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<SEC-DOCUMENT>0000950116-04-003228.txt : 20041103
<SEC-HEADER>0000950116-04-003228.hdr.sgml : 20041103
<ACCEPTANCE-DATETIME>20041103144447
ACCESSION NUMBER:		0000950116-04-003228
CONFORMED SUBMISSION TYPE:	10-Q
PUBLIC DOCUMENT COUNT:		4
CONFORMED PERIOD OF REPORT:	20040930
FILED AS OF DATE:		20041103
DATE AS OF CHANGE:		20041103

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			ARTESIAN RESOURCES CORP
		CENTRAL INDEX KEY:			0000863110
		STANDARD INDUSTRIAL CLASSIFICATION:	WATER SUPPLY [4941]
		IRS NUMBER:				510002090
		STATE OF INCORPORATION:			DE
		FISCAL YEAR END:			1231

	FILING VALUES:
		FORM TYPE:		10-Q
		SEC ACT:		1934 Act
		SEC FILE NUMBER:	000-18516
		FILM NUMBER:		041116008

	BUSINESS ADDRESS:	
		STREET 1:		664 CHURCHMANS RD
		CITY:			NEWARK
		STATE:			DE
		ZIP:			19702
		BUSINESS PHONE:		3024536900

	MAIL ADDRESS:	
		STREET 1:		664 CHURCHMANS RD
		CITY:			NEWARK
		STATE:			DE
		ZIP:			19702
</SEC-HEADER>
<DOCUMENT>
<TYPE>10-Q
<SEQUENCE>1
<FILENAME>tenq.txt
<DESCRIPTION>10-Q
<TEXT>
<PAGE>
                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-Q

     (Mark One)
        [x]       QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                  SECURITIES EXCHANGE ACT OF 1934


                For the quarterly period ended September 30, 2004

                                       or

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


             For the transition period from __________ to __________

                         Commission file number 0-18516

                         ARTESIAN RESOURCES CORPORATION
              ----------------------------------------------------
             (exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
<S>                                                                 <C>
State or other jurisdiction of incorporation or organization:       DELAWARE

I.R.S. Employer Identification Number:                              51-0002090

Address of principal executive officers:                            664 CHURCHMANS ROAD
                                                                    NEWARK, DELAWARE 19702

Registrant's telephone number, including area code:                 (302) 453 - 6900
</TABLE>

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

      [X]  Yes       [ ]  No

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

      [X]  Yes       [ ]  No

As of October 29, 2004, 3,359,627 shares of Class A Non-Voting Common Stock and
587,680 shares of Class B Common Stock were outstanding.


<PAGE>
                         ARTESIAN RESOURCES CORPORATION
                               INDEX TO FORM 10-Q

<TABLE>
<CAPTION>
                                                                                                    Page(s)
<S>          <C>          <C>                                                                         <C>
PART I             -   FINANCIAL INFORMATION:

           ITEM 1  -      FINANCIAL STATEMENTS

                          Consolidated Balance Sheet
                          September 30, 2004 and December 31, 2003                                     3

                          Consolidated Statement of Income
                          for the quarter ended September 30, 2004 and 2003                            4

                          Consolidated Statement of Income
                          for the nine months ended September 30, 2004 and 2003                        5

                          Consolidated Statement of Retained Earnings
                          for the nine months ended September 30, 2004 and 2003                        6

                          Consolidated Statement of Cash Flows                                         7
                          for the nine months ended September 30, 2004 and 2003

                          Notes to the Consolidated Financial Statements                             8 - 11

           ITEM 2  -      MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                          FINANCIAL CONDITION AND RESULTS OF OPERATIONS                             12 - 18

           ITEM 3  -      QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                   18

           ITEM 4  -      CONTROLS AND PROCEDURES                                                      18

PART II            -      OTHER INFORMATION:

           ITEM 1  -      LEGAL PROCEEDINGS                                                            19

           ITEM 6  -      EXHIBITS AND REPORTS ON FORM 8-K                                             19

SIGNATURES                                                                                             20

INDEX TO EXHIBITS                                                                                      21
</TABLE>


<PAGE>
PART I - FINANCIAL INFORMATION
ITEM I - FINANCIAL STATEMENTS

                         ARTESIAN RESOURCES CORPORATION
                           CONSOLIDATED BALANCE SHEET
                                 (In thousands)
<TABLE>
<CAPTION>
                                                                             (Unaudited)
                                                                          September 30, 2004       December 31, 2003
                                                                          ------------------       -----------------
<S>                                                                              <C>                         <C>
ASSETS
Utility plant, at original cost less accumulated depreciation                $  208,364                $  187,893
Current assets
  Cash and cash equivalents                                                       1,162                     1,128
  Accounts receivable, net                                                        2,949                     2,408
  Income tax receivable                                                             404                       841
  Unbilled operating revenues                                                     3,146                     2,745
  Materials and supplies-at cost on FIFO basis                                      955                       801
  Prepaid property taxes                                                          1,148                       711
  Prepaid expenses and other                                                      1,430                       577
                                                                             ----------                ----------
                                                                                 11,194                     9,211
                                                                             ----------                ----------
Other assets
  Non-utility property (less accumulated depreciation 2004-$103; 2003-$89)          342                       334
  Restricted cash                                                                 1,420                    14,219
  Other deferred assets                                                           2,650                     2,544
                                                                             ----------                ----------
                                                                                  4,412                    17,097
Regulatory assets, net                                                            2,032                     2,123
                                                                             ----------                ----------
                                                                             $  226,002                $  216,324
                                                                             ==========                ==========

LIABILITIES AND STOCKHOLDERS' EQUITY
Stockholders' equity
  Common stock                                                               $    3,946                $    3,901
  Additional paid-in capital                                                     41,950                    41,160
  Retained earnings                                                               8,349                     7,630
                                                                             ----------                ----------
    Total stockholders' equity                                                   54,245                    52,691
Long-term debt, net of current portion                                           83,073                    80,558
                                                                             ----------                ----------
                                                                                137,318                   133,249
                                                                             ----------                ----------

Current liabilities
  Notes payable                                                                  11,162                    12,499
  Current portion of long-term debt                                                 364                       188
  Current portion of mandatorily redeemable preferred stock                          --                       100
  Accounts payable                                                                2,747                     3,951
  Overdraft payable                                                               1,747                     1,337
  Deferred income taxes                                                              --                       213
  Interest accrued                                                                  487                       267
  Customer deposits                                                                 460                       422
  Other                                                                           1,267                       697
                                                                             ----------                ----------
                                                                                 18,234                    19,674
                                                                             ----------                ----------
Deferred credits and other liabilities
  Net advances for construction                                                  21,398                    19,175
  Postretirement benefit obligation                                               1,186                     1,232
  Deferred investment tax credits                                                   823                       843
  Deferred income taxes                                                          14,960                    11,775
                                                                             ----------                ----------
                                                                                 38,367                    33,025
Commitments and contingencies
Net contributions in aid of construction                                         32,083                    30,376
                                                                             ----------                ----------
                                                                             $  226,002                $  216,324
                                                                             ==========                ==========
</TABLE>
See notes to the consolidated financial statements.

                                       3
<PAGE>
                         ARTESIAN RESOURCES CORPORATION
                        CONSOLIDATED STATEMENT OF INCOME
                                   (Unaudited)
                    (In thousands, except per share amounts)
<TABLE>
<CAPTION>
                                                                                        For the Quarter
                                                                                        Ended September 30,
                                                                                 --------------------------------
                                                                                    2004                  2003
                                                                                 ----------             ---------
<S>                                                                                  <C>                    <C>
OPERATING REVENUES
   Water sales                                                                   $   10,133             $   9,021
   Other utility operating revenue                                                      248                   164
   Non-utility revenue                                                                  220                    42
                                                                                 ----------             ---------
                                                                                     10,601                 9,227
                                                                                 ----------             ---------

OPERATING EXPENSES
   Utility operating expenses                                                         4,958                 4,830
   Related party expenses                                                                --                    43
   Non-utility operating expenses                                                       142                    63
   Depreciation and amortization                                                        998                   904
   State and federal income taxes                                                       993                   653
   Property and other taxes                                                             537                   529
                                                                                 ----------             ---------
                                                                                      7,628                 7,022
                                                                                 ----------             ---------

OPERATING INCOME                                                                      2,973                 2,205

OTHER INCOME, NET
   Allowance for funds used during construction                                           6                    67
   Miscellaneous income (expense)                                                        (6)                   10
                                                                                 ----------             ---------

INCOME BEFORE INTEREST CHARGES                                                        2,973                 2,282

INTEREST CHARGES                                                                      1,493                 1,227
                                                                                 ----------             ---------

NET INCOME                                                                            1,480                 1,055
PREFERRED DIVIDEND REQUIREMENT                                                           --                     3
                                                                                 ----------             ---------

NET INCOME APPLICABLE TO COMMON STOCK                                            $    1,480             $   1,052
                                                                                 ==========             =========

INCOME PER COMMON SHARE:
   Basic                                                                         $     0.38             $    0.27
                                                                                 ==========             =========
   Diluted                                                                       $     0.36             $    0.26
                                                                                 ==========             =========
CASH DIVIDEND PER COMMON SHARE                                                   $   0.2075             $  0.1984
                                                                                 ==========             =========
AVERAGE COMMON SHARES OUTSTANDING
   Basic                                                                              3,944                 3,885
                                                                                 ==========             =========
   Diluted                                                                            4,073                 3,985
                                                                                 ==========             =========
</TABLE>

See notes to the consolidated financial statements.

                                       4
<PAGE>
                         ARTESIAN RESOURCES CORPORATION
                        CONSOLIDATED STATEMENT OF INCOME
                                   (Unaudited)
                    (In thousands, except per share amounts)
<TABLE>
<CAPTION>
                                                                                        For the Nine Months
                                                                                         Ended September 30,
                                                                                  -------------------------------
                                                                                     2004                  2003
                                                                                  ----------            ----------
<S>                                                                                   <C>                   <C>
OPERATING REVENUES
   Water sales                                                                    $   28,166            $  26,373
   Other utility operating revenue                                                       652                  564
   Non-utility revenue                                                                   554                  281
                                                                                  ----------            ---------
                                                                                      29,372               27,218
                                                                                  ----------            ---------

OPERATING EXPENSES
   Utility operating expenses                                                         15,138               14,294
   Related party expenses                                                                 --                  130
   Non-utility operating expenses                                                        348                  161
   Depreciation and amortization                                                       3,014                2,640
   State and federal income taxes                                                      2,112                1,999
   Property and other taxes                                                            1,619                1,548
                                                                                  ----------            ---------
                                                                                      22,231               20,772
                                                                                  ----------            ---------

OPERATING INCOME                                                                       7,141                6,446

OTHER INCOME, NET
   Allowance for funds used during construction                                          260                  169
   Miscellaneous income                                                                  186                   41
                                                                                  ----------            ---------

INCOME BEFORE INTEREST CHARGES                                                         7,587                6,656

INTEREST CHARGES                                                                       4,430                3,610
                                                                                  ----------            ---------

NET INCOME                                                                             3,157                3,046
PREFERRED DIVIDEND REQUIREMENT AND REDEMPTION
   PREMIUM                                                                                 2                   69
                                                                                  ----------            ---------

NET INCOME APPLICABLE TO COMMON STOCK                                             $    3,155            $   2,977
                                                                                  ==========            =========

INCOME PER COMMON SHARE:
   Basic                                                                          $     0.80            $    0.77
                                                                                  ==========            =========
   Diluted                                                                        $     0.78            $    0.75
                                                                                  ==========            =========
CASH DIVIDEND PER COMMON SHARE                                                    $   0.6175            $  0.5950
                                                                                  ==========            =========
AVERAGE COMMON SHARES OUTSTANDING:
   Basic                                                                               3,931                3,875
                                                                                  ==========            =========
   Diluted                                                                             4,059                3,979
                                                                                  ==========            =========
</TABLE>

See notes to the consolidated financial statements.

                                       5
<PAGE>


                         ARTESIAN RESOURCES CORPORATION
                   CONSOLIDATED STATEMENT OF RETAINED EARNINGS
                                    Unaudited
                                 (In thousands)


<TABLE>
<CAPTION>
                                                                                   For the Nine Months
                                                                                    Ended September 30,
                                                                                --------------------------
                                                                                  2004              2003
                                                                                --------          --------
<S>                                                                             <C>               <C>
Balance, beginning of period                                                    $  7,630          $  6,973
Net income                                                                         3,157             3,046
                                                                                --------          --------
                                                                                  10,787            10,019
Less: Dividends                                                                    2,438             2,376
      Common stock repurchase                                                         --                83
                                                                                --------          --------
Balance, end of period                                                          $  8,349          $  7,560
                                                                                ========          ========
</TABLE>


See notes to the consolidated financial statements.




                                       6
<PAGE>
                         ARTESIAN RESOURCES CORPORATION
                      CONSOLIDATED STATEMENT OF CASH FLOWS
                                    Unaudited
                                 (In thousands)
<TABLE>
<CAPTION>
                                                                                     For the Nine Months
                                                                                      Ended September 30,
                                                                                ------------------------------
                                                                                   2004                2003
                                                                                ----------           ---------
<S>                                                                                 <C>                 <C>
CASH FLOWS FROM OPERATING ACTIVITIES
NET INCOME                                                                      $    3,157           $   3,046
Adjustments to reconcile net income to net cash
 provided by operating activities:
   Depreciation and amortization                                                     3,014               2,640
   Deferred income taxes, net                                                        2,952               3,507
   Allowance for funds used during construction                                       (260)               (169)
Changes in assets and liabilities:
   Accounts receivable                                                                (541)               (680)
   Receivable, other                                                                    --               3,800
   Income tax receivable                                                               437                  --
   Unbilled operating revenue                                                         (401)               (172)
   Materials and supplies                                                             (154)                (80)
   Accrued state and federal income taxes                                               --                (135)
   Prepaid property taxes                                                             (437)               (415)
   Prepaid expenses and other                                                         (853)             (1,393)
   Other deferred assets                                                               (82)               (198)
   Regulatory assets                                                                    91                 134
   Postretirement benefit obligation                                                   (46)                (47)
   Accounts payable                                                                 (1,204)                754
   Interest accrued                                                                    220                (391)
   Customer deposits and other, net                                                    608                 132
                                                                                ----------            --------

NET CASH PROVIDED BY OPERATING ACTIVITIES                                            6,501              10,333
                                                                                ----------            --------

CASH FLOWS FROM INVESTING ACTIVITIES
   Capital expenditures (net of AFUDC)                                             (23,677)            (14,352)
   Investment In AquaStructure                                                          (4)                 --
   Proceeds from sale of assets                                                         11                   2
                                                                                ----------            --------

NET CASH USED IN INVESTING ACTIVITIES                                              (23,670)            (14,350)
                                                                                ----------            --------
CASH FLOW FROM FINANCING ACTIVITIES
   Net borrowings (repayments) under line of credit agreement                       (1,337)              3,551
   Proceeds from issuance of long-term debt                                         15,314                 644
   Debt issuance costs                                                                 (20)                 --
   Overdraft payable                                                                   410               1,829
   Net advances and contributions in aid of construction                             4,363                 995
   Net proceeds from SRF loans                                                         176                  --
   Net proceeds from stock transactions                                                835                 448
   Dividends                                                                        (2,438)             (2,376)
   Repayment of long-term debt                                                          --                (233)
   Redemption of preferred stock                                                      (100)               (100)
                                                                                ----------           ---------

NET CASH PROVIDED BY FINANCING ACTIVITIES                                           17,203               4,758
                                                                                ----------           ---------

NET INCREASE IN CASH AND CASH EQUIVALENTS                                               34                 741

CASH AND CASH EQUIVALENTS AT BEGINNING OF
   PERIOD                                                                            1,128                 874
                                                                                ----------           ---------

CASH AND CASH EQUIVALENTS AT END OF PERIOD                                      $    1,162           $   1,615
                                                                                ==========           =========
Supplemental Disclosures of Cash Flow Information:
   Interest paid                                                                $    4,149           $   3,963
                                                                                ==========           =========
   Income taxes paid                                                            $       --           $     150
                                                                                ==========           =========
</TABLE>
See notes to the consolidated financial statements.

                                       7
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - GENERAL

Artesian Resources Corporation ("Artesian Resources" or the "Company") operates
as a holding company, whose income is derived from the earnings of our wholly
owned subsidiary companies and our one-third interest in AquaStructure Delaware,
L.L.C., a Limited Liability Corporation whose primary activity is marketing
wastewater services.

Artesian Water Company, Inc. ("Artesian Water"), our principal subsidiary, is
the oldest and largest public water utility in the State of Delaware and has
been providing water service within the state since 1905. We distribute and sell
water to residential, commercial, industrial, governmental, municipal and
utility customers throughout Delaware. In addition, we provide services to other
water utilities, including operations and billing functions, and have contract
operation agreements with fifteen private and municipal water providers.

Our other water utility subsidiary, Artesian Water Pennsylvania, Inc., began
operations in 2002, providing water service to a residential community,
consisting of 41 homes, in Chester County, Pennsylvania. On October 14, 2003, we
filed an application with the Pennsylvania Public Utilities Commission to
increase our service area in Pennsylvania. The application concerns four
specific housing developments that are expected to add 350 customers over 10
years to the extent our application is approved.

On September 30, 2004 we changed the name of our non-regulated subsidiary,
Artesian Wastewater Management, Inc. ("Artesian Wastewater"), which operates
municipal wastewater facilities under operating agreements, to Artesian Utility
Development, Inc. Concurrent with this name change, we formed a new subsidiary,
Artesian Wastewater Management, Inc., which will provide wastewater services to
customers in Delaware as a regulated public wastewater service company.

Our other subsidiary, which is not regulated, is Artesian Development
Corporation, whose sole activity is the ownership of an eleven-acre parcel of
land zoned for office buildings located immediately adjacent to our corporate
headquarters.

The terms "we", "our" and the "Company" as used herein refer to Artesian
Resources and its subsidiaries.

Stock Compensation Plans
- ------------------------

At September 30, 2004, the Company had three stock-based compensation plans. The
Company applies APB Opinion No. 25 and related interpretations in accounting for
compensation expense under its plans. Accordingly, the aggregate compensation
cost incurred under the three plans was a $75,300 and $124,800 charge against
income for the quarter and nine months ended September 30, 2004 and $28,400 and
$47,100 for the quarter and nine months ended September 30, 2003. Had
compensation cost for the Company's three plans been determined based on the
fair value at the grant dates for awards under those plans consistent with the
method required by Statement of Financial Accounting Standards No. 123,
"Accounting for Stock Based Compensation," the Company's net income and net
income per common share would have been reduced to the pro-forma amounts
indicated below:
<TABLE>
<CAPTION>
                                                     For the Quarter Ended         For the Nine Months Ended
                                                         September 30,                    September 30,
                                                     ------------------------      --------------------------
                                                        2004            2003          2004             2003
                                                     ----------       --------     ----------        --------
<S>                                                      <C>             <C>           <C>              <C>
In thousands, except per share data
NET INCOME APPLICABLE TO COMMON STOCK
     As reported                                       $ 1,480        $  1,052       $  3,155        $  2,977
     Add:  compensation expense included
     in net income (net of tax)                             45              17             75              28
     Deduct:  compensation expense using
      fair value based method (net of tax)                (115)            (63)          (197)           (113)
                                                       -------        --------       --------        --------
     Pro-forma                                         $ 1,410        $  1,006       $  3,033        $  2,892

BASIC NET INCOME PER COMMON SHARE
     As reported                                       $  0.38        $   0.27       $   0.80        $   0.77
     Pro-forma                                         $  0.36        $   0.26       $   0.77        $   0.75
DILUTED NET INCOME PER COMMON SHARE
     As reported                                       $  0.36        $   0.26       $   0.78        $   0.75
     Pro-forma                                         $  0.35        $   0.25       $   0.75        $   0.73
</TABLE>
                                       8

<PAGE>

NOTE 2 - REGULATORY ASSETS

Certain expenses are recoverable through rates charged to our customers, without
a return on investment, and are deferred and amortized during future periods
using various methods as permitted by the Delaware Public Service Commission
("Delaware PSC"). Expenses related to applications to increase rates are
amortized on a straight-line basis over a period of two years. The
postretirement benefit obligation, which is being amortized over 20 years, is
adjusted for the difference between the net periodic postretirement benefit
costs and the cash payments. The deferred income taxes will be amortized over
future years as the tax effects of temporary differences previously flowed
through to the customers reverse. Regulatory assets net of amortization, are
comprised of the following:
<TABLE>
<CAPTION>
                                                                September 30, 2004           December 31, 2003
                                                                -------------------          ------------------
                                                                               (in thousands)

<S>                                                                 <C>                         <C>
Postretirement benefit obligation                                   $    1,186                  $    1,232
Deferred income taxes recoverable in future rates                          616                         627
Expense of rate proceedings                                                120                         220
Other                                                                      110                          44
                                                                    ----------                  ----------
                                                                    $    2,032                  $    2,123
                                                                    ==========                  ==========
</TABLE>

Expenses related to the Net Periodic Pension Cost for the postretirement benefit
obligation are as follows:

<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED SEPTEMBER 30,                                    2004           2003
                                                                         --------       --------
<S>                                                                         <C>            <C>
NET PERIODIC PENSION COST
Interest Cost                                                            $     43       $     48
Amortization of Net (Gain) or Loss                                            (27)           (43)
Amortization of Transition Obligation/(Asset)                                   6              6
                                                                         --------       --------

Total Net Periodic Benefit Cost                                          $     22       $     11
                                                                         ========       ========
</TABLE>

CONTRIBUTIONS

Artesian Water contributed $67,000 to its postretirement benefit plan in the
first nine months of 2004 and expects to contribute another $25,000 for the
remainder of the year. These contributions consist of insurance premium payments
for medical, dental and life insurance benefits made on behalf of the Company's
eligible retired employees.

NOTE 3 - RELATED PARTY TRANSACTIONS

The office building and shop complex utilized by Artesian Water were previously
leased at an average annual rental of $173,000 from the former limited partners
of White Clay Realty, who owned the property jointly as tenants in common. Dian
C. Taylor, Chair and Chief Executive Officer of Artesian Resources, was a tenant
in common and John R. Eisenbrey, Jr., a director of Artesian Resources, was a
beneficiary of a tenant in common. The rental of $173,000 was below market
rates. In December 2002, Artesian Water filed a condemnation action in the
Delaware Superior Court, seeking to acquire title to the office and shop complex
leased by Artesian Water, known as 664 Churchmans Road, Newark, Delaware (the
"Property"). Artesian Water filed this action under its statutory power of
eminent domain against the owner of the Property, White Clay Realty, a Delaware



                                       9
<PAGE>
Limited Partnership, and each of the limited partners. The Superior Court ruled
that since White Clay Realty had no general partner, the partnership was
dissolved and all of the former partners owned the Property jointly as tenants
in common. A special committee (the "Special Committee") of the Board of
Directors of Artesian Water, composed entirely of outside directors who had no
ownership interest in the Property, made the determination to purchase the
Property through the condemnation procedures. Under this procedure, if the
acquisition of the Property were to be approved by the court, the fair market
value of the Property would be determined by a panel of commissioners after an
evidentiary hearing. Artesian Water's independent appraiser valued the Property
to be worth $3,800,000. In December 2002, Artesian Water issued a payment to the
Prothonotary for the State of Delaware for $3,800,000. As the court delayed
payment until the matter was decided, the amount was refunded to Artesian Water
in September 2003. Until a final determination of the condemnation, the parties
agreed that Artesian Water could continue to occupy the Property under the terms
of the lease with a quarterly rental payment of $43,361. Pursuant to a deadline
set by the Superior Court, the owners of the Property submitted an independent
appraisal that valued the Property to be worth $4,800,000. The condemnation case
was scheduled for trial on October 20, 2003, wherein the fair market value of
the Property would have been determined by a panel of three Commissioners after
an evidentiary hearing. Prior to the commencement of the trial on October 20,
2003, all parties agreed to settle the case for a purchase price of $4,500,000
paid by Artesian Water. The decision to settle on the part of Artesian Water was
made by the Special Committee and with the recommendation of special counsel to
the Special Committee. The settlement was approved by order of the Superior
Court on October 20, 2003. The Court also approved applications of two of the
tenants in common (neither of whom is an officer or director of Artesian) for
their expenses, totaling $50,000, to be paid by Artesian Water, to which
applications Artesian Water did not object.

Expenses associated with related party transactions were as follows:
<TABLE>
<CAPTION>
                                              For the Quarter                For the Nine Months
                                             Ended September 30,             Ended September 30,
                                           ----------------------        --------------------------
                                            2004           2003            2004              2003
                                           ------        -------         --------           -------
                                                (in thousands)                   (in thousands)

<S>                                        <C>           <C>                <C>             <C>
White Clay Realty                          $  --         $  43              $  --           $  130
                                           ======        ======             ======          =======
</TABLE>

NOTE 4 - NET INCOME PER COMMON SHARE AND EQUITY PER COMMON SHARE

Basic net income per share is based on the weighted average number of common
shares outstanding. Diluted net income per share is based on the weighted
average number of common shares outstanding and the potentially dilutive effect
of employee stock options. The following table summarizes the shares used in
computing basic and diluted net income per share:
<TABLE>
<CAPTION>
                                                              For the Quarter       For the Nine Months
                                                            Ended September 30,     Ended September 30,
                                                            -------------------     -------------------
                                                             2004         2003        2004        2003
                                                            ------       ------     -------      ------
                                                              (in thousands)           (in thousands)
<S>                                                           <C>          <C>          <C>         <C>
Average common shares outstanding during
  the period for Basic computation                           3,944        3,885       3,931       3,875
Dilutive effect of employee stock options                      129          100         128         104
                                                             -----        -----       -----       -----

Average common shares outstanding during
  the period for Diluted computation                         4,073        3,985       4,059       3,979
                                                             =====        =====       =====       =====
</TABLE>

Equity per common share was $13.75 at September 30, 2004 and $13.46 at September
30, 2003. These amounts were computed by dividing common stockholders' equity,
excluding preferred stock, by the number of shares of common stock outstanding
on September 30, 2004 and 2003.


                                       10
<PAGE>

NOTE 5 - IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS

In December 2003, the FASB issued revised Statement No. 132, "Employers'
Disclosures about Pensions and Other Postretirement Benefits-an amendment of
FASB Statements No. 87, 88, and 106." This statement requires additional
disclosures to those in the original Statement No. 132 about the assets,
obligations, cash flows, and net periodic benefit cost of defined pension plans
and other defined benefit postretirement plans. Disclosures for earlier periods
presented for comparative purposes have been revised. This statement is
effective for financial statements with fiscal years ending after December 15,
2003. The additional disclosures required for our postretirement benefit
obligation are presented in Note 2.

NOTE 6 - RATE PROCEEDINGS

On February 5, 2004, Artesian Water filed a petition with the Delaware PSC to
implement new rates to meet a requested increase in revenue of 24%, or
approximately $8.8 million on an annualized basis. The Delaware PSC, on March
16, 2004, suspended the implementation of the proposed new rates pending further
investigation and public evidentiary hearings. Pending these hearings and a
final ruling by the Delaware PSC, the Company, as permitted by law, placed a
portion of the proposed rates into effect on April 6, 2004. These temporary
rates were designed to generate an increase in annual operating revenue of
approximately 6.98%, or $2.5 million on an annualized basis. Beginning September
7, 2004, the Company placed the maximum portion of the proposed rates as
permitted by law into effect. These rates were designed to generate an
additional increase of approximately 8.02%, for a total increase of 15%, or
approximately $5.5 million on an annualized basis. If such rates are found to be
in excess of rates the Delaware PSC finds to be appropriate, we must refund the
portion found in excess to customers with interest.

On April 2, 2002, Artesian Water filed a petition with the Delaware PSC seeking
to raise rates for water service by 23.12%, or an increase in revenues of $7.5
million on an annualized basis. Artesian Water, as permitted by law, placed into
effect on September 1, 2002, a portion of the proposed increase in rates
designed to generate an annualized increase in water sales revenues of $2.5
million, or a 7.71% increase in rates. Beginning December 3, 2002, Artesian
Water, as permitted by law, placed an additional 3.69% increase in temporary
rates into effect. On April 15, 2003, the Delaware PSC issued PSC Order No. 6147
approving an increase in Artesian Water's annual revenue requirement of 9.68%
effective May 1, 2003. These rates represented an increase in water consumption
charges, customer charges, and fire hydrant ready-to-serve charges necessary to
generate an increase in annual operating revenues of approximately $3.3 million.
Since the temporary rates that we had placed into effect beginning December 3,
2002 were in excess of the final approved rate increase, in September 2003 we
refunded approximately $201,000, plus interest, to our customers. Since Artesian
Water had reserved revenue related to the second temporary increase of $234,000,
an additional $33,000 was recorded to revenue in the second quarter of 2003.

Delaware statute permits water utilities to put into effect, on a semi-annual
basis, increases related to specific types of distribution system improvements
through a Distribution System Improvement Charge (DSIC). This charge is
available to water utilities to be implemented between general rate increase
applications that normally recognize changes in a water utility's overall
financial position. The DSIC approval process is less costly when compared to
the approval process for general rate increase requests. We requested on
November 30, 2003, and subsequently implemented, a 1.13% DSIC surcharge for
bills rendered subsequent to January 1, 2004. This surcharge was designed to
generate approximately $204,000 in revenues between January and September of
2004. However, as required by law, application of the DSIC surcharge was
discontinued after the temporary rate increase was placed into effect on April
6, 2004. We billed $87,000 in revenues under this surcharge from January 1, 2004
through April 6, 2004.

NOTE 7 - INCREASE TO LINES OF CREDIT

At September 30, 2004, Artesian Water had lines of credit with two separate
financial institutions totaling $40.0 million to meet its temporary cash
requirements. These facilities increased by $5.0 million on approval of the
Board of Directors on September 24, 2004. These revolving credit facilities are
unsecured. As of September 30, 2004, we had $28.8 million of available funds
under these lines. The interest rate for borrowings under each of these lines is
the London Interbank Offering Rate plus 1.0%, or, at our discretion, the bank's
federal funds rate plus 1.0%. At September 30, 2004 the rate on these lines was
2.62%. All the facilities are reviewed annually by each bank for renewal.

                                       11
<PAGE>

ITEM 2


MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

RESULTS OF OPERATIONS FOR THE PERIOD ENDED SEPTEMBER 30, 2004

Overview
- --------

STRATEGIC DIRECTION

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

While customer growth in our utility subsidiaries has been a major focus in the
first nine months of 2004, we are aggressively seeking opportunities that
produce revenue streams that are not as directly affected by weather. These
opportunities include wastewater treatment services, including design, build,
operate and ownership of systems throughout Delaware and surrounding areas. On
September 30, 2004, we changed the name of our non-regulated subsidiary Artesian
Wastewater Management, Inc., which operates municipal wastewater facilities
under operating agreements, to Artesian Utility Development, Inc. This
non-regulated subsidiary will continue to actively pursue opportunities to
design, build and operate wastewater facilities throughout Delaware and
surrounding areas. Concurrent with this change in name, we formed a new
subsidiary, Artesian Wastewater Management, Inc., that will provide wastewater
services to customers in Delaware as a regulated public wastewater service
company. Artesian Wastewater intends to file an application with the Delaware
Public Service Commission ("Delaware PSC") in the fourth quarter of 2004 to
begin providing wastewater services as a regulated public utility to a
development in Sussex County, Delaware. The opportunities generated through our
wastewater service companies may provide additional service territory for the
regulated water subsidiary or may provide contract operations services for
municipalities or other regulated entities. We will also continue to focus
attention on expanding our contract operations opportunities with municipalities
and private water providers in Delaware and surrounding areas.

Ensuring our customers have a dependable supply of safe, high-quality water has
been, and will continue to be, a high priority. We have invested $23.7 million
through the nine months ended September 30, 2004 related to assuring reliability
of our systems and sources of supply in order to serve our customers. Last year
Delaware passed legislation requiring all water utilities to certify by 2006
that they have sufficient sources of self-supply to serve their respective
systems. We believe we have made the appropriate investment in infrastructure to
file the required certification and intend to do so by the end of 2004.

REGULATORY MATTERS AND INFLATION

As of September 30, 2004, we had approximately 70,750 metered water customers
and served a population of approximately 230,000, representing approximately 29%
of Delaware's total population. The Delaware PSC regulates Artesian Water's
rates charged for water service, the sale and issuance of securities and other
matters. On July 6, 2004, Delaware enacted legislation authorizing the Delaware
PSC to regulate wastewater companies, which includes rates charged for
wastewater service, issuance of securities and other matters. Our wastewater
management subsidiary, Artesian Wastewater Management, Inc., intends to file an
application for a Certificate of Public Convenience and Necessity ("CPCN") in
the fourth quarter of 2004 to serve a 750 home residential community in Sussex
County, Delaware. Artesian Wastewater currently has a permit pending to
construct a 90,300 gallon per day facility to service this residential
development.

                                       12
<PAGE>

Our regulated utilities periodically seek rate increases to cover the cost of
increased operating expenses, increased financing expenses due to additional
investments in utility plant and other costs of doing business. In Delaware,
utilities are permitted by law to place rates into effect, under bond, on a
temporary basis pending completion of a rate increase proceeding. The first
temporary increase may be up to the lesser of $2.5 million on an annual basis or
15% of annual gross water sales. Should the rate case not be completed within
seven months, by law, the utility may put the lesser of the entire requested
rate relief or 15% of annual gross water sales in effect, under bond, until a
final resolution is ordered and placed into effect. If such rates are found to
be in excess of rates the Delaware PSC finds to be appropriate, we must refund
the portion found in excess to customers with interest. The timing of our rate
increase requests are therefore dependent upon the estimated cost of the
administrative process in relation to the investments and expenses that we hope
to recover through the rate increase. We can provide no assurances that rate
increase requests will be approved by applicable regulatory agencies; and, if
approved, we cannot guarantee that these rate increases will be granted in a
timely or sufficient manner to cover the investments and expenses for which we
initially sought the rate increase.

We are affected by inflation, most notably by the continually increasing costs
required to maintain, improve and expand our service capability. The cumulative
effect of inflation results in significantly higher facility costs compared to
investments made 20 to 40 years ago, which must be recovered from future cash
flows.

Delaware statute permits utilities to put into effect, on a semi-annual basis,
increases related to specific types of distribution system improvements through
a Distribution System Improvement Charge (DSIC). This charge is available to
water utilities to be implemented between general rate increase applications
that normally recognize changes in a water utility's overall financial position.
The DSIC process is less costly when compared to the approval process for
general rate increase requests.

Results of Operations - Analysis of First Nine Months of 2004 Compared to First
Nine Months of 2003
- -------------------------------------------------------------------------------

Operating Revenues
- ------------------

Revenues totaled $29.4 million for the nine months ended September 30, 2004,
$2.2 million, or 7.9% above revenues for the nine months ended September 30,
2003 of $27.2 million. Water sales revenues increased 6.8% for the nine months
ended September 30, 2004 over the corresponding period in 2003. A portion of the
increase in water sales revenue reflects a 1.9% increase in the number of
customers served. The increase was also the result of the DSIC surcharge placed
into effect on January 1, 2004, and a temporary rate increase placed into effect
in two steps on April 6, 2004 and September 7, 2004, pursuant to the Company's
2004 rate application described below. However, recorded rainfall in New Castle
County, Delaware, which is where 94.6% of Artesian Water's customer base reside,
was nearly 40% above average for the nine months ended September 30, 2004 and
10% greater than the same time a year ago, which suppressed water demand and
offset the expected increase in water sales from the implementation of temporary
rates and the increased number of customers served. The remaining increase in
operating revenues for the nine months ended September 30, 2004 is primarily due
to additional revenues generated by wastewater and contract operations services.
We realized 95.9% of our total revenue for the nine months ended September 30,
2004 from the sale of water.

On February 5, 2004, Artesian Water filed a petition with the Delaware PSC to
implement new rates to meet a requested increase in revenue of 24%, or
approximately $8.8 million on an annualized basis. The Delaware PSC, on March
16, 2004, suspended the implementation of the proposed new rates pending further
investigation and public evidentiary hearings. Pending these hearings and a
final ruling by the Delaware PSC, the Company, as permitted by law, placed a
portion of the proposed rates into effect on April 6, 2004. These temporary
rates were designed to generate an increase in annual operating revenue of
approximately 6.98%, or $2.5 million on an annualized basis. Beginning September
7, 2004, as is permitted by law, the Company placed an additional portion of the
proposed rates into effect. These rates were designed to generate an additional
increase of approximately 8.02%, for a total increase of 15%, or approximately
$5.5 million on an annualized basis, the maximum level of temporary rates
permitted by law.

                                       13
<PAGE>

We requested on November 30, 2003, and subsequently implemented, a 1.13% DSIC
surcharge for bills rendered subsequent to January 1, 2004. This surcharge was
designed to generate approximately $204,000 in revenues between January and June
of 2004. However, as required by law, application of the DSIC surcharge was
discontinued after the temporary rate increase was placed into effect on April
6, 2004. We billed $87,000 in revenues under this surcharge from January 1, 2004
through April 6, 2004.

On April 2, 2002, Artesian Water filed a petition with the Delaware PSC seeking
to raise rates for water service by 23.12%, or an increase in revenues of $7.5
million on an annualized basis. Artesian Water, as permitted by law, placed into
effect on June 1, 2002, a portion of the proposed increase in rates designed to
generate an annualized increase in water sales revenues of $2.5 million, or a
7.71% increase in rates. Beginning December 3, 2002, Artesian Water, as
permitted by law, placed an additional 3.69% increase in temporary rates into
effect. On April 15, 2003, the Delaware PSC issued PSC Order No. 6147 approving
an increase in Artesian Water's annual revenue requirement of 9.68% effective
May 1, 2003. Since the temporary rates that we had placed into effect beginning
December 3, 2002 were in excess of the final approved rate increase, in
September 2003 we refunded approximately $201,000, plus interest, to our
customers. Since Artesian Water had reserved revenue related to the second
temporary increase of $234,000, an additional $33,000 was recorded to revenue in
the second quarter of 2003.

Operating Expenses
- ------------------

Operating expenses, excluding depreciation and income taxes, increased $1.0
million, or 6.0%, to $17.1 million for the nine months ended September 30, 2004,
compared to $16.1 million for the same period in 2003. The components of the
increase in operating expenses included increases in administrative expenses of
$337,000, in payroll and employee benefit expense of $191,000, in repair and
maintenance expense of $187,000, in property and other taxes of $71,000, in
purchased water expense of $65,000, and in property and liability insurance
expense of $47,000.

Administration expenses increased approximately $337,000 for the nine months
ended September 30, 2004, or 16.2%, primarily due to an increase in consulting
expenses of $180,000. Engineering services for our wastewater subsidiaries
comprised $129,000 of this increase. The engineering fees are charged back to
developers under contract and the associated revenues have been reflected in our
operating revenues under non-utility revenue. We also have incurred $65,000 in
additional consulting expenses related to work involved with documenting
internal controls to comply with the Sarbanes-Oxley Act of 2002. We expect to
incur additional fees of approximately $130,000 by the end of the year related
to this work. In addition, we anticipate increased fees from our auditors
related to their review and testing of internal controls to range between
$56,000 and $84,000, potentially a 40% to 60% increase in total auditing fees.
These expense estimates do not reflect additional accounting personnel needs and
management time relating to this effort. Administration expenses also increased
due to an increase in regulatory expense of $104,000 that recognized the
accelerated amortization of the 2002 rate application expenditures, the
reimbursement of $70,000 in consulting expenses incurred by the PSC in
connection with the review of supply conditions during 2002, and an increase in
training costs of $54,000 primarily associated with recently purchased software
systems. These increases were partially offset by a reduction of $130,000 in
related party expense due to our purchase of the office and shop complex in
October 2003, which we had previously leased from White Clay Realty.

Payroll and associated employee benefits expense increased $191,000, or 2.5%,
due to a $202,000 increase in medical insurance costs. The increase in the
employee benefit expense was partially offset by a decrease in payroll expense,
which declined primarily because of the capitalization of payroll associated
with programming for the Company's new customer information system software. Our
medical insurance premiums increased by 15% effective August 2003 and another
15% effective August 2004.

The overall increase in repair and maintenance expense of $187,000, or 22.3%, is
primarily comprised of $62,000 for maintenance programs associated with recently
purchased software systems, $44,000 for the replacement of the filter media used
in a new water treatment process at one of our facilities, $31,000 for expenses
related to tank painting and maintenance, $27,000 related to increases in prices
charged for transportation fuels and $31,000 related to work performed by
outside service providers in maintaining the Company's grounds around our
utility facilities. We expect to replace the filter media and incur these other
expenses annually and have requested recovery of these on-going expenses in rate
charges to customers.

                                       14
<PAGE>

The ratio of operating expense, excluding depreciation and income taxes, to
total revenue was 58.2% for the nine months ended September 30, 2004, compared
to 59.3% for the nine months ended September 30, 2003.

Depreciation and amortization expense increased $374,000, or 14.2%, over the
nine months ended September 30, 2003 to $3.0 million due to increases in our
utility plant in service providing supply, treatment, storage and distribution
of water. Income tax expense increased $113,000 due to higher profitability for
the nine months ended September 30, 2004 compared to the nine months ended
September 30, 2003.

Other Income, Net
- -----------------

Our Allowance for Funds Used During Construction increased $91,000 as a result
of the significant increase in our investment in utility plant for the first
nine months of 2004 compared to the same period in 2003, as further discussed
under "Liquidity and Capital Resources" below. Miscellaneous Income increased
$145,000 primarily due to increased patronage income from CoBank of $130,000,
which is related to the Company's issuance of an additional $25 million in First
Mortgage Bonds in January 2003 to CoBank, a cooperative bank that distributes
equity and cash income to its customer-owners.

Interest Charges
- ----------------

Interest charges increased $820,000, or 22.7%, over the nine months ended
September 30, 2003, primarily due to interest related to the $25 million Series
P First Mortgage Bond issued on January 31, 2003 and the $15.4 million Series Q
First Mortgage Bond issued on December 1, 2003. The Series P Bond issuance
replaced the Series L 8.03% $10 million bond and paid down our line of credit.

Net Income
- ----------

Our net income increased $111,000 for the nine months ended September 30, 2004,
compared to the same period a year ago. The increase in net income for the nine
months was less than expected after accounting for growth in customers and
temporary rate increases placed in effect during the period primarily due to the
combined impact of wetter than normal weather; the need for recovery of costs
associated with investments in utility plant, including interest charges
associated with the issuance of debt to finance additions to utility plant, in
rates charged to water customers; and the increased operating expenses discussed
above that are not fully reflected in the temporary rate increases. Our net
income applicable to common stock increased by $178,000 as redemption premium
costs of $54,000 associated with the buy-back of all 10,868 shares of our 7%
Prior Preferred Stock on February 21, 2003 were reflected in the nine months
ended September 30, 2003.

Results of Operations - Analysis of Third Quarter of 2004 Compared to Third
Quarter of 2003
- ----------------------------------------------------------------------------

Operating Revenues
- ------------------

Revenues totaled $10.6 million for the quarter ended September 30, 2004, $1.4
million, or 14.9% above revenues for the quarter ended September 30, 2003 of
$9.2 million. Water sales revenue increased 12.3% for the quarter ended
September 30, 2004 over the corresponding period in 2003 primarily due to
temporary rate increases placed into effect on April 6, 2004 of 6.98% and
September 7, 2004 of 8.02% that together are designed to generate an additional
15% in gross water sales on an annual basis, pursuant to the Company's 2004 rate
application described above. The remaining increase in operating revenues for
the quarter ended September 30, 2004 is primarily due to additional revenues
generated by wastewater and contract operations services. We realized 95.6% of
our total revenue for the quarter ended September 30, 2004 from the sale of
water.

Operating Expenses
- ------------------

Operating expenses, excluding depreciation and income taxes, increased $172,000,
or 3.1%, to $5.6 million for the quarter ended September 30, 2004, compared to
$5.5 million for the same period in 2003. The components of the increase in
operating expenses for the quarter ended September 30, 2004 primarily included



                                       15
<PAGE>


increases in administrative expenses of $108,000, in purchased water expense of
$63,000 and in repair and maintenance expense of $43,000. These increases were
partially offset by a decrease in purchased power expense of $55,000, as
treatment facilities were cut back to better match supply production with demand
and utilizing minimum purchases under water supply agreements during the quarter
ended September 30, 2004.

Administration expenses increased approximately $108,000 for the quarter ended
September 30, 2004, or 16.9%, due primarily to $137,000 related to engineering
services incurred by our wastewater subsidiary and to the work involved with
documenting internal controls to comply with the Sarbanes-Oxley Act. The
engineering fees are charged back to developers under contract and the
associated revenues have been reflected in our operating revenues under
non-utility revenue. Administration expenses also increased due to an increase
in training cost of $12,000 primarily associated with recently purchased
software systems. These increases were partially offset by a reduction of
$43,000 in related party expense due to our purchase of the office and shop
complex in October 2003, which we had previously leased from White Clay Realty.

Purchased water expense increased $63,000 due to a fluctuation in the timing of
takes under our minimum contractual annual obligations.

The overall increase in repair and maintenance expense of $43,000, or 15.1%, is
primarily comprised of $15,000 for maintenance programs associated with recently
purchased software systems, and $16,000 related to increases in prices charged
for transportation fuels.

Payroll and associated employee benefits expense increased $8,000, due to a
$69,000 increase in medical insurance costs that was offset almost entirely by
the capitalization of payroll costs associated with the development of data
programs associated with the Company's customer information system.

The ratio of operating expense, excluding depreciation and income taxes, to
total revenue was 53.2% for the quarter ended September 30, 2004, compared to
59.2% for the quarter ended September 30, 2003.

Other Income, Net
- -----------------

Our Allowance for Funds Used During Construction decreased $61,000 as a result
of a decrease in our investment in utility plant for the third quarter of 2004
compared to the same period in 2003, as further discussed under "Liquidity and
Capital Resources" below.

Interest Charges
- ----------------

Interest charges increased $266,000, or 21.7%, over the quarter ended September
30, 2003, primarily due to interest related to the $15.4 million Series Q First
Mortgage Bond issued on December 1, 2003.

Net Income
- ----------

Our net income increased $426,000 for the quarter ended September 30, 2004,
compared to the same period a year ago. The increase in net income for the
quarter was due to the combined impact of the two increases in rates placed in
effect in April and September 2004 and a significant increase in operating
income for our non-regulated wastewater subsidiary. In addition, we have
continued efforts to control operating expenses during this period when wetter
than normal weather conditions have inhibited the anticipated overall growth in
water sales.

                                       16

<PAGE>

LIQUIDITY AND CAPITAL RESOURCES

Our primary sources of liquidity for the nine months ended September 30, 2004
were $6.5 million provided by cash flow from operating activities and $17.2
million from financing activities, which includes $4.4 million in contributions
and advances. Cash flow from financing activities also includes $12.8 million in
proceeds from the issuance of the Series Q First Mortgage Bond (the Series Q
Bond). The Series Q Bonds were issued December 1, 2003 as a tax-free bond
through the Delaware Economic Development Authority ("DEDA"). The funds are held
in an interest bearing account until such time as we invest in infrastructure
previously approved by DEDA. Cash flow from operating activities is primarily
provided by our utility operations, and is impacted by the timeliness and
adequacy of rate increases and changes in water consumption as a result of
year-to-year variations in weather conditions particularly during the summer. A
significant part of our ability to maintain and meet our financial objectives is
to assure our investments in utility plant and equipment are recovered in the
rates charged to customers. As such, from time to time we file rate increase
requests to recover increases in operating expenses and investments in utility
plant and equipment.

We invested over $23.7 million in utility plant and equipment during the first
nine months of 2004, a 65.0% increase from the $14.4 million invested in the
same period in 2003. The increase in expenditure was primarily related to a
significant effort to increase sources of supply and reliability of our systems
in northern and southern New Castle County through full integration of our
systems. Nearly $8.4 million was invested to place into service a 3 million
gallon per day treatment facility and complete hydraulic improvements in New
Castle County. With this effort, we are in position to certify that we have
sufficient self supply to serve our customers as required by the Self
Sufficiency Act passed by Delaware in 2003. In southern New Castle County we
improved the reliability of our systems by investing $2.5 million in an elevated
storage tank and additional supply to support expansion in this area. Another
$1.2 million was invested in sources of supply and infrastructure to support the
significant growth in other parts of Delaware for which we provide service. In
2004, we invested $1.3 million for new customer information and financial
systems software. The customer information system will replace software
developed by Artesian Water and modified over the last 25 years that has since
become obsolete and difficult to maintain in light of technology advancements.
In addition, we invested approximately $4.4 million in the relocation of mains
as a result of highway relocations and our continued effort to replace or renew
older mains to improve water quality and reliability to customers.

At September 30, 2004, Artesian Water had lines of credit with two separate
financial institutions totaling $40.0 million to meet its temporary cash
requirements. These revolving credit facilities are unsecured. As of September
30, 2004, we had $28.8 million of available funds under these lines. The
interest rate for borrowings under each of these lines is the London Interbank
Offering Rate plus 1.0%, or, at our discretion, the bank's federal funds rate
plus 1.0%. At September 30, 2004 the rate on these lines was 2.62%. All the
facilities are reviewed annually by each bank for renewal. We expect that our
available projected cash generated from operations and available bank credit
lines will be sufficient to meet our financial obligations for the next twelve
months.

CAUTIONARY STATEMENT

Statements in this Quarterly Report on Form 10-Q which express our "belief,"
"anticipation" or "expectation," as well as other statements which are not
historical fact, including statements regarding expansion of service area, our
customer growth, contract operations opportunities, the safety and dependability
of our water supply, investment plans in 2004, revenues from temporary rate
increases, plans to increase our wastewater treatment operations and other
revenue streams less affected by weather, plans for Artesian Wastewater to apply
for a CPCN to begin providing wastewater services as a regulated public utility,
plans to file certification of sufficient sources of self-supply, our ability to
obtain final approval on pending rate increase requests, our expected expenses
for consulting and auditing fees related to Section 404 compliance work and
other expected expenses, and our liquidity needs are forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995 and
involve risks and uncertainties that could cause actual results to differ
materially from those projected. Certain factors, such as changes in weather,
changes in our contractual obligations, changes in government policies, changes


                                       17
<PAGE>

in economic conditions, and other matters could cause results to differ
materially from those in the forward-looking statements. The Company does not
undertake to update any of the forward-looking statements included in the
Quarterly Report on Form 10-Q except as required by law.

ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are subject to the risk of fluctuating interest rates in the normal course of
business. Our policy is to manage interest rates through the use of fixed rate,
long-term debt and, to a lesser extent, short-term debt. The Company's interest
rate risk related to existing fixed rate, long-term debt is not material due to
the terms of our First Mortgage Bonds, which have maturity dates ranging from
2007 to 2043.

ITEM 4 - CONTROLS AND PROCEDURES

         (a) Evaluation of Disclosure Controls and Procedures

         The Company's management, with the participation of the Company's Chief
Executive Officer and Chief Financial Officer, evaluated the effectiveness of
the Company's disclosure controls and procedures as of the end of the period
covered by this report. Based on that evaluation, the Chief Executive Officer
and Chief Financial Officer concluded that the Company's disclosure controls and
procedures as of the end of the period covered by this report have been designed
and are functioning effectively to provide reasonable assurance that the
information required to be disclosed by the Company in reports filed under the
Securities Exchange Act of 1934 is recorded, processed, summarized and reported
within the time periods specified in the SEC's rules and forms. The Company
believes that a controls system, no matter how well designed and operated,
cannot provide absolute assurance that the objectives of the controls system are
met, and no evaluation of controls can provide absolute assurance that all
control issues and instances of fraud, if any, within a company have been
detected.

         (b) Change in Internal Control over Financial Reporting

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

                                       18

<PAGE>


PART II - OTHER INFORMATION

ITEM 1 - LEGAL PROCEEDINGS

There are no material legal proceedings pending at this date.


ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K

         (a)   Exhibits

         31.1  Certification of Chief Executive Officer of the Registrant
               required by Rule 13a - 14 (a) under the Securities Act of 1934.

         31.2  Certification of Chief Financial Officer of the Registrant
               required by Rule 13a - 14 (a) under the Securities Act of 1934.

         32    Certification of Chief Executive Officer and Chief Financial
               Officer of the Registrant required by Rule 13a - 14 (b) under the
               Securities Act of 1934.

         (b)   Reports on Form 8-K.

                  A current report on Form 8-K dated September 24, 2004 was
                  filed with the Securities and Exchange Commission on September
                  29, 2004 reporting a draw-down on the proceeds of our $15.4
                  million, 4.75%, 40-year Series Q First Mortgage Bonds.

                  A current report on Form 8-K dated August 31, 2004 was filed
                  with the Securities and Exchange Commission on September 2,
                  2004 reporting approval by the Delaware Public Service
                  Commission to implement revised temporary rates in our pending
                  rate case.



                                       19
<PAGE>

                                   SIGNATURES


Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.

                         ARTESIAN RESOURCES CORPORATION


Date: November 1, 2004 By:         /s/ Dian C. Taylor
                                   -----------------------------
                                   Dian C. Taylor,
                                   (Principal Executive Officer)




Date: November 1, 2004 By:         /s/ David B. Spacht
                                   --------------------------------------------
                                   David B. Spacht,
                                   (Principal Financial and Accounting Officer)


                                       20
<PAGE>

                                INDEX TO EXHIBITS


    Exhibit Number      Description
    --------------      -----------

         31.1           Certification of Chief Executive Officer of the
                        Registrant required by Rule 13a - 14 (a) under the
                        Securities Act of 1934.

         31.2           Certification of Chief Financial Officer of the
                        Registrant required by Rule 13a - 14 (a) under the
                        Securities Act of 1934.

         32             Certification of Chief Executive Officer and Chief
                        Financial Officer of the Registrant required by Rule 13a
                        - 14 (b) under the Securities Act of 1934.


                                       21

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-31
<SEQUENCE>2
<FILENAME>ex31-1.txt
<DESCRIPTION>EXHIBIT 31.1
<TEXT>
<PAGE>
                                                                    Exhibit 31.1
                                 CERTIFICATIONS
                                 --------------

I, Dian C. Taylor, certify that:

1.       I have reviewed this Quarterly Report on Form 10-Q for the period ended
         September 30, 2004 of Artesian Resources Corporation (this "Report");

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

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

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

            a)  designed such disclosure controls and procedures, or caused such
                disclosure controls and procedures to be designed under our
                supervision, to ensure that material information relating to the
                registrant, including its consolidated subsidiaries, is made
                known to us by others within those entities, particularly during
                the period in which this Report is being prepared;
            b)  evaluated the effectiveness of the registrant's disclosure
                controls and procedures and presented in this Report our
                conclusions about the effectiveness of the registrant's
                disclosure controls and procedures as of the end of the period
                covered by this Report based on such evaluation; and
            c)  disclosed in this Report any change in the registrant's internal
                control over financial reporting that occurred during the
                registrant's most recent fiscal quarter that has materially
                affected, or is reasonably likely to materially affect, the
                registrant's internal control over financial reporting; and

5.       The registrant's other certifying officer and I have disclosed, based
         on our most recent evaluation of internal control over financial
         reporting to the registrant's auditors and the audit committee of
         registrant's board of directors (or persons performing the equivalent
         functions):

            a)  all significant deficiencies and material weaknesses in the
                design or operation of internal control over financial reporting
                which are reasonably likely to adversely affect the registrant's
                ability to record, process, summarize and report financial
                information; and
            b)  any fraud, whether or not material, that involves management or
                other employees who have a significant role in the registrant's
                internal control over financial reporting.


Date: November 1, 2004                            /s/ Dian C. Taylor
                                                  -----------------------------
                                                  Dian C. Taylor
                                                  Chief Executive Officer
                                                  (Principal Executive Officer)






</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-31
<SEQUENCE>3
<FILENAME>ex31-2.txt
<DESCRIPTION>EXHIBIT 31.2
<TEXT>
<PAGE>

                                                                    Exhibit 31.2
                                 CERTIFICATIONS
                                 --------------

I, David B. Spacht, certify that:

1.       I have reviewed this Quarterly Report on Form 10-Q for the period ended
         September 30, 2004 of Artesian Resources Corporation (this "Report");

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

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

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

            a)  designed such disclosure controls and procedures, or caused such
                disclosure controls and procedures to be designed under our
                supervision, to ensure that material information relating to the
                registrant, including its consolidated subsidiaries, is made
                known to us by others within those entities, particularly during
                the period in which this Report is being prepared;
            b)  evaluated the effectiveness of the registrant's disclosure
                controls and procedures and presented in this Report our
                conclusions about the effectiveness of the registrant's
                disclosure controls and procedures as of the end of the period
                covered by this Report based on such evaluation; and
            c)  disclosed in this Report any change in the registrant's internal
                control over financial reporting that occurred during the
                registrant's most recent fiscal quarter that has materially
                affected, or is reasonably likely to materially affect, the
                registrant's internal control over financial reporting; and

5.       The registrant's other certifying officer and I have disclosed, based
         on our most recent evaluation of internal control over financial
         reporting to the registrant's auditors and the audit committee of
         registrant's board of directors (or persons performing the equivalent
         functions):

            a)  all significant deficiencies and material weaknesses in the
                design or operation of internal control over financial reporting
                which are reasonably likely to adversely affect the registrant's
                ability to record, process, summarize and report financial
                information; and
            b)  any fraud, whether or not material, that involves management or
                other employees who have a significant role in the registrant's
                internal control over financial reporting.



Date: November 1, 2004                             /s/ David B. Spacht
                                                   --------------------------
                                                   David B. Spacht
                                                   Chief Financial Officer
                                                   (Principal Financial and
                                                   Accounting Officer)

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-32
<SEQUENCE>4
<FILENAME>ex32.txt
<DESCRIPTION>EXHIBIT 32
<TEXT>
<PAGE>


                                                                      Exhibit 32
                         ARTESIAN RESOURCES CORPORATION


    Certification by the Chief Executive Officer and Chief Financial Officer
         Required by Rule 13a - 14 (b) under the Securities Act of 1934
                           and 18 U.S.C. Section 1350

I, Dian C. Taylor, Chief Executive Officer, and David B. Spacht, Chief Financial
Officer, of Artesian Resources Corporation, a Delaware corporation (the
"Company"), hereby certify, that, based on our knowledge:

   (1)     The Company's periodic report containing financial statements on
           Quarterly Report on Form 10-Q for the period ended September 30, 2004
           (the "Form 10-Q") fully complies with the requirements of Section
           13(a) of the Securities Exchange Act of 1934, as amended; and

   (2)     The information contained in the Form 10-Q fairly presents, in all
           material respects, the financial condition and results of operations
           of the Company.

Date:  November 1, 2004

CHIEF EXECUTIVE OFFICER:                              CHIEF FINANCIAL OFFICER:

/s/ Dian C. Taylor                                    /s/ David B. Spacht
- ------------------------                              ------------------------
Dian C. Taylor                                        David B. Spacht

</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
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