<PAGE>

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-K

(Mark One)
[X]      Annual report pursuant to Section 13 or 15(d) of the Securities
         Exchange Act of 1934 for the fiscal year ended October 31, 2003

                  or

[ ]      Transition report pursuant to Section 13 or 15(d) of the Securities
         Exchange Act of 1934 for the transition period from ___________ to
         ___________

                        Commission File Number 333-45226

                           VERMONT PURE HOLDINGS, LTD.
                 ----------------------------------------------
                 (Exact name of business issuer in its charter)

           DELAWARE                                    03-0366218
--------------------------------          -------------------------------------
(State or other jurisdiction of           I.R.S. Employer Identification Number
 incorporation or organization)

    P.O. Box C, Route 66, Catamount Industrial Park, Randolph, Vermont 05060
--------------------------------------------------------------------------------
              (Address of principal executive offices and zip code)

         Issuer's telephone number, including area code: (802) 728-3600

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

<TABLE>
<S>                                                             <C>
Securities  registered  pursuant to Section 12(b) of the Act:   Common Stock,  par value $.001 per share
                                                                ----------------------------------------
                                                                          (Title of Class)
</TABLE>

Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirement for the past 90 days. Yes [X] No [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2). Yes [ ] No [X]

The aggregate market value of the registrant's voting and non-voting common
equity held by non-affiliates of the registrant, computed by reference to the
last sale price per share of common stock on April 30, 2003, the last day of the
registrant's most recently completed second fiscal quarter, as reported on the
American Stock Exchange, was $34,439,068.

The number of shares outstanding of the Issuer's Common Stock, $.001 par value,
was 21,474,399 on January 22, 2004.

                       DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant's definitive proxy statement, which is expected to be
filed not later than 120 days after the registrant's fiscal year ended October
31, 2003, to be delivered in connection with the registrant's annual meeting of
stockholders, are incorporated by reference to Part III into this Form 10-K.

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                                     PART I

ITEM 1. BUSINESS.

         We bottle, market and distribute natural spring water under the Vermont
Pure(R) and Hidden Spring(R) brands, and purified water with minerals added
under the Crystal Rock(R) brand, to the retail consumer and Home & Office
markets. We sell our products primarily in New England, New York and New Jersey,
as well as the mid-Atlantic and the mid-western United States.

INDUSTRY BACKGROUND

         Bottled water has been and continues to be one of the fastest growing
segments of the beverage industry. According to studies prepared by Beverage
Marketing Corporation, on a calendar year basis, total bottled water consumption
on a per capita basis in the United States more than doubled from 1990 to 2002.
Annual consumption increased from 8.8 gallons per capita in 1990 to 21.2 gallons
per capita in 2002. Bottled water volume in the United States has grown
significantly, increasing from approximately 2.2 billion gallons in 1990 to
approximately 6.0 billion gallons in 2002, a 173% increase. The wholesale sales
value of bottled water increased more, from approximately $2.6 billion in 1990
to approximately $7.8 billion in 2002. Over the period from 1993 to 2002,
bottled water was the fastest growing beverage category in the United States.

         The bottled water market is divided into two distinct categories:
non-sparkling (defined as still or non-carbonated water), which accounts for
approximately 91% of bottled water sales, and sparkling (carbonated), which
accounts for the balance. Non-sparkling water was responsible for 99% of the
incremental volume increase from 1990 to 2001. Both our natural spring water and
our distilled water with minerals added are in the non-sparkling category.

         We believe that consumers perceive bottled water to be a healthy and
refreshing beverage alternative to beer, liquor, wine, soft drinks, coffee and
tea. We anticipate that sales of bottled water will continue to grow as
consumers focus on health and fitness, alcohol moderation and the avoidance of
both caffeine and sodium. Bottled water has become a mainstream beverage as the
centerpiece of consumers' healthy living lifestyles. In addition, we believe
that the development and continued growth of the bottled water industry since
the early 1980's reflects growing public awareness of the potential
contamination and unreliability of municipal water supplies.

         In recent years, the bottled water industry has experienced periods of
significant consolidation. Large multi-national companies such as Perrier (owned
by Nestle), Groupe Danone and Suntory Water Group have been active acquirers of
small and medium sized regional bottled water companies. In 2003, Danone and
Suntory pooled their respective United States assets in the industry into a
joint venture to create the largest Home & Office water delivery company in the
country. In general, the primary drivers of this consolidation are the
incremental growth realized by acquiring the target company's customer base, and
synergies resulting from integrating existing operations.

         The entrance of major soft drink bottlers into the bottling and
distribution segment of the industry has had a major impact on the bottled water
industry. Both Coca-Cola and Pepsi Cola have started producing and marketing
their own brands of reverse osmosis drinking water within the past

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four years and, based on dollar sales, are among the top ten bottled water
companies in the United States.

COMPANY BACKGROUND

         Vermont Pure Holdings, Ltd. has two main operating subsidiaries,
Crystal Rock Spring Water Company, Inc. and Vermont Pure Springs, Inc.

         Established in 1990, we originally developed Vermont Pure(R) Natural
Spring Water as our flagship brand in the still, non-carbonated retail consumer
category. Over the next decade, we grew aggressively both internally and through
acquisitions, primarily in the Home & Office market. In addition to marketing
the Vermont Pure(R) brand, in 1995 we renewed marketing efforts with respect to
our original trademark, Hidden Spring(R). We expanded our product lines to
include more sizes and features, such as sports caps on selected bottle sizes
for convenient single serve, and multi-packs for the grocery and convenience
store channels.

         By 1996, we began to pursue a strategy of diversifying our product
offerings. Most notably, we began to utilize an acquisition strategy in 1996 to
minimize our reliance on the retail consumer side of the business and to
increase growth in other categories. Prior to 1996, our retail business
represented 90% of our total sales revenues. In 2003, by way of contrast, our
Home & Office delivery category represented 65% of our total sales. Based on
historical data, this sales volume would place us fourth in the United States
and second in the northeast region for this type of distribution. Additional
benefits of increasing the Home & Office channel have included higher gross
margins and reduced seasonality of our sales.

         In October 2000, we merged with the Crystal Rock Spring Water Company,
Inc. of Watertown, Connecticut. Crystal Rock had historically focused its
manufacturing resources on the still, non-carbonated segment of the bottled
water industry. Although its primary business had been the marketing and
distribution of Crystal Rock(R) brand of purified and mineralized drinking water
to the Home & Office delivery markets, it also distributed coffee, other
refreshment type products, and vending services in Connecticut, New York and
Massachusetts. We continue to provide these products and services.

         We continued our acquisition strategy in fiscal year 2002 with smaller
acquisitions in our established Home & Office markets. Noteworthy among these
was our acquisition of Iceberg Springs, a Home & Office distributor servicing
Fairfield and New Haven counties in Connecticut and the suburban New York
communities in Westchester and Putnam counties. Iceberg's annual revenue was
approximately $3 million while servicing 4,500 customers. In 2003, we acquired
seven small water and coffee companies in our core market areas. The historical
annualized sales of these businesses totaled a combined $4.2 million.

         To date, we have not experienced significant problems in integrating
our acquired businesses with our existing operations. However, the acquisition
of new businesses, particularly ones of significant size and complexity, may
require management to devote substantial time and energy to the successful,
efficient and timely integration of operations, labor forces, administrative
systems (including accounting practices and procedures and management
information systems), and varying corporate cultures. A failure to realize
expected synergies could have an adverse effect on our business.

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         Management believes that, despite such risks, our acquisition strategy
has been and continues to be a success. The combination with Crystal Rock
enabled us to nearly double our sales revenues, significantly accelerated our
Home & Office growth strategy and added to management depth.

         The growth in our Home & Office delivery category has been
predominantly fueled by market expansion through our acquisition strategy, which
we have pursued mainly in New England and northern New York. We have also
experienced subsequent internal growth in those acquired markets following these
acquisitions.

         We have also leveraged our distribution system to expand our product
lines. In particular, coffee, a product that is counter seasonal to water,
became the second leading product in the distribution channel, now accounting
for almost 10% of our total sales. We buy coffee under contracts that set prices
for a period of six to eighteen months, in order to maintain price and supply
stability. Because coffee is a commodity, we cannot ensure that future supplies
and pricing will not be subject to volatility in the world commodity markets.
Any interruption in supply or dramatic increase in pricing may have an adverse
effect on our business.

         In the consumer retail market, we have taken advantage of our customer
relationships, quality water sources and bottling operations by co-packing
private label brands. Private labels are a growing portion of this category and
have become increasingly competitive with branded products in terms of price and
market share. In addition to providing increased bottling volume and
contributing margin, we believe this business enhances relationships with the
retailers we serve. Current customers include large northeast retail grocers
such as A&P, Giant Carlisle, Finast, Hannaford, Shop Rite, Stop & Shop, CVS, and
Tops, among others. In 2003, private label sales grew to account for 72% of our
consumer retail sales, representing 27% of our total sales.

         To accommodate the growing demand for our bottled spring water
products, we have regularly increased our investment in plant and equipment.
When we were founded, our assets included one spring on 1.7 acres of land, a
9,000 square foot office facility and a bottling plant in Randolph, Vermont.
Since that time, we have acquired additional springs on approximately 65 acres
of land in Randolph. We have also built a second office, bottling and warehouse
facility of 32,000 square feet in Randolph, which we recently expanded to
approximately 72,000 square feet. In 2002, we added a second bottling line for
our retail consumer products, more than doubling the production capacity for
this category. We also lease a 67,000 square foot facility located on ten acres
in Watertown, Connecticut. This facility houses the bottling operations, our
largest Home & Office distribution center, and centralized customer service and
administrative offices for our Crystal Rock subsidiary. We also have a
five-gallon bottling facility near Albany, New York, and distribution centers
throughout New England and northern New York.

WATER SOURCES AND BOTTLING OPERATIONS

         The primary sources of our natural spring water are springs located at
our property in Randolph, Vermont, and a spring owned by a third party in
Stockbridge, Vermont, that is subject to a water supply contract.

         Percolation through the earth's surface is nature's best filter of
water. We believe that the exceptionally long percolation period of natural
spring water in the north central Vermont area and, in particular, in the area
of our springs, assures a high level of purity. Moreover, the long percolation
period permits the water to become mineralized and pH balanced.

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         We believe that the age and extended percolation period of our natural
spring water provides the natural spring water with certain distinct attributes:
a purer water, noteworthy mineral characteristics (including the fact that the
water is sodium free and has a naturally balanced pH), and a light, refreshing
taste.

         In addition to drawing water from our own springs, we buy bulk
quantities of water from natural springs owned or operated by non-affiliated
entities. All of these springs are approved by the State of Vermont as sources
for natural spring water. During fiscal year 2003, purchases of spring water
from a source in Vermont that is not owned by or affiliated with us amounted to
approximately 60% of our usage of spring water. We are actively exploring the
acquisition of additional spring sources that would enable us to reduce our
reliance on third-party springs.

         We have for several years bought spring water from a source in
Stockbridge, Vermont. Until late 1999, we had no contract with respect to this
source. Commencing in November 1999, we obtained a 50-year water supply contract
to purchase, on a first priority basis, up to 5,000,000 gallons per month from
the spring owner. Because this amount is well in excess of our current needs and
within the apparent capacity of the spring, we believe that we can readily meet
our bulk water supply needs for the foreseeable future.

         In 2002, we signed a 20-year agreement with the Town of Bennington,
Vermont to purchase water from a spring owned by the town. Under that agreement,
we can use up to 100,000 gallons a day from this site. We plan to use this water
primarily in our Halfmoon, New York bottling facility. Presently, we have yet to
use water from this site.

         An interruption or contamination of any of our spring sites would
materially affect our business. We believe that we could find adequate supplies
of bulk spring water from other sources, but that we might suffer inventory
shortages or inefficiencies, such as increased purchase or transport costs, in
obtaining such supplies.

         Water from the local municipality is the primary raw source for the
Crystal Rock(R) brand. The raw water is purified through a number of processes
beginning with filtration. Utilizing carbon and ion exchange filtration systems,
we remove chlorine and other volatile compounds and dissolved solids. After the
filtration process, impurities are removed by reverse osmosis and/or
distillation. We ozonate our purified water (the process of injecting ozone into
the water as an agent to prohibit the formation of bacteria) prior to storage in
four 30,000-gallon storage tanks. Prior to bottling, we add pharmaceutical grade
minerals to the water, including calcium and potassium, for taste. The water is
again ozonated and bottled in a fully enclosed clean room with a high efficiency
particulate air, or HEPA, filtering system designed to prevent any airborne
contaminants from entering the bottling area, in order to create a sanitary
filling environment.

         If for any reason this municipal source for Crystal Rock(R) water were
curtailed or eliminated, we could, though probably at greater expense, purchase
water from other sources and have it shipped to the Watertown manufacturing
facility.

         We are highly dependent on the integrity of the sources and processes
by which we derive our products. Natural occurrences beyond our control, such as
drought, earthquake or other geological changes, a change in the chemical or
mineral content or purity of the water, or environmental pollution may affect
the amount and quality of the water emanating from the springs we use. There

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is a possibility that characteristics of the product could be changed either
inadvertently or by tampering before consumption. Even if such an event were not
attributable to us, the product's reputation could be irreparably harmed.
Consequently, we would experience economic hardship. Occurrence of any of these
events could have an adverse impact on our business. We are also dependent on
the availability of water and the continued functioning of our bottling
processes. An interruption may result in an inability to meet market demand
and/or negatively impact the cost to bottle the products. Additionally, the
distribution of the product is dependent on other businesses.

         Finally, the terrorist attacks of September 11, 2001 and any further
attacks could impact our operations negatively if such attacks result in a
prolonged or severe economic downturn. Further, because our products are
packaged for human consumption and could be considered a substitute for public
water infrastructure, there is a possibility that we or our products could be a
direct target of future terrorist attacks. Although management believes this
risk to be remote, any such act of terrorism or attempted act could be
catastrophic to our business or operations.

PRODUCTS

         We sell our natural spring water in the retail consumer market under
the Vermont Pure(R) and Hidden Spring(R) brands, packaging the product in
various bottle sizes ranging from 8 ounces to 1.5 liters, and selling it in
single units and plastic shrinkfilm of six, eight, and twelve bottles. We sell
our products in 12-pack and 24-pack cases. In recent years, sales indicate that
the preferred container sizes are "single serve" sizes - 750 ml and 500 ml. We
use a sports cap on various product sizes to create convenience and add extra
value. We bottle consumer sizes in clear PET (polyethylene terephthalate)
recyclable bottles that are perceived in the marketplace as a high quality
package. Although the Crystal Rock(R) brand is bottled in this type of bottle
for retail sale, and in similar sizes, this outlet does not comprise a
significant amount of our sales.

         We sell our three major brands in three and five gallon bottles to
homes and offices throughout New England and New York. In general, Crystal
Rock(R) is distributed in southern New England, while Vermont Pure(R) and Hidden
Spring(R) are distributed in northern New England and upstate and western New
York. We rent water coolers to customers to dispense bottled water. Our coolers
are available in various consumer preferences such as cold, or hot and cold,
dispensing units. In conjunction with our Home & Office accounts, we also
distribute a variety of coffee, tea and other hot beverage products and related
supplies, as well as other consumable products used around the office. We offer
vending services in some locations. We rent or supply multi-burner coffee
machines to customers. In addition, we supply whole beans and coffee grinders
for fresh ground coffee and cappuccino machines to restaurants. We are the
exclusive office coffee distributor of Baronet Coffee in New England, New York
and New Jersey. In addition to Baronet Coffee, we sell other national brands,
most notably, Green Mountain Coffee Roasters.

MARKETING AND SALES OF BRANDED PRODUCTS

         Marketing

         We generally market our products as "premium" domestic bottled water
products in two categories.

         Home & Office Delivery

         We distribute and market our water in five and three-gallon bottles as
"premium" bottled

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water products. We seek brand differentiation by offering quality service. Home
& Office sales are generated and serviced using our own facilities, employees
and vehicles.

         We also use telemarketers and outside/cold-call sales personnel to
market our Home & Office delivery. We support this sales effort through
promotional giveaways and Yellow Page advertising, as well as radio, television
and billboard advertising campaigns. We also sponsor local area professional
sports and professional sporting events, participate in trade shows, and
endeavor to be highly visible in community and charitable events.

         We market our Home & Office delivery service throughout most of New
England and New York.

         Retail Consumer (PET)

         In the retail consumer category, consumers distinguish a premium
bottled water product from other available bottled water products by packaging
consisting of small portable containers, typically clear plastic PET recyclable
bottles. We believe that this is the "ultimate" consumer bottle package because
it is clean, clear, light and recyclable, and generally perceived by consumers
to be higher quality. We also believe that the high quality packaging of our
products enhances their image as premium domestic bottled water products.

         We endeavor to price our Vermont Pure(R) brand at a level that is
competitive with other domestic premium brands, but lower than imported premium
water products. Hidden Spring(R) brand products are similarly packaged and sold
to retail grocery and convenience markets. Both of these brands, as well as
Crystal Rock(R), are marketed from our own delivery routes.

         We market the Crystal Rock(R) brand by providing the same consistent,
refreshing taste in a small package that customers have relied on from their
coolers in their homes and offices. We also distribute Crystal Rock(R) products
for sponsorship of organizations and events.

         We market our spring water products such as the Vermont Pure(R) brand
by highlighting the unique characteristics of our water, namely a natural spring
source, purity, mineral composition and desirable taste. We also strive to use
the image of the State of Vermont in our marketing and brand identification. We
believe that consumers feel that products originating from Vermont have a
general reputation for being pure, wholesome, trustworthy and natural.

         We have focused our consumer product marketing and sales activities in
the eastern and mid-western United States. We currently distribute our products
in the New England, New York, New Jersey, mid-Atlantic and northern mid-western
states and the northern Virginia - Washington, D.C. - Baltimore metropolitan
area.

         Slotting Fees

         To achieve placement of our retail consumer products in certain
supermarket chains and individual supermarket stores, we must sometimes purchase
shelf space by paying slotting fees. Typically, supermarket chains and prominent
local supermarkets impose these charges as a one time payment before the
products are permitted in the store or chain. Other types of retail outlets,
such as individual convenience stores and delicatessens, impose slotting fees
less frequently. These fees are negotiated on an individual basis. As we have
become better established and as our brands have achieved greater recognition,
we have become less dependent on slotting fees to gain space.

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Nevertheless, like many producers of food products, we still pay slotting fees
in some cases, and expect to continue to do so.

         Advertising and Promotion

         We advertise our products primarily through print, television and radio
media. In connection with this advertising, we use point of sale, in-store
displays, price promotions, store coupons, free-standing inserts and cooperative
and trade advertising. We have also actively promoted our products through
sponsorship of various organizations and sporting events. In recent years, we
have sponsored professional golf and tennis events, as well as major ski areas
and sports arenas, and various charitable and cultural organizations, such as
Special Olympics, the National Association of Breast Cancer Organizations, the
Multiple Sclerosis Society, and the Vermont Symphony Orchestra.

         Sales and Distribution

         Home & Office Delivery

         We sell and deliver products directly to our customers using our own
employees and route delivery trucks. We make deliveries to customers on a
regularly scheduled basis. We bottle our water at our facilities in Watertown,
Connecticut, Randolph, Vermont, and Halfmoon, New York. We maintain numerous
distribution locations throughout our market area. From these locations we also
distribute dispensing equipment, a variety of coffee, tea and other refreshment
products, and related supplies. We ship between our production and distribution
sites using both our own and contracted carriers.

         We use outside distributors in areas where we currently do not
distribute our products. Distributor sales represented less than 2% of total
revenue in 2003.

         We continue to pursue an acquisition strategy to purchase independent
Home & Office bottlers and distributors in New England and New York State.
Management's decision to expand in this market has been driven by, among other
things, attractive margins and good cash flows from equipment rentals, as well
as by the advantages of product diversification. Moreover, the Vermont Pure(R)
and Crystal Rock(R) brands in the multi-gallon or Home & Office setting affords
consumers an opportunity to sample the product, which we believe augments retail
sales and contributes to brand awareness.

         Retail Consumer (PET)

         We use major beverage distributors to distribute most of our retail
consumer products, while we distribute our Home & Office products directly.
Using distributors is typical in the beverage industry as an efficient use of
capital for maximum market penetration. Beverage distributors purchase the
products of many companies and then wholesale them to retail chains or make bulk
retail sales. Distributors generally have established relationships with local
retail outlets for beverage products and facilitate obtaining shelf space.
Occasionally, we sell our products directly to grocery store chains.

         We distribute our Vermont Pure(R) brand using a number of distributors.
We are obligated to supply the distributors with their requirements of the
Vermont Pure(R) brand at established prices. Arrangements with the distributors
of the Hidden Spring(R) brand are, in general, less restrictive.

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         We ship our consumer products from our bottling facilities in Randolph,
Vermont by common carrier either directly to beverage distributors and retail
outlets or to authorized warehouses for later distribution to beverage
distributors and retail outlets. Storage is charged on a per pallet basis.
Transportation costs vary according to the distance of the shipment.

         We employ a sales force of four people for retail and distributor
coverage on a product line basis. Our sales personnel act as a liaison among
distributors, customers and ourselves for ordering product, facilitating
distribution, servicing retail outlets, and coordinating warehouse distribution.
Sales personnel actively seek to expand the number of retail outlets and
distributors, and they participate in overall market development.

CONTRACT PACKAGING

         In recent years, our fastest growing products in the retail consumer
category have been private label products. We bottle private label products in
essentially the same sizes and configurations as for our branded products for
grocery, drug, and convenience store chains, using their label. As the retailers
have entered the market, they have preferred natural spring water for the
product that they market.

         Contract packaging is a growing part of the retail consumer marketplace
and is very price competitive. We seek opportunities for contract packaging for
a variety of reasons, including the fact that it develops favorable
relationships with retail chains and provides volume to fill bottling capacity.
For the past three fiscal years, contract packing represented the most
significant growth portion of our retail consumer product sales revenue - more
than doubling in 2002 and increasing 26% in 2003. Private label revenue was 27%
of our total sales in 2003 compared to 20% in 2002 and 9% in 2001.

         We also package five gallon Home & Office containers, on a limited
basis, for third parties. These sales represented less than 2% of sales in the
most recent fiscal year.

SUPPLIES

         We currently source all of our raw materials from outside vendors. In
the retail PET business, we source PET bottles, caps and corrugated packaging
under supply agreements ranging from one to three years. Pricing is fixed in the
agreement with pass through formulas for price increases or decreases based on
total market prices for these commodities. Due to increases in demand or
shortage of key raw materials, we have, at times, had difficulty procuring raw
materials. Supply shortages or subsequent increases in pricing of these
materials have historically had an adverse effect on our expense structure.

         We entered into a new supply agreement for bottles effective January 1,
2003 that enables us to further reduce the weight and cost of our bottles. In
recent years, we have effectively reduced our cost per case for bottles due to
the reduction in gram weight of resin. In addition, this reduction has had a
favorable impact on the environment, reducing the amount of plastic in our
containers and the amount of plastic entering the waste stream by over 1,000,000
pounds per year. Management is constantly undertaking further raw material cost
saving initiatives for caps, plastic, and corrugated packaging. Notwithstanding
these expectations, we may experience shortages or unscheduled price increases
that would adversely effect our cost of goods.

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         The merger of Crystal Rock and Vermont Pure has nearly doubled the size
of our operations in the Home & Office category and, as a result, afforded us
the opportunity to increase our combined buying power for such things as
bottles, dispensing equipment, supplies, and administrative services. We have
experienced some success in this area and, as one of the largest Home & Office
distributors in the country, we expect to capitalize on volume to continue to
reduce costs. We are a member of the Quality Bottlers Cooperative, or QBC, a
purchasing cooperative comprised of some of the largest independent Home &
Office water companies in the United States. QBC acts as a purchasing and
negotiating agent to acquire national pricing for the cooperative on common
materials such as bottles, water coolers, cups, and other supplies. QBC believes
that due to its size it can effectively purchase equipment and supplies at
levels competitive to larger national entities. We also believe that our
relationship with other QBC members can provide access to potential acquisition
targets.

         In all aspects of our business, we rely on trucking and fuel to receive
raw materials and transport and deliver finished product. Consequently, the
price of fuel significantly impacts the cost of our products. We purchase our
own fuel for our Home & Office delivery and use third parties for transportation
of raw materials and retail consumer product. While volume purchases and hedging
can help control erratic fuel pricing, market conditions ultimately determine
the price. We have entered into some agreements with haulers and fuel vendors in
an effort to control costs, but substantial changes in fuel prices, including,
for example, increases due to hostilities in the Middle East, would likely
affect our profitability.

         No assurance can be given that we will be able to obtain the supplies
we require on a timely basis or that we will be able to obtain them at prices
that allow us to maintain the profit margins we have had in the past. Any raw
material disruption or price increase may result in an adverse impact on our
financial condition and prospects.

SEASONALITY

         Our business is seasonal, with the retail consumer portion of the
business being more seasonal than the Home & Office market. Coffee sales are
counter seasonal to water. The period from June to September represents the peak
period for sales and revenues due to increased consumption of beverages during
the summer months in our core Northeastern United States market. As the larger
share of total sales has trended toward the Home & Office category, our
business, as a whole, has become less seasonal.

COMPETITION

         Management believes that bottled water historically has been a regional
business in the United States. As a result, there are numerous bottling
operations within the United States producing a large number of branded products
that are offered in local supermarkets and other retail outlets in the smaller
consumer sizes and sold to the Home & Office markets in one gallon and multiple
gallon containers.

         The bottled water market in this country is dominated by large
multi-national companies such as Nestle (Perrier Group), and Danone/Suntory
Water Group. Perrier markets such regional brands as Poland Spring, Deer Park,
Ice Mountain, Great Bear, Arrowhead, Calistoga, Ozarka, Zephyrhills, and
Aberfoyle Springs, and the Aqua-Cool division of Ionics. Groupe Danone
distributes Evian, Dannon, and Naya nationally. Danone/Suntory markets primarily
through the Home & Office channel regional brands such as Sparkletts, Belmont
Springs, Kentwood, Crystal Springs, Sierra

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Springs, and Hinckley Springs. The entry of Pepsi Cola (Aquafina) and Coca-Cola
(Dasani) into the PET retail segment, leveraging their production and
distribution infrastructure, has significantly altered the bottled water
industry. All of these global competitors have greater resources and their
brands are often better established than our brands.

         We also face increased competition from Canadian suppliers at low
prices due to the exchange rate differential and governmental subsidies in the
retail PET business. Additionally, there are well-established regional water
companies with operations that could adversely affect our business. We also face
competition from the fast growing "private label" and contract-packaged brands
of natural spring water. These brands compete on a low-price basis and often
occupy premium shelf space because they are retailer brands.

         The Home & Office market has several national or large competitors such
as Perrier Group (Poland Spring, Deer Park, and Great Bear), and Danone/Suntory
(Belmont Springs). Additionally, we compete with smaller regional bottlers such
as Monadnock in the Boston area, Leisure Time in the Hudson Valley of New York,
and Mayer Brothers in Buffalo.

         With our Vermont Pure(R) brand, we compete on the basis of pricing,
customer service, and quality of our products, the image of the State of
Vermont, attractive packaging, and brand recognition. With the Crystal Rock(R)
brand, we compete on the basis of the purity of the distilled product with
minerals added back for taste. We consider our trademarks, trade names and brand
identities to be very important to our competitive position and defend our
brands vigorously.

         We feel that installation of filtration units in the home or commercial
setting poses a competitive threat to the business. To address this, we make
available plumbed-in filtration units and servicing contracts on a limited
basis.

         As the retail industry consolidates, we are increasingly subject to
competition from large multinational companies with more resources and product
lines which could give them an advantage in selling, promoting, bottling, and
delivering products. We have one plant devoted to bottling retail size packages,
which to some extent hinders our ability to react to competitive changes in a
larger marketplace. In addition, a substantial event that incapacitated the
facility could result in an inability to satisfy customer needs.

         Consolidation of the retail and distribution trade has limited the
number of potential customers in the marketplace and increased competition to
obtain their business. If this trend were to continue, it could hamper our
ability to sell our retail products for an adequate profit margin.

         In the Home & Office segment, competition from non-traditional sources
is changing the marketplace. The two most notable examples are water filtration
as a substitute for purchasing water and cheaper coolers from offshore sources,
making customer purchasing a more viable alternative to leasing. We are reacting
to these changes by integrating these options into our business. If we are not
able to successfully integrate them into our business, our sales and profits
could decrease.

TRADEMARKS

        We sell our bottled water products under the trade names Vermont Pure
Natural Spring Water(R), Crystal Rock(R), Hidden Spring(R), and Stoneridge(R).
We have rights to other trade names, including Pequot Natural Spring Water(R),
Excelsior Spring Water(R), Happy Spring Water(R),

                                       11

<PAGE>

Manitock Spring Water(R), and Vermont Naturals(R). Our trademarks as well as
label design are registered with the United States Patent and Trademark Office.

GOVERNMENT REGULATION

         The Federal Food and Drug Administration, or FDA, regulates bottled
water as a "food." Accordingly, our bottled water must meet FDA requirements of
safety for human consumption, of processing and distribution under sanitary
conditions and of production in accordance with the FDA "good manufacturing
practices." To assure the safety of bottled water, the FDA has established
quality standards that address the substances that may be present in water which
may be harmful to human health as well as substances that affect the smell,
color and taste of water. These quality standards also require public
notification whenever the microbiological, physical, chemical or radiological
quality of bottled water falls below standard. The labels affixed to bottles and
other packaging of the water are subject to FDA restrictions on health and
nutritional claims for foods under the Fair Packaging and Labeling Act. In
addition, all drinking water must meet Environmental Protection Agency standards
established under the Safe Drinking Water Act for mineral and chemical
concentration and drinking water quality and treatment which are enforced by the
FDA.

         We are subject to the food labeling regulations required by the
Nutritional Labeling and Education Act of 1990. We believe we are in substantial
compliance with these regulations.

         We are subject to periodic, unannounced inspections by the FDA. Upon
inspection, we must be in compliance with all aspects of the quality standards
and good manufacturing practices for bottled water, the Fair Packaging and
Labeling Act, and all other applicable regulations that are incorporated in the
FDA quality standards.

         In May 1996, new FDA regulations became effective that redefined the
standards for the identification and quality of bottled water. We believe that
we meet the current regulations of the FDA, including the classification as
spring water.

         We also must meet state regulations in a variety of areas. The
Department of Health of the State of Vermont regulates water products for
purity, safety and labeling claims. Bottled water sold in Vermont must originate
from an "approved source." The water source must be inspected and the water
sampled, analyzed and found to be of safe and wholesome quality. The water and
the source of the water are subject to an annual "compliance monitoring test" by
the State of Vermont. In addition, our bottling facilities are inspected by the
Department of Health of the State of Vermont.

         Our product labels are subject to state regulation (in addition to the
federal requirements) in each state where the water products are sold. These
regulations set standards for the information that must be provided and the
basis on which any therapeutic claims for water may be made. We have received
approval from every state for which we have sought approval and can distribute
our brands in 49 states.

         The bottled water industry has a comprehensive program of
self-regulation. We are a member of the International Bottled Water Association,
or IBWA. As a member, our facilities are inspected annually by an independent
laboratory, the National Sanitation Foundation, or NSF. By means of unannounced
NSF inspections, IBWA members are evaluated on their compliance with the FDA
regulations and the association's performance requirements, which in certain
respects are more stringent than those of the federal and various state
regulations.

                                       12

<PAGE>

EMPLOYEES

         As of January 22, 2004, we had 367 full-time employees and 29 part-time
employees. None of the employees belongs to a labor union. We believe that our
relations with our employees are good.

         Our continued success will depend in large part upon the expertise of
senior management. On October 5, 2000, Timothy G. Fallon, Chairman and Chief
Executive Officer; Peter K. Baker, President; John B. Baker, Executive Vice
President; and Bruce MacDonald, Chief Financial Officer, Treasurer and Secretary
entered into five-year employment contracts with the Company. These agreements
do not prevent these employees from resigning. John Baker's contract has a
"reduced employment" option that became available to him in April 2002 that
allows for part-time employment at Mr. Baker's option. To date, Mr. Baker has
not exercised this option.

         The departure or loss of Mr. Fallon or Mr. Peter Baker in particular
could have a negative effect on our business and operations.

ADDITIONAL AVAILABLE INFORMATION

         Our principal Internet address is www.vermontpure.com. We make our
annual, quarterly and current reports, and amendments to those reports,
available free of charge on www.vermontpure.com, as soon as reasonably
practicable after we electronically file such material with, or furnish it to,
the SEC. Reports of beneficial ownership of our common stock, and changes in
that ownership, by directors and officers on Forms 3, 4 and 5 are likewise
available free of charge on our website.

ITEM 2. PROPERTIES.

         We own office, bottling and warehouse properties and natural springs in
Randolph, Vermont. We also rent, on a monthly basis, an office in White Plains,
New York.

         We rent public warehouse space in different locations from time to time
for the purpose of the trans-shipment of our bottled water products to our
distributors and retailers. This space is rented on a per pallet basis.

         As part of our Home & Office delivery operations, we have entered into
or assumed various lease agreements for properties used as distribution points
and office space. The following table summarizes these arrangements:

                                       13



<PAGE>

<TABLE>
<CAPTION>
    Location                    Lease expiration          Sq. Ft.       Annual Rent
    --------                    ----------------          -------       -----------
<S>                             <C>                       <C>           <C>
Williston, VT                   Month-to-Month              8,500       $    61,995
Waltham, MA                     December, 2008             11,760       $   108,780
Londonderry, NH                 April, 2005                 4,800       $    27,500
Rochester, NY                   January, 2007              15,000       $    89,400
Buffalo, NY                     September, 2005            10,000       $    60,000
Syracuse, NY                    December, 2005             10,000       $    33,420
Halfmoon, NY                    October, 2011              22,500       $   125,043
Plattsburgh, NY                 August, 2004                3,640       $    20,568
Watertown, CT                   October, 2010              67,000       $   360,000
Stamford, CT                    October, 2010              22,000       $   216,000
White River Junction, VT        March, 2004                 3,275       $    16,211
Waterbury, CT                   June, 2007                 19,360       $    91,974
</TABLE>

         In conjunction with the Crystal Rock merger, we entered into ten-year
lease agreements to lease the buildings that are utilized for operations in
Watertown and Stamford, Connecticut. The landlord for the buildings is a trust
with which Henry, John, and Peter Baker, and Ross Rapaport are affiliated.

         We expect that these facilities will meet our needs for the next
several years.

ITEM 3. LEGAL PROCEEDINGS.

         In August 2003 we filed a lawsuit in federal court in Massachusetts
against Nestle Waters North America, Inc. and its parent company, Nestle S.A.
Our lawsuit alleges that Nestle has engaged, and continues to engage, in false
and misleading advertising of its Poland Spring(R) brand of bottled water, and
that Nestle has marketed and sold, and continues to market and sell, Poland
Spring(R) as "spring water" with the knowledge that it is not spring water and
does not meet the scientific, regulatory or plain English definitions of the
term. We believe that these practices have helped Nestle, one of our major
competitors, to capture a very significant market share of the bottled water
market.

         We have made claims under the federal Lanham Act, which creates civil
liability for any person who, in commercial advertising or promotion,
misrepresents the nature, characteristics, qualities or geographic origin of
goods, services or commercial activities. We have also made claims under
corresponding provisions of unfair trade practice laws in approximately 25
states that provide a private right of action for such violations. We are
seeking an injunction that would require Nestle not to engage in false
advertising and to publish corrective advertising that would retract its false
and misleading statements. We are also seeking monetary damages. Nestle has
filed a motion to dismiss the case on the grounds that we have failed to state a
proper claim. The court has not yet ruled on Nestle's motion to dismiss.

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

         No matter was submitted to a vote of security holders during the
quarter ended October 31, 2003.

                                       14
<PAGE>

                                     PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

         Our Common Stock is traded on the American Stock Exchange, or AMEX,
under the symbol VPS. The table below indicates the range of the high and low
daily closing prices per share of Common Stock as reported by AMEX.

<TABLE>
<S>                                       <C>           <C>
Fiscal Year Ended October 31, 2003

         First Quarter                    $4.40         $3.54
         Second Quarter                   $4.15         $3.00
         Third Quarter                    $3.92         $3.05
         Fourth Quarter                   $3.70         $3.33

Fiscal Year Ended October 31, 2002

         First Quarter                    $5.50         $3.65
         Second Quarter                   $5.36         $4.70
         Third Quarter                    $4.99         $3.70
         Fourth Quarter                   $4.89         $3.30
</TABLE>

         The last reported sale price of our Common Stock on AMEX on January 14,
2004 was $3.13 per share.

         We had 390 record owners of our Common Stock as of January 14, 2004. As
of that date, we believe that there were approximately 3,200 beneficial holders
of our Common Stock.

         No dividends have been declared or paid to date on our Common Stock,
and we do not anticipate paying dividends in the foreseeable future. We follow a
policy of cash preservation for future use in the business.

SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS.

         The following table sets forth additional information as of October 31,
2003, about shares of our Common Stock that may be issued upon the exercise of
options and other rights under our existing equity compensation plans and
arrangements, divided between plans approved by our stockholders and plans or
arrangements that were not required to be and were not submitted to our
stockholders for approval.

                                       15
<PAGE>

<TABLE>
<CAPTION>
                                            (a)                          (b)                          (c)
--------------------------------------------------------------------------------------------------------------------
                                                                                             Number of Securities
                                                                                            remaining available for
                                Number of Securities to be    Weighted-average exercise      future issuance under
                                  issued upon exercise of       price of outstanding       equity compensation plans
                                   outstanding options,         options, warrants and        (excluding securities
        Plan Category               warrants and rights                rights              reflected in column (a)).
--------------------------------------------------------------------------------------------------------------------
<S>                             <C>                           <C>                          <C>
Equity compensation plans
approved by security holders             1,988,486                      $3.10                       657,697
--------------------------------------------------------------------------------------------------------------------
Equity compensation plans not
approved by security holders
(1)(2)(3)                                  490,335                      $2.50                           -0-
--------------------------------------------------------------------------------------------------------------------
Total                                    2,478,821                      $2.98                       657,697
--------------------------------------------------------------------------------------------------------------------
</TABLE>

(1) On July 24, 1996, we granted non-qualified stock options to each of Robert
Getchell, Beat Schlagenhauf, Norman Rickard, and David Preston to acquire 30,000
shares of our Common Stock for a per share price of $2.50. The options expire in
July 2006. Each grantee was a director at the time of grant and received the
option as a performance incentive. The material features of these plans are
substantially similar to those of the stockholder-approved plans.

(2) On September 12, 1997, we granted non-qualified stock options to David
Preston to acquire 26,000 shares of our Common Stock, and to each of Robert
Getchell, Beat Schlagenhauf, and Norman Rickard to acquire, in each case, 22,000
shares of our Common Stock for a per share price of $2.50. The options expire at
various times between September 2004 and December 2005. Each grantee was a
director at the time of grant and received the option as a performance
incentive. The material features of these plans are substantially similar to
those of the stockholder-approved plans.

(3) In an agreement dated November 4, 1994, and modified on September 12, 1997,
we granted non-qualified stock options to Tim Fallon to acquire 293,335 shares
of our Common Stock for a per share price of $2.50. The options expire on
December 1, 2004. In February 2002, Mr. Fallon exercised 25,000 of these
options. On July 24, 1996 we granted an additional 10,000 shares of our Common
Stock of non-qualified stock options at an exercise price of $2.50 per share.
The material features of these plans are substantially similar to those of the
stockholder-approved plans.

SECURITIES SOLD AND EXEMPTION FROM REGISTRATION CLAIMED.

         On January 2, 2003, the Corporation issued shares of the Company's
Common Stock, at a per share price of $4.33, to the following Directors of the
Company in lieu of the board fees owed them for calendar year 2002:

<TABLE>
<CAPTION>
Director             Number of Shares       Aggregate Price
--------             ----------------       ---------------
<S>                  <C>                    <C>
Norman Rickard            3,619                  $15,200
Beat Schlagenhauf         2,714                  $11,400
Ross Rapaport             2,952                  $12,400
</TABLE>

                                       16
<PAGE>

         Effective as of June 30, 2003, the following directors purchased shares
of the Company's Common Stock at a per share price of $3.49, pursuant to their
right to accept a portion of their compensation as directors in stock.
Certificates representing these shares were issued in January 2004.

<TABLE>
<CAPTION>
Director             Number of Shares       Aggregate Price
--------             ----------------       ---------------
<S>                  <C>                    <C>
Norman Rickard            2,135                  $7,451
Beat Schlagenhauf         1,504                  $5,249
Ross Rapaport             1,791                  $6,251
</TABLE>

         Each such transaction was exempt from registration under the Securities
Act of 1933 as a private placement under Section 4(2) thereof.

PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS DURING
THE FOURTH QUARTER.

         None.

ITEM 6. SELECTED FINANCIAL DATA.

         The selected consolidated financial data set forth below should be read
in conjunction with our financial statements and footnotes and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
appearing elsewhere in this report. The historical results are not necessarily
indicative of the operating results to be expected in the future.

<TABLE>
<CAPTION>
                                                Fiscal Years Ended
                       October 31,   October 31,   October 31,    October 31,   October 30,
                           2003          2002          2001          2000           1999
                       ------------  ------------  ------------  -------------  -----------
<S>                    <C>           <C>           <C>           <C>            <C>
Net sales              $ 76,195,246  $ 71,720,145  $ 64,858,277  $ 32,972,481   $28,864,737
Net income (loss)      $  1,352,555  $  2,509,455  $  1,168,844  $ (2,382,678)  $ 3,398,641
Net income (loss)
  per share-diluted    $        .06  $        .11  $        .06  $       (.22)  $       .31
Total assets           $111,334,064  $109,334,071  $106,131,155  $110,825,640   $33,834,230
Long term obligations  $ 48,273,782  $ 46,539,557  $ 47,851,386  $ 51,428,257   $13,733,268
</TABLE>

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS.

FORWARD-LOOKING STATEMENTS

         When used in the Form 10-K and in our future filings with the
Securities and Exchange Commission, the words or phrases "will likely result,"
"we expect," "will continue," "is anticipated," "estimated," "project," or
"outlook" or similar expressions are intended to identify "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. We wish to caution readers not to place undue reliance on any such
forward-looking statements, each of which speak only as of the date made. Such
statements are subject to various risks and uncertainties that could cause
actual results to differ materially from historical earnings and those presently
anticipated

                                       17
<PAGE>

or projected. We have no obligation to publicly release the result of any
revisions which may be made to any forward-looking statements to reflect
anticipated or unanticipated events or circumstances occurring after the date of
such statements.

RESULTS OF OPERATIONS

Performance Overview - Recent Trends

         Our net income declined from fiscal year 2002 to fiscal year 2003. In
addition, our operating results for fiscal year 2003 have been affected by
significant decreases in gross margin. In general, these decreases are
attributable to lower sales and higher costs for raw materials, direct labor and
operating overhead.

         The sluggish economic environment in our core markets has had a
negative effect on sales in the Home & Office segment. Net of acquisitions,
these conditions have resulted in lower volume through loss of customers,
reduced business with continuing customers, and increased competition causing
lower average selling prices. In addition, those products that reflect increased
sales are lower margin products. The retail segment has been transformed by
competition. Price cuts by large competitors in the branded market have
significantly reduced sales of our branded products. An increase in sales of
private label products has more than made up for this revenue. However, the
competitive environment has continued to decrease pricing for all products in
this segment. Although increased volume and bottling efficiencies have more than
offset commodity (PET plastic) price increases, it has not offset the reduction
in selling prices. The result was a lower gross margin percentage in the retail
segment compared to previous years.

         Fuel costs have increased both transportation and plastic costs. Higher
insurance costs have affected both employee benefits and property and casualty
expenses.

         Despite these adverse trends, current profitability levels and
continued positive cash flow have allowed us to continue to service our debt,
fund capital expansion, and continue our acquisition strategy.

         Results of this fiscal year have not altered our strategic direction,
even though growth and profitability trends have changed in the current fiscal
year compared to the past several years. We believe that variable external
factors such as economic conditions and commodity pricing will not change
current trends in the near term. While no assurance can be given that these
factors will change or moderate in the foreseeable future, we continue to
position our business so that cyclical improvements that have characterized
these and similar factors in the past are more likely to produce growth and
improve our profitability.

Fiscal Year Ended October 31, 2003 Compared to Fiscal Year Ended October 31,
2002

         Sales

         Sales for 2003 were $76,195,000 compared to $71,720,000 for 2002, an
increase of $4,475,000 or 6%.

         Sales through our Home & Office distribution channel increased to
$49,854,000 in 2003 from $49,068,000 in 2002, an increase of $786,000 or 2%. The
increase was a result of several small

                                       18
<PAGE>

acquisitions. Net of the acquisitions, sales were down 5%, primarily due to
lower sales prices and lower demand for products in this segment.

         The comparative breakdown of sales of the product lines within the
segment is as follows:

<TABLE>
<CAPTION>
       Product Line             2003           2002        Difference   % Diff.
                                ----           ----        ----------
                            (in 000's $)   (in 000's $)   (in 000's $)
--------------------------------------------------------------------------------
<S>                         <C>            <C>            <C>           <C>
Water                         $24,030        $24,738       $   (708)      (3%)

Coffee and Other Products      17,284         15,581          1,703       11%

Equipment Rental                8,540          8,749           (209)      (2%)
                              -------        -------       --------       --

Total                         $49,854        $49,068       $    786        2%
</TABLE>

         Water - Sales were favorably affected by $260,000 of sales attributable
to acquisitions made during the year. A 1% decrease in delivered bottles, net of
acquisitions, accounted for $523,000 of the decrease in sales. The decreased
volume was a result of lower market demand due to the economic environment and
competition from the filtration market. The average selling price per delivered
bottle decreased 2% as a result of competitive pressures in our core market. In
aggregate, the change in price amounted to $445,000 of the decrease in sales for
this line.

         Coffee and Other Products - The acquisition of a large office coffee
distributor during the year increased sales $653,000. In addition, revenue
increased $707,000 from administrative fees to recapture increased fuel costs in
the third quarter and the recovery of bottle deposits not returned.

         Equipment Rental - Water cooler rental was down as a result of the
lower market demand referred to above and competition from retail outlets
selling units. Placements were down less than 1% and average price was down 2%,
resulting in an aggregate decrease in rentals of $202,000. Brewer rentals
increased slightly as a result in demand for single serve units.

         Sales of our consumer retail products increased to $22,382,000 in 2003
from $21,197,000 in 2002, an increase of $1,185,000, or 6%. Total case volume
increased 25% from fiscal year 2002. However, all of our lines face stiff
competition from national and regional brands. The result is that average
selling price decreased 15%.

         The comparative breakdown of sales by product line for this segment is
as follows:

<TABLE>
<CAPTION>
     Brand             2003           2002        Difference    % Diff.
                       ----           ----        ----------
                   (in 000's $)   (in 000's $)   (in 000's $)
-----------------------------------------------------------------------
<S>                <C>            <C>            <C>            <C>
Private Label        $16,426        $13,075        $ 3,351        26%

Vermont Pure(R)        2,873          4,763         (1,890)      (40%)

Hidden Spring(R)       3,083          3,359           (276)       (8%)
                     -------        -------        -------        --
Total                $22,382        $21,197        $ 1,185         6%
</TABLE>

         Private Label - The increase in sales of private label products is
attributable to the acquisition of new customers and continued growth of market
demand. Sales volume increased 26% while average selling price fell 8% from 2002
to 2003.

         Vermont Pure(R) & Hidden Spring(R) - Sales of branded products declined
as a result of a decrease in volume due to limited distribution options and
price due to the competitive environment.

                                       19
<PAGE>

         Sales of water in the one-gallon size more than doubled in fiscal year
2003 to $3,959,000 from $1,455,000 in fiscal year 2002. The increase is
attributable to two major customers that started purchasing product in fiscal
year 2002.

         Gross Profit/Cost of Goods Sold

         Gross profit decreased to $34,952,000, or 46% of sales, in 2003 from
$36,137,000, or 50% of sales, in 2002. The decrease in gross profit was
attributable to lower average selling prices and higher costs. Gross profit for
the Home & Office segment decreased to $29,054,000, or 58% of sales, in 2002
from $30,009,000, or 61% of sales, in 2001. The decrease in gross profit was due
to lower sales volume and average selling prices, particularly for our higher
margin water-related products. In addition, increased cost of sales lowered
margins. The increase in cost of sales is attributable to higher insurance and
employee benefit costs, higher costs of production as a result of higher costs
of materials for bottles and labor, and higher service costs as a result of
lower sales volume per customer.

         Gross profit for the consumer retail segment decreased to $5,229,000,
or 23% of sales, in 2003 from $5,732,000, or 27% of sales, in 2002. The decrease
in gross profit was attributable to the effect of lower average selling prices
despite higher sales volume. Lower average selling prices are attributable to a
change in competitive pressures affecting all products as well as a change in
product mix from branded to private label. Production costs were stable from
2002 to 2003 with savings from efficiency and volume being mitigated by
increases in energy-related raw materials.

         Gross profit for the retail gallon segment increased to $669,000 in
2003 from $396,000 in 2002. The higher gross margin is attributable to higher
sales. However, a decrease in average selling prices due to competitive
pressures caused gross margin as a percentage of sales to decrease to 17% from
27% for the respective years.

         Income from Operations/Operating Expenses

         Total operating expenses increased to $28,294,000 in 2003 from
$27,024,000 in 2002, an increase of $1,270,000, or 5%. Operating expenses in the
Home & Office and gallon segments increased 6% and 52%, respectively, while
operating expenses decreased 3% in the retail segment. Higher operating costs,
combined with lower selling prices and higher production costs, resulted in a
decrease in income from operations of $2,454,000, to $6,659,000 in 2003 compared
to $9,113,000 in 2002.

         Selling, general and administrative (SG&A) expenses were $26,802,000
and $25,084,000 for 2003 and 2002, respectively, an increase of $1,718,000, or
7%. For the Home & Office segment, SG&A expenses increased to $21,030,000 in
2003 from $19,515,000 in 2002, an increase of $1,515,000, or 8%. This increase
was primarily driven by an increase in the sales force to maintain and improve
sales volume. SG&A expenses in the retail segments increased 4% to $5,772,000 in
2003 from $5,569,000 the prior year. The increase of $203,000 was primarily
attributable to higher transportation, storage, and administrative costs
associated with higher sales volume.

         Advertising expenses decreased 24% to $1,266,000 in 2003 from
$1,656,000 in 2002. Advertising for the retail segment totaled $465,000 in 2003
compared to $683,000 in 2002, a decrease of 32%. In the Home & Office segment,
advertising decreased 18% to $801,000 in 2003 from $973,000 in 2002. The
decrease is reflective of a sales strategy that focused more on direct sales
than advertising. Advertising for the retail segment totaled $462,000 in 2003
compared to

                                       20
<PAGE>

$683,000 in 2002, a decrease of 32%. As private label products make up a larger
part of our sales mix, less promotional support is required.

         Amortization decreased to $186,000 in 2002 to $232,000 in 2003 because
certain acquisition agreements that we amortize have been fully amortized during
the year. We performed a test for impairment of goodwill in the second quarter
and determined that there is no impairment to the goodwill presently on the
balance sheet. An assessment of the value of goodwill will be completed annually
by an outside, independent firm. All amortization is accounted for in the Home &
Office segment.

         Other compensation in fiscal year 2003 totaled $39,000 compared to
$52,000 in fiscal year 2002. This expense relates to compensation paid in
company stock.

         Interest, Taxes, and Other Expenses

         Net interest expense decreased to $4,413,000 in 2003 from $4,553,000 in
2002, a decrease of $140,000. This was reflective of lower market interest rates
on the variable portion of our senior debt and operating line of credit. Further
savings were mitigated by higher-than-market interest rate swaps that fixed a
portion of our senior debt, as discussed further in the next section. While we
expect to experience savings of as much as $600,000 in fiscal year 2004 from the
termination of current swap agreements, these savings could erode if market
rates increase considerably.

         We had a loss of $42,000 on the sale of equipment in the normal course
of business compared to a loss of $228,000 last year.

         Income before income tax expense was $2,204,000 for 2003 compared to
$4,260,000 in 2002. Lower taxable income resulted in a $900,000 decrease in
income tax expense from 2002 to 2003. The effective tax rate that we used to
compute our expense reduced slightly from 41% to 39%. For a reconciliation of
the effective and statutory expense, see Note 18 to our Notes to the
Consolidated Financial Statements. Our total effective tax rate is a combination
of federal and state rates for the states in which we operate. Historically, our
rate has been approximately 40% of income before taxes and we expect that to
continue.

         Net Income

         Lower interest and taxes did not offset lower prices and higher costs
mentioned earlier. As a result, net income decreased to $1,352,000 in 2003 from
$2,509,000 in 2002, a decrease of $1,157,000, or 46%.

         Based on the weighted average number of shares of common stock
outstanding of 21,282,294 (basic) and 21,764,698 (diluted) during 2003, net
income was $.06 per share - basic and diluted. This compares to $.12 per share,
basic, and $.11 per share, diluted, in 2002.

         We entered into a new swap agreement during the year ended October 31,
2003 as (described under Liquidity and Capital Resources). Cumulatively, the
fair value of our four outstanding swaps increased $785,000 during the year,
resulting in an unrealized loss of $36,000, net of taxes, over the life of the
instruments. This amount has been recognized as an adjustment to net income to
arrive at comprehensive income as defined by the applicable accounting
standards. Further, it has been recorded as a current liability and a decrease
in stockholders' equity on our balance sheet.

                                       21
<PAGE>

Fiscal Year Ended October 31, 2002 Compared to Fiscal Year Ended October 31,
2001

         Sales for 2002 were $71,720,000 compared to $64,858,000 for 2001, an
increase of $6,872,000 or 12%.

         Sales through our Home & Office distribution channel increased to
$49,068,000 in 2002 from $47,551,000 in 2001, an increase of $1,517,000 or 3%.
The increase was a result of an acquisition in our core southern New England
market. Sales were down 2%, exclusive of the acquisition, primarily due to a
decrease in sales of our non-water related products.

         Home & Office sales were 68% of total sales in 2002, compared to 73% in
the previous year. Water sales totaled $24,738,000 in 2002 compared to
$23,027,000 in 2001, an increase of $1,711,000, or 7%. Coffee and other product
sales in this area were $15,581,000 in 2002 compared to $16,501,000 in 2001, a
decrease of $920,000 or 6%. Equipment rentals totaled $8,749,000 in 2002
compared to $8,023,000 in 2001, an increase of $726,000, or 9%. The increase in
water sales and equipment rentals was largely attributable to the acquisition
and growth in our northern New England and New York markets. Sales for the
category, in general, were negatively affected by poor economic growth
conditions, particularly in the southern New England market.

         Sales of our consumer retail products increased to $22,652,000 in 2002
from $17,307,000 in 2001, an increase of $5,345,000, or 31%. The increase is
attributable to the private label brands which more than doubled from $6,893,000
in 2001 to $14,530,000 in 2002. This reflected growing market demand and the
addition of a major grocery chain and a national drug chain as customers during
the year. Vermont Pure(R) brand sales decreased 25% from $6,346,000 in 2001 to
$4,763,000 in 2002. Hidden Spring(R) brand sales decreased 17% from $4,068,000
in 2001 to $3,359,000 in 2002. We believe that the decrease in the branded
products for the year was due to the increasingly competitive nature of the
branded marketplace. Competition has affected both price and distribution
channels. As a consequence, there is no assurance that we can regain sales that
have been lost in the branded markets. Average selling price for the segment was
down 9% for 2002. We believe the reduction in average selling price was due to
competitive pressure for both branded and private label products. Furthermore,
in conjunction with new private label agreements, we added a one-gallon size
bottle during 2002, which is a lower priced product by volume compared to other
products.

         Cost of goods sold for 2002 was $35,583,000, or 50% of sales, compared
to $29,803,000 or 46% of sales, for 2001. The increase in cost of goods sold, as
a percentage of sales, compared to the prior year was attributable to the
increase in consumer retail product costs and higher costs in the Home & Office
segment. Cost of goods sold was $19,059,000 in 2002 for the Home & Office
segment compared to $18,059,000 for the previous year. For the consumer retail
segment cost of goods sold was $16,524,000 in 2002 compared to $11,744,000 for
2001. Cost per unit of retail product remained stable from 2001 to 2002.

         Gross profit increased to $36,137,000, or 50% of sales, in 2002 from
$35,055,000, or 54% of sales, in 2001. Gross profit as a percentage of sales
decreased by 4% as a result of lower average selling prices and higher costs.
The aggregate dollar increase was attributable to higher sales volume. Gross
profit for the Home & Office segment increased to $30,009,000, or 61% of sales,
in 2002 from $29,492,000, or 62% of sales, in 2001. The dollar increase in gross
profit was attributable to higher sales volume. The decrease in gross profit as
a percentage of sales was due to higher service costs in the segment. Gross
profit for the consumer retail segment increased to $6,128,000, or 27% of sales,
in 2002 from $5,563,000, or 32% of sales, in 2001. The dollar increase in gross

                                       22
<PAGE>

profit was attributable to higher sales volume. The decrease in gross profit as
a percentage of sales was due to lower average selling prices. Lower average
selling prices are attributable to a change in competitive pressures affecting
all products as well as a change in product mix from branded to private label.

         Total operating expenses decreased to $27,024,000 in 2002 from
$28,178,000 in 2001, a decrease of $1,154,000, or 4%. Operating expenses for the
retail segment of the business increased to $6,304,000 in 2002 from $5,510,000
the previous year, an increase of $794,000, or 14%. Home & Office delivery
operating expenses decreased to $20,720,000 in 2002 from $22,668,000 the
previous year, a decrease of $1,948,000, or 9%.

         Selling, general and administrative, or SG&A, expenses were $25,084,000
and $24,302,000 for 2002 and 2001, respectively, an increase of $782,000, or 3%.
SG&A expenses in the retail segment increased 16% to $5,569,000 in 2002 from
$4,824,000 the prior year. The increase was attributable to higher distribution
and storage costs associated with higher sales volume. For the Home & Office
segment, SG&A expenses increased to $19,515,000 in 2002 from $19,478,000 the
prior year.

         Advertising expenses increased 26% to $1,656,000 in 2002 from
$1,317,000 in 2001. Advertising for the consumer retail segment totaled $683,000
in 2002 compared to $670,000 in 2001. In the Home & Office segment, advertising
increased 51% to $973,000 in 2002 from $646,000 in 2001. The substantial
increase was due to an effort to offset poor economic conditions with increased
visibility.

         Amortization decreased from $2,544,000 in 2001 to $232,000 in 2002
because at the beginning of 2002 we implemented Statement of Financial
Accounting Standards No. 142, which stipulates that goodwill will not be
amortized. The pronouncement also stipulates that goodwill will be assessed
periodically for impairment. We completed a valuation of goodwill in the second
quarter and determined that there is no impairment to the goodwill presently on
the balance sheet. An assessment of the value of goodwill will be completed
annually. Other intangible assets continue to be amortized. All amortization is
accounted for in the Home & Office segment.

         Other compensation in fiscal year 2002 totaled $52,000 compared to
$16,000 in fiscal year 2001. This expense is attributed to the exercise of stock
options.

         Income from operations was $9,113,000 in 2002 compared to $6,877,000 in
2001, an increase of $2,236,000. The increase was a result of higher sales and
lower operating costs. Net interest expense decreased to $4,553,000 in 2002 from
$5,034,000 in 2001, a decrease of $481,000. This was reflective of lower market
interest rates on the variable portion of our senior debt and operating line of
credit. In 2002, we had a loss of $228,000 on sale of land and buildings in New
York and Vermont. As a result of the sale, we no longer own property in New
York. Also in 2002, we had miscellaneous expenses of $71,000 representing the
net of worker's compensation and tax settlements combined with income from the
sale of a trademark.

         Income before taxes was $4,260,000 in 2002 compared to $1,849,000 in
2001, an improvement of $2,411,000. The increase is a result of higher sales and
lower amortization and interest.

                                       23
<PAGE>

         We recorded net tax expense of $1,751,000 in 2002, reflecting an
effective tax rate of 41%, compared to $680,000 in 2001, an effective tax rate
of 37%. We had no deferred tax benefits available in 2002 since loss
carryforwards, for book purposes, have been fully utilized. Tax expense in 2001
was offset by a deferred tax benefit of $973,000. Our effective tax rate in 2001
was 37% compared to our assumed statutory rate of 40%. The rate was lowered by
the recognition of the deferred tax benefit, but the benefit was offset by
amortization from the Crystal Rock merger that is not deductible for tax
purposes. For a reconciliation of the effective and statutory expense, see Note
18 to our Notes to the Consolidated Financial Statements.

         Based on the weighted average number of shares of common stock
outstanding of 21,091,837 (basic) and 22,035,269 (diluted) during 2002, net
income was $.12 per share - basic and $.11 per share - diluted. This compares to
$.06 per share under both methods in 2001.

         As discussed above, we periodically execute interest rate swaps as part
of our strategy to curtail our interest rate risk. Such instruments are
considered hedges under SFAS No. 133 and 137. Since the instrument is intended
to hedge against variable cash flows, it is considered a cash flow hedge. As a
result, the change in the fair value of the derivative is recognized as other
comprehensive income (loss) until the hedged item is recognized in earnings. We
did not enter into any new swap agreements during the year ended October 31,
2002. Cumulatively, the fair value of our three outstanding swaps increased
$131,000 during the year resulting in a net decrease in value of $843,000 over
the life of the instruments. This amount has been recognized as an adjustment to
net income to arrive at comprehensive income as defined by the applicable
accounting standards. Further, it has been recorded as a current liability and a
decrease in owners' equity on our balance sheet.

LIQUIDITY AND CAPITAL RESOURCES

         At October 31, 2003, we had working capital of $5,061,000. This
represents an increase of $1,287,000 from the $3,774,000 of working capital on
October 31, 2002. A significant amount of working capital was provided by the
restructuring of our debt.

         On March 5, 2003 we refinanced our senior credit facility with Webster
Bank and other participants. The new credit facility refinanced $28.5 million of
existing senior debt, provided a working capital line of $6.5 million for a term
of two years, and makes available up to $15 million to be used for acquisitions
and the partial repayment of our outstanding 12% subordinated notes. Of the $15
million, up to $10 million is available for acquisitions in our Home & Office
delivery segment, and up to $5 million would have been available for the
repayment of subordinated debt if we were able to achieve specified financial
performance targets in fiscal year 2003. The targets were not met, so presently
that portion of the facility is not available for repayment of subordinated
debt.

         The senior debt refinancing resulted in an improvement in working
capital in two ways. First, it extended the amortization of the term loan,
lowering payments in the earlier years, and thereby reclassifying less debt as
current. Second, it rolled the existing line of credit balance into the term
loan, thereby classifying it as long term debt.

         In addition to the senior debt refinancing, we refinanced the 12%
subordinated notes that were due in 2007 with principal payments due on a
quarterly basis starting in fiscal year 2004. Under the new terms, the entire
balance of the notes will be due and payable on May 31, 2008. No principal
payments are scheduled prior to that date. Interest payments of $678,000 are
made quarterly.

                                       24
<PAGE>

         The line of credit balance was $1.5 million at the time of the
refinancing. We borrowed up to $1.9 million from our operating line of credit as
a source of cash during the year to fulfill operating and capital needs. This
was repaid during the year. As of October 31, 2003, there was no outstanding
balance on the operating line of credit and we had borrowed $1.6 million for
acquisitions in our Home & Office segment. There is $921,000 committed for
letters of credit on the operating line. During 2003, we applied $3.5 million to
scheduled debt repayments. We were in compliance with all of our financial
covenants for the year ended October 31, 2003.

         On June 11, 2003, we entered into an interest rate "swap" agreement
with Webster Bank in the notional amount of $10 million. The underlying debt for
this agreement is the new credit facility with Webster Bank described above. The
swap agreement fixes the interest rate for the notional amount for three years
at 1.74% plus the interest rate spread defined by the agreement, currently 2%.
On November 3, 2003, a separate swap agreement with Webster Bank matured. This
agreement was for a notional amount of $8 million at an interest rate of 6.57%
plus the applicable margin. As of the date of this report, the total amount of
our senior debt with fixed swap rates is $18 million. Another $8 million of
swapped debt will convert back to variable rates by July 2004. The new,
lower-priced swap contract combined with the aging of the older contracts
combined to reduce the unrealized loss that we book to recognize the value of
these contracts. This effectively contributed to increasing working capital.

         In addition to our senior and subordinated debt commitments, we have
significant future cash commitments, primarily in the form of operating leases,
that are not reported on the balance sheet. The following table sets forth these
future commitments.

<TABLE>
<CAPTION>
                                              Coffee Purchase
Fiscal Year      Debt      Operating Leases     Commitments       Total
<S>          <C>           <C>                <C>              <C>
2004         $ 3,148,000      $2,003,000        $   838,000    $ 5,989,000
2005           5,380,000       1,792,000            167,000      7,339,000
2006           4,007,000       1,523,000                         5,530,000
2007           4,190,000       1,329,000                         5,519,000
2008          34,697,000       1,168,000                        35,865,000
Thereafter             0       1,823,000                         1,823,000
             -----------      ----------                       -----------
Total        $51,422,000      $9,638,000        $ 1,005,000    $62,065,000
</TABLE>

         As of the date of this report, we have no other material contractual
obligations or commitments.

         Receivables increased as result of higher sales, but inventory
decreased by $1.1 million as result of efficient management of transportation
and storage. This provided cash from operations. We have reduced our deferred
tax asset by $1,263,000 to reflect our utilization of net operating losses to
offset taxes that would have been payable for the period. We have reduced the
current portion and increased the long term portion of the deferred tax asset to
reflect current estimates of future utilization. There is a total deferred tax
asset of $2,249,000 as of October 31, 2003.

         Net of acquisitions, we used $3.3 million for equipment purchases,
consisting mostly of coolers, brewers, bottles and racks related to Home &
Office distribution. Capital spending in fiscal

                                       25
<PAGE>

2003 was lower than the corresponding period in fiscal 2002 because of the
bottling line installed last year. In addition to borrowing $1.6 million for
acquisitions from our senior credit facility during 2003, we used $2.2 million
of cash generated internally and gave notes to the sellers totaling $200,000 to
complete the transactions. If the right opportunities become available, we
anticipate using our capital resources and financing from outside sources to
complete desirable acquisitions.

         We commissioned and received an independent opinion concerning the fair
value of our Home & Office reporting unit during fiscal years 2002 and 2003. The
Home & Office segment is the unit through which acquisitions have been made and
corresponding goodwill has been booked. For both years the assessment determined
that there is no impairment of the goodwill that was booked as a result of these
acquisitions.

Factors Affecting Future Cash Flow

         Lower debt service requirements for the new senior and subordinated
financing arrangements will provide more cash in future periods. However, we
will not receive additional proceeds from refinancing our debt in future years
as we did in 2003. Since we have relied on debt to finance our acquisition
strategy, lower market interest rates have significantly reduced our interest
costs. While interest rates are expected to stay low in the immediate future and
until economic conditions improve, we continue to be exposed to market rates.
See Item 7A for a discussion of interest rate risk. In addition, we would expect
inventory and capital spending in fiscal year 2004 to remain relatively
unchanged from 2003, which likewise will not increase the availability of cash.
We expect that cash on hand and cash generated from future operations combined
with the operating line of credit with Webster Bank will provide sufficient cash
flow for routine operations and growth in the foreseeable future. However, no
assurance can be given that this will be the case, and that adequate financing
at reasonable interest rates will be secured if more cash is needed.

         We continue to pursue an active program of evaluating acquisition
opportunities. As a result, we anticipate using our capital resources and
financing from outside sources in order to complete any further acquisitions. We
have no other current arrangements with respect to, or sources of, additional
financing for our business or future plans. There can be no assurance that
financing will be available on acceptable terms or at all to execute future
plans.

         Inflation has had no material impact on our performance.

CRITICAL ACCOUNTING POLICIES

         The Securities and Exchange Commission has requested that filers report
their critical accounting policies. The SEC defines "critical accounting
policies" as those that require application of management's most difficult,
subjective or complex judgments, often as a result of the need to make estimates
about the effects of matters that are inherently uncertain and may change in
subsequent periods.

         Our financial statements are prepared in accordance with generally
accepted accounting principles. Preparation of the statements in accordance with
these principles requires that we make estimates, using available data and our
judgment for such things as valuing assets, accruing liabilities, and estimating
expenses. The following is a list of what we feel are the most critical
estimations that we make when preparing our financial statements.

                                       26
<PAGE>

Accounts Receivable - Allowance for Doubtful Accounts

We routinely review our accounts receivable, by customer account aging, to
determine the collectibility of the amounts due based on information we receive
from the customer, past history, and economic conditions. In doing so, we adjust
our allowance accordingly to reflect the cumulative amount that we feel is
uncollectible. This estimate may vary from the proceeds that we actually
collect. If the estimate is too low we may incur higher bad debt expenses in the
future resulting in lower net income. If the estimate is too high, we may
experience lower bad debt expense in the future resulting in higher net income.

Fixed Assets - Depreciation

We maintain buildings, machinery and equipment, and furniture and fixtures to
operate our business. These assets have extended lives. We estimate the life of
individual assets to spread the cost over the expected life. The basis for such
estimates is use, technology, required maintenance, and obsolescence. We
periodically review these estimates and adjust them if necessary. Nonetheless,
if we overestimate the life of an asset or assets, at a point in the future, we
would have to incur higher depreciation costs and consequently, lower net
income. If we underestimate the life of an asset or assets, we would absorb too
much depreciation in the early years resulting in higher net income in the later
years when the asset is still in service.

Goodwill - Intangible Asset Impairment

We have acquired a significant number of companies. The difference between the
value of the assets and liabilities acquired, including transaction costs, and
the purchase price is recorded as goodwill. If goodwill is not impaired, it
remains as an asset on our balance sheet at the value acquired. If it is
impaired, we are required to write down the asset to an amount that accurately
reflects its carrying value. We have had an independent valuation company value
the Home & Office segment, where all goodwill is recorded. By comparing the
value of the segment to the carrying value of the goodwill we have determined
that it is not impaired. In providing the valuation, the valuation company has
relied, in part, on projections of future cash flows of the assets that we
provided. If these projections change in the future, there may be a material
impact on the valuation of goodwill, resulting in impairment of the asset.

Deferred Tax Asset

We have recognized a deferred tax asset on our balance sheet to reflect
cumulative current benefit of future tax loss carryforwards. We expect this
asset to be realized over the next two years and therefore have not provided a
valuation allowance related to this asset. We have relied on our estimated
financial results for future years. If we have overestimated earnings in future
years, we may have, in turn, overestimated the deferred tax asset and may have
to provide a valuation allowance, decreasing net income. Conversely, it may take
us longer to realize the value of the asset.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

         Market risks relating to our operations result primarily from changes
in interest rates and commodity prices, primarily the resin prices for PET
bottles.

INTEREST RATE RISKS

         At November 3, 2003, we had approximately $10,800,000 of long term debt
subject to variable interest rates. Under the loan and security agreement with
Webster Bank, we currently pay

                                       27
<PAGE>

interest at a rate of LIBOR plus a margin of 2%. A hypothetical 100 basis point
increase in the LIBOR rate would result in an additional $108,000 of interest
expense on an annualized basis. Conversely, a decrease would result in a
proportionate interest cost savings.

         We use interest rate "swap" agreements to curtail interest rate risk.
The following table summarizes our current agreements:

<TABLE>
<CAPTION>
Notional Amount    Fixed Interest Rate    Maturity Date
-------------------------------------------------------
<S>                <C>                    <C>
  $ 4,000,000             8.53%           April 2, 2004

  $ 4,000,000             7.25%           July 24, 2004

  $10,000,000             3.74%           June 11, 2006
</TABLE>

         In aggregate, we have fixed the interest rate on this $18,000,000 of
debt at 5.58% until July 2004. Currently, we believe that this is above market
rates but we expect our cumulative interest rates to be at or below market after
July. We will continue to evaluate swap rates as agreements mature. They serve
to stabilize our cash flow and expense but ultimately may cost more or less in
interest than if we had carried all of our debt at a variable rate over the swap
term. Our strategy is to keep the fixed and variable portions of our senior debt
approximately equal to offset and minimize the respective risk of rising and
falling interest rates. Future low rates may compel us to fix a higher portion
to further stabilize cash flow and expenses as we monitor short and long term
rates and debt balances.

COMMODITY PRICE RISKS

         Plastic - PET

         We have a four year agreement with our bottle supplier that allows them
to pass on any resin price increases to us. These prices are related to supply
and demand market factors for PET and, to a lesser extent, the price of
petroleum, an essential component of PET. A hypothetical resin price increase of
$.05 per pound would result in an approximate price increase per bottle of $.002
or, at current volume levels, $200,000 a year.

         Coffee

         The cost of our coffee purchases are dictated by commodity prices. We
enter into contracts to mitigate market fluctuation of these costs by fixing the
price for certain periods. Currently we have fixed the price of our anticipated
supply through June 2004 at "green" prices ranging from $.61-$.74 per pound. We
are not insulated from price fluctuations beyond that date. At our existing
sales levels, an increase in pricing of $.10 per pound would increase our total
cost for coffee $75,000. In this case, competitors that had fixed pricing might
have a competitive advantage.

         Diesel Fuel

         We own and operate vehicles to deliver product to customers. The cost
of fuel to operate these vehicles fluctuates over time. During fiscal 2003 we
incurred $650,000 of fuel expense. Based on last year's consumption, a $0.10
increase per gallon in fuel cost would result in an increase to operating costs
of approximately $60,000.

         We also pay for fuel indirectly by hiring carriers to deliver product
though we do not have contracts with them. While the impact of a change in
prices is less predictable because of the absence of a contractual arrangement
and varying hauling distances, we know that fuel prices affect

                                       28
<PAGE>

freight rates. Based on experience and estimates, a $.10 per gallon increase in
fuel costs would result in additional freight cost of $30,000 per year.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

         Our Consolidated Financial statements and their footnotes are set forth
on pages F-1 through F-27.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE

         In 2003, the Company changed accountants and reported such changes on
Form 8-K on May 12, 2003 and August 8, 2003.

ITEM 9A. CONTROLS AND PROCEDURES

         Our Chairman and Chief Executive Officer, our Chief Financial Officer,
and other members of our senior management team have evaluated the effectiveness
of our disclosure controls and procedures (as defined in Exchange Act Rules
13a-15(e) and 15d-15(e)). Based on such evaluation, our Chairman and Chief
Executive Officer and Chief Financial Officer have concluded that our disclosure
controls and procedures, as of the end of the period covered by this report,
were adequate and effective to provide reasonable assurance that information
required to be disclosed by the Company, including our consolidated
subsidiaries, in reports that we file or submit under the Exchange Act, is
recorded, processed, summarized and reported, within the time periods specified
in the Commission's rules and forms.

         The effectiveness of a system of disclosure controls and procedures is
subject to various inherent limitations, including cost limitations, judgments
used in decision making, assumptions about the likelihood of future events, the
soundness of internal controls, and fraud. Due to such inherent limitations,
there can be no assurance that any system of disclosure controls and procedures
will be successful in preventing all errors or fraud, or in making all material
information known in a timely manner to the appropriate levels of management.

                                       29
<PAGE>

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

         The information required by this Item is incorporated by reference from
the Proxy Statement for our Annual Meeting of Stockholders scheduled to be held
April 13, 2004.

ITEM 11. EXECUTIVE COMPENSATION.

         The information required by this Item is incorporated by reference from
the Proxy Statement for our Annual Meeting of Stockholders scheduled to be held
April 13, 2004.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

         Information required by this Item is incorporated by reference from the
Proxy Statement for our Annual Meeting of Stockholders scheduled to be held
April 13, 2004.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

         The information required by this Item is incorporated by reference from
the Proxy Statement for our Annual Meeting of Stockholders scheduled to be held
April 13, 2004.

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES.

         The information required by this Item is incorporated by reference from
the Proxy Statement for our Annual Meeting of Stockholders scheduled to be held
April 13, 2004.

                                       30
<PAGE>

                                     PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.

a) Reports on Form 8-K during the quarter ended October 31, 2003.

         A Report on Form 8-K was filed on August 8, 2003 to announce a change
of independent accountants from Marcum & Kliegman LLP to Deloitte & Touche LLP.

         A Report on Form 8-K was filed on September 15, 2003 in conjunction
with the press release announcing our financial results for the third quarter of
fiscal year 2003.

b) The following documents are filed as part of this report:

         Financial Statements

                  Reference is made to the Financial Statements included in Item
                  8 of Part II hereof.

c) Exhibits as required by Item 601 of Regulation S-K:

<TABLE>
<CAPTION>
Exhibit
Number                                                                  Description
------                                                                  -----------
<S>                        <C>
 3.1                       Certificate of Incorporation of the Company. (Incorporated by reference to Exhibit B to Appendix A to the
                           Proxy Statement included in the S-4 Registration Statement filed by Vermont Pure Holdings, Ltd., f/k/a VP
                           Merger Parent, Inc., File No. 333-45226, on September 6, 2000 (the "S-4 Registration Statement").)

 3.2                       Certificate of Amendment of Certificate of Incorporation of the Company filed October 5, 2000.
                           (Incorporated by reference to Exhibit 4.2 of the Report on Form 8-K filed by the Company on October 19,
                           2000 (the "Merger 8-K").)

 3.3                       By-laws of the Company. (Incorporated by reference from Exhibit 3.3 to Form 10-Q for the Quarter ended
                           July 31, 2001.)

 4.1                       Registration Rights Agreement among the Company, Peter K. Baker, Henry E. Baker, John B. Baker and Ross
                           Rapaport. (Incorporated by reference to Exhibit 4.6 of the Merger 8-K.)

 10.1*                     1993 Performance Equity Plan. (Incorporated by reference from Exhibit 10.9 of Registration Statement
                           33-72940.)

 10.2*                     1998 Incentive and Non-Statutory Stock Option Plan, as amended. (Incorporated by reference to Appendix A
                           to the Definitive Proxy Statement dated March 10, 2003.)
</TABLE>

                                       31

<PAGE>

<TABLE>
<S>                        <C>
 10.3*                     1999 Employee Stock Purchase Plan. (Incorporated by reference to Exhibit A of the 1999 Definitive Proxy
                           Statement.)

 10.4*                     Employment Agreement between the Company and Timothy G. Fallon. (Incorporated by reference to Exhibit
                           10.13 of the S-4 Registration Statement.)

 10.5*                     Employment Agreement between the Company and Bruce S. MacDonald. (Incorporated by reference to Exhibit
                           10.14 of the S-4 Registration Statement.)

 10.6*                     Employment Agreement between the Company and Peter K. Baker. (Incorporated by reference to Exhibit 10.15
                           of the S-4 Registration Statement.)

 10.7*                     Employment Agreement between the Company and John B. Baker. (Incorporated by reference to Exhibit 10.16
                           of the S-4 Registration Statement.)

 10.8*                     Employment Agreement between the Company and Henry E. Baker. (Incorporated by reference to Exhibit 10.17
                           of the S-4 Registration Statement.)

 10.9                      Lease of Buildings and Grounds in Watertown, Connecticut from the Baker's Grandchildren Trust.
                           (Incorporated by reference to Exhibit 10.22 of the S-4 Registration Statement.)

 10.10                     Lease of Grounds in Stamford, Connecticut from Henry E. Baker. (Incorporated by reference to Exhibit
                           10.24 of the S-4 Registration Statement.)

 10.11                     Lease of Building in Stamford, Connecticut from Henry E. Baker. (Incorporated by reference to Exhibit
                           10.23 of the S-4 Registration Statement.)

 10.12                     Loan and Security Agreement between the Company and Webster Bank, M &T Bank, Banknorth Group, and
                           Rabobank dated March 5, 2003. (Incorporated by reference to Exhibit 10.12 of Form 10-Q for the quarter
                           ended January 31, 2003.)

 10.13                     Form of Term Note from the Company to Webster Bank and participants dated March 5, 2003. (Incorporated by
                           reference to Exhibit 10.12 of Form 10-Q for the quarter ended January 31, 2003.)

 10.14                     Amended and Restated Subordinated Promissory Note from the Company to Henry E. Baker dated March 5, 2003.
                           (Incorporated by reference to Exhibit 10.12 of Form 10-Q for the quarter ended January 31, 2003.)
</TABLE>

                                       32

<PAGE>

<TABLE>
<S>                        <C>
 10.15                     Amended and Restated Subordinated Promissory Note from the Company to Joan Baker dated March 5, 2003.
                           (Incorporated by reference to Exhibit 10.12 of Form 10-Q for the quarter ended January 31, 2003.)

 10.16                     Amended and Restated Subordinated Promissory Note from the Company to John B. Baker dated March 5, 2003.
                           (Incorporated by reference to Exhibit 10.12 of Form 10-Q for the quarter ended January 31, 2003.)

 10.17                     Amended and Restated Subordinated Promissory Note from the Company to Peter K. Baker dated March 5, 2003.
                           (Incorporated by reference to Exhibit 10.12 of Form 10-Q for the quarter ended January 31, 2003.)

 10.18                     Amended and Restated Subordinated Promissory Note from the Company to Ross S. Rapaport, Trustee, dated
                           March 5, 2003. (Incorporated by reference to Exhibit 10.12 of Form 10-Q for the quarter ended January 31,
                           2003.)

 10.19                     Subordination and Pledge Agreement from Henry E. Baker to Webster Bank dated March 5, 2003. (Incorporated
                           by reference to Exhibit 10.12 of Form 10-Q for the quarter ended January 31, 2003.)

 10.20                     Subordination and Pledge Agreement from Joan Baker to Webster Bank dated March 5, 2003. (Incorporated by
                           reference to Exhibit 10.12 of Form 10-Q for the quarter ended January 31, 2003.)

 10.21                     Subordination and Pledge Agreement from John B. Baker to Webster Bank dated November 1, 2001.
                           (Incorporated by reference to Exhibit 10.12 of Form 10-Q for the quarter ended January 31, 2003.)

 10.22                     Subordination and Pledge Agreement from Peter K. Baker to Webster Bank dated March 5, 2003. (Incorporated
                           by reference to Exhibit 10.12 of Form 10-Q for the quarter ended January 31, 2003.)

 10.23                     Subordination and Pledge Agreement from Ross S. Rapaport, Trustee, to Webster Bank dated March 5, 2003.
                           (Incorporated by reference to Exhibit 10.12 of Form 10-Q for the quarter ended January 31, 2003.)

 10.24**                   Agreement between Vermont Pure Springs, Inc. and Zuckerman-Honickman Inc. dated December 12, 2002.
                           (Incorporated by reference to Exhibit 10.24 of Form 10-K for the year ended October 31, 2002.)

 10.25                     Form of Acquisition/Capital Line of Credit Note from the Company to Webster Bank and participants dated
                           March 5, 2003. (Incorporated by reference to Exhibit 10.12 of Form 10-Q for the quarter ended January 31,
                           2003.)

 10.26                     Form of Revolving Line of Credit Note from the Company to Webster Bank and participants dated March 5,
                           2003. (Incorporated by reference to Exhibit 10.12 of Form 10-Q for the quarter ended January 31, 2003.)
</TABLE>

                                       33

<PAGE>

<TABLE>
<S>                        <C>
 10.27***                  Form of Indemnification Agreements, dated November 1, 2002, between the Company and the following
                           Directors and Officers:

                           Henry E. Baker
                           John B. Baker
                           Peter K. Baker
                           Phillip Davidowitz
                           Timothy G. Fallon
                           Robert C. Getchell
                           David Jurasek
                           Carol R. Lintz
                           Bruce S. MacDonald
                           David R. Preston
                           Ross S. Rapaport
                           Norman E. Rickard
                           Beat Schlagenhauf

                           (Incorporated by reference to Exhibit 10.27 of Form 10-K for the year ended October 31, 2002.)

 10.28                     Waiver from Webster Bank in reference to the debt service coverage covenant for the period ending January
                           31, 2002 pursuant to the Amended and Restated Loan and Security Agreement and extension to the Amended
                           and Restated Line of Credit Note between the Company and Webster Bank. (Incorporated by reference to
                           Exhibit 10.12 of Form 10-Q for the quarter ended January 31, 2003.)

 21                        Subsidiaries of the Registrant

 23.1                      Consent of Independent Auditors - Deloitte & Touche LLP

 23.2                      Consent of Former Independent Auditors - Grassi & Co., PC

 23.3                      Consent of Former Independent Auditors - Feldman Sherb & Co. PC

 31.1                      Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley act of 2002.

 31.2                      Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley act of 2002.

 32.1                      Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
                           Section 906 of the Sarbanes-Oxley act of 2002.

 32.2                      Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
                           Section 906 of the Sarbanes-Oxley act of 2002.
</TABLE>

                                       34

<PAGE>

* Relates to compensation

** The Securities and Exchange Commission has granted confidential treatment to
certain omitted portions of this exhibit.

*** The form contains all material information concerning the agreement and the
only differences are the name and the contact information of the director or
officer who is party to the agreement.

                                       35

<PAGE>

                                   SIGNATURES

         Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Vermont Pure Holdings, Ltd. has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.

                                           VERMONT PURE HOLDINGS, LTD.

                                             By: /s/ Timothy G. Fallon
                                                 -------------------------------
Dated: January 29, 2004                      Timothy G. Fallon, Chief Executive
                                             Officer, President, and
                                             Chairman of the Board of Directors

         Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.

<TABLE>
<CAPTION>
           Name                                         Title                                     Date
           ----                                         -----                                     ----
<S>                                       <C>                                                <C>
/s/ Timothy G. Fallon
-------------------------------
Timothy G. Fallon                         Chief Executive Officer and Chairman of the        January 29, 2004
                                          Board of Directors

/s/ Henry E. Baker                        Director, Chairman Emeritis                        January 29, 2004
-------------------------------
Henry E. Baker

/s/ Peter K. Baker                        President and Director                             January 29, 2004
-------------------------------
Peter K. Baker

/s/ Phillip Davidowitz                    Director                                            January 29, 2004
-------------------------------
Phillip Davidowitz

/s/ Robert C. Getchell                    Director                                            January 29, 2004
-------------------------------
Robert C. Getchell

/s/ Carol R. Lintz                        Director                                            January 29, 2004
-------------------------------
Carol R. Lintz

/s/ David R. Preston                      Director                                            January 29, 2004
-------------------------------
David R. Preston

/s/ Ross S. Rapaport                      Director                                            January 29, 2004
-------------------------------
Ross S. Rapaport

/s/ Norman E. Rickard                     Director                                            January 29, 2004
-------------------------------
Norman E. Rickard

/s/ Beat Schlagenhauf                     Director                                            January 29, 2004
-------------------------------
Beat Schlagenhauf

/s/ Bruce S. MacDonald                    Chief Financial Officer and Secretary               January 29, 2004
-------------------------------
Bruce S. MacDonald
</TABLE>

                                       36
<PAGE>

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                                                                 PAGE
                                                                                 ----
<S>                                                                             <C>
Independent Auditors' Reports                                                   F-1

Financial Statements:

         Consolidated Balance Sheets,
          October 31, 2003 and 2002                                             F-4

         Consolidated Statements of Operations,
          Fiscal Years Ended October 31, 2003, 2002, and 2001                   F-5

         Consolidated Statements of Stockholders' Equity
          Fiscal Years Ended October 31, 2003, 2002, and 2001                   F-6

         Consolidated Statements of Cash Flows,
          Fiscal Years Ended October 31, 2003, 2002, and 2001                   F-7

         Notes to Consolidated Financial Statements                             F-8 - F-27
</TABLE>

<PAGE>

INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Stockholders of
Vermont Pure Holdings, Ltd.
Randolph, VT

We have audited the accompanying consolidated balance sheet of Vermont Pure
Holdings, Ltd. and subsidiaries (the "Company") as of October 31, 2003, and the
related consolidated statements of operations, stockholders' equity, cash flows,
and comprehensive income for the year then ended. 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 audit.

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

In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Vermont Pure Holdings, Ltd. and
subsidiaries as of October 31, 2003, and the results of their operations and
their cash flows for the year then ended, in conformity with accounting
principles generally accepted in the United States of America.

DELOITTE & TOUCHE LLP

January 21, 2004
Hartford, Connecticut

                                      F-1

<PAGE>

INDEPENDENT AUDITORS' REPORT

To the Board of Directors
Vermont Pure Holdings, Ltd.
Randolph, VT   05060

 We have audited the accompanying consolidated balance sheet of Vermont Pure
Holdings, Ltd. and Subsidiaries as of October 31 2002 and the related
consolidated statements of operations, change in stockholders' equity and cash
flows for year then ended. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

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

 In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Vermont Pure
Holdings, Ltd. and Subsidiaries at October 31, 2002, and the consolidated
results of their operations and their cash flows for year then ended, in
conformity with accounting principles generally accepted in the United States of
America.

                                                    /s/ GRASSI & CO., CPAs, P.C.
                                                    GRASSI & CO., CPAs, P.C.
                                                    Certified Public Accountants

New York, New York
December 13, 2002

                                      F-2

<PAGE>

                          INDEPENDENT AUDITORS' REPORT

To the Board of Directors
Vermont Pure Holdings, Ltd.
Randolph, VT   05060

         We have audited the accompanying consolidated statement of operations,
changes in stockholders equity and cash flows of Vermont Pure Holdings, Ltd and
Subsidiaries for the year ended October 31, 2001. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.

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

         In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated results of operations
and cash flows of Vermont Pure Holdings, Ltd. and Subsidiaries for the year
ended October 31, 2001, in conformity with accounting principles generally
accepted in the United States of America.

                                                s/ Feldman Sherb & Co., P.C.
                                                   Feldman Sherb & Co., P.C
                                                   Certified Public Accountants

New York, New York
December 14, 2001

                                      F-3
<PAGE>

                  VERMONT PURE HOLDINGS, LTD. AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                                       October 31,
                                                                             ------------------------------
                                                                                 2003             2002
                                                                             -------------    -------------
<S>                                                                          <C>              <C>
                                     ASSETS
CURRENT ASSETS:
  Cash and cash equivalents                                                  $   1,170,321    $     652,204
  Accounts receivable - net                                                      8,129,111        7,547,444
  Inventories                                                                    2,965,454        4,067,740
  Current portion of deferred tax asset                                          1,093,000        2,356,000
  Other current assets                                                           1,761,617        1,202,064
                                                                             -------------    -------------

    TOTAL CURRENT ASSETS                                                        15,119,504       15,825,452
                                                                             -------------    -------------

PROPERTY AND EQUIPMENT - net of accumulated depreciation                        20,625,533       21,676,520
                                                                             -------------    -------------

OTHER ASSETS:
  Goodwill                                                                      72,899,355       70,427,887
  Other intangible assets - net of accumulated amortization                      1,247,994          648,089
  Deferred tax asset                                                             1,156,000          479,000
  Other assets                                                                     285,678          277,123
                                                                             -------------    -------------

    TOTAL OTHER ASSETS                                                          75,589,027       71,832,099
                                                                             -------------    -------------

TOTAL ASSETS                                                                 $ 111,334,064    $ 109,334,071
                                                                             =============    =============

                      LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
  Current portion of long term debt                                          $   3,148,274    $   4,881,817
  Accounts payable                                                               3,954,619        3,508,062
  Accrued expenses                                                               2,750,202        2,640,226
  Current portion of customer deposits                                             169,504          178,937
  Unrealized loss on derivatives                                                    35,504          842,898
                                                                             -------------    -------------

    TOTAL CURRENT LIABILITIES                                                   10,058,103       12,051,940

Long term debt, less current portion                                            48,273,782       46,539,557
Customer deposits                                                                2,655,560        2,803,340
                                                                             -------------    -------------

    TOTAL LIABILITIES                                                           60,987,445       61,394,837
                                                                             -------------    -------------

COMMITMENTS AND CONTINGENCY

STOCKHOLDERS' EQUITY:
  Preferred stock - $.001 par value, 500,000
    authorized shares, none issued and outstanding                                       -                -
  Common stock - $.001 par value, 50,000,000
    authorized shares, 21,359,437 issued and outstanding
    shares in 2003 and 21,235,927 in 2002                                           21,431           21,236
Additional paid in capital                                                      57,535,069       57,023,093
Treasury stock, at cost, 71,550 shares as of October 31, 2003                     (264,735)               -
Accumulated deficit                                                             (6,909,642)      (8,262,197)
Accumulated other comprehensive loss                                               (35,504)        (842,898)
                                                                             -------------    -------------
  TOTAL STOCKHOLDERS' EQUITY                                                    50,346,619       47,939,234
                                                                             -------------    -------------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                   $ 111,334,064    $ 109,334,071
                                                                             =============    =============
</TABLE>

The attached notes are an integral part of these consolidated financial
statements.

                                      F-4
<PAGE>

                  VERMONT PURE HOLDINGS, LTD. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                               Fiscal Year Ended October 31,
                                                        --------------------------------------------
                                                           2003            2002               2001
                                                        ------------    ------------    ------------
<S>                                                     <C>             <C>             <C>
NET SALES                                               $ 76,195,246    $ 71,720,145    $ 64,858,277

COST OF GOODS SOLD                                        41,242,552      35,583,157      29,803,176
                                                        ------------    ------------    ------------

GROSS PROFIT                                              34,952,694      36,136,988      35,055,101
                                                        ------------    ------------    ------------

OPERATING EXPENSES:
  Selling, general and administrative expenses            26,802,239      25,083,758      24,244,602
  Advertising expenses                                     1,266,364       1,655,829       1,316,990
  Amortization                                               186,060         232,201       2,543,820
  Other compensation                                          38,997          52,400          15,752
                                                        ------------    ------------    ------------

TOTAL OPERATING EXPENSES                                  28,293,660      27,024,188      28,121,164
                                                        ------------    ------------    ------------

INCOME FROM OPERATIONS                                     6,659,034       9,112,800       6,933,937
                                                        ------------    ------------    ------------

OTHER (EXPENSE) INCOME:
          Interest                                        (4,413,346)     (4,553,179)     (5,033,760)
          Loss on disposal of property and equipment         (42,137)       (228,025)        (56,962)
          Miscellaneous                                            -         (71,141)          5,836
                                                        ------------    ------------    ------------

TOTAL OTHER EXPENSE, NET                                  (4,455,483)     (4,852,345)     (5,084,886)
                                                        ------------    ------------    ------------

INCOME BEFORE INCOME TAX EXPENSE                           2,203,551       4,260,455       1,849,051

INCOME TAX EXPENSE                                           850,996       1,751,000         680,207
                                                        ------------    ------------    ------------

NET INCOME                                              $  1,352,555    $  2,509,455    $  1,168,844
                                                        ============    ============    ============

NET INCOME PER SHARE - BASIC                            $       0.06    $       0.12    $       0.06
                                                        ============    ============    ============
NET INCOME PER SHARE - DILUTED                          $       0.06    $       0.11    $       0.06
                                                        ============    ============    ============

WEIGHTED AVERAGE SHARES USED IN COMPUTATION - BASIC       21,282,294      21,091,837      20,447,609
                                                        ============    ============    ============
WEIGHTED AVERAGE SHARES USED IN COMPUTATION - DILUTED     21,764,698      22,035,269      20,651,239
                                                        ============    ============    ============
</TABLE>

The attached notes are an integral part of these consolidated financial
statements.

                                      F-5
<PAGE>

                  VERMONT PURE HOLDINGS, LTD. AND SUBSIDIARIES

            CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
                                                                                           Accumulated
                                 Stock    Additional                                          Other
                       Common     Par       Paid in    Treasury    Stock     Accumulated  Comprehensive                Comprehensive
                       Shares    Value      Capital     Shares     Amount      Deficit         Loss           Total    Income (Loss)
                     ---------------------------------------------------------------------------------------------------------------
<S>                 <C>          <C>      <C>            <C>     <C>        <C>            <C>            <C>           <C>
Balance, November 1,
  2000               20,167,774  $20,168  $54,249,066         -  $       -  $(11,940,496)             -   $ 42,328,738

Stock compensation        6,598        7       15,745                                                           15,752

Debt converted to
  common stock          430,883      431      974,569                                                          975,000

Exercise of stock
  options               100,000      100      227,100                                                          227,200

Shares purchased
  under employee
  stock plan             62,415       62       96,119                                                           96,182

Net income                                                                     1,168,844                     1,168,844  $1,168,844

Unrealized loss on
  derivatives                                                                                  (973,537)      (973,537)   (973,537)
                     -------------------------------------------------------------------------------------------------------------
Balance, October 31,
  2001               20,767,670   20,768   55,562,599         -  $       -   (10,771,652)      (973,537)    43,838,178  $  195,307
                                                                                                                        ==========

Common stock issued
  for acquisition       213,912      214      704,413                                                          704,627

Stock compensation       12,105       12       52,388                                                           52,400

Exercise of stock
  options               179,500      179      482,859                                                          483,038

Shares purchased
  under employee
  stock plan             62,740       63      220,834                                                          220,897

Net income                                                                     2,509,455                     2,509,455  $2,509,455

Unrealized gain on
  derivatives                                                                                   130,639        130,639     130,639
                     -------------------------------------------------------------------------------------------------------------
Balance, October 31,
  2002               21,235,927   21,236   57,023,093         -  $       -    (8,262,197)      (842,898)    47,939,234  $2,640,094
                                                                                                                        ==========

Stock compensation        9,285        9       38,988                                                           38,997

Exercise of stock
  options               125,000      125      281,124                                                          281,249

Treasury stock
  purchase              (71,550)                         71,550  $(264,735)                                   (264,735)

Shares purchased
  under employee
  stock plan             60,775       61      191,864                                                          191,925

Net income                                                                     1,352,555                     1,352,555  $1,352,555

Unrealized gain on
  derivatives                                                                                   807,394        807,394     807,394
                     -------------------------------------------------------------------------------------------------------------
Balance, October 31,
  2003               21,359,437  $21,431  $57,535,069    71,550  $(264,735) $ (6,909,642) $     (35,504)  $ 50,346,619  $2,159,949
                     =============================================================================================================
</TABLE>

The attached notes are an integral part of these consolidated financial
statements.

                                      F-6
<PAGE>

                  VERMONT PURE HOLDINGS, LTD. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                                Fiscal Year Ended October 31,
                                                                           ---------------------------------------
                                                                              2003          2002          2001
                                                                           -----------   -----------   -----------
<S>                                                                        <C>           <C>           <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income                                                               $ 1,352,555   $ 2,509,455   $ 1,168,844

Adjustments to reconcile net income to net cash provided by operating
  activities:

  Depreciation                                                               5,074,159     4,398,432     3,690,675
  Provision for bad debts                                                      953,302       605,847       522,004
  Amortization                                                                 186,060       232,201     2,543,820
  Change in deferred tax asset                                                 585,776     1,779,000       (60,000)
  Loss on disposal of property and equipment                                    42,137       228,025        56,962
  Non cash compensation                                                         38,997        52,400        15,752

Changes in assets and liabilities (net of effect of acquisitions):
  Accounts receivable                                                       (1,366,445)     (851,661)   (1,266,346)
  Inventories                                                                1,102,285      (919,755)     (369,450)
  Other current assets                                                        (559,154)    1,125,000    (1,152,046)
  Other assets                                                                 603,765       (21,676)      160,821
  Accounts payable                                                             446,557      (594,173)     (432,883)
  Accrued expenses                                                             (58,536)     (483,191)      574,839
  Customer deposits                                                           (157,212)      187,860        95,184
                                                                           -----------   -----------   -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES                                    8,244,246     8,247,764     5,548,176
                                                                           -----------   -----------   -----------

CASH FLOWS FROM INVESTING ACTIVITIES:
  Purchase of property, plant and equipment                                 (4,171,835)   (4,692,785)   (3,827,225)
  Reduction of money market investment account for pay-off of bond issuance          -             -     3,301,064
  Sale of certificate of deposit securing outstanding debt                           -             -       975,000
  Proceeds from sale of property and equipment                                 106,526       271,262        31,700
  Cash used for acquisitions - net of cash acquired                         (3,953,692)   (4,987,073)     (328,550)
  Other investing activities                                                  (116,236)            -             -
                                                                           -----------   -----------   -----------
NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES                         (8,135,237)   (9,408,596)      151,989
                                                                           -----------   -----------   -----------

CASH FLOWS FROM FINANCING ACTIVITIES:
  Proceeds from line of credit borrowings                                    1,866,433     3,865,706     3,040,000
  Proceeds from debt                                                         3,746,653     4,200,000             -
  Payments on line of credit                                                (1,866,433)   (3,865,706)   (3,500,000)
  Principal payments of debt                                                (3,545,984)   (4,190,123)   (5,872,482)
  Exercise of stock options                                                    281,249       483,039       227,200
  Purchase of treasury stock                                                  (264,735)            -             -
  Proceeds from sale of common stock                                           191,925       220,897        96,182
                                                                           -----------   -----------   -----------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES                            409,109       713,813    (6,009,100)
                                                                           -----------   -----------   -----------

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                           518,118      (447,019)     (308,935)

CASH AND CASH EQUIVALENTS - beginning of year                                  652,204     1,099,223     1,408,158
                                                                           -----------   -----------   -----------

CASH AND CASH EQUIVALENTS  - end of year                                   $ 1,170,321   $   652,204   $ 1,099,223
                                                                           ===========   ===========   ===========

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

Cash paid for interest                                                     $ 4,398,114   $ 4,556,831   $ 4,421,322
                                                                           ===========   ===========   ===========

Cash paid for taxes                                                        $   360,238   $   193,372   $   301,000
                                                                           ===========   ===========   ===========

NON-CASH FINANCING AND INVESTING ACTIVITIES:

Aquired note payable                                                       $   200,000   $         -   $         -
Debt converted to common stock                                                       -             -       975,000
                                                                           -----------   -----------   ===========
                                                                           $   200,000   $         -   $   975,000
                                                                           ===========   ===========   ===========
</TABLE>

The attached notes are an integral part of these consolidated financial
statements.

                                       F-7
<PAGE>

                  VERMONT PURE HOLDINGS, LTD. AND SUBSIDIARIES

                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1.         BUSINESS OF THE COMPANY

         Vermont Pure Holdings, Ltd. and Subsidiaries (collectively, the
         "Company") is engaged in the production, marketing and distribution of
         bottled water. The Company's products are sold predominately in the
         Northeast as well as Mid-Atlantic and Mid-Western United States.
         Distribution is accomplished through a network of independent beverage
         distributors and with the Company's own trucks and employees.

2.         SIGNIFICANT ACCOUNTING POLICIES

                  a.       Basis of Presentation - The consolidated financial
                           statements include the accounts of Vermont Pure
                           Holdings, Ltd. and its wholly-owned subsidiaries,
                           Vermont Pure Springs, Inc., Crystal Rock Spring Water
                           Company ("Crystal Rock"), Excelsior Spring Water
                           Company Inc. and Adirondack Coffee Services. All
                           material inter-company profits, transactions, and
                           balances have been eliminated in consolidation.

                  b.       Cash Equivalents - The Company considers all highly
                           liquid temporary cash investments, with an original
                           maturity of three months or less to be cash
                           equivalents.

                  c.       Inventories - Inventories consist primarily of the
                           packaging material, labor and overhead content of the
                           Company's products. Such inventories are stated at
                           the lower of cost or market using average costing.

                  d.       Property and Equipment - Property and equipment are
                           stated at cost net of accumulated depreciation.
                           Depreciation is calculated on the straight-line
                           method over the estimated useful lives of the assets,
                           which range from three to ten years for equipment,
                           and from ten to forty years for buildings and
                           improvements.

                  e.       Intangible Assets - The Company records goodwill in
                           accordance with SFAS No. 142 (see footnote 4). The
                           values of covenants not to compete are amortized over
                           the terms of the related agreements.

                  f.       Securities Issued for Services - The Company follows
                           the accounting treatment prescribed by Accounting
                           Principles Board Opinion No. 25 ("Accounting for
                           Stock Issued to Employees") when accounting for
                           stock-based compensation granted to employees and
                           directors. It provides the required pro forma
                           disclosures as if the fair value method under
                           Statement of Financial Accounting Standards No. 123,
                           "Accounting for Stock Based Compensation" ("SFAS
                           No.123") was adopted. Any stock-based compensation
                           awards to non-employees and non-directors are
                           accounted for using the provisions of Emerging Issues
                           No. 96-18 "Accounting for

                                      F-8

<PAGE>

                           Equity Instruments That Are issued to Other Than
                           Employees for Acquiring, or in Conjunction With
                           Selling Goods or Services."

                           In December 2002, the FASB issued SFAS No. 148,
                           "Accounting for Stock-Based Compensation - Transition
                           and Disclosure - an amendment of FASB Statement No.
                           123." SFAS No. 148 amends SFAS No. 123, "Accounting
                           for Stock-Based Compensation," to provide alternative
                           methods of transition for a voluntary change to the
                           fair value based method of accounting for stock-based
                           employee compensation. The Company has adopted this
                           pronouncement and is complying by continuing to apply
                           Accounting Principles Board Opinion No. 25
                           "Accounting for Stock Issued to Employees,"
                           prominently disclosing the method of accounting for
                           stock based compensation in annual and interim
                           financial statements, and disclosing the effect of
                           the method used in financial results.

                           Pro-forma information regarding net income and net
                           income per share is presented below as if the Company
                           had accounted for its employee stock options under
                           the fair value method using SFAS No. 123, net of tax;
                           such pro-forma information is not necessarily
                           representative of the effects on reported net income
                           for future years due primarily to option vesting
                           periods and to the fair value of additional options
                           in future years.

<TABLE>
<CAPTION>
                                                      Twelve Months Ended
                                                          October 31,
                                                          -----------
                                               2003            2002           2001
                                               ----            ----           ----
<S>                                         <C>             <C>            <C>
Net Income - As Reported                    $1,352,555      $2,509,455     $1,168,844
Deduct: Total stock-based employee
compensation expense determined under
fair value based method for all
awards, net of related tax effects             249,656         633,742        713,184
                                            ----------      ----------     ----------
Pro Forma Net Income                        $1,102,899      $1,875,713     $  455,660
                                            ==========      ==========     ==========
Basic Net Income Per Share:
                       As Reported          $      .06      $      .12     $      .06
                                            ==========      ==========     ==========
                       Pro Forma            $      .05      $      .09     $      .02
                                            ==========      ==========     ==========
Diluted Net Income Per Share:
                       As Reported          $      .06      $      .11     $      .06
                                            ==========      ==========     ==========
                       Pro Forma            $      .05      $      .09     $      .02
                                            ==========      ==========     ==========
</TABLE>

                           The weighted average fair value of the options
                           granted for the respective fiscal years ended, using
                           the Black-Scholes option pricing model, was $1.70,
                           $2.26 and $2.29 respectively.

                                      F-9

<PAGE>

                           Assumptions used for estimating the fair value of the
                           option on the date of grant under the Black-Scholes
                           option pricing model are as follows for the fiscal
                           years ended October 31, 2003, 2002 and 2001:

<TABLE>
<CAPTION>
                                               2003         2002         2001
                                               ----         ----         ----
<S>                                           <C>          <C>          <C>
Expected Dividend Yield                       0%           0%           0%
Expected Life                                 5 Years      5 Years      5 Years
Risk free Interest Rate                       5.7%         5.7%         5.7%
Volatility                                     36%          54%          91%
</TABLE>

                  g.       Net Income Per Share - Net income per share is based
                           on the weighted average number of common shares
                           outstanding during each period. Potential common
                           shares are included in the computation of diluted per
                           share amounts outstanding during each period that
                           income is reported. In periods that the Company
                           reports a loss, potential common shares are not
                           included in the diluted earnings per share
                           calculation since the inclusion of those shares in
                           the calculation would be antidilutive.

                  h.       Advertising Expenses - The Company expenses
                           advertising costs at the time the advertising begins
                           to run with the exception of advertising from which
                           it derives direct responses from customers. The
                           Company expenses direct response advertising, which
                           consists of Yellow Page advertising, over a period of
                           twelve months consistent with its expected period of
                           future benefit based on historical responses. Prepaid
                           advertising at October 31, 2003 and 2002 was $302,000
                           and $272,000, respectively, and is included in other
                           current assets on the accompanying consolidated
                           balance sheets.

                  i.       Slotting Fees - Slotting fees are paid to individual
                           supermarkets and supermarket chains to obtain initial
                           shelf space for new products. Fees vary from store to
                           store. The payment of slotting fees does not
                           guarantee that the Company's product will be carried
                           for any definite period of time. The Company pays for
                           such fees either in cash, by providing free goods, or
                           by issuing credits for previously sold goods. The
                           cost of the slotting fees is valued at the amount of
                           cash paid, or the fair value of the goods provided in
                           exchange. The Company expenses slotting fees when the
                           obligation is incurred.

                  j.       Customer Deposits - Customers receiving home or
                           office delivery of water pay the Company a deposit
                           for the water bottle on receipt that is refunded upon
                           return. The Company uses an estimate (based on
                           historical experience) of the deposits it expects to
                           refund over the next 12 months to determine the
                           current portion of the liability and classifies the
                           balance of the amount as a long term liability.

                  k.       Income Taxes - The Company accounts for income taxes
                           under the liability method. Under the liability
                           method, a deferred tax asset or

                                      F-10

<PAGE>

                           liability is determined based upon the tax effect of
                           the differences between the financial statement and
                           tax basis of assets and liabilities as measured by
                           the enacted rates that will be in effect when these
                           differences reverse.

                  l.       Use of Estimates - The preparation of financial
                           statements in conformity with accounting principles
                           generally accepted in the United States of America
                           requires management to make estimates and assumptions
                           that affect the reported amounts of assets and
                           liabilities and disclosure of contingent assets and
                           liabilities at the date of the financial statements
                           and the reported amounts of revenues and expenses
                           during the reporting period. Actual results could
                           differ from those estimates.

                  m.       Fair Value of Financial Instruments - The carrying
                           amounts reported in the consolidated balance sheet
                           for cash, trade receivables, accounts payable and
                           accrued expenses approximate fair value based on the
                           short-term maturity of these instruments. The
                           carrying amount of the Company's borrowings also
                           approximates fair value.

                  n.       Impairment for Long-Lived and Intangible Assets - The
                           Company reviews long-lived assets and certain
                           identifiable intangible assets for impairment
                           whenever circumstances and situations change such
                           that there is an indication that the carrying amounts
                           may not be recovered. Recoverability is assessed
                           based on estimated undiscounted future cash flows. At
                           October 31, 2003, the Company believes that there has
                           been no impairment of its long-lived and intangible
                           assets.

                  o.       Revenue Recognition - Revenue is recognized when
                           products are delivered to customers through the
                           Company's home and office distribution channel. For
                           consumer retail products, revenue is recognized upon
                           shipment or delivery of the product based on the
                           terms of the F.O.B. arrangements with the customer.

                  p.       Shipping and Handling Costs - The Company classifies
                           shipping and handling costs as a component of
                           selling, general and administrative expenses.
                           Shipping and handling costs were approximately
                           $2,308,000, $2,030,000, and $1,403,000 for fiscal
                           years ended October 31, 2003, 2002 and 2001,
                           respectively. The Company does not charge these costs
                           to its customers.

3.         RECENT ACCOUNTING PRONOUNCEMENTS

         In April 2003, FASB issued SFAS No. 149, "Amendment of Statement 133 on
         Derivative Instruments and Hedging Activities ("SFAS No. 149")." The
         statement amends and clarifies financial accounting and reporting for
         derivative instruments, including certain derivative instruments
         embedded in other contracts and for hedging activities under SFAS No.
         133. FAS No.149 is effective for contracts entered into or modified
         after June 30, 2003 except for the provisions that were cleared by the
         FASB in prior

                                      F-11

<PAGE>

         pronouncements. The Company has determined that the adoption of this
         pronouncement has no material effect on its financial statements.

         On May 15, 2003, the FASB issued SFAS No. 150, "Accounting for Certain
         Financial Instruments with Characteristics of Both Liabilities and
         Equity ("SFAS No. 150")". SFAS No. 150 establishes standards for how an
         issuer classifies and measures certain financial instruments with
         characteristics of both liabilities and equity. It requires that an
         issuer classify a financial instrument that is within its scope as a
         liability (or an asset in some circumstances). SFAS No. 150 affects the
         issuer's accounting for three types of freestanding financial
         instruments:

         *        Mandatorily redeemable shares, which the issuing company is
                  obligated to buy back in exchange for cash or other assets.

         *        Instruments that do or may require the issuer to buy back some
                  of its shares in exchange for cash or other assets; includes
                  put options and forward purchase contracts.

         *        Obligations that can be settled with shares, the monetary
                  value of which is fixed, tied solely or predominantly to a
                  variable such as a market index, or varies inversely with the
                  value of the issuer's shares.

         SFAS No. 150 does not apply to features embedded in a financial
         instrument that is not a derivative in its entirety. Most of the
         guidance in SFAS No. 150 is effective for all financial instruments
         entered into or modified after May 31, 2003, and otherwise is effective
         at the beginning of the first interim period beginning after June 15,
         2003. The Company has determined that adoption of this pronouncement
         has no material effect on its consolidated financial statements.

4.         GOODWILL AND AMORTIZATION

         In July 2001, the FASB issued SFAS No. 141, "Business Combinations,
         ("SFAS No.141")" and SFAS No. 142, "Goodwill and Other Intangible
         Assets ("SFAS No. 142")." SFAS No. 141 is effective for all business
         combinations completed after June 30, 2001. SFAS No. 142 is effective
         for fiscal years beginning after December 15, 2001. Effective November
         1, 2001, the Company elected early adoption of SFAS No. 142. SFAS No.
         142 eliminates the amortization of goodwill and other intangible assets
         with indefinite lives. Intangible assets with lives restricted by
         contractual, legal, or other means will continue to be amortized over
         their useful lives (defined by SFAS No. 142 as the period over which
         the asset is expected to contribute to the future cash flows of the
         entity). Goodwill and other intangible assets not subject to
         amortization are tested for impairment annually or more frequently if
         events or changes in circumstances indicate that the asset might be
         impaired. The amount of impairment for goodwill and other intangible
         assets is measured as the excess of their carrying values over their
         implied fair values. The Company conducted assessments of the carrying
         value of its goodwill as required by SFAS No. 142 in the third quarter
         of fiscal 2003, and, as a result, the Company concluded that there was
         no current impairment of goodwill as of such date.

                                      F-12

<PAGE>

         The Company will conduct assessments of the carrying value of its
         goodwill annually and when other indicators are present.

         In accordance with SFAS No. 142, the Company discontinued amortization
         of goodwill effective November 1, 2001. The pro forma effects of the
         adoption of SFAS No. 142 on net income and basic and diluted earnings
         per share are as follows:

<TABLE>
<CAPTION>
                                                        Fiscal Year Ended October 31,
                                               2003                2002                2001
                                               ----                ----                ----
<S>                                        <C>                 <C>                 <C>
Net income as reported                     $   1,352,555       $   2,509,455       $   1,168,844
Goodwill amortization, net of $0 tax                   -                   -           2,360,112
                                           -------------       -------------       -------------
Net income, pro forma                      $   1,352,555       $   2,509,455       $   3,528,956
                                           =============       =============       =============
Basic net income per share:
Net income per share, as reported          $         .06       $         .12       $         .06
Goodwill amortization, net of $0 tax                   -                   -                 .11
                                           -------------       -------------       -------------
Net income per share, pro forma            $         .06       $         .12       $         .17
                                           =============       =============       =============
Diluted net income per share:
Net income per share, as reported          $         .06       $         .11       $         .06
Goodwill amortization, net of $0 tax                   -                   -                 .11
                                           -------------       -------------       -------------
Net income per share, pro forma            $         .06       $         .11       $         .17
                                           =============       =============       =============
</TABLE>

5.         SEGMENTS

         The Company prepares detailed information to evaluate its operations on
         a segment basis. It accounts for the business in three separate
         segments, "Retail", "Retail-Gallons" and "Home and Office".

         The segments are identifiable based on the types of products and their
         distribution channels. The company considers Retail, Retail-Gallons and
         Home and Office to be three distinct segments because the operating
         results of each are compiled, reviewed and managed separately.

         Retail - Characterized by the sale of water in small, portable
         containers that are constructed from clear polyethylene terephthalate
         ("PET") plastic. Bottle sizes range from 8 oz. to 1.5 L. These products
         are sold to wholesale beverage distributors, supermarkets and
         convenience stores.

         Retail - Gallons - Characterized by the sale of water in medium-sized,
         portable containers that are constructed from HDPE plastic. Bottle
         sizes range from 1 gallon to 2.5 gallon. These products are sold to
         supermarket chains. The Company has this product packed by other
         companies and there is a different distribution pattern from other
         retail products as well as a distinct retail customer base.

                                      F-13

<PAGE>

         Home and Office - Characterized by the sale of five-gallon reusable
         bottles of water and rental of water coolers delivered by the Company's
         trucks and employees, and other products that are sold through this
         distribution channel which are ancillary to the primary product, such
         as office refreshments.

         The Company allocates costs directly when possible and uses various
         applicable allocation methods to allocate shared costs. There are no
         inter-segment revenues for the periods reported.

<TABLE>
<CAPTION>
                                                     Fiscal Year Ended October 31, 2003
                                                     ----------------------------------
                                                                             Retail-
(000's $)                                Home & Office        Retail         Gallons          Total
                                         -------------       --------        --------       --------
<S>                                      <C>                 <C>             <C>            <C>
Sales                                      $ 49,854          $ 22,382        $  3,959       $ 76,195
Cost of Goods Sold                           20,800            17,153           3,290         41,243
                                           --------          --------        --------       --------
Gross Profit                                 29,054             5,229             669         34,952
Operating Expenses                           22,016             5,821             457         28,294
                                           --------          --------        --------       --------
Operating Income (Loss)                       7,038              (592)            212          6,658
Interest                                      4,110               257              46          4,413
Other                                             2                40               -             42
                                           --------          --------        --------       --------
Income (Loss) Before Taxes                 $  2,926          $   (889)       $    166       $  2,203
                                           ========          ========        ========       ========
Assets

Cash                                       $    772          $    398        $      -       $  1,170
Other current assets                          8,475             4,985             489         13,949
Goodwill and Other Intangible assets         74,147                 -               -         74,147
Other non current assets                     14,111             7,957               -         22,068
                                           --------          --------        --------       --------
Total Assets                               $ 97,505          $ 13,340        $    489       $111,334
                                           ========          ========        ========       ========

Liabilities

Payables and accruals                      $  3,287          $  3,212        $    433       $  6,932
Short term debt                               2,204               881              63          3,148
Long term debt                               33,792            13,517             965         48,274
Other non current liabilities                 2,656                 -               -          2,656
                                           --------          --------        --------       --------
Total Liabilities                          $ 41,939          $ 17,610        $  1,461       $ 61,010
                                           ========          ========        ========       ========
</TABLE>

<TABLE>
<CAPTION>
                                                  Fiscal Year Ended October 31, 2002
                                                  ----------------------------------
                                                                              Retail-
(000's $)                                Home & Office          Retail        Gallons          Total
                                         -------------        --------        --------       --------
<S>                                      <C>                  <C>             <C>            <C>
Sales                                      $ 49,068           $ 21,197        $  1,455       $ 71,720
Cost of Goods Sold                           19,059             15,465           1,059         35,583
                                           --------           --------        --------       --------
Gross Profit                                 30,009              5,732             396         36,137
Operating Expenses                           20,720              6,004             300         27,024
                                           --------           --------        --------       --------
Operating Income                              9,289               (272)             96          9,113
Interest                                      4,250                285              18          4,553
Other                                           310                (11)              -            299
                                           --------           --------        --------       --------
Income (Loss) Before Taxes                 $  4,729           $   (546)       $     78       $  4,261
                                           ========           ========        ========       ========
</TABLE>

                                      F-14

<PAGE>
<TABLE>
<S>                                        <C>                <C>             <C>            <C>
Assets
Cash                                       $    456           $    196        $      -       $    652
Other current assets                          9,906              5,088             179         15,173
Goodwill and Other Intangible assets         71,076                  -               -         71,076
Other non current assets                     14,373              8,060               -         22,433
                                           --------           --------        --------       --------
Total Assets                               $ 95,811           $ 13,344        $    179       $109,334
                                           ========           ========        ========       ========

Liabilities
Payables and accruals                      $  4,420           $  2,652        $     98       $  7,170
Short term debt                               4,150                688              44          4,882
Long term debt                               39,559              6,562             419         46,540
Other non current liabilities                 2,803                  -               -          2,803
                                           --------           --------        --------       --------
Total Liabilities                          $ 50,932           $  9,902        $    561       $ 61,395
                                           ========           ========        ========       ========
</TABLE>

<TABLE>
<CAPTION>
                                                 Fiscal Year Ended October 31, 2001
                                                 ----------------------------------
                                                                           Retail-
(000's $)                                Home & Office        Retail       Gallons       Total
                                         -------------        ------       -------       -----
<S>                                      <C>                <C>            <C>         <C>
Sales                                      $  47,551        $  17,307        $ -       $  64,858
Cost of Goods Sold                            18,059           11,744          -          29,803
                                           ---------        ---------        ---       ---------
Gross Profit                                  29,492            5,563          -          35,055
Operating Expenses                            22,668            5,510          -          28,178
                                           ---------        ---------        ---       ---------
Operating Income (Loss)                        6,824               53          -           6,877
Interest                                       4,131              903          -           5,034
Other                                             (6)               -          -              (6)
                                           ---------        ---------        ---       ---------
Loss Before Taxes                          $   2,699        $    (850)       $ -       $   1,849
                                           =========        =========        ===       =========
Assets
Cash                                       $     626        $     473        $ -       $   1,099
Other current assets                           9,756            5,387          -          15,143
Goodwill and Other Intangible assets          66,101                -          -          66,101
Other non current assets                      16,496            7,292          -          23,788
                                           ---------        ---------        ---       ---------
Total Assets                               $  92,979        $  13,152        $-        $ 106,131
                                           =========        =========        ===       =========

Liabilities
Payables and accruals                      $   4,437        $   4,002        $ -       $   8,439
Short term debt                                3,026              534          -           3,560
Long term debt                                40,673            7,178          -          47,851
Other non current liabilities                  2,443                -          -           2,443
                                           ---------        ---------        ---       ---------
Total Liabilities                          $  50,579        $  11,714        $ -       $  62,293
                                           =========        =========        ===       =========
</TABLE>

6.         MERGERS AND ACQUISITIONS

         During 2003, Vermont Pure Holdings, Ltd. made seven acquisitions and
         merged these into the Company's home and office operations in
         Connecticut.

         The purchase price paid for the acquisitions was as follows:

                                      F-15
<PAGE>

<TABLE>
<S>                                       <C>
Cash                                      $3,888,764
Notes Payable                                200,000
Acquisition Costs                             64,928
                                          ----------
                                          $4,153,692
                                          ==========
</TABLE>

     The operating results of the acquired entities have been included in the
     accompanying statements of operations since their respective dates of
     acquisition.

     Goodwill from the acquisitions has been calculated as follows:

<TABLE>
<S>                                            <C>
Purchase Price                                 $ 4,153,692
Fair Value of Assets Acquired                   (1,012,495)
Customer Lists and Covenants Not to Compete       (785,965)
                                               -----------
Goodwill                                       $ 2,355,232
                                               ===========
</TABLE>

     The following table summarizes the pro forma consolidated condensed results
     of operations (unaudited) of the Company for the fiscal years ended October
     31, 2003 and October 31, 2002 as though the acquisitions had been
     consummated at the beginning of the periods presented:

<TABLE>
<CAPTION>
                                                October 31,
                                         ------------------------------
                                             2003              2002
                                         -----------       ------------
                                                (Unaudited)
                                         ------------------------------
<S>                                      <C>               <C>
Total Revenue                            $79,056,246       $75,956,145
                                         ===========       ===========
Net Income                               $ 2,045,555       $ 3,462,455
                                         ===========       ===========
Net  Income Per Share - Diluted          $      0.09       $      0.16
                                         ===========       ===========
Weighted Average Common Shares
Outstanding - Diluted                     21,764,698        22,035,269
                                         ===========       ===========
</TABLE>

     On November 1, 2001, Vermont Pure Holdings, Ltd. acquired substantially all
     the assets of Iceberg Springs Water, Inc. and merged it into the Company's
     home and office operations in Connecticut.

     The purchase price paid for Iceberg Springs Water, Inc. was as follows:

<TABLE>
<S>                            <C>
Cash                           $ 4,833,856
Issuance of Common Stock           704,627
                               -----------
Total                          $ 5,538,483
                               ===========
</TABLE>

     Goodwill from the acquisition has been calculated as follows:

                                      F-16
<PAGE>

<TABLE>
<S>                                            <C>
Purchase Price                                 $ 5,538,483
Fair Value of Assets Acquired                   (1,314,481)
Fair Value of Liabilities Assumed                  195,373
Acquisition Costs                                  158,374
                                               -----------
Goodwill                                       $ 4,577,749
                                               ===========
</TABLE>

     The stock price of the Company for purposes of the acquisition was $3.294
     per share, resulting in the number of Vermont Pure Holdings, Ltd. common
     shares issued of 213,912. The stock price was determined by using the
     average of the daily stock prices from October 12, 2001 to October 25,
     2001.

     The following table summarizes the pro forma consolidated results of
     operations (unaudited) of the Company for the fiscal years ended October
     31, 2002 and October 31, 2001 as though the acquisition had been
     consummated at the beginning of the periods presented:

<TABLE>
<CAPTION>
                                              Fiscal Year Ended October 31,
                                           ----------------------------------
                                               2002                  2001
<S>                                        <C>                    <C>
Total Revenue                              $71,720,145            $66,941,730
                                           ===========            ===========
Net Income                                 $ 2,509,455            $ 1,503,883
                                           ===========            ===========
Net  Income Per Share - Diluted            $      0.11            $       .07
                                           ===========            ===========
Weighted Average Common Shares
Outstanding - Diluted                       22,050,880             20,865,151
                                           ===========            ===========
</TABLE>

7.       ACCOUNTS RECEIVABLE

     The Company reduces its receivables by an allowance for future
     uncollectible accounts. The activity in the allowance is as follows:

<TABLE>
<CAPTION>
                                          Fiscal year ended October 31,
                                          -----------------------------
                                     2003                2002             2001
                                     ----                ----             ----
<S>                               <C>                 <C>              <C>
Balance, beginning of year        $ 598,881           $ 513,629        $ 732,133
Provision                           953,302             605,847          522,004
Write-offs                         (566,862)           (520,595)        (740,508)
                                  ---------           ---------        ---------
Balance, end of year              $ 985,321           $ 598,881        $ 513,629
                                  =========           =========        =========
</TABLE>

8.       INVENTORIES

     Inventories at October 31, consisted of:

                                      F-17
<PAGE>

<TABLE>
<CAPTION>
                                                   October 31,
                                                   -----------
                                            2003                 2002
                                            ----                 ----
<S>                                      <C>                 <C>
Raw Materials                            $1,131,588          $1,289,553
Finished Goods                            1,833,866           2,778,187
                                         ----------          ----------
Total Inventory                          $2,965,454          $4,067,740
                                         ==========          ==========
</TABLE>

9.       PROPERTY AND EQUIPMENT

     Property and equipment at October 31, consisted of:

<TABLE>
<CAPTION>
                                                                     October 31,
                                         Useful                      -----------
                                          Life                2003                2002
                                        -------               ----                ----
<S>                                   <C>                  <C>                <C>
Land                                       -               $   613,538        $   603,538
Buildings and improvements            10 - 40 yrs.           4,718,875          4,679,721
Machinery and equipment                3 - 10 yrs.          30,643,926         28,305,566
                                                           -----------        -----------
                                                            35,976,339         33,588,825
Less accumulated depreciation                               15,350,806         11,912,305
                                                           -----------        -----------
                                                           $20,625,533        $21,676,520
                                                           ===========        ===========
</TABLE>

     Depreciation expense for the fiscal years ended October 31, 2003, 2002 and
     2001 was $5,074,159, $4,398,432 and $3,690,675, respectively.

10.      INTANGIBLE ASSETS

     Major components of intangible assets at October 31, consisted of:

<TABLE>
<CAPTION>
                                                    2003                                    2002
                                                    ----                                    ----
                                          Gross
                                        Carrying          Accumulated       Gross Carrying        Accumulated
                                         Amount          Amortization           Amount            Amortization
                                        --------         ------------       --------------        ------------
<S>                                    <C>               <C>                <C>                   <C>
Amortized Intangible Assets:
Trademark                              $  123,467         $   80,686          $  123,467           $   78,937
Customer Lists and Covenants
Not to Compete                          2,984,887          1,779,674           2,198,922            1,595,363
                                       ----------         ----------          ----------           ----------
Total                                  $3,108,354         $1,860,360          $2,322,389           $1,674,300
                                       ==========         ==========          ==========           ==========
</TABLE>

<TABLE>
<S>                                   <C>                               <C>
Estimated Amortization Expense:
for the fiscal year ending            October 31, 2004                  $293,817
                                      October 31, 2005                   293,817
                                      October 31, 2006                   291,401
                                      October 31, 2007                   155,942
                                      October 31, 2008                   116,975
</TABLE>

     The changes in the carrying amount of goodwill for the fiscal years ending
     October 31, 2003 and 2002 are as follows:

<TABLE>
<CAPTION>
                                               2003               2002
                                               ----               ----
                                          Home and Office    Home and Office
                                          ---------------    ---------------
<S>                                       <C>                <C>
Beginning Balance                           $70,427,887        $65,854,795
Goodwill acquired during the year             2,471,468          4,573,092
                                            -----------        -----------
Balance as of October 31                    $72,899,355        $70,427,887
                                            ===========        ===========
</TABLE>

                                      F-18
<PAGE>

11.      ACCRUED EXPENSES

<TABLE>
<CAPTION>
                                              October 31,
                                              -----------
                                       2003                2002
                                       ----                ----
<S>                                <C>                  <C>
Payroll and vacation               $1,298,082           $1,133,853
Income taxes                           35,000               71,854
Interest                              799,140              798,573
Miscellaneous                         617,980              635,946
                                   ----------           ----------
                                   $2,750,202           $2,640,226
                                   ==========           ==========
</TABLE>

12.      DEBT

     During the twelve months ended October 31, 2003 the Company borrowed
     approximately $1,600,000 from its acquisition line of credit with Webster
     Bank. The rate of interest on the acquisition line is current 30 day LIBOR
     rate plus 200 basis points (3.2% at October 31, 2003) and is due April 1,
     2005. The acquisition line is secured by a lien against all of the assets
     of Vermont Pure Holdings and its subsidiaries. As of October 31, 2003 there
     was no balance outstanding under the working capital line of credit. In
     addition, letters of credit totaling $636,264 secured by the line were
     issued on the Company's behalf, reducing the availability of the line by
     that amount.

     a)  Senior Debt Refinancing

     On March 5, 2003 the Company refinanced its credit facility ("New Credit
     Facility") with Webster Bank and other participants. The New Credit
     Facility refinanced $28.5 million of existing senior debt, provides a
     working capital line of $6.5 million for a term of five years maturing
     February 29, 2008. The rate of interest on the New Credit Facility and
     working capital line is current 30 day LIBOR rate plus 200 basis points
     (3.2% at October 31, 2003) and is secured by a lien against all of the
     assets of Vermont Pure Holdings and its subsidiaries. The new facility
     makes available up to $15 million to be used for acquisitions and the
     partial repayment of the outstanding 12% subordinated notes. Of the $15
     million, up to $10 million is available for acquisitions in the Company's
     Home and Office delivery segment, and up to $5 million is available for the
     repayment of subordinated debt if the Company is able to achieve specified
     financial performance targets in fiscal year 2003. The targets were not met
     in fiscal year 2003. There are no further scheduled principal payments on
     the subordinated debt until 2008 when the full senior facility is due.

     The New Credit Facility amortizes the payback of the existing debt over
     five years and amortizes the payback of the new acquisition debt for three
     years after the first two years. During the first two years, interest only
     is paid on a monthly basis for amounts drawn down for acquisitions and
     sub-debt repayment (see section b). The operating line of credit will be
     renewed for two years for a total of $6,500,000. Interest on all borrowings
     will be tied to the Company's performance, but start off at the 30 day
     LIBOR plus 200 basis points, 3.2% at October 31, 2003.

     Use of the proceeds related to acquisitions and retirement of sub-debt are
     restricted by the Company's attainment of certain covenants, requirements,
     and projections.

                                      F-19
<PAGE>

     b)  Subordinated Debt

     As part of the merger agreement with the former shareholders of Crystal
     Rock, the Company issued notes in the amount of $22,600,000. The notes have
     an effective date of October 5, 2000, are for terms of seven years and bear
     interest at 12% per year. Scheduled repayments are made quarterly and are
     interest only for the seven year period unless specified financial targets
     are met. Payments of interest only of $678,000 are due quarterly with a
     principal payment of $22,600,000 due at maturity.

     The notes are secured by all of the assets of the Company but specifically
     subordinated, with a separate agreement between the debt holders, to the
     senior debt described in Note 12. a) above.

     Compliance with Financial Covenants of the Company's Bank Agreement

     The Company's New Credit Facility agreement requires that it be in
     compliance with certain financial covenants at the end of each fiscal
     quarter. The Company was in compliance with all of its financial covenants
     at the end of each quarter during the fiscal year ended October 31, 2003.

     c)  Other Long Term Debt - The Company's other long term debt is as
     follows:

<TABLE>
<CAPTION>
                                                                                     October 31,
                                                                                2003             2002
                                                                                ----             ----
<S>                                                                           <C>              <C>
Mortgage on property acquired in October 1993, interest at 4.5%,
collateralized by the property                                                $185,145         $220,719
Spring property acquired in October 1991, interest at 10%, unsecured            24,412           30,655
                                                                              --------         --------
                                                                               209,557          251,374
Less current portion                                                            44,105           41,817
                                                                              --------         --------
                                                                              $165,452         $209,557
                                                                              ========         ========
</TABLE>

     d)  Annual maturities of debt as of October 31, 2003 are summarized as
     follows:

<TABLE>
<CAPTION>
                                      Senior       Credit Line    Subordinated        Other           Total
<S>                                 <C>            <C>            <C>             <C>             <C>
Fiscal year ending October 31,
                           2004     $3,104,169              -               -     $    44,105     $ 3,148,274
                           2005      3,733,335      1,600,000               -          46,537       5,379,872
                           2006      3,958,330              -               -          49,122       4,007,452
                           2007      4,145,834              -               -          44,159       4,189,993
                           2008     12,070,831              -      22,600,000          25,634      34,696,465
                                   -----------     ----------     -----------     -----------     -----------
Total Debt                         $27,012,499     $1,600,000     $22,600,000     $   209,557     $51,422,056
                                   ===========     ==========     ===========     ===========     ===========
</TABLE>

13.      INTEREST RATE HEDGES

     a)  On November 3, 2000, April 2, 2001, July 24, 2001, and June 6, 2003 the
     Company entered into separate three year "swap" agreements with Webster
     Bank to fix a total of $26,000,000 of its senior debt with the bank. The
     agreements fix the variable LIBOR rate portion of the debt at 6.57%, 5.28%,
     5.00% and 1.74% respectively. Under the Company's loan agreement with the
     bank, the current applicable margin is 2.00% resulting in a total fixed
     rate of 8.57%, 7.28%, 7.00% and 3.74% for each respective

                                      F-20
<PAGE>

         agreement for the contract period. The margin is subject to change
         based on the Company's performance as outlined in the loan agreement
         with Webster Bank.

         b)       These instruments are considered hedges under SFAS No. 133 and
         137. Since the instrument is intended to hedge against variable cash
         flows, it is considered a cash flow hedge. As a result, the change in
         the fair value of the derivative is recognized as comprehensive income
         (loss) until the hedged item is recognized in earnings. Cumulatively,
         the fair value of the Company's four outstanding swaps increased
         $807,394 during the year resulting in an unrealized loss net of tax of
         $35,504 as of October 31, 2003. The unrealized loss as of October 31,
         2002 was $842,898.

14.             STOCK BASED COMPENSATION

         a)       Stock Option Plan

         In November 1993, the Company's Board of Directors adopted the 1993
         Performance Equity Plan (the "1993 Plan"). The 1993 Plan authorizes the
         granting of awards for up to 1,000,000 shares of common stock to key
         employees, officers, directors and consultants. Grants can take the
         form of stock options (both qualified and non-qualified), restricted
         stock awards, deferred stock awards, stock appreciation rights and
         other stock based awards. During fiscal 2003, 2002, and 2001 there were
         no options issued under this plan.

         On April 2, 1998 the Company's shareholders approved the 1998 Incentive
         and Non Statutory Stock Option Plan (the "1998 Plan"). In April 2003,
         the Company's shareholders approved an increase in the authorized
         number of shares to be issued from its 1998 Incentive and Non-Statutory
         Stock Option Plan from 1,500,000 to 2,000,000. This plan provides for
         issuance of up to 2,000,000 options to purchase the Company's common
         stock under the administration of the compensation committee of the
         Board of Directors. The intent of the plan is to reward options to
         officers, employees, directors, and other individuals providing
         services to the Company.

         The following table summarizes the activity related to stock options
         and outstanding stock option balances during the last three fiscal
         years:

<TABLE>
<CAPTION>
                                               Outstanding Options     Weighted Average
                                                    (Shares)            Exercise Price
                                               -------------------     ----------------
<S>                                            <C>                     <C>
Balance at November 1, 2000                         2,689,218              $   2.79
          Granted                                     193,103                  3.12
          Exercised                                  (100,000)                 2.27
          Expired                                    (104,000)                 1.94
                                                   ----------              --------
Balance at October 31, 2001                         2,678,321              $   2.70
                                                   ----------              --------
          Granted                                      90,000                  4.36
          Exercised                                  (179,500)                 2.73
          Expired                                      (5,000)                 2.00
                                                   ----------              --------
Balance at October 31, 2002                         2,583,821              $   2.93
                                                   ----------              --------
          Granted                                      65,000                  4.09
          Exercised                                  (125,000)                 2.25
          Expired                                     (45,000)                 3.64
                                                   ----------              --------
Balance at October 31, 2003                         2,478,821              $   2.98
                                                   ==========              ========
</TABLE>

                                      F-21

<PAGE>

         The following table summarizes information pertaining to outstanding
         stock options as of October 31, 2003:

<TABLE>
<CAPTION>
                                      Weighted
                                       Average     Weighted                      Weighted
  Exercise          Outstanding       Remaining     Average    Exercisable        Average
   Price              Options        Contractual   Exercise      Options         Exercise
   Range              (Shares)           Life        Price      (Shares)           Price
-------------       ----------        ---------    ---------    ---------        ---------
<S>                 <C>              <C>           <C>         <C>               <C>
$1.81 - $2.60        1,073,000             2.37    $    2.50    1,073,000        $    2.50
$2.81 - $3.38        1,165,821             6.39         3.19      848,795             3.18
$3.50 - $4.25          185,000             7.71         3.89      120,000             3.79
$4.28 - $4.98           55,000             6.12         4.82       55,000             4.82
                     ---------        ---------    ---------    ---------        ---------
                     2,478,821             4.74    $    2.98    2,096,795        $    2.91
                     =========        =========    =========    =========        =========
</TABLE>

         Outstanding options and warrants include options issued under the 1993
         Plan, the 1998 Plan and non-plan options and warrants. There were
         2,018,045 exercisable options at a weighted average price of $2.80 per
         share and 1,698,252 exercisable options at a weighted average price of
         $2.51 per share as of October 31, 2002 and 2001, respectively.

         Outstanding options have lives ranging from 5-10 years, vesting 1-5
         years, and have exercise prices ranging from $1.81-$4.98 per share.

         b)       Employee Stock Purchase Plan

         On June 15, 1999 the Company's shareholders approved the Vermont Pure
         Holdings, Ltd. 1999 Employee Stock Purchase Plan. On January 1, 2001,
         employees commenced participation in the plan. The Company issued
         60,775, 62,740 and 62,415 common shares for the fiscal years ended
         October 31, 2003, 2002 and 2001, respectively.

15.            RETIREMENT PLAN

         The Company has a defined contribution plan which meets the
         requirements of Section 401(k) of the Internal Revenue Code. All
         employees of the Company who are at least twenty-one years of age are
         eligible to participate in the plan. The plan allows employees to defer
         a portion of their salary on a pre-tax basis and the Company
         contributes 25% of amounts contributed by employees up to 6% of their
         salary. Company contributions to the plan amounted to $102,000,
         $114,000, and $94,000 for the fiscal years ended October 31, 2003,
         2002, and 2001, respectively.

16.               COMMITMENTS AND CONTINGENCIES

         a.       Operating Leases

         The Company's operating leases consist of trucks, office equipment and
         rental property.

         Future minimum rental payments over the terms of various lease
         contracts are approximately as follows:

                                      F-22

<PAGE>

<TABLE>
<S>                   <C>
  Fiscal Year Ending October 31,
2004                  $2,003,000
2005                   1,792,000
2006                   1,523,000
2007                   1,329,000
2008                   1,168,000
Thereafter             1,823,000
                      ----------
Total                 $9,638,000
                      ----------
</TABLE>

         Rent expense was $2,134,527, $1,925,911, and $1,003,479 for the fiscal
         years ended October 31, 2003, 2002, and 2001, respectively.

         b.       Contingencies

         In January 2003, the Company settled a suit alleging that a vendor did
         not adequately perform the services rendered in connection with
         approximately $500,000 of unpaid billings. In settling the suit, the
         Company agreed to pay $50,000 to the vendor in full settlement of the
         litigation. In conjunction with the settlement, the parties released
         each other from any further liability in the case. A gain of $150,000
         was recognized in the first quarter of 2003 since the Company had set
         up a reserve for settlement of the suit that exceeded the final amount
         paid. The gain has been included as a reduction of selling, general and
         administrative expenses.

17.             RELATED PARTY TRANSACTIONS

         a)       Directors and Officers

         Three of the Company's major shareholders (former Crystal Rock
         shareholders) have employment contracts with the Company through
         October 5, 2005. Two are also directors. One contract entitles the
         shareholder to annual compensation of $25,000 as well as a leased
         Company vehicle. The other two contracts entitle the respective
         shareholders to annual compensation of $250,000 each and other bonuses
         and prerequisites.

         The Company leases a 67,000 square foot facility in Watertown, CT and a
         22,000 square foot facility in Stamford, CT from a Baker family trust.
         The lease expires in October 2010. Future minimum rental payments under
         these leases are as follows:

Fiscal year ending October 31,

<TABLE>
<CAPTION>
                                       Stamford          Watertown           Total
<S>                                   <C>               <C>               <C>
                          2004        $  216,000        $  360,000        $  576,000
                          2005           216,000           360,000           576,000
                          2006           232,200           387,000           619,200
                          2007           232,200           387,000           619,200
                          2008           232,200           387,000           619,200
Thereafter                               464,400           774,000         1,258,400
                                      ----------        ----------        ----------
Totals                                 1,593,000         2,655,000         4,268,000
                                      ==========        ==========        ==========
</TABLE>

                                      F-23

<PAGE>

         b)       Investment in Voyageur

         The Company has an equity position in a software company named Computer
         Design Systems, Inc. (CDS), d/b/a Voyageur Software. One of the
         Company's directors is a member of the board of directors of CDS. The
         Company uses software designed, sold and serviced by CDS in its home
         and office delivery system to manage customer service, deliveries,
         inventory, billing and accounts receivable. During fiscal 2003, 2002
         and 2001, the Company paid $113,193, $275,332 and $294,311,
         respectively, for service, software, and hardware. As of October 31,
         2002, the Company had a note receivable from CDS dated August 1, 1998
         for the principal amount of $120,000 with accrued interest of $43,650
         and an original maturity date of August 15, 2003. At October 31, 2003
         interest accrued on the note and due from CDS is $50,150. In October
         2003, the Company exercised the option to convert the principal amount
         of the note into additional common shares of CDS during 2003. At
         October 31, 2003, the Company's share of CDS losses resulted in a net
         equity investment in CDS of $100,988 which represents approximately 24%
         of the common stock of CDS.

18.           INCOME TAXES

         The Company has approximately $8.5 million of available net operating
         loss carryforwards at October 31, 2003 expiring from 2005 through 2018.

         The major deferred tax asset (liability) items at October 31, 2003 and
         October 31, 2002 are as follows.

<TABLE>
<CAPTION>
                                                            October 31,
                                                            -----------
                                                     2003                2002
                                                     ----                ----
<S>                                               <C>                 <C>
Accounts receivable allowance                     $   447,000         $   240,000
Amortization                                          632,000             891,000
Payroll                                               338,000                  --
Tax effect of operating loss carryforwards          3,222,000           3,628,000
                                                  -----------         -----------
Total deferred tax asset                          $ 4,639,000         $ 4,759,000

Depreciation                                       (1,630,000)         (1,867,000)
Returnable Containers                                (694,000)                 --
Other                                                 (66,000)            (57,000)
                                                  -----------         -----------
Total deferred tax liability                      $(2,390,000)        $(1,924,000)

Deferred tax asset, net                           $ 2,249,000         $ 2,835,000
                                                  ===========         ===========
</TABLE>

         Income tax expense differs from the amount computed by applying the
         statutory tax rate to net income before income tax expense as follows:

                                      F-24

<PAGE>

<TABLE>
<CAPTION>
                                                                      Fiscal Year Ended October 31,
                                                                      -----------------------------
                                                            2003               2002                2001
                                                            ----               ----                ----
<S>                                                      <C>                <C>                 <C>
Income tax expense computed at the statutory rate        $   748,004        $ 1,449,000         $   628,000

Effect of permanent differences                               28,881             64,000              35,000
Effect of temporary differences                                    -                  -             250,000
Federal alternative minimum tax                                    -                  -              65,000
State income taxes                                            74,115            201,000             535,000
Other                                                              -             37,000             140,000
Decrease in valuation allowance                                    -                  -            (973,000)
                                                         -----------        -----------         -----------
Income tax expense                                       $   851,000        $ 1,751,000         $   680,000
                                                         ===========        ===========         ===========
</TABLE>

         The following is the composition of income tax expense (benefit):

<TABLE>
<CAPTION>
                                                      Fiscal Year Ended October 31,
                                                      -----------------------------
                                               2003                2002               2001
                                               ----                ----               ----
<S>                                         <C>                <C>                 <C>
Current:
   Federal                                  $    53,000        $   (66,000)        $    66,000
   State                                        212,000             38,000             674,000
                                            -----------        -----------         -----------
Total current                               $   265,000        $   (28,000)        $   740,000
                                            -----------        -----------         -----------

Deferred:
   Federal                                  $   586,000        $ 1,513,000         $   (60,000)
   State                                              -            266,000                   -
                                            -----------        -----------         -----------
Total deferred tax expense (benefit)        $   586,000        $ 1,779,000         $   (60,000)
                                            -----------        -----------         -----------
Total income tax expense                    $   851,000        $ 1,751,000         $   680,000
                                            ===========        ===========         ===========
</TABLE>

         On September 3, 2003 the Company reached settlement with the Internal
         Revenue Service related to an audit of federal income tax for its
         Crystal Rock subsidiary for the tax year ending October 5, 2000. The
         settlement resulted in an increase in the Company's income taxes of
         $136,000. This amount has been included in income tax expense for 2003.

19.            EARNINGS PER SHARE

         As required by SFAS No. 128, the Company considers outstanding
         "in-the-money" stock options as potential common stock in its
         calculation of diluted earnings per share and uses the treasury stock
         method to calculate the applicable number of shares. The following
         calculation provides the reconciliation of the denominators used in the
         calculation of basic and fully diluted earnings per share:

                                      F-25

<PAGE>

<TABLE>
<CAPTION>
                                                             Fiscal Year Ended October 31,
                                                      2003               2002               2001
                                                      ----               ----               ----
<S>                                                <C>                <C>                <C>
Net Income                                         $ 1,352,555        $ 2,509,455        $ 1,168,844
                                                   ===========        ===========        ===========
Denominator:
Basic Weighted Average Shares
     Outstanding                                    21,282,294         21,091,837         20,447,609
Effect of Stock Options                                482,404            943,432            203,630
                                                   -----------        -----------        -----------
Diluted Weighted Average Shares Outstanding         21,764,698         22,035,269         20,651,239
                                                   ===========        ===========        ===========
Basic Earnings Per Share                           $       .06        $       .12        $       .06
                                                   ===========        ===========        ===========
Diluted Earnings Per Share                         $       .06        $       .11        $       .06
                                                   ===========        ===========        ===========
</TABLE>

         In addition to the options used to calculate the effect of dilution,
         there were 185,000 options outstanding for the year ended October 31,
         2003 that were not included in the dilution calculation because the
         options' exercise price exceeded the market price of the underlying
         common shares. For the comparable periods in 2002, all outstanding
         options were used to determine the effect of dilution because the
         market price exceeded the exercise prices. There where 1,294,134
         outstanding options for the year ended October 31, 2001 that where not
         included in the dilution calculation because their exercise price
         exceeded the market price.

20.         UNAUDITED QUARTERLY FINANCIAL DATA

         The Company's unaudited quarterly financial data for the last two
         fiscal years is as follows:

<TABLE>
<CAPTION>
                                             For the quarter ended:
      Fiscal 2003                            ----------------------
(000's of $ except net     January 31,     April 30,      July 31,      October 31,
    income per share)         2003           2003           2003           2003
                           --------------------------------------------------------
<S>                        <C>             <C>            <C>           <C>
Net Sales                    $15,077        $18,067        $22,536        $20,515
Gross Profit                 $ 7,679        $ 8,600        $ 9,688        $ 8,986
Net Income                   $   107        $   487        $   566        $   193
Net income per Share:
Basic and Diluted            $   .01        $   .02        $   .02        $   .01
</TABLE>

<TABLE>
<CAPTION>
                                             For the quarter ended:
      Fiscal 2002                            ----------------------
(000's of $ except net     January 31,     April 30,      July 31,      October 31,
    income per share)         2002           2002           2002           2002
                           --------------------------------------------------------
<S>                        <C>             <C>            <C>           <C>
Net Sales                    $14,692        $17,531        $21,579        $17,918
Gross Profit                 $ 7,962        $ 8,833        $10,795        $ 8,547
Net Income                   $   310        $   630        $ 1,292        $   277
Net income per Share:
Basic and Diluted            $   .01        $   .03        $   .06        $   .01
</TABLE>

                                      F-26

<PAGE>

21.         CONCENTRATION OF CREDIT RISK

         The Company maintains its cash accounts at various financial
         institutions. The balances at times may exceed federally insured
         limits. At October 31, 2003, the Company had cash in deposits exceeding
         the insured limit by approximately $835,000.

                                      F-27
<PAGE>

                     EXHIBITS TO VERMONT PURE HOLDINGS, LTD.
                           ANNUAL REPORT ON FORM 10-K
                   FOR THE FISCAL YEAR ENDED OCTOBER 31, 2003
                             EXHIBITS FILED HEREWITH

<TABLE>
<CAPTION>
Exhibit
 Number                         Description
 ------                         -----------
<S>       <C>
  21      Subsidiaries of the Registrant

  23.1    Consent of Independent Auditors -- Deloitte & Touche LLP

  23.2    Consent of Former Independent Auditors - Grassi & Co. PC

  23.3    Consent of Former Independent Auditors - Feldman Sherb & Co. PC

  31.1    Certification of Chief Executive Officer pursuant to Section 302 of
          the Sarbanes-Oxley act of 2002.

  31.2    Certification of Chief Financial Officer pursuant to Section 302 of
          the Sarbanes-Oxley act of 2002.

  32.1    Certification of Chief Executive Officer pursuant to 18 U.S.C. Section
          1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley act of
          2002.

  32.2    Certification of Chief Financial Officer pursuant to 18 U.S.C. Section
          1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley act of
          2002.
</TABLE>