Artesian Resources Corp – ‘424B4’ on 4/8/99

As of:  Thursday, 4/8/99   ·   Accession #:  950115-99-520   ·   File #:  333-72159

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Document/Exhibit                   Description                      Pages   Size 

 1: 424B4       Final Prospectus                                      57    278K 

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                                        Filed pursuant to Rule 424(b)(1) and (3)
                                            under the Securities Act of 1933, as
                                         amended, for Registration No. 333-72159

PROSPECTUS                                                                      

325,000 SHARES

[LOGO]

CLASS A NON-VOTING COMMON STOCK   

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

The Class A Non-Voting Common Stock of Artesian Resources Corporation is quoted 
on the Nasdaq National Market under the symbol "ARTNA." On April 7, 1999, the   
last reported sale price of the Class A Non-Voting Common Stock on Nasdaq was   
$26.00 per share. See "COMMON STOCK PRICE RANGE AND DIVIDENDS."                 

BEFORE INVESTING, YOU SHOULD REVIEW THE "RISK FACTORS" BEGINNING ON PAGE 8. 

                                                        [Enlarge/Download Table]

                                                             PER SHARE      TOTAL    
                                                             ---------  -------------
                                                                                     
Public Offering Price.......................................  $25.00    $8,125,000.00
Underwriting Discount.......................................  $ 1.00    $  325,000.00
Proceeds to Artesian Resources..............................  $24.00    $7,800,000.00

We have granted the Underwriter a 30-day option to purchase up to 48,750        
additional shares of Class A Non-Voting Common Stock on the same terms and      
conditions as set forth above solely to cover over-allotments, if any.          

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES         
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS ACCURATE OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A     
CRIMINAL OFFENSE.                                                               

Janney Montgomery Scott Inc., the Underwriter, expects to deliver the shares on 
or about April 13, 1999 in Philadelphia, Pennsylvania. The sale of the Class A  
Non-Voting Common Stock is subject to a number of conditions. See               
"UNDERWRITING."                                                                 

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

JANNEY MONTGOMERY SCOTT INC.

The date of this Prospectus is April 7, 1999. 

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[Map of Delaware showing Artesian's exclusive franchised service area, municipal
systems under supply contract and areas currently targeted for expansion.]      

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TABLE OF CONTENTS 

                                                                [Download Table]

                                                              PAGE
                                                              ----
                                                                  
PROSPECTUS SUMMARY..........................................    4 

FORWARD LOOKING STATEMENTS..................................    7 

RISK FACTORS................................................    8 

USE OF PROCEEDS.............................................   10 

COMMON STOCK PRICE RANGE AND DIVIDENDS......................   11 

CAPITALIZATION..............................................   12 

SELECTED CONSOLIDATED FINANCIAL INFORMATION.................   13 

MANAGEMENT'S DISCUSSION AND ANALYSIS........................   14 

OUR COMPANY.................................................   18 

MANAGEMENT..................................................   24 

DESCRIPTION OF CAPITAL STOCK................................   26 

UNDERWRITING................................................   31 

LEGAL MATTERS...............................................   32 

EXPERTS.....................................................   32 

WHERE YOU CAN FIND MORE INFORMATION.........................   32 

REPORTS TO SECURITY HOLDERS.................................   33 

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS..................  F-1 

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

   CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE CLASS A          
NON-VOTING COMMON STOCK, INCLUDING SYNDICATE COVERING TRANSACTIONS. FOR A       
DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."                            
------------------------

     IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER AND SELLING GROUP MEMBERS
MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE CLASS A NON-VOTING      
COMMON STOCK ON NASDAQ IN ACCORDANCE WITH RULE 103 OF REGULATION M. SEE         
"UNDERWRITING."                                                                 

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PROSPECTUS SUMMARY

 This Prospectus Summary calls your attention to selected information in
this document, but may not contain all the information that is important to you.
Unless otherwise indicated we have assumed, in presenting information about     
outstanding shares of Class A Non-Voting Common Stock, including per share      
information, that the Underwriter's over-allotment option will not be exercised.
In this Prospectus, we frequently use the terms "we" and "our" to refer to both 
Artesian Resources and Artesian Water Company, Inc., our wholly owned utility   
subsidiary. To understand the offering fully and for a more complete description
of the offering you should read this entire document carefully, including       
particularly the "RISK FACTORS" section, as well as the documents we have       
referred you to in the section called "WHERE YOU CAN FIND MORE INFORMATION."    

OUR COMPANY 

Artesian Water, our principal subsidiary, is the oldest and largest   
regulated public water utility in the State of Delaware and has been providing  
water within the state since 1905. For the year ended December 31, 1998, we     
reported revenues of $25.5 million and net income of $2.7 million, an increase  
of 14% and 37%, respectively, over revenues and net income for the year ended   
December 31, 1997. As a percentage of gross water sales, our revenues for 1998  
by major customer classifications were 62.4% for residential, 28.4% for         
commercial, industrial, governmental, municipal and utility, and 9.2% for fire  
protection. These percentages have remained fairly constant for the past three  
years. As of December 31, 1998, we had approximately 61,000 metered customers   
and served a population of approximately 200,000, representing approximately 27%
of Delaware's total population. We believe that we have a reputation for        
providing water and service of superior quality to our customers.               

 Since 1993, we have expanded our service territory by approximately 40%
through the acquisition of new service areas in Delaware. We currently have     
approximately 140 square miles of exclusive service territory, which is         
segmented into a number of service areas. A significant portion of this         
territory is undeveloped. Substantial portions of Delaware, particularly outside
New Castle County, are not served by a public water system and represent        
potential new franchised service areas for Artesian Water. The total number of  
customers we serve has grown at an average annual rate of approximately 2.5% for
the last five years. We expect to continue to increase our customer base as a   
result of population growth, development in our existing exclusive service      
areas, acquisition of new service areas and our innovative marketing            
initiatives.                                                                    

Our water system is supplied by 72 operating wells with 46 monitoring 
wells. We have identified sufficient sources of groundwater supply to serve our 
expanding customer base for the foreseeable future. Since 1992, we have         
increased our sources of groundwater supply from our own wells by 50%, or nearly
nine million gallons per day. As a result, in 1998, we used 10% less purchased  
water than we did in 1997. Purchased water generally costs 50% more than our own
groundwater supply. In addition, we are developing our Aquifer Storage and      
Recovery program to store large quantities of treated water to meet our peak-day
demands.                                                                        

Our objective is to maintain and strengthen our position as a leading 
industry innovator and provider of high quality water and superior service      
throughout the State of Delaware. We will continue to invest in high quality    
infrastructure, secure long-term sources of supply and provide superior water   
and service to our customers. Our strategy is to capitalize on our reputation as
the preferred water service provider in Delaware by increasing our customer     
base, expanding our exclusive franchise service area and pursuing contract      
management and supply agreements.                                               

In support of our strategic initiatives, we have budgeted capital     
investments of approximately $15.5 million in 1999 and approximately $42.0      
million during the three-year period ending December 31, 2001. Our planned 1999 
capital investments include $7.2 million for transmission and distribution      
facilities, $4.4 million for pumping and treatment facilities, $1.9 million for 
new sources of supply and $2.0 million for other general plant.                 

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OUR ADDRESS AND TELEPHONE NUMBER

    Our executive offices are located at 664 Churchmans Road, Newark, Delaware
19702 and our telephone number is (302) 453-6900.                               

THE OFFERING

                                                                [Download Table]
                                                                                 
Class A Non-Voting Common Stock, $1 par value........ 325,000 shares             

Common Stock to be outstanding after the offering:                               

  Class A Non-Voting Common Stock.................... 1,623,611 shares           

  Class B Voting Common Stock........................ 514,154 shares             

Nasdaq symbol........................................ ARTNA                      

Class A Non-Voting Common Stock 52-week price                                    
  range.............................................. $18.625 - $29.00           
  (through April 7, 1999)                                                        

Annualized dividend rate............................. $1.04 per share            

Use of Proceeds...................................... We will use the net        
                                                      proceeds of this offering  
                                                      to repay certain short-term
                                                      borrowings of Artesian     
                                                      Water.                     

   The shares of common stock in the table above to be outstanding after the
offering are based on our shares outstanding as of March 24, 1999 and exclude an
aggregate of 80,859 shares issuable upon the exercise of outstanding options    
under our stock option plans as of March 24, 1999, at a weighted average        
exercise price of $15.348 per share, of which 68,735 were fully vested and      
exercisable.                                                                    

The annualized dividend rate in the table above gives effect to the   
increase announced on January 22, 1999 in our quarterly dividend to $0.26 per   
share, which was paid on February 22, 1999 to stockholders of record on February
10, 1999. We also have a dividend reinvestment plan. See "DESCRIPTION OF CAPITAL
STOCK."                                                                         

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SUMMARY CONSOLIDATED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE AND OPERATING DATA) 

                                                        [Enlarge/Download Table]

                                                                       YEAR ENDED DECEMBER 31,             
                                                          -------------------------------------------------
                                                            1998       1997      1996      1995      1994  
                                                          --------   --------   -------   -------   -------
                                                                                                           
STATEMENT OF OPERATIONS DATA:                                                                              
  Water sales............................................ $ 25,096   $ 22,003   $20,547   $20,526   $18,720
  Total operating revenues...............................   25,466     22,340    20,892    22,631    21,012
  Total operating expenses (1)...........................   19,799     17,933    16,791    18,698    17,198
  Operating income.......................................    5,667      4,407     4,101     3,933     3,814
  Interest charges.......................................    3,162      2,580     2,536     2,759     2,334
  Net income applicable to common stock..................    2,638      1,892     1,554     1,088     1,355
  Net income per share of common stock:                                                                    
    Basic................................................ $   1.47   $   1.07   $  1.03   $  1.05   $  1.34
    Diluted.............................................. $   1.45   $   1.07   $  1.03   $  1.05   $  1.34
  Average shares of common stock outstanding:                                                              
    Basic................................................    1,796      1,762     1,509     1,032     1,011
    Diluted..............................................    1,816      1,775     1,515     1,034     1,013
  Cash dividends per share of common stock............... $   0.97   $   0.92   $  0.90   $  0.63   $  0.60



                                                              AS OF OR FOR THE YEAR ENDED DECEMBER 31,     
                                                          -------------------------------------------------
                                                            1998       1997      1996      1995      1994  
                                                          --------   --------   -------   -------   -------
                                                                                                           
BALANCE SHEET DATA:                                                                                        
  Utility plant, at original cost less accumulated                                                         
    depreciation......................................... $109,780   $ 97,694   $88,993   $83,160   $73,238
  Total assets...........................................  119,376    107,867    99,708    96,841    87,453
  Notes payable..........................................    7,704      1,164        25     9,225     1,525
  Long-term debt and redeemable preferred stock,                                                           
    including current portions...........................   32,696     32,861    27,434    25,876    26,127
  Stockholders' equity...................................   27,933     26,587    25,759    15,668    15,000

OPERATING DATA:                                                                                            
  Average water sales per customer....................... $    419   $    376   $   359   $   367   $   344
  Water pumped (millions of gallons).....................    6,739      6,637     6,419     6,561     6,506
  Number of metered customers............................   60,688     59,218    57,934    56,672    55,097
  Miles of water main....................................      820        797       781       763       746

------------------                                                              
(1) For the year ended December 31, 1995, includes a write-down of $784 in      
connection with our sale of an office building and a $128 loss on our   
disposal of Artesian Laboratories, Inc.                                 

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FORWARD LOOKING STATEMENTS

   We discuss in this Prospectus and in documents which we have incorporated
into this Prospectus by reference certain matters which are not historical      
facts, but which are "forward looking statements." We intend these forward      
looking statements to qualify for safe harbor from liability established by the 
Private Securities Litigation Reform Act of 1995. These forward looking         
statements include, but are not limited to, future plans, objectives,           
expectations and events concerning various matters such as our capital          
expenditures, utility plant construction program, acquisitions of additional    
water service territories, earnings, growth potential, and rate and other       
regulatory matters. The forward looking statements in this Prospectus reflect   
what we currently anticipate will happen in each case. What actually happens    
could differ materially from what we currently anticipate will happen. We are   
not promising to make any public announcement when we think forward looking     
statements in this Prospectus are no longer accurate, whether as a result of new
information, what actually happens in the future or for any other reason.       

  Important matters that may affect what will actually happen include, but
are not limited to: weather conditions; the impact of conservation efforts which
may impact the demand of our customers for water; regulatory matters, including 
the potential impact of any future rate proceeding; the availability of capital 
for expansion; competition; and other factors described in the "RISK FACTORS"   
section.                                                                        

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RISK FACTORS

 We have described for you below some risks involved in investing in the
Class A Non-Voting Common Stock offered under this Prospectus. A word of        
caution: this is not a complete list of every risk. You should carefully        
consider each of the following factors and all of the information both in this  
Prospectus and in the other documents we refer you to in the section called     
"WHERE YOU CAN FIND MORE INFORMATION."                                          

    Our Principal Stockholders Effectively Control Our Company.  Following the
offering, members of the Taylor family, which includes Dian C. Taylor (Chair of 
the Board of Directors, Chief Executive Officer and President of Artesian       
Resources), William H. Taylor, II (a director of Artesian Resources) and John R.
Eisenbrey, Jr. (a director of Artesian Resources), will beneficially own        
approximately 76% of the outstanding Class B Voting Common Stock and            
approximately 7% of the outstanding Class A Non-Voting Common Stock. The holders
of Class B Voting Common Stock generally have the exclusive right to vote on    
most fundamental corporate decisions affecting Artesian Resources, including the
election of our Board of Directors. As a result, these principal stockholders   
will have significant control over the outcome of most fundamental corporate    
matters. If you purchase shares of Class A Non-Voting Common Stock, you will not
be able to vote on most matters affecting Artesian Resources, including the     
election of directors. See "DESCRIPTION OF CAPITAL STOCK."                      

  Our Business Is Subject To Rate Regulation.  The Delaware Public Service
Commission regulates Artesian Water with respect to rates and charges for       
service, the sale and issuance of securities, mergers and other matters. That   
means, for example, that we cannot raise the rates we charge to our customers   
without first filing a petition with the Public Service Commission and going    
through a potentially lengthy administrative and hearing process. We currently  
anticipate that we will file for a rate increase during the first half of 1999, 
but we cannot predict when we will request approval for a rate increase or      
whether we will seek approval for any other matter the Public Service Commission
regulates, nor can we predict whether the Public Service Commission will        
approve, deny or reduce the amount of any such requests. In addition, another   
entity or person cannot acquire control of Artesian Resources without prior     
approval from the Public Service Commission. See "OUR COMPANY -- Regulation."   

   We Are Subject To Government Regulation.  The United States, Delaware and
local governments regulate many aspects of our business. Among the most         
important of these are awards of new service territory, water allocation rights,
environmental matters and the quality of water we supply to our customers. We   
believe that we and all of our systems are currently in compliance in all       
important aspects with these regulations. However, government agencies          
continually review these regulations, particularly the primary water quality    
regulations, and may propose new or more restrictive requirements in the future.
These may include more limitations on the permissible levels of certain         
chemicals and compounds in the water. We cannot predict what the costs may be to
meet new or more restrictive government regulations. If the costs of any new or 
more restrictive government regulations are high, or we fail to comply with such
regulations, it could have a material adverse effect on our financial condition 
and results of operations. See "OUR COMPANY -- Regulation."                     

  We Depend On The Availability Of Capital For Expansion, Construction And
Maintenance.  Our ability to continue our expansion efforts and fund our utility
construction and maintenance program depends on the availability of adequate    
capital. With the proceeds from this offering and funds we anticipate receiving 
from future mortgage bond financings, as well as our existing lines of credit   
from banks and working capital, we believe we have sufficient funds to support  
our planned capital expenditures for the next 24 months. There is no guarantee  
that we will be able to obtain sufficient capital in the future or that the cost
of capital will not be too high for future expansion and construction. See      
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF     
OPERATIONS -- Liquidity and Capital Resources."                                 

We Depend On An Adequate Water Supply.  We depend on an adequate water
supply to meet the present and future demands of our customers and to continue  
our expansion efforts. Unexpected conditions such as prolonged drought or       
pollution could interfere with our sources of water supply.                     

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These factors could adversely affect our ability to supply water in sufficient  
quantities to our existing and future customers. Any interruption in our water  
supply could have a material adverse effect on our financial condition and      
results of operations. However, we believe that we have in place sufficient     
capacity to provide water service for the foreseeable future to all existing and
anticipated future customers in all of our service territories.                 

    We Have Competition From Other Utilities In The Acquisition Of New Service
Territories.  Once the state agency grants a service territory to a water       
utility in Delaware, that utility is the only one permitted to service that     
territory. As a result, water utilities competitively pursue the exclusive right
to service unfranchised territories in Delaware. Therefore, we face competition 
from other utilities as we continue to implement our strategy to acquire new    
franchised service territories. We cannot predict if, or to what extent, such   
competition will limit our strategy for future growth.                          

 We Have Limitations Which May Effect Our Ability To Pay Dividends.  The
Restated Certificate of Incorporation of Artesian Resources, as amended,        
requires that we pay or set aside for payment all accrued dividends and sinking 
fund payments payable on any outstanding preferred stock before we can pay      
dividends on our common stock. We also have certain limitations on dividend     
payments in bond covenants. These limitations have never impacted our ability to
pay dividends on our common stock and we currently anticipate paying dividends  
for each quarter of 1999. Our earnings, financial condition, capital            
requirements, applicable regulations and other factors, including the timeliness
and adequacy of rate increases granted to Artesian Water, will determine both   
our ability to pay dividends on the common stock and the amount of those        
dividends. We cannot guarantee that we will continue to pay dividends on our    
common stock in the future or in amounts similar to past dividends. See         
"DESCRIPTION OF CAPITAL STOCK -- Preferred Stock" and "COMMON STOCK PRICE RANGE 
AND DIVIDENDS."                                                                 

We Are Subject To Year 2000 Risks.  The software used in many computer
systems and computerized control devices was designed to record only the last   
two digits of each year. This software may not function properly as of January  
1, 2000 because it interprets the new year as 1900. We are evaluating our own   
computer systems and engaging in periodic testing to make certain that those    
systems will work properly in the year 2000. We have identified which systems   
are critical for operations and expect to be Year 2000 compliant by June 30,    
1999. Nonetheless, we may not have identified every computer system and         
computerized control device of ours which may be affected by the Year 2000. Even
if identified, we may not be able to reprogram or replace all of these systems  
and devices before January 1, 2000. More importantly, we cannot assess the      
impact on us of failures of computer systems and control devices used and/or    
provided by others, such as our suppliers. We have asked each of our principal  
suppliers to advise us on their Year 2000 compliance and are in the process of  
developing contingency plans in case any of our principal suppliers' systems    
fail. Our contingency plans include the installation of back-up generators,     
increasing inventory levels of crucial materials and supplies and identifying   
alternative suppliers. We expect these plans to be in effect by June 30, 1999,  
but we cannot guarantee that we will be unaffected by the Year 2000 risk. A     
significant Year 2000-related problem could have a material adverse effect on   
our financial condition and results of operations. See "MANAGEMENT'S DISCUSSION 
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- Liquidity and  
Capital Resources."                                                             

We Are Subject To Anti-Takeover Measures.  Section 203 of the Delaware
General Corporation Law, which applies to Artesian Resources, contains certain  
anti-takeover provisions prohibiting a "business combination" between a         
corporation and an "interested stockholder" within three years of the           
stockholder becoming an "interested stockholder." These provisions deter merger 
proposals, tender offers or other attempts to affect changes in control of      
Artesian Resources that are not negotiated and approved by our Board of         
Directors. In addition, we have adopted certain provisions in our Certificate of
Incorporation and by-laws which may have anti-takeover implications, including a
classified Board of Directors and higher stockholder voting requirements for    
certain corporate actions. These provisions could discourage, delay or prevent  
an acquisition of Artesian Resources. See "DESCRIPTION OF CAPITAL STOCK" and    
"RISK FACTORS -- Our Principal Stockholders Effectively Control Our Company."   

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USE OF PROCEEDS 

    The net proceeds from the sale of the 325,000 shares of Class A Non-Voting
Common Stock offered by this Prospectus, after deducting the underwriting       
discount and estimated offering expenses, are estimated to be $7,550,000        
($8,720,000 if the Underwriter's over-allotment option is exercised in full), at
an offering price of $25.00 per share. We will use the entire net proceeds to   
fund an equity contribution in the same amount to our subsidiary, Artesian      
Water. Artesian Water will use the equity contribution to repay a portion of    
borrowings incurred primarily to finance expenses associated with its           
construction program, including investment in utility plant and systems and     
maintenance. At March 24, 1999, Artesian Water had aggregate short-term         
borrowings outstanding of $10.0 million under lines of credit with three        
separate financial institutions at interest rates averaging approximately 6.0%. 
These lines of credit mature in April and September 1999, unless Artesian Water 
extends or renegotiates them with the financial institutions. This use of       
proceeds will reduce Artesian Water's current debt to capitalization ratio,     
which we believe will improve Artesian Water's capacity to issue additional     
long-term debt to finance future capital investments. See "MANAGEMENT'S         
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS --     
Liquidity and Capital Resources."                                               

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COMMON STOCK PRICE RANGE AND DIVIDENDS

     Our Class A Non-Voting Common Stock is listed on the Nasdaq National Market
and trades under the symbol "ARTNA." On March 1, 1999, we had 644 holders of    
record of the Class A Non-Voting Common Stock. The following table sets forth,  
for the periods indicated, the high and low closing sale prices for the Class A 
Non-Voting Common Stock on the Nasdaq National Market and the cash dividends    
declared per share.                                                             

                                                                [Download Table]

                                                                 DIVIDEND 
                                                  HIGH    LOW    PER SHARE
                                                 ------  ------  ---------
                                                                          
1997                                                                      
  First Quarter................................. $18.00  $16.25   $0.230  
  Second Quarter................................  18.25   17.00    0.230  
  Third Quarter.................................  19.00   17.25    0.230  
  Fourth Quarter................................  19.00   18.00    0.230  

1998                                                                      
  First Quarter................................. $19.75  $18.25   $0.230  
  Second Quarter................................  19.25   18.63    0.230  
  Third Quarter.................................  23.00   18.75    0.255  
  Fourth Quarter................................  27.38   21.00    0.255  

1999                                                                      
  First Quarter................................. $27.75  $22.00   $0.260  
  Second Quarter (through April 7, 1999)........  26.25   25.50    0.260  

   The closing sale prices shown above reflect prices between dealers and do
not include retail markups or markdowns or commissions and may not necessarily  
represent actual transactions. A recent closing sale price per share of Class A 
Non-Voting Common Stock is shown on the cover page of this Prospectus.          

   Our Class B Voting Common Stock is quoted on the OTC Bulletin Board under
the symbol "ARTNB." There has been a limited and sporadic public trading market 
for the Class B Voting Common Stock. The last reported trade of the Class B     
Voting Common Stock on the OTC Bulletin Board was at a price of $19.00 per share
on April 6, 1999. As of March 1, 1999, we had 246 holders of record of the Class
B Voting Common Stock.                                                          

     On January 22, 1999, Artesian Resources declared a $0.26 dividend per share
for the first quarter on shares of record of Class A Non-Voting Common Stock and
Class B Voting Common Stock on February 10, 1999, which was paid on February 22,
1999. We currently anticipate paying dividends in each of the last three        
quarters of 1999 at a rate of $0.26 per share on Class A Non-Voting Common Stock
and Class B Voting Common Stock. We cannot assure that we will maintain our     
current dividend rate, increase our dividend rate or continue to pay dividends  
on our common stock in the future. Our payment of future dividends will depend  
primarily upon our earnings, financial condition, capital requirements,         
provisions in our debt instruments limiting dividends, applicable regulations   
and other factors, including the timeliness and adequacy of rate increases      
granted to Artesian Water. No dividends may be paid on the common stock unless  
all accrued dividends and sinking fund payments payable on any outstanding      
preferred stock have been paid or set aside for payment. We are current in the  
payment of such dividends and sinking fund payments.                            

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CAPITALIZATION

 The following table sets forth Artesian Resources' capitalization as of
December 31, 1998 and as adjusted to give effect to the sale of the Class A     
Non-Voting Common Stock and the application of net proceeds as described under  
"USE OF PROCEEDS." The following should be read in conjunction with the         
Financial Statements and the Notes thereto of Artesian Resources which are      
included in this Prospectus. See "INDEX TO CONSOLIDATED FINANCIAL STATEMENTS."  

                                                        [Enlarge/Download Table]

                                                          AS OF DECEMBER 31, 1998           
                                               ---------------------------------------------
                                                          (DOLLARS IN THOUSANDS)            
                                                      ACTUAL              AS ADJUSTED(1)    
                                               ---------------------   ---------------------
                                               AMOUNT      PERCENT     AMOUNT      PERCENT  
                                               -------   -----------   -------   -----------
                                                                                            
Long-term debt, net of current portion........ $32,053       53.0%     $32,053       47.1%  
                                               -------                 -------              
9.96% Cumulative Prior Preferred Stock --                                                   
  mandatorily redeemable......................     500        0.8%         500        0.7%  
                                               -------                 -------              
7% Prior Preferred Stock......................     272        0.5%         272        0.4%  
                                               -------                 -------              
Common stockholders' equity:                                                                
  Class A Non-Voting Common Stock (2).........   1,291                   1,616              
  Class B Voting Common Stock.................     512                     512              
  Additional paid-in capital..................  18,073                  25,298              
  Retained earnings...........................   7,785                   7,785              
                                               -------                 -------              
     Total common stockholders' equity........  27,661       45.7%      35,211       51.8%  
                                               -------      -----      -------      -----   
        Total capitalization.................. $60,486      100.0%     $68,036      100.0%  
                                               =======      =====      =======      =====   

------------------                                                              
(1) Reflects the sale of 325,000 shares of Class A Non-Voting Common Stock at an
offering price of $25.00 per share, less the underwriting discount and  
estimated offering expenses of $575,000.                                

(2) Excludes 84,057 shares of Class A Non-Voting Common Stock issuable upon the 
exercise of outstanding options, at a weighted average exercise price of
$15.21 per share, of which 72,903 were fully vested and exercisable.    

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SELECTED CONSOLIDATED FINANCIAL INFORMATION 

 The following table sets forth certain historical financial information
with respect to Artesian Resources on a consolidated basis as of and for each   
year in the five-year period ended December 31, 1998. This table should be read 
in conjunction with the consolidated financial statements, related notes and    
other financial information included in this Prospectus. See "MANAGEMENT'S      
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS."      

                                                        [Enlarge/Download Table]

                                                                    YEAR ENDED DECEMBER 31,             
                                                        ------------------------------------------------
                                                          1998      1997      1996      1995      1994  
                                                          ----      ----      ----      ----      ----  
                                                             (IN THOUSANDS, EXCEPT PER SHARE DATA)      
                                                                                                        
STATEMENT OF OPERATIONS DATA:                                                                           
  Operating revenues                                                                                    
    Water sales........................................ $ 25,096   $22,003   $20,547   $20,526   $18,720
    Other revenue......................................      370       337       345     2,105     2,292
                                                        --------   -------   -------   -------   -------
      Total operating revenues.........................   25,466    22,340    20,892    22,631    21,012
                                                        --------   -------   -------   -------   -------
  Operating expenses                                                                                    
    Operating and maintenance (1)......................   14,273    12,775    12,154    14,297    13,014
    Depreciation and amortization......................    2,183     2,441     2,193     2,240     1,986
    State and federal income taxes.....................    1,808     1,278     1,096       791       963
    Property and other taxes...........................    1,535     1,439     1,348     1,370     1,235
                                                        --------   -------   -------   -------   -------
      Total operating expenses.........................   19,799    17,933    16,791    18,698    17,198
                                                        --------   -------   -------   -------   -------
  Operating income.....................................    5,667     4,407     4,101     3,933     3,814
                                                        --------   -------   -------   -------   -------
  Other income (expense), net..........................      215       158        94        33         6
                                                        --------   -------   -------   -------   -------
  Total income before interest charges.................    5,882     4,565     4,195     3,966     3,820
  Interest charges.....................................    3,162     2,580     2,536     2,759     2,334
                                                        --------   -------   -------   -------   -------
  Net income...........................................    2,720     1,985     1,659     1,207     1,486
  Dividends on preferred stock.........................       82        93       105       119       131
                                                        --------   -------   -------   -------   -------
  Net income applicable to common stock................ $  2,638   $ 1,892   $ 1,554   $ 1,088   $ 1,355
                                                        ========   =======   =======   =======   =======
  Net income per share of common stock:                                                                 
    Basic.............................................. $   1.47   $  1.07   $  1.03   $  1.05   $  1.34
                                                        ========   =======   =======   =======   =======
    Diluted............................................ $   1.45   $  1.07   $  1.03   $  1.05   $  1.34
                                                        ========   =======   =======   =======   =======
  Average shares of common stock outstanding:                                                           
    Basic..............................................    1,796     1,762     1,509     1,032     1,011
    Diluted............................................    1,816     1,775     1,515     1,034     1,013
  Cash dividends per share of common stock............. $   0.97   $  0.92   $  0.90   $  0.63   $  0.60
                                                        ========   =======   =======   =======   =======

                                                        [Enlarge/Download Table]

                                                            AS OF OR FOR THE YEAR ENDED DECEMBER 31,    
                                                        ------------------------------------------------
                                                          1998      1997      1996      1995      1994  
                                                          ----      ----      ----      ----      ----  
                                                             (IN THOUSANDS, EXCEPT OPERATING DATA)      
                                                                                                        
BALANCE SHEET DATA:                                                                                     
  Utility plant, at original cost less accumulated                                                      
    depreciation....................................... $109,780   $97,694   $88,993   $83,160   $73,238
  Total assets.........................................  119,376   107,867    99,708    96,841    87,453
  Notes payable........................................    7,704     1,164        25     9,225     1,525
  Long-term debt and redeemable preferred stock,                                                        
    including current portions.........................   32,696    32,861    27,434    25,876    26,127
  Stockholders' equity.................................   27,933    26,587    25,759    15,668    15,000
  Total capitalization.................................   60,486    59,290    52,695    34,086    40,625
OPERATING DATA:                                                                                         
  Average water sales per customer..................... $    419   $   376   $   359   $   367   $   344
  Water pumped (millions of gallons)...................    6,739     6,637     6,419     6,561     6,506
  Number of metered customers..........................   60,688    59,218    57,934    56,672    55,097
  Miles of water main..................................      820       797       781       763       746

------------------                                                              
(1) For the year ended December 31, 1995, includes a write-down of $784 in      
connection with our sale of an office building and a $128 loss on our   
disposal of Artesian Laboratories, Inc.                                 

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

RESULTS OF OPERATIONS                                                           

OVERVIEW                                                                        

Artesian Water, our principal subsidiary, is the oldest and largest   
regulated public water utility in the State of Delaware and has been providing  
water within the state since 1905. We distribute and sell water to residential, 
commercial, industrial, governmental, municipal and utility customers throughout
Delaware. As of December 31, 1998, we had approximately 61,000 metered customers
and served a population of approximately 200,000, representing approximately 27%
of Delaware's total population. We believe that we have a reputation for        
providing water and service of superior quality to our customers.               

 The Delaware Public Service Commission regulates Artesian Water's rates
charged for water service, the sale and issuance of securities, mergers and     
other matters. We periodically seek rate increases to cover the cost of         
increased operating expenses, increased financing expenses due to additional    
investments in utility plant and other costs of doing business. Increases in    
customers served by Artesian Water also contribute to increases in our operating
revenues, although such increases have been offset slightly by reductions in    
customers' individual usage. We continue our efforts to contain expenses and    
improve efficiencies which contribute to increases in our operating income. Our 
business also is subject to seasonal fluctuations and the effects of weather.   

1998 COMPARED TO 1997                                                           

Operating Revenues                                                          

We realized 98.5% of our total revenue in 1998 from the sale of water.
Water sales revenue increased $3,093,000, or 14.1%, for the year ended December 
31, 1998 compared to 1997. The increase was primarily due to rate increases     
placed in effect in late 1997 and in 1998, and to a 2.5% increase in the number 
of customers served, which was slightly offset by a decrease in usage per       
customer.                                                                       

Operating Expenses                                                          

Operating and maintenance expenses increased $1,498,000, or 11.7%,    
primarily due to increased payroll and related expenses and increased regulatory
expenses, including rate case amortization. The ratio of operating and          
maintenance expense to total revenue was 56.0% for the year ended December 31,  
1998, compared to 57.2% for the same period in 1997. Payroll and related        
expenses increased $517,000, or 8.7%, primarily due to the addition of new      
employees and increases in annual merit and incentive compensation. Rate case   
amortization expense increased $249,000, or 223.0%, due to the use of a two-year
amortization period for a portion of deferred rate case costs. Rent expense     
increased $193,000, or 271.8%, due to the renewal of the office building lease  
with White Clay Realty effective January 1, 1998, which is classified as an     
operating lease. Repair and maintenance expense increased $251,000, or 41.0%,   
due to the timing of storage tank maintenance.                                  

    Depreciation and amortization expense decreased $258,000, or 10.6%, due to
the treatment of the renewed White Clay Realty lease as an operating lease and  
lower book depreciation rates approved in our last rate case. Income tax expense
increased $530,000, or 41.5%, reflecting our increased profitability in 1998.   
Our total effective income tax rate for 1998 was 39.9% compared to 39.7% for    
1997.                                                                           

Interest Charges                                                            

  Interest charges increased $582,000, or 22.6%, primarily due to a higher
average level of debt outstanding, which was partially offset by a slightly     
lower average interest rate for 1998. The increase in the average debt          
outstanding was partly attributable to our issuance of $10 million of Series M  
and $5 million of Series N First Mortgage Bonds in June and September 1997,     
respectively.                                                                   

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Net Income                                                                  

   For the year ended December 31, 1998, our net income applicable to common
stock increased by $746,000, or 39.4%, compared to the same period in 1997. The 
increase in net income was primarily due to rate increases placed in effect in  
late 1997 and in 1998, and to the addition of new customers, which was slightly 
offset by a decrease in usage per customer. Net income also increased as a      
result of our cost control programs.                                            

1997 COMPARED TO 1996                                                           

Operating Revenues                                                          

We realized 98.5% of our total revenue in 1997 from the sale of water.
Water sales revenue increased $1,456,000, or 7.1%, for the year ended December  
31, 1997 compared to 1996. The increase primarily resulted from increased       
customer usage attributable to improved weather conditions in 1997, and to a    
2.2% increase in the number of customers we served and a rate increase placed in
effect in late 1997.                                                            

Operating Expenses                                                          

   The ratio of operating and maintenance expense to total revenue was 57.2%
for the year ended December 31, 1997, compared to 58.2% for the same period in  
1996. Payroll and related expenses increased $327,000, or 5.8%, due to salary   
adjustments and increases in annual merit and incentive compensation. Reductions
in pension and health-related benefit costs offset salary increases by $107,000.

Depreciation and amortization expense increased $248,000, or 11.3%,   
primarily due to an overall increase in our utility plant in service at December
31, 1997. Income tax expense increased $182,000, or 16.6%, reflecting our       
increased profitability in 1997. Property and other taxes increased $91,000, or 
6.8%, primarily due to an increase in local real estate property taxes. Our     
total effective income tax rate for 1997 was 39.7% compared to 39.8% for 1996.  

Interest Charges                                                            

Interest charges increased $44,000, or 1.7%, primarily due to the     
refinancing of our short-term lines of credit through the issuance of Series M  
and Series N First Mortgage Bonds in June and September 1997, respectively.     

Net Income                                                                  

   For the year ended December 31, 1997, our net income applicable to common
stock increased by $338,000, or 21.8%, compared to the same period in 1996. The 
increase in net income primarily resulted from increased customer usage         
attributable to improved weather conditions in 1997, and to a 2.2% increase in  
the number of customers we served and a rate increase placed in effect in late  
1997. Net income also increased as a result of our cost control programs.       

LIQUIDITY AND CAPITAL RESOURCES                                                 

OVERVIEW                                                                        

     Our primary sources of liquidity for 1998 were $6.5 million borrowed on our
short-term lines of credit and $7.4 million provided by cash flow from operating
activities. Cash flow from operating activities was primarily provided by our   
utility operations, and is impacted by operating and maintenance expenses, the  
timeliness and adequacy of rate increases and weather conditions.               

  We rely on our sources of liquidity for investments in our utility plant
and systems and to meet our various payment obligations. We currently estimate  
that our aggregate investments in our utility plant and systems in 1999 will be 
approximately $15.5 million. Our total obligations related to dividend and      
sinking fund payments on preferred stock, interest payments on indebtedness,    
rental payments and water service interconnection agreements for 1999 are       
anticipated to be approximately $5.6 million.                                   

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INVESTMENT IN UTILITY PLANT AND SYSTEMS                                         

   Capital expenditures increased by approximately $3.1 million for the year
ended December 31, 1998, or approximately 27.5% over capital expenditures       
recorded in 1997. Investment in utility plant, excluding amounts contributed by 
real estate developers, increased by $2.5 million, or 22.9%, from $10.9 million 
recorded in 1997 to $13.4 million in 1998. In addition, developers financed $2.1
million for the installation of water mains and hydrants serving their          
developments, compared to $1.7 million financed by developers in 1997. We       
continued our efforts to locate and develop new sources of water supply,        
particularly in southern New Castle County, investing over $3.3 million in 1998 
in new wells and treatment facilities for water service for new developments and
to supply a potential new industrial customer in southern New Castle County. The
replacement and renewal of transmission mains and related costs totaled $1.3    
million. We also were required to invest over $1.7 million for the relocation of
existing facilities resulting from government-mandated roadway construction     
projects. Investments in new transmission and distribution facilities totaled   
$4.7 million. We invested approximately $1.3 million in other general utility   
plant, including system automation.                                             

     We intend to invest over $15.5 million in utility plant in 1999. Developers
are expected to finance an additional $2.8 million in utility plant             
construction. We expect to invest approximately $7.8 million in new sources of  
water supply, new treatment facilities, rehabilitation of current facilities and
our Aquifer Storage and Recovery system. The single largest project we will     
undertake in 1999 is the first phase of a two-phase project in Sussex County    
which includes a new transmission main, a treatment facility and an elevated    
storage tank with a total cost of approximately $6.0 million. As part of our    
replacement and renewal program, we will be investing an additional $0.9 million
to improve treatment facilities at 15 different locations. In addition, we have 
projected an investment of $1.3 million in other general plant.                 

   The remaining $5.5 million of anticipated investments is for projects for
which the timing of initiation and completion are directly influenced by the    
needs of developers or governmental agencies. The primary projects include      
wells, treatment facilities and transmission systems for prospective            
developments in southern New Castle, Kent and Sussex Counties totaling          
approximately $4.3 million. In addition, we have projected nearly $1.2 million  
for the relocation of existing mains as a result of government-mandated roadway 
construction. With the exception of the state highway relocation projects, we   
may exercise some discretion in the exact timing of many of these expenditures. 

FINANCING                                                                       

   We have several sources of liquidity to finance our investment in utility
plant and other fixed assets. Developer advances and contributions in aid of    
construction are used for the installation of mains and hydrants in new         
developments. We estimate that approximately $15.5 million of our capital       
expenditures will be financed by our operations and external sources, including 
a combination of capital contributions and short-term borrowings under our      
revolving credit agreements discussed below. The remaining $2.8 million of      
capital expenditures will be financed by developers.                            

At December 31, 1998, we had a working capital deficit of $8.5 million
mainly due to borrowings on our lines of credit and an increase in accounts     
payable associated with the volume of utility plant construction projects       
currently in progress. We anticipate that the proceeds from this offering will  
enable us to eliminate our working capital deficit.                             

At December 31, 1998, Artesian Water had lines of credit with three   
separate financial institutions totaling $35.0 million to meet its temporary    
cash requirements. These revolving credit facilities are unsecured. As of       
December 31, 1998, we had $27.3 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 the bank's federal funds rate plus 1.0%, at
our discretion. All the facilities are reviewed annually by each bank for       
renewal.                                                                        

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IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS                                      

In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive   
Income," which requires that all items that are required to be recognized under 
accounting standards as components of comprehensive income be reported in a     
financial statement that is displayed with the same prominence as other         
financial statements. We adopted this statement effective January 1, 1998, and  
have no components of comprehensive income to report.                           

   In June 1997, FASB issued Statement of Financial Accounting Standards No.
131, "Disclosures About Segments of an Enterprise and Related Information,"     
which established standards for reporting information about operating segments  
in interim financial reports issued to shareholders. It also established        
standards for related disclosure about products and services, geographic areas  
and major customers. We adopted this statement effective January 1, 1998.       

   In February 1998, FASB issued Statement of Financial Accounting Standards
No. 132, "Employers' Disclosure about Pension and Other Postretirement          
Benefits," which revised employers' disclosures about pensions and other        
postretirement benefit plans, and did not change the measurement or recognition 
of those plans. We adopted this statement effective December 31, 1998.          

   In June 1998, FASB issued Statement of Financial Accounting Standards No.
133, "Accounting for Derivative Instruments and Hedging Activities," which      
established accounting and reporting standards for derivative instruments and   
hedging activities. We plan to adopt this statement effective January 1, 2000.  
Our adoption of this statement will not have a material impact on our financial 
condition or results of operations.                                             

In March 1998, the American Institute of Certified Public Accountants 
issued Statement of Position 98-1, "Accounting for the Costs of Computer        
Software Developed or Obtained for Internal Use." This statement is effective   
for financial statements for fiscal years beginning after December 15, 1998.    
Earlier application is encouraged in fiscal years for which annual financial    
statements have not been issued. We implemented this statement in the first     
quarter of 1998 and it did not have a material impact on our financial condition
or results of operations.                                                       

YEAR 2000 COMPLIANCE                                                            

Our management has completed an assessment of all our information and 
non-information technology systems and implemented a company-wide program which 
continues to test and correct all of our critical systems to ensure Year 2000   
compliance. We have dedicated the financial, technical and management resources 
required to achieve Year 2000 compliance. We identified the critical systems for
our operations and expect to be compliant by June 30, 1999. Additionally, in    
1998, we adopted management practices which require that any new systems or     
system upgrades be Year 2000 compliant prior to their purchase and              
implementation.                                                                 

In 1998, we undertook a comprehensive program to assess providers of  
critical services for the purpose of identifying and minimizing exposure to Year
2000 risks that are not under our direct control. We are currently developing   
contingency plans which we expect to be in place by June 30, 1999. Contingency  
plans include, but are not limited to, the installation of back-up generators in
case of power loss; increasing inventory levels in late 1999 for crucial        
materials and supplies, including gasoline, diesel fuel and water treatment     
chemicals; and identifying alternate providers in case our primary providers    
cannot meet delivery requirements.                                              

    We are completing our Year 2000 compliance program in the normal course of
business and do not anticipate a material impact on our business, results of    
operations, liquidity or capital resources. As a result of our corporate        
automation plan developed in 1994, we have capitalized $395,000 during the year 
ended December 31, 1998 on new computer software and hardware, some of which    
replaced software and hardware which was not Year 2000 compliant. We do not     
anticipate any significant capital expenditures for computer software and       
hardware in 1999 for the purpose of achieving Year 2000 compliance.             

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OUR COMPANY 

INTRODUCTION                                                                    

Artesian Water, our principal subsidiary, is the oldest and largest   
regulated public water utility in the State of Delaware and has been providing  
water within the state since 1905. We distribute and sell water to residential, 
commercial, industrial, governmental, municipal and utility customers throughout
Delaware. As of December 31, 1998, we had approximately 61,000 metered customers
and served a population of approximately 200,000, representing approximately 27%
of Delaware's total population. We believe that we have a reputation for        
providing water and service of superior quality to our customers.               

MARKET AND SERVICE AREA                                                         

     Our current market area is the State of Delaware, which had a population of
approximately 744,000 at July 31, 1998. According to the Delaware Economic      
Development Office, Delaware's population has increased by approximately 7% over
the six-year period ended July 31, 1998. Most of our existing exclusive         
franchised service areas and customers are in New Castle County in northern     
Delaware. Although New Castle is the most populous of Delaware's three counties,
Sussex County, in southern Delaware, has experienced the most significant growth
with a population increase of approximately 15% over the last six years.        
Substantial portions of Delaware, particularly outside of New Castle County, are
not served by a public water system and represent potential new exclusive       
franchised service areas for Artesian Water. We continue to focus resources on  
developing and serving existing service territories and obtaining new           
territories throughout the state.                                               

  In Delaware, a Certificate of Public Convenience and Necessity issued by
the Delaware Department of Natural Resources and Environmental Control grants a 
water company the exclusive right to serve all existing and new customers within
a designated area. In this Prospectus, we refer to these Certificates as "CPCNs"
or "franchises." We hold CPCNs for approximately 140 square miles of exclusive  
service territory, which is segmented into a number of service areas. Our       
largest connected regional water system, consisting of approximately 101 square 
miles and 60,000 customers, is located in northern Delaware. A significant      
portion of our exclusive service territory remains undeveloped, and if and when 
development occurs and there is population growth in these areas, we will       
increase our customer base by providing water service to the newly developed    
areas and new customers. Within our existing service territory, we hold CPCNs   
for over 3,000 acres zoned for industrial and manufacturing development. Nearly 
2,000 of these acres have been targeted for development by the Delaware Economic
Development Office, a state agency whose primary objective is to attract        
business and industry to Delaware, and we are partnering with the state to      
market these sites for industrial and manufacturing development.                

   Since 1993, we have been significantly expanding our service territory by
acquiring new exclusive service areas in Delaware through grants of CPCNs. This 
expansion, which has occurred in southern New Castle, Kent and Sussex Counties, 
has increased our exclusive service area in Delaware by approximately 40% since 
1993. The pursuit of new service territory in the State of Delaware by water    
companies is competitive.                                                       

    The total number of customers we serve has grown at an average annual rate
of approximately 2.5% for the last five years. We expect to continue to increase
our customer base as a result of population growth, development in our existing 
exclusive service areas, acquisition of new service areas and our innovative    
marketing initiatives.                                                          

STRATEGIC INITIATIVES                                                           

Our objective is to maintain and strengthen our position as a leading 
industry innovator and provider of high quality water and superior service      
throughout the State of Delaware. The following are the key strategic           
initiatives to achieve our objective:                                           

GROWTH STRATEGY                                                             

 Expand Our Customer Base in Existing Exclusive Service Territories.  We
intend to increase our customer base and revenues in Delaware by providing water
service to new residential, commercial and industrial customers as growth occurs
in previously undeveloped areas within our existing                             

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exclusive service territory. We also plan to increase water sales to            
municipalities, within our existing service territory, which are currently      
served by private wells. For example, we recently acquired the rights to provide
water to two municipalities and neighboring developments in Sussex County       
providing us the opportunity to serve approximately 3,000 new customers. We     
began construction in December 1998 of a fully integrated water system to serve 
both municipalities and we expect to add these new customers over the next three
years. We believe that our average annual customer growth rate will increase    
during the foreseeable future as a result of these investments and our overall  
marketing efforts.                                                              

    Expand Service Area and Customer Base Through Acquisition of New Exclusive
Service Territories.  We intend to continue our service territory expansion by  
applying for additional franchises for service territory as land development    
progresses and may also expand through possible acquisitions of existing water  
systems. Since 1993, we have focused our expansion efforts in the higher growth 
areas of Delaware, primarily in southern Delaware. We believe that we have      
significant opportunities to acquire additional exclusive service territory in  
southern Delaware because substantial portions of this area remain undeveloped  
and are not presently served by a municipal water system or covered by a        
franchise granting exclusive rights to provide water service to any water       
company.                                                                        

  Pursue Contract Management and Supply Agreements with Municipalities and
Utilities.  We believe we have significant opportunities to enter into          
agreements with municipalities and other utilities to provide contract          
management of water systems, provide operational expertise and supply water. We 
have been actively pursuing those relationships and entered into agreements in  
1998 to supply water to two municipalities in New Castle County. We believe     
these agreements provide additional opportunities to increase the number of     
customers we serve.                                                             

OPERATIONAL STRATEGY                                                        

     Promote Competitive Advantage of High Quality Water and Infrastructure.  We
have a reputation, as shown by customer surveys, for providing water of         
consistently superior quality to customers. We believe our water quality and    
significant investment in infrastructure give Artesian Water a competitive edge 
in increasing our customer base and expanding our service territory. Our        
groundwater sources and water system infrastructure contribute to our high water
quality. Our wells are drilled into aquifers accessing groundwater, which       
generally is higher quality water than water from surface sources such as rivers
and creek basins. Additionally, our wells generally access deeper aquifers which
may provide better water quality than wells accessing more shallow aquifers due 
to the possibility of land use contamination at more shallow levels. Our        
maintenance program for transmission and distribution lines and the construction
of new lines also focuses on water quality. Our standard practice is to install 
ductile iron pipe, which has greater longevity and superior ability to withstand
wear and tear compared to plastic pipe and other alternatives, to ensure that   
the water transmission process maintains the quality of water pumped from our   
wells. We believe that our significant investment in infrastructure lowers the  
potential for costly and disruptive repairs to our water transmission systems in
the future.                                                                     

 Secure Long-Term Sources of Self-Supply.  We have identified sufficient
sources of groundwater supply to serve our expanding customer base for the      
foreseeable future. Our self-supply has increased from 63% of our total water   
supply in 1992 to approximately 80% in 1998. Since 1992, we have increased our  
sources of groundwater supply from our own wells by 50%, or nearly nine million 
gallons per day, and plan to continue development of new sources of groundwater 
supplies previously identified. In addition, by developing and using innovative 
storage techniques, such as our Aquifer Storage and Recovery program, we will be
able to store large quantities of treated water to meet the peak demands on     
Artesian Water and neighboring utilities to which we could sell excess water at 
bulk rates. We believe we can place in operation a system of such storage and   
recovery wells which will eliminate the need for more costly alternative storage
options such as surface reservoirs. Wells of this type have been used           
successfully in a number of east coast states, including New Jersey and Florida,
where soil conditions permit the use of this water storage technique.           

    Promote Superior Customer Service and Demand Side Management.  We maintain
a corporate-wide customer relations and marketing program to support our efforts
to expand our operations and provide superior service to our existing customer  
base. We believe our customer relations program differs from traditional water  
industry approaches. We train all employees who have customer contact,          

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including meter readers and meter installation personnel, to handle issues      
traditionally addressed only by customer service representatives. Our marketing 
efforts also include advertising, direct-mail marketing campaigns, community    
outreach and conservation education programs. We also sponsor community events, 
develop relationships with developers and landowners and participate in policy- 
making political, educational and legislative forums with state, county and     
municipal government officials. With respect to the demand side, we actively    
promote measures which will encourage our customers to conserve water. We employ
a rate structure which shifts the incremental cost of providing increasing      
supplies to those customers who use comparatively higher volumes of water. In   
addition, we continue to provide a comprehensive water education program to     
elementary school children and conservation devices to homeowners at reasonable 
prices. We have recorded a decrease in per capita consumption of approximately  
10% since the beginning of the program. We believe such decreases based on      
conservation efforts will permit us to avoid unnecessary capital expenditures to
meet peak water demands, which in turn benefits our customers by lowering costs.

WATER SUPPLY                                                                    

Our primary sources of water are our wells that pump groundwater from 
aquifers and other formations. To supplement our groundwater supply, we purchase
surface water through interconnections only in the northern service area of our 
northern New Castle County system. The purchased surface water is blended with  
our groundwater supply for transmission to our customers. Nearly 80% of the     
overall 6.7 billion gallons of water we distributed in all our systems during   
1998 came from our groundwater wells, while the remaining 20% came from         
interconnections with other utilities and municipalities. During 1998, our      
average rate of water pumped was approximately 14.5 million gallons per day     
("mgd") from our groundwater wells and approximately 3.8 mgd was supplied from  
interconnections. Our peak water supply capacity currently is approximately 48.0
mgd. Our peak water demand in 1998 was approximately 24.3 mgd. We believe that  
we have in place sufficient capacity to provide water service for the           
foreseeable future to all existing and new customers in all of our service      
territories.                                                                    

   We have 72 operating and 46 monitoring wells in our systems. Our northern
New Castle County system is interconnected. In the remainder of the state, we   
have several satellite systems which have not yet been connected by transmission
and distribution facilities. We intend to join these systems into larger        
integrated regional systems through the construction of a transmission and      
distribution network as development continues and our expansion efforts provide 
us with contiguous exclusive service territories.                               

    We have 14 interconnections with four neighboring water utilities and four
municipalities which provide us with the ability to purchase or sell water.     
Interconnection agreements with Chester Water Authority and one municipality    
have "take or pay" clauses requiring us to take, as of December 31, 1998,       
minimum draws totaling 1.3 billion gallons annually. We presently use the       
minimum draws under these agreements. The Chester Water Authority agreement,    
which expires in 2021, provides for a renewal period of an additional 25 years  
at our option, subject to the approval of the Susquehanna River Basin           
Commission. We recently decided not to renew one interconnection agreement with 
the municipality, which reduced our overall take or pay requirement by 100      
million gallons annually. Our remaining take or pay agreement with that         
municipality expires and is renewable in December 2001. All of the              
interconnections provide Artesian Water the ability to sell water to neighboring
water utilities or municipalities.                                              

WATER ALLOCATION                                                                

     Under state laws and regulations, we are required to file applications with
the Delaware Department of Natural Resources and Environmental Control for water
allocation permits for each of our production wells pumping quantities of water 
above certain levels. Presently, we have permits for 59 wells, permit           
applications pending for nine wells and four wells not requiring a permit. Our  
access to aquifers within our service territory is not exclusive. Water         
allocation permits control the amount of water which can be drawn from water    
resources and are granted with specific restrictions on water level draw down   
limits, annual, monthly and daily pumpage limits, and well field allocation     
pumpage limits. Our ability to supply the demands of our customers has not been 
affected by private usage of the aquifers by landowners or the limits imposed by
the state. Because of the extensive regulatory                                  

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requirements relating to the withdrawal of any significant amounts of water from
the aquifers, we believe that third party usage of the aquifers within our      
service territory will not interfere with our ability to meet the present and   
future demands of our customers.                                                

TRANSMISSION AND DISTRIBUTION FACILITIES                                        

At the end of 1998, we were serving customers through 820 miles of    
transmission and distribution mains. Mains range in diameter from two inches to 
twenty-four inches, and most of the mains are made of ductile iron, cast iron or
transite pipe. Ductile iron is more durable than plastic and we install ductile 
iron pipes wherever possible. We are installing a more durable type of plastic  
pipe only near ocean front property in southern Delaware where corrosive        
conditions of the surrounding ground affect the longevity of ductile iron pipe. 
We also supply public fire protection service through 3,053 hydrants installed  
throughout our service territories.                                             

We have 24 storage tanks, most of which are elevated, providing total 
system storage of 36 million gallons. We also are developing and using an       
aquifer storage and recovery system. At some locations, we rely on              
hydropneumatic tanks to maintain adequate system pressures. Where possible, we  
will combine our smaller satellite systems with systems having elevated storage 
facilities. We are currently constructing a 500,000 gallon elevated storage     
facility to serve our newest service territory in the resort communities in     
Sussex County.                                                                  

We assess the capacity of our systems on an ongoing basis, including  
through the use of computerized demand modeling, to determine adequate pressures
under all load conditions. We initiate plans to construct pumping, transmission 
and storage facilities as identified by the modeling process.                   

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

WATER TREATMENT                                                                 

    We derive about 90% of our self-supplied groundwater from wells located in
the Coastal Plain. The remaining 10% comes from wells in the Piedmont area. We  
use a variety of treatment methods, including aeration, pH adjustment,          
chlorination, fluoridation and iron removal, to meet state and federal water    
quality standards. Additionally, a corrosion inhibitor is added to all of our   
self-supplied groundwater and most of the supply from interconnections. We have 
28 different water treatment facilities. All water supplies that we purchase    
from neighboring utilities are potable. We believe the costs of treating        
groundwater are significantly lower than those of treating surface water, which 
benefits customers in our service areas.                                        

Delaware enacted legislation in 1998 requiring water utilities to meet
secondary water quality standards which include limitations on iron content,    
odor and other water quality-related issues which are not proven health risks   
but may be objectionable for consumption. We believe our current treatment      
systems and facilities as designed meet or exceed these secondary standards and 
that the new standards should not impose a significant financial burden on      
Artesian Water.                                                                 

UTILITY PLANT CONSTRUCTION PROGRAM                                              

 We had capital expenditures of approximately $14.3 million for 1998 and
$33.7 million for the three-year period ended December 31, 1998. We estimate    
that we will incur capital expenditures of approximately $15.5 million in 1999  
and have budgeted capital expenditures of approximately $42.0 million during the
three-year period ending December 31, 2001. Our planned 1999 capital            
expenditures include approximately $7.2 million for the construction, upgrading 
and maintenance of transmission and distribution facilities, $4.4 million for   
the construction, upgrading and maintenance of pumping and treatment facilities,
$1.9 million for identifying and developing new sources of supply and $2.0      
million for other general plant.                                                

A major part of our planned capital expenditures is a $14.5 million   
investment over the three-year period beginning January 1, 1999 for new         
transmission and distribution facilities to improve hydraulics, connect separate
systems into regional service systems and provide water service to new service  
territories. Included in this planned investment is a $6.0 million transmission 
and distribution system project we began in December 1998 to provide water      
service to two municipalities and neighboring developments in Sussex County,    
which we anticipate will provide Artesian Water an                              

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opportunity to serve 3,000 new customers. Additionally, we will continue our    
main replacement and renewal program to improve water quality and reduce        
expenses related to maintenance and repairs for older mains. We also intend to  
continue our efforts to secure an assured long-term source of supply and have   
budgeted nearly $6.0 million for 1999 for new sources of supply and treatment   
facilities. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS -- Liquidity and Capital Resources."                      

CUSTOMERS                                                                       

At December 31, 1998, we provided water service on a retail basis to  
residential, commercial, industrial and governmental customers through over     
61,000 meters throughout our service territory serving a population of          
approximately 200,000. In addition, we provided water service on a wholesale    
basis to four municipalities and four investor-owned utilities. We also provide 
water for public and private fire protection to customers in our service        
territories. Our gross water sales revenue for 1998 was approximately $25.1     
million, and our percentages of gross water sales revenue by major customer     
classifications were 62.4% for residential, 28.4% for commercial, industrial,   
governmental, municipal and utility and 9.2% for fire protection. These         
percentages have remained fairly constant for the past three years.             

REGULATION                                                                      

We are subject to regulation by federal, state and local agencies with
respect to, among other things, rates charged for water service, awards of new  
service territory, water allocation rights, water quality and environmental     
matters.                                                                        

RATES                                                                           

 Artesian Water, as a public utility, is regulated by the Public Service
Commission with respect to rates and charges for service, the sale and issuance 
of securities, mergers and other matters. We periodically seek rate increases to
cover the cost of increased operating expenses, increased financing expenses due
to additional investments in utility plant and other costs of doing business.   

    We currently derive our water service revenues from water consumption upon
which base rates are applied, which were last increased as of May 13, 1998      
following the fourth consecutive settlement of our rate proceedings prior to    
administrative hearings before the Public Service Commission. The May 1998 rate 
increase authorized a return on equity rate of 10.85%, with an overall rate of  
return on rate base of 9.51%. We currently anticipate that we will file for a   
rate increase during the first half of 1999, but we cannot predict when we will 
request approval for a rate increase or whether the Public Service Commission   
will approve the requested increase, approve a smaller increase or deny any such
request.                                                                        

CERTIFICATES OF PUBLIC CONVENIENCE AND NECESSITY                                

   A public water utility operating in Delaware must obtain a Certificate of
Public Convenience and Necessity for a service territory to begin or expand its 
operations, which is granted by the Delaware Department of Natural Resources and
Environmental Control. We refer to the Department in this discussion of         
regulations as "DNREC." DNREC grants a CPCN under circumstances where there has 
been a determination that the water in the proposed service area does not meet  
the regulations governing drinking water standards of the State Board of Health 
for human consumption, where the supply is insufficient to meet the projected   
demand, or where the applicant is in possession of one of the following: (i) a  
signed service agreement with the developer of a proposed subdivision or        
development, which subdivision or development has been duly approved by the     
respective county government; (ii) a petition requesting such service signed by 
a majority of the landowners of the proposed territory to be served; or (iii) a 
duly certified copy of a resolution from the governing body of a county or      
municipality requesting the applicant to provide service to the proposed        
territory to be served. CPCNs are not transferable, and a water utility must    
obtain the approval of the Public Service Commission to abandon a service       
territory once granted.                                                         

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WATER QUALITY                                                                   

  The United States Environmental Protection Agency (the "EPA"), DNREC and
the Delaware Division of Public Health regulate the water quality of our        
treatment and distribution systems. We believe that we are in material          
compliance with all current federal and state water quality standards, including
regulations under the federal Safe Drinking Water Act. Chester Water Authority, 
which supplies water to Artesian Water through interconnections in northern New 
Castle County, is regulated by the Pennsylvania Department of Environmental     
Protection as well as the EPA.                                                  

     As required by the Safe Drinking Water Act, the EPA has established maximum
contaminant levels for various substances found in drinking water. The Division 
of Public Health has set maximum contaminant levels for certain substances which
are more restrictive than the maximum contaminant levels set by the EPA. The    
Division of Public Health is the EPA's agent for enforcing the Safe Drinking    
Water Act in Delaware and, in that capacity, monitors the activities of Artesian
Water and reviews the results of water quality tests performed by Artesian Water
for adherence to applicable regulations. Artesian Water is also subject to other
laws regulating substances and contaminants in water, including the Lead and    
Copper Rule, rules for volatile organic compounds and the Total Coliform Rule.  
Because we have no surface water sources of supply which we treat for           
consumption, the Surface Water Treatment Rule generally does not apply to us.   

PROPERTIES                                                                      

 The corporate headquarters of Artesian Resources and Artesian Water are
located at 664 Churchmans Road, Newark, Delaware. The property is leased by     
Artesian Water from a related party through December 2002. The lease may be     
extended at our option for two more successive five-year renewal terms subject  
to the terms set forth in the lease.                                            

We own land, transmission and distribution mains, pump facilities,    
treatment plants, storage tanks and related facilities within New Castle, Kent  
and Sussex Counties. We own total acreage, not including rights-of-way and      
easements, of approximately 674 acres, including 500 acres located next to our  
corporate headquarters. The adjacent site has been the subject of an            
Environmental Impact Study performed by the United States Army Corps of         
Engineers relating to the identification of a potential reservoir site and the  
environmental impact to the natural area at the prospective site; however,      
several other locations also are being evaluated for the site of a new reservoir
in New Castle County. We also own approximately 52 acres of land which will be  
the site of a future well field and iron removal facility in northern New Castle
County.                                                                         

 Artesian Development Corporation, a wholly owned subsidiary of Artesian
Resources, owns approximately 12 acres zoned for light manufacturing located    
immediately adjacent to our corporate headquarters. Artesian Development has no 
present plans to purchase any new land or develop the acres it owns.            

EMPLOYEES                                                                       

As of December 31, 1998, we employed 142 full-time and 10 part-time   
employees, all of whom were non-unionized. Of this number, 14 were officers and 
managers; 92 were employed as operations personnel, including engineers,        
technicians, draftsman, maintenance and repair persons, meter readers and       
utility personnel; and 42 were employed in the accounting, budgeting,           
information systems, human resources, customer relations, public relations and  
conservation departments. The remaining four employees were administrative      
personnel. We believe that our employee relations are good.                     

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MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS                                                

                                                                [Download Table]

NAME                                    AGE                 POSITION                
----                                    ---                 --------                
                                                                                    
Dian C. Taylor......................... 53   Chair of the Board, Chief Executive    
                                             Officer and President of Artesian      
                                               Resources and Subsidiaries           

David B. Spacht........................ 39   Vice President, Chief Financial Officer
                                             and Treasurer of Artesian Resources and
                                               Subsidiaries                         

Joseph A. DiNunzio..................... 36   Vice President and Secretary of        
                                             Artesian Resources and Subsidiaries    

Bruce P. Kraeuter...................... 49   Vice President and Chief Engineer of   
                                               Artesian Water                       

John M. Thaeder........................ 40   Vice President of Operations of        
                                             Artesian Water                         

Kenneth R. Biederman................... 55   Director                               

John R. Eisenbrey, Jr.................. 43   Director                               

William H. Taylor, II.................. 53   Director                               

William C. Wyer........................ 52   Director                               

 DIAN C. TAYLOR has served as Chair of the Board since July 1993, and as
President and Chief Executive Officer of Artesian Resources and our subsidiaries
since September 1992. Ms. Taylor previously served as our Executive Vice        
President from April 1992 to September 1992, and as our Vice President of       
Corporate Development from August 1991 to April 1992. She was formerly a        
consultant to the Small Business Development Center at the University of        
Delaware from February 1991 to August 1991, and owner and President of          
Achievement Resources, Inc., a consulting firm specializing in strategic        
planning, marketing, entrepreneurial and human resources development, from 1977 
to 1991. Ms. Taylor was a marketing director for SMI, Inc. from 1982 to 1985.   
Ms. Taylor is the cousin of William H. Taylor, II, and the aunt of John R.      
Eisenbrey, Jr.                                                                  

DAVID B. SPACHT has served as Chief Financial Officer and Treasurer of
Artesian Resources and our subsidiaries since July 1992, and was appointed a    
Vice President of each company in January 1995. In his positions, Mr. Spacht has
primary responsibility for accounting, financial reporting, purchasing,         
rate-making and information systems. Mr. Spacht formerly held positions as our  
Assistant Secretary, Assistant Treasurer and Controller and held the same       
positions for our subsidiaries. He has been employed by Artesian Resources for  
seventeen years.                                                                

  JOSEPH A. DINUNZIO has served as Secretary of Artesian Resources and our
subsidiaries since July 1992, and was appointed a Vice President of each company
in January 1995. In his positions, Mr. DiNunzio has primary responsibility for  
administration, planning and budgeting, customer relations and billing. Mr.     
DiNunzio formerly held positions as our Assistant Secretary and Manager of      
Budgeting and Financial Planning. Prior to joining Artesian Resources in 1989,  
Mr. DiNunzio was employed by Price Waterhouse for five years.                   

  BRUCE P. KRAEUTER has served as Vice President and Chief Engineer of our
subsidiary, Artesian Water, since January 1995. He was formerly our Manager of  
Engineering from March 1994 to January 1995, and has been employed by Artesian  
Water as an engineer since July 1989. Prior to joining Artesian Water, Mr.      
Kraeuter served as Senior Engineer with the Water Resources Agency for New      
Castle County, Delaware for fifteen years.                                      

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JOHN M. THAEDER has served as Vice President of Operations of Artesian
Water since February 1998. He was Southeastern District Manager of Sales and    
Operations for Hydro Group, Inc. from 1996 to 1998, and previously was Sales    
Manager of Hydro Group's North East Division from 1995 to 1996. Mr. Thaeder was 
formerly a District Manager for Layne Well and Pump Division of Hydro Group from
1988 to 1995.                                                                   

  KENNETH R. BIEDERMAN has served as one of our directors since July 1991.
Mr. Biederman has been a Professor of Finance since May 1996 and served as the  
Dean from 1990 to 1996 at the College of Business and Economics of the          
University of Delaware. He was formerly a financial and banking consultant from 
1989 to 1990, and served as President of Gibraltar Bank from 1987 to 1989.      

    JOHN R. EISENBREY, JR. has served as one of our directors since July 1993.
He has been the owner and President of Bear Industries, Inc., a privately held  
mechanical contracting firm specializing in fire protection, for over twelve    
years. Mr. Eisenbrey is the nephew of Dian C. Taylor.                           

    WILLIAM H. TAYLOR, II has served as one of our directors since March 1998.
Mr. Taylor has been the President and Certified Business Counselor of           
Susquehanna Corporation, a national affiliate of Business Brokers Network of    
Dallas, Texas, since 1995, and President of Taylor Capital Associates,          
investment brokers, since 1991. He previously was our President and Chief       
Operating Officer from 1990 to 1991, Vice President of Artesian Water from 1987 
to 1990, and one of our directors from 1979 to 1991. Mr. Taylor was formerly    
President of Delaware Micrographics, Inc., a provider of microfiche services,   
from 1981 to 1995, and a Vice President of Butcher & Singer, Inc., an investment
banking firm, from 1981 to 1987. Mr. Taylor is the cousin of Dian C. Taylor.    

 WILLIAM C. WYER has served as one of our directors since July 1991. Mr.
Wyer has been Managing Director of Wilmington Renaissance Corporation (formerly 
Wilmington 2000), a private organization seeking to revitalize the City of      
Wilmington, Delaware, since January 1998, and previously held the same position 
from May 1993 to September 1995. He served as President of AllNation Life       
Insurance and as Senior Vice President of Blue Cross/Blue Shield of Delaware    
from September 1995 to January 1998. He was formerly President of Wyer Group,   
Inc. from 1991 to 1993, and of Commerce Enterprise Group from 1989 to 1991, both
of which companies were management consulting firms specializing in operational 
reviews of businesses in the areas of productivity, overhead and                
competitiveness. Mr. Wyer served as President of the Delaware State Chamber of  
Commerce from 1978 to 1989.                                                     

CLASSES OF THE BOARD                                                            

   Our Board of Directors is divided into three classes that serve staggered
three-year terms. The terms of Dian C. Taylor and John R. Eisenbrey, Jr. will   
expire at the 1999 annual meeting of stockholders. Ms. Taylor and Mr. Eisenbrey 
have been renominated by our Board for reelection at the meeting to another     
three-year term. The term of Kenneth R. Biederman will expire at our 2000 annual
meeting, and the terms of William H. Taylor, II and William C. Wyer will expire 
at our 2001 annual meeting.                                                     

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DESCRIPTION OF CAPITAL STOCK

Our authorized capital stock consists of 3,500,000 shares of Class A  
Non-Voting Common Stock, par value $1 per share, 1,040,000 shares of Class B    
Voting Common Stock, par value $1 per share, 10,868 shares of 7% Prior Preferred
Stock, par value $25 per share, 80,000 shares of Cumulative Prior Preferred     
Stock, par value $25 per share, and 100,000 shares of Series Preferred Stock,   
par value $1 per share.                                                         

Immediately after the sale of the 325,000 shares of Class A Non-Voting
Common Stock offered by this Prospectus and assuming no exercise of outstanding 
stock options, there will be issued and outstanding 1,623,611 shares (1,672,361 
shares if the Underwriter's over-allotment option is exercised in full) of Class
A Non-Voting Common Stock, 514,154 shares of Class B Voting Common Stock, 10,868
shares of 7% Prior Preferred Stock and 20,000 shares of Cumulative Prior        
Preferred Stock. There are no shares of Series Preferred Stock outstanding. We  
sometimes refer to our 7% Prior Preferred Stock, Cumulative Prior Preferred     
Stock and Series Preferred Stock collectively as "Preferred Stock" in this      
"DESCRIPTION OF CAPITAL STOCK."                                                 

CLASS A NON-VOTING COMMON STOCK                                                 

    Holders of shares of Class A Non-Voting Common Stock generally do not have
voting rights under our Restated Certificate of Incorporation, as amended, with 
respect to the election of directors and other matters voted upon by            
stockholders. However, the Delaware General Corporation Law, which governs our  
stockholder matters, provides that the holders of Class A Non-Voting Common     
Stock must vote on certain matters affecting them, such as amendments to the    
Certificate of Incorporation that would:                                        

(i)  increase or decrease the aggregate number of authorized shares of
Class A Non-Voting Common Stock in certain circumstances;   

   (ii)  increase or decrease the par value of the Class A Non-Voting Common
Stock; or                                                 

(iii) alter or change the powers, preferences or special rights of the
           shares of Class A Non-Voting Common Stock if such change would affect
such shares adversely.                                    

The vote required to approve such amendments is a majority of the     
outstanding shares of Class A Non-Voting Common Stock. We refer to these special
type of voting requirements as "Statutory Class Voting Requirements" in this    
"DESCRIPTION OF CAPITAL STOCK." Additionally, we may not issue any shares of    
Series Preferred Stock without the approval of the holders of a majority of the 
shares of Class A Non-Voting Common Stock.                                      

   Subject to dividends that we may be required to pay on outstanding shares
of Preferred Stock before we may pay dividends on other shares, the holders of  
Class A Non-Voting Common Stock are entitled to receive dividends, as, when and 
if declared from time to time by our Board of Directors out of funds legally    
available for such purpose. Our Certificate of Incorporation requires that we   
declare and pay the same dividend per share on the Class A Non-Voting Common    
Stock and on the Class B Voting Common Stock. There are no preemptive,          
conversion, subscription, redemption or sinking fund rights applicable to the   
Class A Non-Voting Common Stock. Holders of Class A Non-Voting Common Stock may 
participate in our Dividend Reinvestment Plan by automatically reinvesting cash 
dividends declared on all or a portion of their shares to purchase additional   
shares of Class A Non-Voting Common Stock. In the event of a liquidation,       
dissolution or winding up of Artesian Resources, the holders of Class A         
Non-Voting Common Stock are entitled to share pro rata with the holders of Class
B Voting Common Stock in all assets and funds remaining after we pay outstanding
liabilities and make required distributions to the holders of outstanding shares
of Preferred Stock pursuant to our Certificate of Incorporation. All outstanding
shares of Class A Non-Voting Common Stock are fully paid and non-assessable.    

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CLASS B VOTING COMMON STOCK                                                     

   Except as otherwise described in this "DESCRIPTION OF CAPITAL STOCK" with
respect to our other classes of stock, the right to vote for the election of    
directors and other stockholder matters is exercised exclusively by the holders 
of Class B Voting Common Stock. Holders of Class B Voting Common Stock are      
entitled to one vote per share on all matters voted upon by stockholders.       
Holders of shares of Class B Voting Common Stock do not have cumulative voting  
rights. There are no preemptive, conversion, subscription, redemption or sinking
fund rights applicable to the Class B Voting Common Stock. Holders of Class B   
Voting Common Stock may participate in our Dividend Reinvestment Plan by        
automatically reinvesting cash dividends declared on all or a portion of their  
shares to purchase additional shares of Class B Voting Common Stock. In the     
event of a liquidation, dissolution or winding up of Artesian Resources, the    
holders of Class B Voting Common Stock are entitled to share pro rata with the  
holders of Class A Non-Voting Common Stock in all assets and funds remaining    
after we pay outstanding liabilities and make required distributions to the     
holders of outstanding shares of Preferred Stock pursuant to our Certificate of 
Incorporation. All outstanding shares of Class B Voting Common Stock are fully  
paid and non-assessable.                                                        

PREFERRED STOCK                                                                 

     The holders of 7% Prior Preferred Stock generally do not have voting rights
under our Certificate of Incorporation. However, the Delaware General           
Corporation Law provides Statutory Class Voting Requirements for outstanding    
shares of 7% Prior Preferred Stock. The 7% Prior Preferred Stock is redeemable  
at our option, in whole or in part, from time to time at $30 per share plus     
accrued but unpaid dividends, provided that if we are in default on any dividend
or sinking fund payment on any series of Cumulative Prior Preferred Stock, we   
may not redeem any shares of 7% Prior Preferred Stock or any series of          
Cumulative Prior Preferred Stock, other than redemption through a fixed sinking 
fund. The 7% Prior Preferred Stock is entitled to cumulative dividends at a rate
of 7% per year out of funds legally available for such purpose, payable         
quarterly. The 7% Prior Preferred Stock and the Cumulative Prior Preferred Stock
rank equally with respect to the payment of cash dividends. No dividends may be 
declared and paid on the Series Preferred Stock, Class A Non-Voting Common Stock
or Class B Voting Common Stock (collectively, "Junior Stock") unless the full   
cash dividends on the 7% Prior Preferred Stock then outstanding have been paid  
or set apart for payment. In the event of a liquidation, dissolution or winding 
up of Artesian Resources or the sale by Artesian Resources of all of our assets,
the holders of 7% Prior Preferred Stock are entitled, after payment of all      
liabilities, to be paid in cash the par value of their shares and any accrued   
but unpaid dividends before any amounts are paid to the holders of Junior Stock.
The 7% Prior Preferred Stock and the Cumulative Prior Preferred Stock rank      
equally with respect to payments upon a liquidation, dissolution or winding up, 
except that a sale of all of the assets of Artesian Resources will not be deemed
a liquidation, dissolution or winding up with respect to the Cumulative Prior   
Preferred Stock.                                                                

Our Certificate of Incorporation currently designates 40,000 shares of
9.96% Cumulative Prior Preferred Stock out of the 80,000 authorized shares of   
Cumulative Prior Preferred Stock. As of March 24, 1999, there were outstanding  
20,000 shares of 9.96% Cumulative Prior Preferred Stock. The Certificate of     
Incorporation also designates 12,000 shares of 9 5/8% Cumulative Prior Preferred
Stock, 10,000 shares of 8 1/2% Cumulative Prior Preferred Stock and 16,000      
shares of 11 1/8% Cumulative Prior Preferred Stock, all of which have been      
issued and subsequently redeemed. Subject to certain stockholder approval       
requirements described below, the Board of Directors may fix the designations,  
preferences and other rights, limitations or restrictions of authorized and     
unissued Cumulative Prior Preferred Stock in a resolution providing for the     
initial issuance of any additional series of such stock. Generally, the consent 
of a majority of the outstanding shares of Series Preferred Stock and Class B   
Voting Common Stock is required for, among other things, an increase in the     
authorized amount of any series of Cumulative Prior Preferred Stock and the     
creation of one or more additional series of Cumulative Prior Preferred Stock.  
All series of Cumulative Prior Preferred Stock are of equal rank. We have no    
present plans to designate any additional series of Cumulative Prior Preferred  
Stock, increase                                                                 

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the authorized shares for any previously designated series or issue any         
additional shares of any previously designated series.                          

 Except (i) for Statutory Class Voting Requirements, (ii) in the case of
certain defaults in dividend or sinking fund payments described below, and (iii)
as described below for certain actions by Artesian Resources, the holders of    
Cumulative Prior Preferred Stock generally do not have voting rights under our  
Certificate of Incorporation. If we are in default on dividend or sinking fund  
payments on any series of Cumulative Prior Preferred Stock for certain periods  
of time specified in our Certificate of Incorporation, the holders of Cumulative
Prior Preferred Stock are entitled to vote as a class for not less than         
one-third (if the default continues for certain shorter periods) or a majority  
(if the default continues for certain longer periods), as the case may be, of   
the members of our Board of Directors. Upon cure of such defaults, voting rights
revert to the Class B Voting Common Stock. All dividend and sinking fund        
payments on the Cumulative Prior Preferred Stock are current. The consent of at 
least three-fourths of the total number of shares of Cumulative Prior Preferred 
Stock then outstanding is required for Artesian Resources to:                   

    (i)  incur any long-term indebtedness that would result in total long-term
indebtedness exceeding 65% of our capitalization;           

    (ii)  create or authorize any class of stock or any obligation or security
        convertible into shares of stock unless such stock ranks junior to
           the Cumulative Prior Preferred Stock with respect both to the payment
     of dividends and distributions upon liquidation, dissolution or
winding up of Artesian Resources;                         

(iii) amend, alter, change or repeal any of the provisions of our     
           Certificate of Incorporation with respect to the purposes of Artesian
      Resources so as to substantially change such purposes, or amend,
      alter, change or repeal any of the terms of the Cumulative Prior
     Preferred Stock then outstanding in a manner prejudicial to the
holders of such stock;                                    

(iv) merge or consolidate if, among other things, the purposes of the 
        resulting corporation would be substantially different from those of
Artesian Resources or if any adverse change in the terms and
    provisions of the Cumulative Prior Preferred Stock would result;

(v)  reissue any previously purchased, redeemed or retired shares of  
Cumulative Prior Preferred Stock; or                        

(vi) issue any shares of Cumulative Prior Preferred Stock or any stock
 senior to the Cumulative Prior Preferred Stock unless certain
          financial tests specified in our Certificate of Incorporation are met.

Artesian Resources may not, without the consent of a majority of the holders of 
shares of Cumulative Prior Preferred Stock of all series then outstanding,      
increase the total number of authorized shares of Cumulative Prior Preferred    
Stock of all series so that such authorized number exceeds 80,000 shares.       

The outstanding Cumulative Prior Preferred Stock has no preemptive,   
conversion or other subscription rights. The 9.96% Cumulative Prior Preferred   
Stock has annual mandatory redemption requirements, and is redeemable on or     
after February 1, 1999 at our option at various declining prices. The           
outstanding shares of 9.96% Cumulative Prior Preferred Stock are mandatorily    
redeemable in certain circumstances at a price equal to par value plus accrued  
and unpaid dividends. Under our mandatory sinking fund provisions, redemptions  
will total $100,000 (4,000 shares) annually from 1999 through 2001. The shares  
of 9.96% Cumulative Prior Preferred Stock were not callable by Artesian         
Resources prior to February 1, 1999, at which time the shares became redeemable 
at our option, in whole or in part, from time to time at prices beginning at    
103% of par value and declining thereafter to 100% of par value for the period  
after February 1, 2003, plus accrued but unpaid dividends. If dividends payable 
or sinking fund payments are in default on any series of Cumulative Prior       
Preferred Stock, Artesian Resources may not redeem any shares of 7% Prior       
Preferred Stock or any series of Cumulative Prior Preferred Stock other than    
redemption through a fixed sinking fund.                                        

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The 9.96% Cumulative Prior Preferred Stock is entitled to cumulative  
dividends out of funds legally available for such purpose payable quarterly at  
rates per annum upon the par value. The Cumulative Prior Preferred Stock and the
7% Prior Preferred Stock rank equally with respect to the payment of cash       
dividends. No dividends may be declared and paid on the Junior Stock unless the 
full cash dividends on the Cumulative Prior Preferred Stock then outstanding    
have been paid or set apart for payment. In the event of a liquidation,         
dissolution or winding up of Artesian Resources or the sale by Artesian         
Resources of all of our assets, the holders of the outstanding series of        
Cumulative Prior Preferred Stock are entitled, after we pay all outstanding     
liabilities, to be paid in cash the par value of their shares and any accrued   
but unpaid dividends before any amounts are paid to the holders of Junior Stock.

     With the prior approval of the holders of a majority of the shares of Class
A Non-Voting Common Stock, our Board of Directors may issue Series Preferred    
Stock from time to time in one or more series. The Board of Directors has the   
power to fix, subject to preferences that may be applicable to the 7% Prior     
Preferred Stock or Cumulative Prior Preferred Stock under our Certificate of    
Incorporation, the full, limited or no voting powers, and such designations,    
preferences and relative, participating, optional or other special rights, and  
qualifications, limitations or restrictions thereof of any such series of Series
Preferred Stock.                                                                

   The issuance of Series Preferred Stock, while providing us flexibility in
connection with acquisitions and other corporate purposes, may be used by us, in
certain circumstances, to create voting impediments to extraordinary corporate  
transactions or to frustrate persons seeking to effect a merger or otherwise    
gain control of Artesian Resources. We have no present plans to designate any   
series or issue any shares of Series Preferred Stock.                           

LIMITATIONS OF LIABILITY                                                        

  Our Certificate of Incorporation provides that our directors will not be
personally liable to Artesian Resources or our stockholders for monetary damages
for a breach of fiduciary duty as a director, except for liability:             

(i)  for any breach of such person's duty of loyalty;                 

 (ii)  for acts and omissions not in good faith or involving intentional
misconduct or a knowing violation of law;                 

(iii) for the payment of unlawful dividends and certain other actions 
prohibited by Delaware corporate law; and                 

     (iv) for any transaction resulting in receipt by such person of an improper
personal benefit.                                           

     We have a directors' and officers' liability insurance policy which affords
our directors and officers with insurance coverage for losses arising from      
claims based on breaches of duty, negligence, error and other wrongful acts. At 
present, there is no pending litigation or proceeding, and we are not aware of  
any threatened litigation or proceeding, involving any director, officer,       
employee or agent where indemnification will be required or permitted under our 
Certificate of Incorporation or by-laws.                                        

PROVISIONS WITH POSSIBLE ANTI-TAKEOVER EFFECTS                                  

Our Certificate of Incorporation provides that we will be governed by 
Section 203 of the Delaware General Corporation Law which prohibits a "business 
combination" between a corporation and an "interested stockholder" within three 
years of the stockholder becoming an "interested stockholder." An "interested   
stockholder" is one who, directly or indirectly, owns 15% or more of the        
outstanding voting stock of the corporation. A "business combination" includes a
merger, consolidation, sale or other disposition of assets having an aggregate  
value in excess of 10% of either the aggregate fair market value of the         
consolidated assets of the corporation or the aggregate market value of all the 
outstanding stock of the corporation, and certain transactions that would       
increase the                                                                    

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interested stockholder's proportionate share ownership in the corporation or    
which provide the interested stockholder with a financial benefit. These        
restrictions do not apply where:                                                

   (i)  the business combination or the transaction in which the stockholder
          becomes interested is approved by the corporation's board of directors
     prior to the time the interested stockholder acquired its shares;

   (ii)  the interested stockholder acquired at least 85% of the outstanding
     voting stock of the corporation in the transaction in which the
 stockholder became an interested stockholder excluding, for
           determining the number of shares outstanding, shares owned by persons
          who are directors as well as officers and by employee stock plans in
          which participants do not have the right to determine confidentially
          whether shares held subject to the plan will be tendered in a tender
or exchange offer; or                                     

  (iii) the business combination is approved by the board of directors and
        the affirmative vote of two-thirds of the outstanding voting stock
     not owned by the interested stockholder at an annual or special
meeting.                                                  

The business combinations provisions of Section 203 of the Delaware General     
Corporation Law may have the effect of deterring merger proposals, tender offers
or other attempts to affect changes in control of Artesian Resources that are   
not negotiated and approved by our Board of Directors.                          

    We have adopted certain provisions in our Certificate of Incorporation and
by-laws which may have anti-takeover implications. Our Certificate of           
Incorporation provides that, without the affirmative vote of at least 75% of the
voting power of all of the then outstanding shares entitled to vote generally in
the election of directors, voting together as a class, the by-laws and the      
provisions of the Certificate of Incorporation establishing a classified board  
of directors may not be altered, amended or repealed. These supermajority voting
provisions, along with various supermajority voting provisions for certain      
classes of stock required for certain business combinations and other corporate 
actions described above, may have an effect of discouraging, delaying or        
preventing a change of control of Artesian Resources which may be at a premium  
above the prevailing market price. See "RISK FACTORS -- Our Principal           
Stockholders Effectively Control Our Company."                                  

TRANSFER AGENT AND REGISTRAR                                                    

     The Transfer Agent and Registrar for the Class A Non-Voting Common Stock is
Registrar and Transfer Company, 10 Commerce Drive, Cranford, NJ 07016.          

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UNDERWRITING

  Subject to the terms and conditions of an Underwriting Agreement between
Janney Montgomery Scott Inc., the Underwriter, and us, the Underwriter has      
agreed to purchase from us and we have agreed to sell to the Underwriter 325,000
shares of Class A Non-Voting Common Stock.                                      

    The Underwriting Agreement provides that obligations of the Underwriter to
pay for and accept delivery of the Class A Non-Voting Common Stock are subject  
to the approval of certain legal matters of counsel and to certain other        
conditions. The Underwriter is obligated to take and pay for all of the shares  
of the Class A Non-Voting Common Stock offered by this Prospectus if any are    
taken (other than shares of Class A Non-Voting Common Stock covered by the      
over-allotment option described below).                                         

   The Underwriter proposes to offer the shares of Class A Non-Voting Common
Stock to the public initially at the offering price per share shown on the cover
page of this Prospectus and to certain dealers at such price less a concession  
not in excess of $0.60 per share. The Underwriter may allow, and such dealers   
may reallow, a concession not in excess of $0.10 per share to certain other     
dealers. After the public offering of the Class A Non-Voting Common Stock, the  
public offering price and the concessions may be changed by the Underwriter.    

  In addition to the underwriting discount shown on the cover page of this
Prospectus, we will pay to the Underwriter a non-accountable expense allowance  
of $50,000.                                                                     

    We have granted to the Underwriter an option for 30 days after the date of
this Prospectus to purchase up to 48,750 additional shares of Class A Non-Voting
Common Stock, at the same price per share as the public offering price, less the
underwriting discount shown on the cover page of this Prospectus. The           
Underwriter may exercise such option only to cover over-allotments in the sale  
of the shares of Class A Non-Voting Common Stock offered by this Prospectus.    

In connection with this offering and in compliance with applicable    
securities laws, the Underwriter may over-allot (i.e., sell more shares of Class
A Non-Voting Common Stock than is shown on the cover page of this Prospectus)   
and may effect transactions on the Nasdaq National Market which stabilize,      
maintain or otherwise affect the market price of the Class A Non-Voting Common  
Stock at levels above those which might otherwise prevail in the open market.   
Such transactions may include placing bids for the Class A Non-Voting Common    
Stock or effecting purchases of the Class A Non-Voting Common Stock for the     
purpose of pegging, fixing or maintaining the price of the Class A Non-Voting   
Common Stock or for the purpose of reducing a short position created in         
connection with the offering. A short position may be covered by exercise of the
over-allotment option described above in place of or in addition to open market 
purchases. The Underwriter is not required to engage in any of these activities 
and if the Underwriter commences any of these activities, it may discontinue    
them at any time.                                                               

     In connection with this offering, the Underwriter, selling group members or
their respective affiliates who are qualified market makers on the Nasdaq       
National Market may engage in passive market making transactions in our Class A 
Non-Voting Common Stock on the Nasdaq National Market in accordance with Rule   
103 of Regulation M under the Securities Exchange Act of 1934, as amended,      
during the five business days prior to the pricing of the offering before the   
commencement of offers and sales of the Class A Non-Voting Common Stock. Passive
market makers must comply with applicable volume and price limitations and must 
be identified as such. In general, a passive market maker must display its bid  
at a price not in excess of the highest independent bid for such security. If   
all independent bids are lowered below the passive market maker's bid, however, 
such bid must then be lowered when certain purchase limits are exceeded.        

We and the Underwriter make no representation or prediction as to the 
direction or magnitude of any effect that the transactions described above may  
have on the price of the Class A Non-Voting Common Stock. In addition, we and   
the Underwriter make no representation that the Underwriter will engage in such 
transactions or that such transactions, once commenced, will not be discontinued
without notice.                                                                 

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    The Underwriter does not intend to confirm sales of the Class A Non-Voting
Common Stock to any accounts over which it exercises discretionary authority.   

Our directors and executive officers have agreed that they will not,  
directly or indirectly, sell or otherwise dispose of any Class A Non-Voting     
Common Stock (including any shares issued upon exercise of options) for a period
of 90 days after the commencement of this offering, without the Underwriter's   
prior written consent. Together, this group owns, prior to the offering,        
approximately 4% of the outstanding shares of Class A Non-Voting Common Stock   
and approximately 91% of the outstanding options to purchase Class A Non-Voting 
Common Stock. We also have agreed to make no such sales during this period      
except in connection with the issuance of shares pursuant to our stock option   
plans, 401(k) and supplemental retirement plans and dividend reinvestment plan. 

 We have agreed to indemnify the Underwriter and persons who control the
Underwriter against, or contribute to losses arising out of, certain liabilities
that may be incurred in connection with this offering, including liabilities    
under the Securities Act of 1933, as amended.                                   

LEGAL MATTERS 

 Certain legal matters relating to the validity of the shares of Class A
Non-Voting Common Stock being offered by this Prospectus will be passed upon for
Artesian Resources by Morgan, Lewis & Bockius LLP, Philadelphia, Pennsylvania.  
Certain legal matters will be passed upon for the Underwriter by Ballard Spahr  
Andrews & Ingersoll, LLP, Philadelphia, Pennsylvania.                           

EXPERTS 

  The consolidated financial statements and schedule of Artesian Resources
Corporation as of December 31, 1998 and 1997 and for each of the years in the   
three-year period ended December 31, 1998 have been included and incorporated   
herein by reference in this Prospectus in reliance on the reports of KPMG LLP,  
independent certified public accountants, appearing elsewhere and incorporated  
by reference herein and upon the authority of said firm as experts in accounting
and auditing.                                                                   

WHERE YOU CAN FIND MORE INFORMATION 

  We file annual, quarterly and special reports and other information with
the Securities and Exchange Commission (the "SEC"). You may read and copy any of
the reports and other information we file at the SEC's public reference         
facilities located in Washington at Judiciary Plaza, Room 1024, 450 Fifth       
Street, N.W., Washington, D.C. 20549, in New York at 7 World Trade Center, Suite
1300, New York, New York 10048, and in Chicago at Northwest Atrium Center, 500  
West Madison Street, Suite 1400, Chicago, Illinois 60661. You may call the SEC  
at 1-800-SEC-0330 for further information about the public reference rooms.     
Copies of such material can also be obtained from the Public Reference Room of  
the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates.  
Our SEC filings are also available to the public over the Internet at the SEC's 
web site which is located at the following address: http://www.sec.gov.         

   This Prospectus is a part of a registration statement on Form S-2 (which,
together with all exhibits filed along with it, will be referred to as the      
"Registration Statement") which we filed with the SEC to register the securities
we are offering. Certain information and details which may be important to      
specific investment decisions may be found in other parts of the Registration   
Statement, including its exhibits, but are left out of this Prospectus in       
accordance with the rules and regulations of the SEC. To see more detail, you   
may wish to review the Registration Statement and its exhibits. Copies of the   
Registration Statement and its exhibits are on file at the offices of the SEC   
and may be obtained upon payment of the prescribed fee or may be examined       
without charge at the SEC's public reference facilities or over the Internet at 
the SEC's web site described above.                                             

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The SEC's rules allow us to "incorporate by reference" the information
Artesian Resources files with the SEC, which means we can disclose important    
information to you by referring you to those documents. The information         
incorporated by reference is an important part of this Prospectus. We           
incorporate Artesian Resources' Annual Report on Form 10-K for the year ended   
December 31, 1998 as of the date it was filed with the SEC.                     

     We will provide a copy of this filing to any person to whom a Prospectus is
delivered, including any beneficial owner. You should direct your oral or       
written request for a copy of this filing to: Artesian Resources Corporation,   
664 Churchmans Road, Newark, Delaware 19702, Attention: Joseph A. DiNunzio, Vice
President and Secretary (telephone (302) 453-6900). You will not be charged for 
copies unless you request exhibits, for which we will charge you a minimal fee. 
However, you will not be charged for exhibits in any case where the exhibit you 
request is specifically incorporated by reference into another document which is
incorporated by this Prospectus.                                                

REPORTS TO SECURITY HOLDERS 

We distribute to holders of our Class A Non-Voting Common Stock annual
reports containing audited financial statements and quarterly reports for the   
first three quarters of each fiscal year containing unaudited interim financial 
information.                                                                    

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ARTESIAN RESOURCES CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

                                                                [Download Table]

                                                              PAGE
                                                              ----
                                                                  
Report of Independent Accountants...........................   F-2

Consolidated Financial Statements:                                

  Consolidated Balance Sheets as of December 31, 1998 and         
     1997...................................................   F-3

  Consolidated Statements of Operations for the years ended       
     December 31, 1998, 1997 and 1996.......................   F-4

  Consolidated Statements of Cash Flows for the years ended       
     December 31, 1998, 1997 and 1996.......................   F-5

  Consolidated Statements of Changes in Stockholders' Equity      
     for the years ended December 31, 1998, 1997 and 1996...   F-6

  Schedule of Income Tax Expense............................   F-8

  Reconciliation of Effective Tax Rate......................   F-9

  Notes to Consolidated Financial Statements................  F-10

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REPORT OF INDEPENDENT ACCOUNTANTS 

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

  We have audited the accompanying consolidated balance sheets of Artesian
Resources Corporation and subsidiaries as of December 31, 1998 and 1997, and the
related consolidated statements of operations, changes in stockholders' equity  
and cash flows for each of the years in the three-year period ended December 31,
1998. These consolidated financial statements are the responsibility of the     
Company's management. Our responsibility is to express an opinion on these      
consolidated financial statements based on our audits.                          

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

 In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Artesian    
Resources Corporation and subsidiaries as of December 31, 1998 and 1997, and the
results of their operations and their cash flows for each of the years in the   
three-year period ended December 31, 1998 in conformity with generally accepted 
accounting principles.                                                          

            KPMG LLP

Wilmington, Delaware                                                            
February 5, 1999                                                                

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ARTESIAN RESOURCES CORPORATION

CONSOLIDATED BALANCE SHEETS 
(IN THOUSANDS)

                                                                [Download Table]

                                                                DECEMBER 31,    
                                                             -------------------
                                                               1998       1997  
                                                             --------   --------
                                                                                
                           ASSETS                                               
Utility plant, at original cost less accumulated                                
  depreciation.............................................. $109,780   $ 97,694
                                                             --------   --------

Current assets                                                                  
  Cash and cash equivalents.................................      114        146
  Accounts receivable, net..................................    1,968      2,131
  Unbilled operating revenues...............................    1,981      1,869
  Materials and supplies -- at cost on FIFO basis...........      617        610
  Prepaid property taxes....................................      552        519
  Prepaid expenses and other................................      327        388
  State and federal income taxes............................       --        135
                                                             --------   --------
                                                                5,559      5,798
                                                             --------   --------
Other assets                                                                    
  Non-utility property (less accumulated depreciation                           
     1998 -- $152; 1997 -- $145)............................      280        349
  Other deferred assets.....................................    1,071      1,208
                                                             --------   --------
                                                                1,351      1,557
                                                             --------   --------
Regulatory assets, net......................................    2,686      2,818
                                                             --------   --------
                                                             $119,376   $107,867
                                                             ========   ========
            LIABILITIES AND STOCKHOLDERS' EQUITY                                
Stockholders' equity                                                            
  Common stock.............................................. $  1,803   $  1,780
  Additional paid-in capital................................   18,073     17,648
  Retained earnings.........................................    7,785      6,887
  Preferred stock...........................................      272        272
                                                             --------   --------
     Total stockholders' equity.............................   27,933     26,587
                                                             --------   --------
Preferred stock -- mandatorily redeemable, net of current                       
  portion...................................................      500        600
Long-term debt, net of current portion......................   32,053     32,103
                                                             --------   --------
                                                               60,486     59,290
                                                             --------   --------
Current liabilities                                                             
  Notes payable.............................................    7,704      1,164
  Current portion of long-term debt.........................       43         46
  Current portion of mandatorily redeemable preferred                           
     stock..................................................      100        112
  Accounts payable..........................................    3,148      2,616
  Overdraft payable.........................................      635        510
  Deferred income taxes.....................................      190        189
  Interest accrued..........................................      940        880
  Customer deposits.........................................      388        370
  Other.....................................................      903        360
                                                             --------   --------
                                                               14,051      6,247
                                                             --------   --------
Deferred credits and other liabilities                                          
  Net advances for construction.............................   18,337     17,880
  Postretirement benefit obligation.........................    1,627      1,704
  Deferred investment tax credits...........................      994      1,029
  Deferred income taxes.....................................    1,471        176
  Commitments and contingencies (Note 11)...................                    
                                                             --------   --------
                                                               22,429     20,789
                                                             --------   --------

Net contributions in aid of construction....................   22,410     21,541
                                                             --------   --------
                                                             $119,376   $107,867
                                                             ========   ========

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

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ARTESIAN RESOURCES CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS 
(IN THOUSANDS, EXCEPT PER SHARE DATA) 

                                                        [Enlarge/Download Table]

                                                        FOR THE YEAR ENDED DECEMBER 31,  
                                                       --------------------------------- 
                                                        1998         1997         1996   
                                                       -------      -------      ------- 
                                                                                         
Operating revenues                                                                       
  Water sales......................................... $25,096      $22,003      $20,547 
  Other utility operating revenue.....................     370          337          274 
  Non-utility operating revenue (Note 7)..............      --           --           71 
                                                       -------      -------      ------- 
                                                        25,466       22,340       20,892 
                                                       -------      -------      ------- 
Operating expenses                                                                       
  Utility operating expenses..........................  14,012       12,487       11,855 
  Non-utility operating expenses (Note 7).............      33           41           53 
  Related party expenses (Note 8).....................     228          247          246 
  Depreciation and amortization.......................   2,183        2,441        2,193 
  Taxes                                                                                  
     State and federal income                                                            
        Currently payable.............................     440          336           61 
        Deferred......................................   1,368          942        1,035 
     Property and other...............................   1,535        1,439        1,348 
                                                       -------      -------      ------- 
                                                        19,799       17,933       16,791 
                                                       -------      -------      ------- 
Operating income......................................   5,667        4,407        4,101 
Other income (expense), net                                                              
  Allowance for funds used during construction........     156          165          179 
  Miscellaneous.......................................      59           (7)         (85)
                                                       -------      -------      ------- 
                                                           215          158           94 
                                                       -------      -------      ------- 
Income before interest charges........................   5,882        4,565        4,195 
Interest charges......................................   3,162        2,580        2,536 
                                                       -------      -------      ------- 
Net income............................................   2,720        1,985        1,659 
Dividends on preferred stock..........................      82           93          105 
                                                       -------      -------      ------- 
Net income applicable to common stock................. $ 2,638      $ 1,892      $ 1,554 
                                                       =======      =======      ======= 
Net income per share of common stock:                                                    
  Basic............................................... $  1.47      $  1.07      $  1.03 
                                                       =======      =======      ======= 
  Diluted............................................. $  1.45      $  1.07      $  1.03 
                                                       =======      =======      ======= 
Average shares of common stock outstanding:                                              
  Basic...............................................   1,796        1,762        1,509 
  Diluted.............................................   1,816        1,775        1,515 

Cash dividends per share of common stock.............. $  0.97      $  0.92      $  0.90 
                                                       =======      =======      ======= 

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

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ARTESIAN RESOURCES CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS 
(IN THOUSANDS)

                                                        [Enlarge/Download Table]

                                                                    FOR THE YEAR ENDED         
                                                                       DECEMBER 31,            
                                                             --------------------------------- 
                                                              1998         1997         1996   
                                                             -------      -------      ------- 
                                                                                               
Cash flows from operating activities:                                                          
Net income.................................................. $ 2,720      $ 1,985      $ 1,659 
Adjustments to reconcile net cash provided by operating                                        
  activities:                                                                                  
  Depreciation and amortization.............................   2,029        2,287        2,031 
  Deferred income taxes, net................................   1,261          920        1,010 
  Allowance for funds used during construction..............    (156)        (165)        (178)
Changes in assets and liabilities:                                                             
  Accounts receivable, net..................................     163         (247)         249 
  Unbilled operating revenues...............................    (112)        (205)        (332)
  Materials and supplies....................................      (7)          11          (14)
  Prepaid property taxes....................................     (33)         (29)         (28)
  Prepaid expenses and other................................      61          (68)         (83)
  Other deferred assets.....................................     137          (22)         172 
  Regulatory assets.........................................     132         (223)         120 
  Accounts payable..........................................     532         (267)         148 
  State and federal income taxes............................     135           97         (373)
  Interest accrued..........................................      60          250          (37)
  Customer deposits and other, net..........................     561         (166)          (2)
  Postretirement benefit obligation.........................     (77)         (56)         (14)
                                                             -------      -------      ------- 
Net cash provided by operating activities...................   7,406        4,102        4,328 
                                                             -------      -------      ------- 

Cash flows used in investing activities:                                                       
  Capital expenditures (net of AFUDC)....................... (14,333)     (11,242)      (8,084)
  Proceeds from sale of assets..............................      15          366        2,107 
                                                             -------      -------      ------- 
Net cash used in investing activities....................... (14,318)     (10,876)      (5,977)
                                                             -------      -------      ------- 
Cash flows from financing activities:                                                          
  Net (repayments) borrowings under line of credit                                             
    agreements..............................................   6,540       (7,919)        (142)
  Overdraft payable.........................................     125         (177)          18 
  Net advances and contributions in aid of construction.....   1,751        1,377          839 
  Proceeds from issuance of long-term debt..................      --       15,000           -- 
  Proceeds from issuance of common stock....................     448          555        9,795 
  Dividends paid............................................  (1,822)      (1,712)      (1,362)
  Repayment of mortgage bond................................      --           --       (5,000)
  Principal payments under capital lease obligation.........     (50)        (239)        (336)
  Principal payments under long-term debt obligations.......      --           --       (2,017)
  Redemption of preferred stock.............................    (112)        (113)        (148)
                                                             -------      -------      ------- 
Net cash provided by financing activities...................   6,880        6,772        1,647 
                                                             -------      -------      ------- 
Net decrease in cash and cash equivalents...................     (32)          (2)          (2)

Cash and cash equivalents at beginning of year..............     146          148          150 
                                                             -------      -------      ------- 
Cash and cash equivalents at end of year.................... $   114      $   146      $   148 
                                                             =======      =======      ======= 
Supplemental Disclosures of Cash Flow Information:                                             
  Interest paid............................................. $ 3,192      $ 2,305      $ 2,547 
  Income taxes paid......................................... $   480      $   387      $   468 
Supplemental Schedule of Non-Cash Investing and Financing                                      
  Activities:                                                                                  
  Capital lease obligations incurred........................ $    --      $    67      $    -- 

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

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ARTESIAN RESOURCES CORPORATION

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

                                                        [Enlarge/Download Table]

                                                             COMMON SHARES               
                                           PREFERRED SHARES   OUTSTANDING   COMMON SHARES
                                            OUTSTANDING 7%      CLASS A      OUTSTANDING 
                                           PRIOR PREFERRED    NON-VOTING       CLASS B   
                                           ----------------  -------------  -------------
                                                                                         
Balance as of January 1, 1996.............      10,868           538,559       498,935   
Net income                                                                               
Cash dividends declared                                                                  
  Common stock............................                                               
  Preferred stock.........................                                               
Issuance of common stock                                                                 
  Bonus issuances.........................                         3,425                 
  Dividend reinvestment plan..............                         8,866         4,670   
  Employee stock options..................                        18,830                 
  Issuance of common stock (3)............                       675,000                 
  Stock issuance cost.....................                                               
                                               -------         ---------       -------   

Balance as of December 31, 1996...........      10,868         1,244,680       503,605   
Net income                                                                               
Cash dividends declared                                                                  
  Common stock............................                                               
  Preferred stock.........................                                               
Issuance of common stock                                                                 
  Bonus issuances.........................                         2,250                 
  Dividend reinvestment plan..............                         7,832         3,757   
  Employee stock options..................                         4,844                 
  Employee retirement plan (4)............                        13,303                 
                                               -------         ---------       -------   

Balance as of December 31, 1997...........      10,868         1,272,909       507,362   
Net income                                                                               
Cash dividends declared                                                                  
  Common stock............................                                               
  Preferred stock.........................                                               
Issuance of common stock                                                                 
  Dividend reinvestment plan..............                         7,512         5,364   
  Employee stock options..................                         1,078                 
  Employee retirement plan (4)............                         9,622                 
                                               -------         ---------       -------   

Balance as of December 31, 1998...........      10,868         1,291,121       512,726   
                                               =======         =========       =======   

------------------                                                              
(1) At December 31, 1998, 1997 and 1996, Class A Non-Voting Common Stock had    
3,500,000 shares authorized.                                            

(2) At December 31, 1998, 1997 and 1996, Class B Common Stock had 1,040,000     
shares authorized.                                                      

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                                                                [Download Table]

 $25 PAR                                                                        
  VALUE                                                                         
PREFERRED       $1 PAR                          ADDITIONAL                      
7% PRIOR    VALUE CLASS A         $1 PAR         PAID-IN     RETAINED           
PREFERRED   NON-VOTING(1)    VALUE CLASS B(2)    CAPITAL     EARNINGS    TOTAL  
---------   --------------   ----------------   ----------   --------   ------- 
                                                                                
  $272          $  539             $499          $   8,041    $ 6,317   $15,668 
                                                                1,659     1,659 

                                                               (1,258)   (1,258)
                                                                 (104)     (104)

                     3                                  43                   46 
                     9                5                198                  212 
                    18                                 242                  260 
                   675                               9,450               10,125 
                                                      (849)                (849)
  ----          ------             ----          ---------    -------   ------- 

  $272          $1,244             $504          $  17,125    $ 6,614   $25,759 
                                                                1,985     1,985 

                                                               (1,619)   (1,619)
                                                                  (93)      (93)

                     2                                  36                   38 
                     8                3                193                  204 
                     5                                  65                   70 
                    14                                 229                  243 
  ----          ------             ----          ---------    -------   ------- 

  $272          $1,273             $507          $  17,648    $ 6,887   $26,587 
                                                                2,720     2,720 

                                                               (1,740)   (1,740)
                                                                  (82)      (82)

                     7                5                230                  242 
                     1                                  18                   19 
                    10                                 177                  187 
  ----          ------             ----          ---------    -------   ------- 

  $272          $1,291             $512          $  18,073    $ 7,785   $27,933 
  ====          ======             ====          =========    =======   ======= 

------------------                                                              
(3) Artesian Resources Corporation issued 675,000 shares of Class A Non-Voting  
Common Stock on May 24, 1996.                                           

(4) Artesian Resources registered 200,000 shares of Class A Non-Voting Common   
 Stock available for purchase through the Artesian Retirement Plan and the
Artesian Supplemental Retirement Plan.                                  

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

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ARTESIAN RESOURCES CORPORATION

SCHEDULE OF INCOME TAX EXPENSE
(IN THOUSANDS)

                                                        [Enlarge/Download Table]

                                                                  FOR THE YEAR ENDED     
                                                                     DECEMBER 31,        
                                                              -------------------------- 
                                                               1998       1997      1996 
                                                              ------      ----      ---- 
                                                                                         
State income taxes                                                                       
  Current...................................................  $   23      $(23)     $ 47 
  Deferred -- current                                                                    
     Property taxes.........................................       3         2         4 
     Allowance for bad debts................................      (2)       --        (4)
  Deferred -- non-current                                                                
     Accelerated depreciation...............................     251       235       225 
     Rate case expenses.....................................      (3)       27        (6)
     Taxable contractor advances and contributions in aid of                             
       construction.........................................      87        62        (5)
     Tax credit carryforwards...............................      41       (31)       -- 
     Other..................................................      (6)       21       (11)
                                                              ------      ----      ---- 

Total state income tax expense..............................  $  394      $293      $250 
                                                              ======      ====      ==== 

Federal income taxes                                                                     
  Current...................................................  $  417      $359      $ 14 
  Deferred -- current                                                                    
     Property taxes.........................................       8        10         8 
     Allowance for bad debts................................      (8)       (2)      (12)
  Deferred -- non-current                                                                
     Accelerated depreciation...............................     898       876       666 
     Rate case expenses.....................................     (12)       95       (22)
     Taxable contractor advances and contributions in aid of                             
       construction.........................................     310       222       (17)
     Federal tax credit carryforwards.......................    (173)     (532)       -- 
     Amortization of investment tax credits.................      --         8       (35)
     Write-down on rental building and Artesian                                          
       Laboratories.........................................      --        --       265 
     Amortization of regulatory asset for deferred taxes....      15        15        15 
     Other..................................................     (41)      (66)      (36)
                                                              ------      ----      ---- 

Total federal income tax expense............................  $1,414      $985      $846 
                                                              ======      ====      ==== 

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ARTESIAN RESOURCES CORPORATION

RECONCILIATION OF EFFECTIVE TAX RATE
(IN THOUSANDS)

                                                        [Enlarge/Download Table]

                                               1998             1997             1996      
                                          --------------   --------------   -------------- 
                                          AMOUNT     %     AMOUNT     %     AMOUNT     %   
                                          ------   -----   ------   -----   ------   ----- 
                                                                                           
Reconciliation of effective tax rate                                                       
  Income before federal and state income                                                   
     taxes less amortization of deferred                                                   
     investment tax credits.............  $4,533   100.0   $3,221   100.0   $2,755   100.0 
                                          ======   =====   ======   =====   ======   ===== 
Amount computed at statutory rate.......  $1,541    34.0   $1,095    34.0   $  937    34.0 
Reconciling items                                                                          
  State income tax, net of federal tax                                                     
     benefit............................     272     6.0      193     6.0      165     6.0 
  Other.................................      (5)    (.1)     (10)    (.3)      (6)    (.2)
                                          ------   -----   ------   -----   ------   ----- 
Total income tax expense and effective                                                     
  rate..................................  $1,808    39.9   $1,278    39.7   $1,096    39.8 
                                          ======   =====   ======   =====   ======   ===== 

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ARTESIAN RESOURCES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES                            

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

   Utility Subsidiary Accounting -- The accounting records of Artesian Water
are maintained in accordance with the uniform system of accounts as prescribed  
by the Delaware Public Service Commission ("PSC"). Artesian Water follows the   
provisions of Statement of Financial Accounting Standards No. 71, "Accounting   
for the Effects of Certain Types of Regulation," which provides guidance for    
companies in regulated industries.                                              

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

   In accordance with a rate order issued by the PSC, Artesian Water accrues
an Allowance for Funds Used During Construction ("AFUDC"). AFUDC, which         
represents the cost of funds devoted to construction projects through the date  
the project is placed in service, is capitalized as part of construction work in
progress. The rate used for the AFUDC calculation is based on Artesian Water's  
weighted average cost of debt and the rate of return on equity authorized by the
PSC. The rates used to capitalize AFUDC in 1998, 1997 and 1996 were 9.5%, 9.7%  
and 10.9%, respectively.                                                        

Utility plant comprised:                                              

                                                        [Enlarge/Download Table]

                                                         ESTIMATED      DECEMBER 31,    
                                                        USEFUL LIFE  -------------------
                                                         IN YEARS      1998       1997  
                                                        -----------  --------   --------
                                                                       (IN THOUSANDS)   
                                                                                        
Utility plant, at original cost                                                         
  Utility plant in service                                                              
     Intangible plant..................................    --        $    113   $    118
     Source of supply plant............................  45-85          6,489      4,327
     Pumping and water treatment plant.................  35-62         12,588     10,257
     Transmission and distribution plant                                                
        Mains..........................................    81          70,237     64,468
        Services.......................................    39          11,847     10,769
        Storage tanks..................................    76           8,906      7,495
        Meters.........................................    26           6,799      6,422
        Hydrants.......................................    60           3,973      3,708
     General plant.....................................   5-31          9,477      8,385
  Property held for future use.........................    --           2,210      2,098
  Construction work in progress........................    --           1,402      2,830
                                                                     --------   --------
                                                                      134,041    120,877
  Less accumulated depreciation........................                24,261     23,183
                                                                     --------   --------
                                                                     $109,780   $ 97,694
                                                                     ========   ========

Depreciation and Amortization -- For financial reporting purposes,    
depreciation is provided using the straight-line method at rates based on       
estimated economic useful lives which range from five to 85 years. Composite    
depreciation rates for utility plant were 2.11%, 2.38% and 2.35% for the years  
ended                                                                           

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ARTESIAN RESOURCES CORPORATION

 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)             

December 31, 1998, 1997 and 1996, respectively. In a rate order issued by the   
PSC, the Company was directed effective January 1, 1998 to begin using revised  
depreciation rates for utility plant. In rate orders issued by the PSC, Artesian
Water was directed effective May 28, 1991 and August 25, 1992 to offset         
depreciation on utility property funded by Contributions in Aid of Construction 
("CIAC") and Advances for Construction ("Advances"), respectively, against CIAC 
and Advances. Other deferred assets are amortized using the straight-line method
over applicable lives which range from two to ten years. The expense which would
result from depreciating Artesian Water's leased office building and shop       
complex on a straight-line basis over the lease term is not an allowable cost of
service. Thus, depreciation of the leased property has been modified so that the
total interest on the lease obligation and depreciation of the leased property  
is equal to the rental expense that is allowed for ratemaking purposes. At      
December 31, 1997, the fully amortized leased property was retired from General 
Plant and the five-year lease renewal, which commenced January 1, 1998, is being
accounted for as an operating lease.                                            

    Regulatory Assets -- Certain expenses, which are recoverable through rates
as permitted by the PSC, are deferred and amortized during future periods using 
various methods. Expenses related to rate proceedings are amortized on a        
straight-line basis, over a period of two to five 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. Deferred income taxes will be amortized over future years as the tax  
effects of temporary differences previously flowed through to the customers     
reverse.                                                                        

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

                                           1998     1997
                                           ------   ------
                                          (IN THOUSANDS)

Postretirement benefit obligation...................  $1,627   $1,704           
Deferred income taxes recoverable in future rates...     695      710           
Expense of rate proceedings.........................     364      404           
                                           ------   ------
                                           $2,686   $2,818
                                           ======   ======

    Other Deferred Assets -- Certain expenses are deferred and amortized using
the straight-line method over various time periods ranging from two years to 25 
years. In 1992, Artesian Water entered a ten-year agreement for a water service 
interconnection with the Chester (Pennsylvania) Water Authority ("Chester"). The
interconnection was placed in service during October 1992 at a total cost of    
$1.5 million and is being amortized over a ten-year period as approved by the   
PSC.                                                                            

Other deferred assets at December 31, net of amortization, comprised: 
                                           1998     1997
                                           ------   ------
                                          (IN THOUSANDS)
Chester interconnection.............................  $  576   $  730           
Debt issuance expense...............................     225      256           
Other...............................................     270      222           
                                           ------   ------
                                           $1,071   $1,208
                                           ======   ======

 Advances for Construction -- Water mains, services and hydrants or cash
advances to reimburse Artesian Water its costs to construct water mains,        
services and hydrants, are contributed to Artesian Water by customers, real     
estate developers and builders in order to extend water service to their        
properties. The value of these contributions is recorded as Advances. Artesian  
Water makes refunds on these Advances over a specific period of time based on   
operating revenues generated by the specific plant or as new customers are      
connected to the mains. After all refunds are made, any remaining balance is    
transferred to CIAC.                                                            

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ARTESIAN RESOURCES CORPORATION

 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)             

  Contributions in Aid of Construction -- CIAC includes the non-refundable
portion of advances for construction and direct contributions of water mains,   
services and hydrants or cash to reimburse Artesian Water its costs to construct
water mains, services and hydrants by customers, real estate developers and     
builders in order to extend water service to their properties.                  

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

   The difference between state income tax at the statutory rate of 8.7% and
the effective rate of 9.1% in 1997 and 1996 is primarily attributable to        
Artesian Resources filing a separate state tax return for each of its           
subsidiaries as required, whereby current year losses of certain subsidiaries   
cannot be offset against taxable income of others.                              

The Tax Reform Act of 1986 mandated that Advances and CIAC received   
subsequent to December 31, 1986 generally are taxable income to Artesian Water. 
For Advances, Artesian Water was directed by the PSC to pay the related taxes   
and collect amounts equal to the taxes paid from the developer. For CIAC,       
Artesian Water was directed to pay the taxes instead of the developer           
contributing the taxes. The 1996 Tax Act provides an exclusion from taxable     
income for CIAC and Advances received after June 12, 1996 by Artesian Water that
are not included in rate base for rate-making purposes.                         

   Investment tax credits were deferred through 1986 and are recognized as a
reduction of deferred income tax expense over the estimated economic useful     
lives of the related assets.                                                    

   Net Income Per Common Share -- The Company adopted Statement of Financial
Accounting Standards No. 128, "Earnings per Share" ("SFAS No. 128"), in the     
fourth quarter of 1997. SFAS No. 128 requires the Company to use methods for    
calculating earnings per share that differ from methods used in prior periods   
and requires the Company to restate net income per share reported in prior      
periods. The adoption of this statement had no effect on the results of         
operations, financial conditions or long-term liquidity.                        

Revenue Recognition and Unbilled Revenues -- Water service revenue for
financial statement purposes includes amounts billed to customers on a cycle    
basis and unbilled amounts based upon estimated usage from the date of the last 
meter reading to the end of the accounting period.                              

     Cash and Cash Equivalents -- For purposes of the Consolidated Statements of
Cash Flows, Artesian Resources considers all temporary cash investments with a  
maturity of three months or less to be cash equivalents. Artesian Water utilizes
its bank's controlled disbursement service to reduce the use of its lines of    
credit by funding checks as they are presented to the bank for payment rather   
than at issuance. If the checks currently outstanding but not yet funded exceed 
the cash balance on Artesian Water's books, the net liability is recorded as a  
current liability on the balance sheet in the Overdraft Payable account.        

     Use of Estimates in the Preparation of Consolidated Financial Statements --
The consolidated financial statements were prepared in conformity with generally
accepted accounting principles, which require management to make estimates that 
affect the reported amounts of assets and liabilities and contingent assets and 
liabilities at the date of the consolidated financial statements and the        
reported amounts of revenues and expenses during the reporting period. Actual   
results could differ from management's estimate.                                

Reclassifications -- Certain previously reported amounts have been    
reclassified to conform with current year presentation.                         

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ARTESIAN RESOURCES CORPORATION

 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 2 -- FAIR VALUE OF FINANCIAL INSTRUMENTS                                   

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

    Current Assets and Liabilities -- For those current assets and liabilities
that are considered financial instruments, the carrying amounts approximate fair
value because of the short maturity of those instruments.                       

  Long-Term Financial Liabilities -- The fair value of Artesian Resources'
long-term debt and mandatorily redeemable preferred stock as of December 31,    
1998 and 1997, determined by discounting their future cash flows using current  
market interest rates on similar instruments with comparable maturities, were   
approximately as follows:                                                       

                                                        [Enlarge/Download Table]

                                                       1998                          1997          
                                             ------------------------      ------------------------
                                             CARRYING      ESTIMATED       CARRYING      ESTIMATED 
                                              AMOUNT       FAIR VALUE       AMOUNT       FAIR VALUE
                                             --------      ----------      --------      ----------
                                                                 (IN THOUSANDS)                    
                                                                                                   
Long-term debt.............................. $32,053        $35,205        $32,103        $34,200  
Mandatorily redeemable preferred stock...... $   500        $   454        $   600        $   544  
                                             =======        =======        =======        =======  

The fair value of Advances cannot be reasonably estimated due to the  
inability to accurately estimate future refunds expected to be paid over the    
life of the contracts. Refund payments are based on the water sales to new      
customers in the particular development constructed. Future refunds expected to 
be paid would have to be estimated on a per contract basis using the past       
history of refund payments. The fair value of Advances would be less than the   
carrying amount because these financial instruments are non-interest bearing.   

NOTE 3 -- INCOME TAXES                                                          

   Deferred income taxes reflect temporary differences between the valuation
of assets and liabilities for financial tax reporting. Deferred income taxes at 
December 31, 1998 and 1997 were comprised of the following:                     

                                                          1998      1997
                                                           -------   -------
                                                          (IN THOUSANDS)

Deferred tax assets related to:                                                 
Federal minimum tax credit carryforwards.................  $   879   $   560
Federal and state operating loss carryforwards...........      665       898
Bad debt allowance.......................................       28        18
 Valuation allowance......................................     (665)     (670)
                                                           -------   -------
   Total deferred tax assets.............................      907       806
                                                           -------   -------
Deferred tax liabilities related to:                                            
 Property plant and equipment basis differences...........   (2,246)     (796)
 Expenses of rate proceedings.............................     (145)     (161)
 Property taxes...........................................     (218)     (207)
 Other....................................................       41        (7)
                                                           -------   -------
    Total deferred tax liabilities........................   (2,568)   (1,171)
                                                           -------   -------
    Net deferred tax liability............................  $(1,661)  $  (365)
                                                           =======   =======

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ARTESIAN RESOURCES CORPORATION

 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 3 -- INCOME TAXES -- (CONTINUED)                                           

 Deferred taxes, which are classified into a net current and non-current
balance, are presented in the balance sheet as follows:                         
                                                          1998      1997
                                                           -------   -------
                                                        (IN THOUSANDS)
Current deferred income tax................................  $  (190)  $  (189) 
Non-current deferred income tax............................   (1,471)     (176) 
                                                           -------   -------
    Net deferred tax liability............................  $(1,661)  $  (365)
                                                           =======   =======

 At December 31, 1998, for state income tax purposes, Artesian Resources
recorded a deferred tax asset of $710,000 to reflect separate company net       
operating loss carryforwards aggregating approximately $7,641,000. These net    
operating loss carryforwards will expire if unused between 1998 and 2018.       
Artesian Resources has recorded a valuation allowance to reflect the estimated  
amount of deferred tax assets that may not be realized due to the expiration of 
the state net operating loss carryforwards. The valuation allowance decreased   
from $670,000 in 1997 to $665,000 in 1998 as a result of utilization of net     
operating losses that were expected to expire unutilized.                       

At December 31, 1997, for federal income tax purposes, there was a    
consolidated net operating loss carryforward of approximately $575,000, which   
was carried back and used in its entirety in 1998. At December 31, 1998, for    
federal income tax purposes, there were minimum tax credit carryforwards        
aggregating approximately $879,000 resulting from the payment of alternative    
minimum tax in current and prior years. These minimum tax credit carryforwards  
may be carried forward indefinitely to offset future regular federal income     
taxes. Artesian Resources has not recorded a valuation allowance for these      
federal tax carryforwards, because the Company believes it is more likely than  
not that such benefits will be realized.                                        

NOTE 4 -- PREFERRED STOCK                                                       

   Artesian Resources has two classes of preferred stock outstanding. The 7%
Prior Preferred Stock (on which dividends are cumulative) is redeemable at      
Artesian Resources' option at $30.00 per share plus accrued dividends. The 9.96%
Series Cumulative Prior Preferred Stock has annual mandatory redemption         
requirements and is redeemable at Artesian Resources' option at various         
declining prices ranging from $25.75 through January 31, 2000, to $25.00 after  
February 1, 2003. Under mandatory sinking fund provisions, redemptions will     
aggregate $100,000 (4,000 shares) annually in 1999 through 2003. The Company    
also has 100,000 shares of $1.00 par value Series Preferred Stock authorized but
unissued. See the Consolidated Statements of Stockholders' Equity.              

    The following Cumulative Prior Preferred stock was outstanding at December
31:                                                                             

                                                                [Download Table]

                                                             PAR VALUE             
                                                             OF SHARES      CASH   
                                                    SHARES  OUTSTANDING   DIVIDENDS
                                                    ------  -----------   ---------
                                                            (IN THOUSANDS)         
                                                                                   
Mandatorily Redeemable                                                             
  Authorized.......................................   80         --           --   
  Outstanding at December 31:                                                      
     8 1/2% Series                                                                 
             1997..................................    1       $ 13          $ 1   
             1996..................................    1         25            2   
     9.96% Series                                                                  
             1998..................................   24       $600          $62   
             1997..................................   28        700           72   
             1996..................................   32        800           82   

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ARTESIAN RESOURCES CORPORATION

 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 5 -- COMMON STOCK AND ADDITIONAL PAID-IN CAPITAL                           

     The Class A Non-Voting Common Stock ("Class A Stock") of Artesian Resources
trades on the Nasdaq National Market under the symbol ARTNA. The Class B Common 
Stock of Artesian Resources trades on the Nasdaq Bulletin Board under the symbol
ARTNB.                                                                          

In 1996, Artesian Resources issued 675,000 shares of Class A Stock at 
$15.00 per share. Net proceeds from the offering were used to reduce debt       
incurred to finance investment in utility plant.                                

Contributions to the Tax Reduction Act Employees' Stock Ownership Plan
("PAYSOP") by Artesian Resources for the purchase of its Class B Common stock on
behalf of employees were limited to dividend reinvestments in 1997 and 1996. In 
1997, the PAYSOP was merged into the Company's 401(k) plan. Under Artesian      
Resources' dividend reinvestment plan, stockholders were issued 12,876, 11,589  
and 13,536 shares at fair market value for the reinvestment of $243,000,        
$204,000 and $212,000 of their cash dividends for the years 1998, 1997 and 1996,
respectively.                                                                   

NOTE 6 -- DEBT                                                                  

   Artesian Water has available unsecured lines of credit, with no financial
covenant restrictions, totaling $35.0 million at December 31, 1998, which are   
renewable annually at the banks' discretion. Borrowings under the lines of      
credit bear interest based on the London Interbank Offering Rate ("LIBOR") plus 
1.0% for 30, 60, 90 or 180 days or the banks' Federal Funds Rate plus 1.0%, at  
the option of Artesian Water.                                                   

    At December 31, 1998, 1997 and 1996, Artesian Water had $7.7 million, $1.2
million and $9.1 million outstanding under these lines at weighted average      
interest rates of 6.0%, 7.6% and 7.0%, respectively. The maximum amount         
outstanding was $9.1 million, $13.0 million and $11.4 million in 1998, 1997 and 
1996, respectively. The average amount outstanding was approximately $4.4       
million, $5.1 million and $9.1 million, at weighted average annual interest     
rates of 6.0%, 6.5% and 6.9% in 1998, 1997 and 1996, respectively.              

  On June 17, 1997, Artesian Water issued a $10.0 million, 7.84%, ten year
Series M First Mortgage Bond and borrowed $2.5 million against a $5.0 million,  
ten year Series N First Mortgage Bond to repay the outstanding balance on the   
lines of credit. On September 18, 1997, Artesian Water borrowed the remaining   
$2.5 million on the Series N First Mortgage Bond. The $5.0 million, ten year    
Series N First Mortgage Bond has a fixed interest rate of 7.56%. On February 1, 
2003, the Series L First Mortgage Bond matures. No other repayments or sinking  
fund deposits on first mortgage bonds are required over the next five years. As 
of December 31, 1998 and 1997, substantially all of Artesian Water's utility    
plant was pledged as security for the First Mortgage Bonds. In addition, the    
trust indentures contain covenants which limit long-term debt, including the    
current portion thereof, to 66 2/3% of total capitalization including the       
current portion of the long-term debt, and which, in certain circumstances,     
could restrict the payment of cash dividends. As of December 31, 1998, however, 
no dividend restrictions were imposed under these covenants.                    

Long-term debt consisted of:                                          

                                                        DECEMBER 31,
                                                         -----------------
                                                        1998      1997
                                                         -------   -------
                                                        (IN THOUSANDS)

First mortgage bonds                                                            
Series K, 10.17%, due March 1, 2009.....................  $ 7,000   $ 7,000 
Series L, 8.03%, due February 1, 2003...................   10,000    10,000 
Series M, 7.84%, due December 31, 2007..................   10,000    10,000 
Series N, 7.56%, due December 31, 2007..................    5,000     5,000 
                                                         -------   -------
                                                          32,000    32,000
Capitalized lease obligations.............................       96       149   
                                                         -------   -------
                                                          32,096    32,149
Less current maturities...................................       43        46   
                                                         -------   -------
                                                         $32,053   $32,103
                                                         =======   =======

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 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 7 -- NON-UTILITY OPERATING REVENUE AND EXPENSES                            

Non-utility operating revenue consisted of $71,000 in rental income   
received by Artesian Development Corporation in 1996. No non-utility operating  
revenue was received in 1998 or 1997.                                           

On December 19, 1996, Artesian Wastewater Management, Inc. ("Artesian 
Wastewater") was created as an additional non-regulated subsidiary of Artesian  
Resources. Artesian Wastewater plans to provide wastewater treatment services in
Delaware. On March 12, 1997, Artesian Wastewater became a one-third owner in    
AquaStructure Delaware, L.L.C., which intends to develop and market various     
proposals to provide wastewater treatment services. No operations have occurred 
under Artesian Wastewater for 1998, 1997 and 1996.                              

Non-utility operating expenses were as follows:                       

                                                                [Download Table]

                                                          1998      1997      1996
                                                          ----      ----      ----
                                                               (IN THOUSANDS)     
                                                                                  
Artesian Wastewater...................................... $26       $19       $-- 
Artesian Laboratories....................................  --        10        -- 
Artesian Development.....................................  --        --        53 
Artesian Resources.......................................   7        12        -- 
                                                          ---       ---       --- 
  Total.................................................. $33       $41       $53 
                                                          ===       ===       === 

 In October 1995, Artesian Development entered into an agreement with an
unrelated third party for the sale of its rental office building and land.      
Artesian Development recorded an additional $53,000 in 1996 for the sale of this
land and building.                                                              

NOTE 8 -- RELATED PARTY TRANSACTIONS                                            

    The office building and shop complex utilized by Artesian Water are leased
at an average annual rental of $180,000 from a partnership, White Clay Realty,  
in which certain of Artesian Resources' officers and directors are partners. The
lease expires in December 2002, with provisions for renewals for two five-year  
periods thereafter. Management believes that the payments made to White Clay    
Realty for the lease of its office building and shop complex are comparable to  
what Artesian Water would have to pay to unaffiliated parties for similar       
facilities (See Note 11).                                                       

  Artesian Water leases certain parcels of land for water production wells
from Glendale Enterprises Limited, a company wholly-owned by Ellis D. Taylor, a 
shareholder of greater than five percent of Artesian Resources, at an annual    
rental of $44,000. Renewal of the lease is automatic from year to year unless 60
days' written notice is given by either party before the end of the year's      
lease. The annual rental is adjusted each year by the consumer price index as of
June 30 of the preceding year. Artesian Water has the right to terminate this   
lease by giving 60 days' written notice should the water supply be exhausted or 
other conditions beyond the control of Artesian Water materially and adversely  
affect its interest in the lease.                                               

Expenses associated with related party transactions were as follows:  

                                                                [Download Table]

                                                       1998      1997      1996
                                                       ----      ----      ----
                                                            (IN THOUSANDS)     
                                                                               
White Clay Realty..................................... $184      $204      $204
Glendale Enterprises..................................   44        43        42
                                                       ----      ----      ----
  Total............................................... $228      $247      $246
                                                       ====      ====      ====

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 9 -- STOCK COMPENSATION PLANS                                              

   At December 31, 1998, the Company has two stock-based compensation plans,
which are described below. The Company applies APB Opinion 25 and related       
interpretations in accounting for compensation expense under its plans.         
Accordingly, the compensation cost that has been charged against income for the 
two plans was $44,000, $48,000 and $42,000 for 1998, 1997 and 1996,             
respectively. Had compensation cost for the Company's two plans been determined 
based on the fair value at the grant dates for awards under those plans         
consistent with the method recommended 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:                                                        

                                                                [Download Table]

                                                   1998        1997        1996 
                                                  ------      ------      ------
                                                    (IN THOUSANDS, EXCEPT PER   
                                                           SHARE DATA)          
                                                                                
Net income applicable to common stock                                           
  As reported.................................... $2,638      $1,892      $1,554
  Pro-forma...................................... $2,594      $1,850      $1,496
Basic net income per common share                                               
  As reported.................................... $ 1.47      $ 1.07      $ 1.03
  Pro-forma...................................... $ 1.44      $ 1.05      $ 0.99
Diluted net income per common share                                             
  As reported.................................... $ 1.45      $ 1.07      $ 1.03
  Pro-forma...................................... $ 1.43      $ 1.04      $ 0.99

    In 1998, the Company amended the 1992 Non-Qualified Stock Option Plan (the
"1992 Plan") increasing the number of shares of Class A Stock authorized for    
issuance from 100,000 to 250,000. Under the 1992 Plan (i) the maximum amount of 
shares of Class A Stock that may be granted to any individual during the term of
the 1992 Plan is an amount equal to 50% of the number of shares of Class A Stock
available for issuance under the 1992 Plan, (ii) the Company may require a      
participant to enter into a covenant not to compete and/or a confidentiality    
agreement as a condition of an option grant, (iii) provisions relating to grants
to directors and officers of the Company were changed to add a prohibition on   
amending such provisions more than once in any six-month period, to extend the  
exercise term from one to ten years and to eliminate the possibility of         
administrative discretion with respect to such grants, and (iv) the provision   
that limited to 34 the number of plan participants eligible to receive options  
under the 1992 Plan within any calendar year was removed. Options to purchase   
shares of Class A Stock may be granted to employees at prices not less than 85% 
of the fair market value on the date of grant. Employees who participate and who
are not executive officers or directors of the Company may receive options to   
purchase up to 1,000 shares. Each director or officer who participates in any   
year may request an option to purchase 3,000 shares of stock. The option price  
for directors and officers of the Company is 90% of the fair market value on the
date of grant. Options granted under this plan extend for a period of one year, 
are exercisable after six months of service from the date of initial grant,     
after one year of service to the Company, and are adjusted for stock dividends  
and splits.                                                                     

   In 1996, the Company instituted the Incentive Stock Option Plan (the "ISO
Plan"), under which the Company may grant options to its key employees and      
officers for up to 100,000 shares of Class A Stock. Options are granted at the  
fair market value on the date of grant. The option exercise period shall not    
exceed ten years from the date of grant and will be determined by the Company   
for each stock option granted. Options granted will vest in accordance with the 
terms and conditions determined by the Company and are adjusted for stock       
dividends and splits.                                                           

     The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model with the following weighted-average      
assumptions used for grants in 1998, 1997                                       

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 

NOTE 9 -- STOCK COMPENSATION PLANS -- (CONTINUED)                               

and 1996, respectively: dividend yield of 4.7%, 5.1% and 6.0%; expected         
volatility of .30%, .33% and .31%; risk free interest rates of 4.96%, 5.63% and 
4.90% for the employee options under the 1992 Plan, 5.57%, 6.65% and 6.60% for  
the director and officer options under the 1992 Plan and 6.60% for the 1996 ISO 
Plan options; and expected lives of one year for the employee options and five  
years for the director and officer options under the 1992 Plan for all years,   
five years for 1997 and 1996 and five years for the 1996 ISO Plan options. In   
1998 and 1997, no ISO Plan options were granted.                                

  A summary of the status of the Company's outstanding stock options as of
December 31, 1998, 1997 and 1996, and changes during the years ending on those  
dates is presented below:                                                       

                                                        [Enlarge/Download Table]

                                              1998               1997                1996       
                                        -----------------  -----------------  ------------------
                                                 WEIGHTED           WEIGHTED            WEIGHTED
                                                 AVERAGE            AVERAGE             AVERAGE 
                                                 EXERCISE           EXERCISE            EXERCISE
                                        SHARES    PRICE    SHARES    PRICE    SHARES     PRICE  
                                        ------   --------  ------   --------  -------   --------
                                                                                                
Plan options                                                                                    
  Outstanding at beginning of year..... 63,786    $14.24   43,554    $13.30    25,063    $12.44 
  Granted.............................. 28,498     17.15   25,887     15.50    47,340     13.24 
  Exercised............................ (1,078)    15.33   (4,844)    12.84   (18,709)    12.46 
  Cancelled............................ (7,149)    14.27     (811)    12.47   (10,140)    12.45 
                                        ------             ------             -------           
  Outstanding at end of year........... 84,057     15.21   63,786     14.24    43,554     13.30 
                                        ======             ======             =======           
Options exercisable at year end........ 72,903    $15.32   48,921    $14.22    25,354    $12.67 
                                        ======             ======             =======           
Weighted average fair value of options                                                          
  granted during the year.............. $19.09             $17.29             $ 14.16           
                                        ======             ======             =======           

 The following tables summarize information about employee stock options
outstanding at December 31, 1998:                                               

Options Outstanding                                                             

                                                                [Download Table]

   RANGE OF     SHARES OUTSTANDING AT  WEIGHTED-AVERAGE  WEIGHTED-AVERAGE   
EXERCISE PRICE    DECEMBER 31, 1998     REMAINING LIFE    EXERCISE PRICE    
--------------  ---------------------  ----------------  -----------------  
                                                                            
$12.71-$19.13          84,057             8.1 Years           $15.21        

Options Exercisable                                                             

                                                                [Download Table]

   RANGE OF      SHARES EXERCISABLE AT   WEIGHTED-AVERAGE      
EXERCISE PRICE     DECEMBER 31, 1998      EXERCISE PRICE       
--------------   ---------------------   ----------------      
                                                               
$12.71-$17.13           72,903                $15.32           

NOTE 10 -- EMPLOYEE BENEFIT PLANS                                               

    401(k) Plan -- Artesian Resources has a defined contribution 401(k) Salary
Reduction Plan (the "Plan") which covers substantially all employees. Under the 
terms of the Plan, Artesian Resources contributes 2% of eligible salaries and   
wages and matches employee contributions up to 6% of gross pay at a rate of 50%.
Artesian Resources may, at its option, make additional contributions of up to 3%
of eligible salaries and wages. No such additional contributions were made in   
1998, 1997 and 1996. Plan expenses, which include Company contributions and     
administrative fees, for the years 1998, 1997 and 1996 were approximately       
$210,000, $255,000 and $259,000, respectively.                                  

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

     Statement of Financial Accounting Standards No. 106, "Employers' Accounting
for Postretirement Benefits Other Than Pensions" ("SFAS 106"), requires Artesian
Resources to accrue the expected cost of providing postretirement health care   
and life insurance benefits as employees                                        

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 

NOTE 10 -- EMPLOYEE BENEFIT PLANS -- (CONTINUED)                                

render the services necessary to earn the benefits. Artesian Resources elected  
to defer recognition and amortize its approximately $3.1 million transition     
obligation over 20 years, of which $154,000 was recognized at December 31, 1993.

 In February 1994, Artesian Resources amended its Benefit Plan effective
January 1, 1993 to reduce eligibility. As a result of the amendment, only       
current retirees and certain "grandfathered" active employees are eligible for  
benefits.                                                                       

 The amendment had the effect of reducing the unrecognized obligation by
approximately $1.5 million to $1.6 million, and eligible participants by 108 to 
23. The amendment also had the effect of curtailing the Benefit Plan. This      
curtailment resulted in a curtailment loss of approximately $1.5 million. This  
loss, when added to the 1993 amortization of $154,000, increased the Company's  
recorded liability with respect to SFAS 106 to approximately $1.6 million.      

   Artesian Resources recognized an offsetting regulatory asset with respect
to the SFAS 106 liability. This asset is recorded based on the PSC order which  
permits Artesian Water to continue recovery of postretirement health care and   
life insurance expense on a pay-as-you-go basis for the remaining eligible      
employees. Artesian Water anticipates liquidating its SFAS 106 obligation and   
substantially recovering the expenses in rates over a period of approximately 20
years (based on the age and life expectancy of the remaining eligible           
participants). Further, expense recovery as a percentage of rates is expected to
remain constant over the initial years, and then decline until the obligation is
liquidated. Amounts charged to expense were $78,000, $70,000 and $90,000 for    
1998, 1997 and 1996, respectively.                                              

The following table sets forth the amounts recognized in Artesian     
Resources' Consolidated Balance Sheets for the Benefit Plan as of December 31:  

                                                                [Download Table]

                                                              1998         1997   
                                                             -------      ------- 
                                                                (IN THOUSANDS)    
                                                                                  
Change in benefit obligation:                                                     
Benefit obligation at beginning of year..................... $   872      $   926 
Interest cost...............................................      59           69 
Plan participant contributions..............................       2            0 
Actuarial gain..............................................     (17)         (53)
Benefits paid...............................................     (78)         (70)
                                                             -------      ------- 
Benefit obligation at end of year........................... $   838      $   872 
                                                             =======      ======= 
Change in plan assets:                                                            
Fair value of plan assets at beginning of year.............. $     0      $     0 
Employer contributions......................................      76           68 
Plan participant contributions..............................       2            2 
Benefits paid...............................................     (78)         (70)
                                                             -------      ------- 
Fair value of plan assets at end of year.................... $     0      $     0 
                                                             =======      ======= 
Accrued expense:                                                                  
Funded status............................................... $  (838)     $  (872)
Unrecognized net gain.......................................    (917)        (967)
Unrecognized transition obligation..........................     128          136 
                                                             -------      ------- 
Accrued postretirement benefit cost......................... $(1,627)     $(1,704)
                                                             =======      ======= 

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 

NOTE 10 -- EMPLOYEE BENEFIT PLANS -- (CONTINUED)                                

 For measurement purposes, an 8.5% annual rate of increase in per capita
cost of covered health care benefits was assumed for 1998; the rate was assumed 
to decrease gradually to 5% through the year 2006 and remain at that level      
thereafter. The health care cost trend rate assumption has a significant effect 
on the amount of the obligation and periodic cost reported. An increase in the  
assumed health care cost trend rates by 1% in each year would increase the      
accumulated postretirement benefit obligation as of December 31, 1998 by $60,000
and the interest cost component of net periodic postretirement benefit cost for 
the year then ended by $5,000.                                                  

The weighted-average discount rate used in determining the accumulated
postretirement benefit obligation was 6.75% and 7.0% for the years ended        
December 31, 1998 and 1997, respectively.                                       

Supplemental Pension Plan -- Effective October 1, 1994, Artesian Water
established a Supplemental Pension Plan (the "Supplemental Plan") to provide    
additional retirement benefits to full-time employees hired prior to April 26,  
1994. The purpose of the Supplemental Plan is to help employees save for future 
retiree medical costs, which will be paid by employees. The Supplemental Plan   
accomplishes this objective by providing additional cash resources to employees 
upon a termination of employment or retirement, to meet the cost of future      
medical expenses. Artesian Water has established a contribution based upon each 
employee's years of service ranging from 2% to 6% of eligible salaries and      
wages. Artesian Water also provides additional benefits to individuals who were 
over age 50 as of January 1, 1994. These individuals are referred to as the     
"Transition Group." Effective November 1, 1994, individuals eligible for the    
Transition Group had the opportunity to defer compensation to the Supplemental  
Plan, and to receive a transition matching contribution for five years. Each one
dollar of eligible salaries and wages deferred by the Transition Group is       
matched with three, four or five dollars by Artesian Water based on the         
employee's years of service subject to certain limitations under the federal tax
rules. Plan expenses, which include Company contributions and administrative    
fees, for the years 1998, 1997 and 1996 were approximately $239,000, $228,000   
and $220,000, respectively.                                                     

NOTE 11 -- COMMITMENTS                                                          

  In 1972, the Company entered into a 25-year lease for an office building
and shop complex at an aggregate annual rental of $204,000 from a partnership,  
White Clay Realty (See Note 8). This lease was accounted for as a capital lease;
accordingly, the present value of the total rental payments for the leased      
property at the inception of the lease ($1.9 million) was recorded in General   
Plant and in Capitalized Lease Obligations. At December 31, 1997, the fully     
amortized leased property was retired from General Plant. On January 1, 1998,   
the Company renewed its lease for an average annual rental of $180,000, for five
years, which is being accounted for as an operating lease. Artesian Water may   
terminate the lease at any time by purchasing the leased facilities for (i) an  
amount equal to the sum of any mortgage on such facilities and any accrued      
rental to date or (ii) its fair market value, whichever is higher.              

 In 1995, Artesian Water entered into four five-year leases for computer
equipment and in 1997 Artesian Water entered a ten-year lease for a land        
easement which have been recorded as capital leases. Also in 1997, Artesian     
Water entered a 33-year operating lease for a parcel of land with improvements  
located in South Bethany, a municipality in Sussex County, Delaware.            

  During 1996, Artesian Water entered into a ten-year lease commitment for
office space. Rent expense for the office space for 1998, 1997 and 1996 was     
$64,000, $62,000 and $48,000, respectively.                                     

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 

NOTE 11 -- COMMITMENTS -- (CONTINUED)                                           
    Future minimum annual rental payments under operating lease obligations as
of December 31, 1998, are as follows:                                           

                                                                [Download Table]

                                                  (IN THOUSANDS)
                                                  --------------
                                                                
1999............................................      $  248    
2000............................................         247    
2001............................................         246    
2002............................................         246    
2003............................................          72    
Thereafter......................................         192    
                                                      ------    
                                                      $1,251    
                                                      ======    

  Artesian Water has two water service interconnection agreements with two
neighboring utilities which require minimum annual purchases. Rates charged     
under all agreements are subject to change. Effective August 1, 1997, Artesian  
Water renegotiated the contract with Chester Water Authority to, among other    
things, reduce the minimum purchase requirements from 1,459 million gallons to  
1,095 million gallons annually and to extend the contract through the year 2021.
The minimum annual purchase commitments for all interconnection agreements for  
1999 through 2003 and the aggregate total for the years 2004 through 2021, at   
current rates, are as follows:                                                  

                                                                [Download Table]

                                                  (IN THOUSANDS)
                                                  --------------
                                                                
1999............................................     $ 2,429    
2000............................................       2,429    
2001............................................       2,429    
2002............................................       2,157    
2003............................................       2,157    
2004 through 2021...............................      38,829    
                                                     -------    
                                                     $50,430    
                                                     =======    

     Expenses for purchased water were $2,616,000, $2,703,000 and $2,663,000 for
the years ended December 31, 1998, 1997 and 1996, respectively.                 

    Budgeted mandatory utility plant expenditures, due to planned governmental
highway projects which require the relocation of Artesian Water's water service 
mains, expected to be incurred in 1999 through 2003 are as follows:             

                                                                [Download Table]

                                                  (IN THOUSANDS)
                                                  --------------
                                                                
1999............................................     $ 1,200    
2000............................................       1,323    
2001............................................         550    
2002............................................         200    
2003............................................         400    
                                                     -------    
                                                     $ 3,673    
                                                     =======    

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

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 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 12 -- GEOGRAPHIC CONCENTRATION OF CUSTOMERS                                

Artesian Water provides water utility service to customers within its 
established service territory in portions of Delaware, pursuant to rates filed  
with and approved by the PSC. As of December 31, 1998, Artesian Water was       
serving 60,688 customers.                                                       

NOTE 13 -- NET INCOME PER COMMON SHARE AND EQUITY PER COMMON SHARE              

   In December 1997, the Company adopted SFAS No. 128, "Earnings per Share,"
which prescribes two methods for calculating net income per common share: the   
"Basic" and "Diluted" methods. These calculations differ from those used in     
prior periods and as a result all prior period earnings per share data were     
restated in 1997 to reflect the adoption of SFAS No. 128. 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 potentially dilutive effect of employee stock options.   
The adoption of this statement had no effect on the results of operations,      
financial condition or long-term liquidity of the Company. The following table  
summarizes the shares used in computing basic and diluted net income per share: 

                                                        [Enlarge/Download Table]

                                                             YEAR ENDED DECEMBER 31, 
                                                             ------------------------
                                                              1998     1997     1996 
                                                             ------   ------   ------
                                                                  (IN THOUSANDS)     
                                                                                     
Average common shares outstanding during the period for                              
  Basic computation......................................... 1,796    1,762    1,509 
Dilutive effect of employee stock options...................    20       13        6 
                                                             -----    -----    ----- 
Average common shares outstanding during the period for                              
  Diluted computation....................................... 1,816    1,775    1,515 
                                                             =====    =====    ===== 

     Equity per common share was $15.34, $14.78 and $14.58 at December 31, 1998,
1997 and 1996, respectively. These amounts were computed by dividing            
stockholders' equity excluding preferred stock by the number of shares of common
stock outstanding at the end of each year.                                      

NOTE 14 -- YEAR 2000 COMPLIANCE                                                 

Management has completed an assessment of all of Artesian Resources'  
information and non-information technology systems and implemented a            
company-wide program which continues to test and correct all critical systems to
ensure Year 2000 compliance. The Company has dedicated the financial, technical 
and management resources required to achieve expected Year 2000 compliance. The 
Company has identified the critical systems for operations and expects to be    
compliant by June 30, 1999. Additionally, in 1998, the Company adopted          
management practices which require that any new systems or system upgrades be   
Year 2000 compliant prior to their purchase and implementation.                 

    In 1998, the Company undertook a comprehensive program to assess providers
of critical services for the purpose of identifying and minimizing exposure to  
Year 2000 risks that are not under the Company's direct control. The Company is 
currently developing contingency plans which are expected to be in place by June
30, 1999. Contingency plans include, but are not limited to, the installation of
back-up generators in case of power loss, increasing inventory levels in late   
1999 for crucial materials and supplies, including gasoline, diesel fuel and    
water treatment chemicals; and identifying alternate providers in case the      
primary providers cannot meet delivery requirements.                            

    The Company is implementing its Year 2000 compliance program in the normal
course of business and does not anticipate a material impact on the Company's   
business, results of operations, liquidity or capital resources. As a result of 
the Company's overall corporate automation plan                                 

F-22

424B4
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ARTESIAN RESOURCES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 

NOTE 14 -- YEAR 2000 COMPLIANCE -- (CONTINUED)                                  

developed in 1994, the Company has capitalized $395,000 during the year ended   
December 31, 1998 on new computer software and hardware, some of which replaced 
software and hardware which was not Year 2000 compliant. The Company does not   
anticipate any significant capital expenditures for computer software and       
hardware in 1999 for the purpose of achieving Year 2000 compliance.             

NOTE 15 -- IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS                           

In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive   
Income," which requires that all items that are required to be recognized under 
accounting standards as components of comprehensive income be reported in a     
financial statement that is displayed with the same prominence as other         
financial statements. The Company adopted this statement effective January 1,   
1998, and has no components of comprehensive income to report.                  

   In June 1997, FASB issued Statement of Financial Accounting Standards No.
131, "Disclosures About Segments of an Enterprise and Related Information,"     
which established standards for reporting information about operating segments  
in interim financial reports issued to shareholders. It also established        
standards for related disclosure about products and services, geographic areas  
and major customers. The Company adopted this statement effective January 1,    
1998.                                                                           

   In February 1998, FASB issued Statement of Financial Accounting Standards
No. 132, "Employers' Disclosure about Pension and Other Postretirement          
Benefits," which revised employers' disclosures about pensions and other        
postretirement benefit plans, and did not change the measurement or recognition 
of those plans. The Company adopted this statement effective December 31, 1998. 

   In June 1998, FASB issued Statement of Financial Accounting Standards No.
133, "Accounting for Derivative Instruments and Hedging Activities," which      
established accounting and reporting standards for derivative instruments and   
hedging activities. The Company plans to adopt this statement effective January 
1, 2000. The adoption of this statement will not have a material impact on the  
Company's financial condition or results of operations.                         

In March 1998, the American Institute of Certified Public Accountants 
issued Statement of Position 98-1, "Accounting for the Costs of Computer        
Software Developed or Obtained for Internal Use." This statement is effective   
for financial statements for fiscal years beginning after December 15, 1998.    
Earlier application is encouraged in fiscal years for which annual financial    
statements have not been issued. The Company implemented this statement in the  
first quarter of 1998 and it did not have a material impact on the Company's    
financial condition or results of operations.                                   

F-23

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================================================================================

  WE HAVE NOT AUTHORIZED ANY DEALER, SALESPERSON OR OTHER PERSON TO GIVE ANY
INFORMATION OR REPRESENT ANYTHING NOT CONTAINED IN THIS PROSPECTUS. YOU MUST NOT
RELY ON ANY UNAUTHORIZED INFORMATION. IF ANYONE PROVIDES YOU WITH DIFFERENT OR  
INCONSISTENT INFORMATION, YOU SHOULD NOT RELY ON IT. THIS PROSPECTUS DOES NOT   
OFFER TO SELL ANY SHARES IN ANY JURISDICTION WHERE IT IS UNLAWFUL. THE          
INFORMATION IN THIS PROSPECTUS IS CURRENT AS OF THE DATE SHOWN ON THE COVER     
PAGE.                                                                           

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

[LOGO]

325,000 SHARES

CLASS A NON-VOTING COMMON STOCK 

------------------- 
PROSPECTUS
------------------- 

APRIL 7, 1999 

JANNEY MONTGOMERY SCOTT INC.

================================================================================

Dates Referenced Herein   and   Documents Incorporated by Reference

				Referenced-On Page
This ‘424B4’ Filing		Date		First		Last			Other Filings
		3/1/09		48
		12/31/07		48					10-K,  11-K,  4,  5
		2/1/03		28		48
		12/31/01		4		21			10-K,  11-K
		1/31/00		47
		1/1/00		9		56
		6/30/99		9		55			10-Q,  11-K
		4/13/99		1
Filed on:		4/8/99
		4/7/99		1		57
		4/6/99		11
		3/24/99		5		27
		3/1/99		11
		2/22/99		5		11
		2/10/99		5		11
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		1/22/99		5		11
		1/1/99		21
		12/31/98		4		56			10-K,  11-K
		12/15/98		17		56
		7/31/98		18
		5/13/98		22
		1/1/98		14		56
		12/31/97		4		55			10-K,  NT 11-K
		9/18/97		48
		8/1/97		54
		6/17/97		48
		3/12/97		49
		12/31/96		34		55			10-K
		12/19/96		49
		6/12/96		45
		5/24/96		40
		1/1/96		39
		12/31/95		6		13
		11/1/94		53
		10/1/94		53
		4/26/94		53
		1/1/94		53
		12/31/93		52
		1/1/93		52
		8/25/92		44
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