ($994,026) and ($365,432) as of September 30, 2003 and 2002 respectively.

The PSC has allowed the Company to recover incremental cost associated with post-retirement benefits through rates on a current basis. Due to the timing differences between the Companys rate case filings and financial reporting period, a regulatory liability of ($153,088) and ($102,098) has been recognized at September 30, 2003 and 2002 respectively.



(9) Rentals Under Operating Leases

Foodmart Plaza receives income from the rental of retail store space under operating leases. The following is a schedule of minimum future non-cancellable rentals (excluding amounts representing executory costs such as taxes, maintenance and insurance) of operating leases as of September 30, 2003:

|                             |  |          | 2004 | $250,875
|---------------------------- |  | -------- | ---- | --------
|                             |  |          | 2005 | 251,775 
|                             |  |          | 2006 | 256,625 
|                             |  |          |      |         
|Total minimum future rentals |  | $759,275

All leases contain renewal options at the end of their respective lease terms.



(10) Commitments

The Company has agreements with seven pipeline companies providing for pipeline capacity for terms that extend through 2006. These agreements require the payment of a demand charge for contracted capacity at Federal Energy Regulatory Commission approved rates. Purchased gas costs incurred under these pipelines capacity agreements during 2002 and 2003 amounted to $2,921,838 and $2,648,114, respectively. The Company also has short-term gas purchase agreements averaging three months in length, with prices tied to various indices. The Company does not anticipate these agreements to be significantly in excess of normal capacity requirements.

(11) Discontinued Operations

The assets of the Appliance Company were sold to a small group of primarily local investors and the transaction was completed in mid-September 2003. The assets, which consisted primarily of rented appliances in service, inventory, displays, equipment and vehicles, were sold for $1,992,400 including the $240,000 discussed below. The Company received $1,152,400 in cash and loaned the new Company $600,000 with interest at the rate of 6.25% which will be amortized and paid within five years. The remaining $240,000 will be paid in $80,000 increments at the conclusion of each of three years if the newly formed Company attains specific revenue levels during each of those three periods. The Company ultimately will experience a pre-tax profit of $364,740 on the sale of this business of which $124,740 was earned during fiscal 2003 and $80,000 will then be earned in each of the following three years if the revenue levels meet expectations. The assets of discontinued operations were seperately classified in the Consolidated Balance Sheet at September 30, 2002. Assets and Liabilities of discontinued operations at September 30, 2002 were as follows:

|                                 |           | 2002
|-------------------------------- | --------- | ----
|Accounts Receivable              | $418,823 
|Inventories                      | 405,815  
|Plant, property & equipment, net | 1,109,827
|Accounts Payable                 | 204,465  
|Other current liabilities        | 305,779  
|Non-current liabilities          | 284,289  



Management believes that the following items will contribute to both a return to positive earnings and cash flow for the coming year: 1) Fiscal year 2003 results do not reflect the total benefit to be derived from the rate increase approved by the New York State Public Service Commission (the "Commission") in our previously settled rate case. Since the effective date was January 11, 2003 three months of the increase were not included in the fiscal year 2003 results from operations. This amount is estimated to be in excess of $100,000. 2) The Company was not permitted by the Commission to record up to $174,000 of revenues until certain milestones were met at the end of the rate year, December 31, 2003. The Company will petition the Commission to include these revenues in fiscal 2004. 3) The Joint Proposal in the rate case contains certain provisions allowing the Company to petition for relief if the desired financial results are not attained. The Company expects to petition for such relief at the conclusion of the rate year, December 31, 2003. 4) The Commission disallowed interest expense incurred in the prior year of $121,000, there is no such expected event for fiscal 2004. In addition, management expects that the renegotiated debt instruments will lead to reduced interest expense, and management restructuring and reduced discretionary spending in 2004 will positively impact the financial condition of the Company. The ability of the Company to achieve profitable operations and positive cash flow is dependent upon the Companys successful implementation of Managements plans.



### INDEPENDENT AUDITORS REPORT

The Board of Directors and Stockholders Corning Natural Gas Corporation and Subsidiary Corning, New York

We have audited the accompanying consolidated balance sheets of Corning Natural Gas Corporation and Subsidiary as of September 30, 2003 and 2002, and the related consolidated statements of operations, stockholders equity, and cash flows for the years then ended. These financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these financial statements based on our audits.

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

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of the Company at September 30, 2003 and 2002, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.



Deloitte & Touche LLP Rochester, New York January 6, 2004





CORNING NATURAL GAS CORPORATION AND SUBSIDIARY

SUMMARY OF FINANCIAL AND OPERATING STATISTICS

|CORNING NATURAL GAS CORPORATION AND SUBSIDIARY |  |   |             |  |            |  |            |  |            |  |           
|---------------------------------------------- |  | - | ----------- |  | ---------- |  | ---------- |  | ---------- |  | ----------
|SUMMARY OF FINANCIAL AND OPERATING STATISTICS  |  |   |             |  |            |  |            |  |            |  |           
|                                               |  |   | 2003        |  | 2002       |  | 2001       |  | 2000       |  | 1999      
|Total assets                                   |  |   | $30,735,916 |  | 28,853,981 |  | 29,330,254 |  | 30,326,512 |  | 26,513,771
|Long-term debt, less current installments      |  |   | $10,539,867 |  | 10,593,738 |  | 10,905,093 |  | 11,429,421 |  | 11,507,315
|Summary of earnings:                           |  |   |             |  |            |  |            |  |            |  |           
|Utility operating revenue                      |  |   | $20,561,927 |  | 17,241,615 |  | 24,121,238 |  | 16,496,841 |  | 16,276,170
|Total operating expenses and taxes             |  |   | 19,598,325  |  | 16,120,931 |  | 22,879,305 |  | 15,399,498 |  | 15,154,747
|Net utility operating income                   |  |   | 963,602     |  | 1,120,684  |  | 1,241,933  |  | 1,097,343  |  | 1,121,423 
|Other income                                   |  |   | 17,853      |  | 24,696     |  | 34,614     |  | 76,483     |  | 63,353    
|Appliance Corporation Earnings                 |  |   | 116,849     |  | 307,641    |  | 290,678    |  | 378,988    |  | 208,302   
|Interest expense-regulated                     |  |   | 1,189,816   |  | 926,868    |  | 960,675    |  | 1,081,362  |  | 955,130   
|Net Income                                     |  | $ | -91,512     |  | 526,153    |  | 606,550    |  | 471,452    |  | 437,948   
|Number of common shares                        |  |   | 482,900     |  | 460,000    |  | 460,000    |  | 460,000    |  | 460,000   
|Earnings per common share                      |  | $ | (0.19)      |  | 1.14       |  | 1.32       |  | 1.02       |  | 0.95      
|Cash dividends paid per common share           |  | $ | 0           |  | 0.65       |  | 1.3        |  | 1.3        |  | 1.3       
|Statistics (unaudited)-                        |  |   |             |  |            |  |            |  |            |  |           
|Gas delivered (MMcf)                           |  |   |             |  |            |  |            |  |            |  |           
|Residential                                    |  |   | 1,179       |  | 997        |  | 1,507      |  | 1,501      |  | 1,519     
|Commercial                                     |  |   | 325         |  | 263        |  | 307        |  | 291        |  | 314       
|Other utilities                                |  |   | 404         |  | 300        |  | 339        |  | 319        |  | 309       
|Transportation deliveries                      |  |   | 6,364       |  | 5,978      |  | 6,392      |  | 5,936      |  | 5,875     
|Total deliveries                               |  |   | 8,272       |  | 7,538      |  | 8,545      |  | 8,047      |  | 8,017     
|Number of customers-end of period              |  |   | 14,316      |  | 14,388     |  | 14,454     |  | 14,246     |  | 13,993    
|Average Mcf use per                            |  |   |             |  |            |  |            |  |            |  |           
|residential customer                           |  |   | 119.3       |  | 93.8       |  | 119.1      |  | 117.4      |  | 117.8     
|Average revenue per residential                |  |   |             |  |            |  |            |  |            |  |           
|customer                                       |  | $ | 1,158.90    |  | 897.71     |  | 1,250.44   |  | 819        |  | 822.57    
|Number of degree days (1)                      |  |   | 7,434       |  | 5,629      |  | 6,809      |  | 6,333      |  | 6,241     
|Percent (warmer) colder than avg.              |  |   | 8.3         |  | (13.10)    |  | 5.00       |  | (2.60)     |  | (4.30)    
|Peak day deliveries (Mcf)                      |  |   | 52,753      |  | 52,467     |  | 53,523     |  | 57,642     |  | 51,770    
|Number of rental appliances in service         |  |   | 0           |  | 6,179      |  | 6,213      |  | 6,263      |  | 6,430     
|Miles of mains                                 |  |   | 405.8       |  | 402.3      |  | 398.4      |  | 396.5      |  | 394.6     
|Investment in gas plant (at cost)              |  | $ | 24,953,757  |  | 23,980,978 |  | 22,940,150 |  | 22,251,342 |  | 21,667,115
|Stockholders equity per share                  |  | $ | 7.17        |  | 9.06       |  | 10.63      |  | 10.98      |  | 11.11     
|                                               |  |   |             |  |            |  |            |  |            |  |           
|                                               |  |   |             |  |            |  |            |  |            |  |           
|(1) Thirty year average degree days: 6,865     |  |   |             |  |            |  |            |  |            |  |           





Common Stock Data-Market Price(OTC)

|Quarter Ended      |   | High  |   | Low  
|------------------ | - | ----- | - | -----
|December 31, 2001  | $ | 21.25 | $ | 18.75
|March 31, 2002     |   | 24.00 |   | 21.00
|June 30, 2002      |   | 22.00 |   | 18.50
|September 30, 2002 |   | 19.25 |   | 11.00
|December 31, 2002  |   | 12.25 |   | 11.10
|March 31, 2003     |   | 14.50 |   | 11.75
|June 30, 2003      |   | 14.00 |   | 13.30
|September 30, 2003 |   | 15.00 |   | 14.00

NOTE: A stock dividend in the amount of 5% was paid on Dec. 31, 2003 and also on Dec. 31, 2002.





|                                                                            |                                                                | OFFICERS                          
|--------------------------------------------------------------------------- | -------------------------------------------------------------- | ----------------------------------
|                                                                            |                                                                |                                   
|Thomas K. Barry                                                             |                                                               
|                                                                            | Chairman of the Board, President                              
|                                                                            | and Chief Executive Officer                                   
|                                                                            |                                                                |                                   
|Kenneth J. Robinson                                                         |                                                               
|                                                                            | Executive Vice President                                      
|                                                                            |                                                                |                                   
|Russell S. Miller                                                           |                                                               
|                                                                            | Vice President-Operations                                     
|                                                                            |                                                                |                                   
|Stanley G. Sleve                                                            |                                                               
|                                                                            | Vice President-Business Development                           
|                                                                            |                                                                |                                   
|Gary K. Earley                                                              |                                                               
|                                                                            | Secretary & Treasurer                                         
|                                                                            |                                                                |                                   
|                                                                            |                                                                |                                   
|                                                                            |                                                                |                                   
|                                                                            |                                                                | DIRECTORS                         
|                                                                            |                                                                |                                   
|Thomas K. Barry                                                             |                                                               
|Chairman of the Board, President and Chief Executive Officer of the Company
|                                                                            |                                                                |                                   
|Thomas H. Bilodeau                                                          |                                                               
|                                                                            | Vice President-Finance, Medical & Environmental Coolers, Inc. 
|                                                                            |                                                                |                                   
|Bradford J. Faxon                                                           |                                                               
|Former President of Fall River Gas Company                                 
|                                                                            |                                                                |                                   
|Donald R. Patnode                                                           |                                                               
|                                                                            | Former President, Industrial Filters and Equipment Corporation
|                                                                            |                                                                |                                   
|Kenneth J. Robinson                                                         |                                                               
|                                                                            | Executive Vice President of the Company                       
|                                                                            |                                                                |                                   
|                                                                            |                                                                | Registrar and Stock Transfer Agent
|                                                                            |                                                                | Corning Natural Gas Corporation   
|                                                                            |                                                                | Corning, New York                 
|                                                                            |                                                                |                                   
|                                                                            |                                                                | Counsel                           
|                                                                            |                                                                | Rich, May, Bilodeau and Flaherty  
|                                                                            |                                                                | Boston, Massachusetts