<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, 2004

                                       or

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

                        Commission File Number 000-31797

                           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 536, 45 Krupp Drive, Williston, Vermont 05495
             ------------------------------------------------------
              (Address of principal executive offices and zip code)

         Issuer's telephone number, including area code: (802) 860-1126

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

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

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, 2004, the last day of the
registrant's most recently completed second fiscal quarter, as reported on the
American Stock Exchange, was $33,127,187.

The number of shares outstanding of the Issuer's Common Stock, $.001 par value,
was 21,549,826 on January 24, 2005.

                       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, 2004, 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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                                Table of Contents

<TABLE>
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PART I

Item 1.    Business                                                                                           3
Item 2.    Properties                                                                                        11
Item 3.    Legal Proceedings                                                                                 12
Item 4.    Submission of Matters to a Vote of Security Holders                                               12

PART II

Item 5.    Market for the Registrant's Common Equity, Related Stockholder
           Matters and Issuer Purchases of Equity Securities                                                 13
Item 6.    Selected Financial Data                                                                           15
Item 7.    Management's Discussion and Analysis of Financial Condition and Results of Operations             15
Item 7A.   Quantitative and Qualitative Disclosures About Market Risk                                        25
Item 8.    Financial Statements and Supplementary Data                                                       25
Item 9.    Changes in and Disagreements with Accountants on Accounting and Financial Disclosure              25
Item 9A.   Controls and Procedures                                                                           26
Item 9B.   Other Information                                                                                 26

PART III

Item 10.   Directors and Executive Officers of the Registrant                                                27
Item 11.   Executive Compensation                                                                            27
Item 12.   Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters    27
Item 13.   Certain Relationships and Related Transactions                                                    27
Item 14.   Principal Accountant Fees and Services                                                            27

ITEM IV

Item 15.   Exhibits and Financial Statement Schedules                                                        28
           Signatures
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In this annual report on Form 10-K, "Vermont Pure," the "Company," "we," "us"
and "our" refer to Vermont Pure Holdings, Ltd. and its subsidiaries, taken as a
whole, unless the context otherwise requires.

This Annual Report on Form 10-K contains references to trade names, label
design, trademarks and registered marks of Vermont Pure Holdings, Ltd. and its
subsidiaries and other companies, as indicated. Unless otherwise provided in
this Annual Report on Form 10-K, trademarks identified by (R) are registered
trademarks or trademarks, respectively, of Vermont Pure Holdings, Ltd. or its
subsidiaries. All other trademarks are the properties of their respective
owners.

Market data used throughout this annual report was obtained from internal
company estimates and various trade associations which monitor the industries in
which we compete. We have not independently verified this market data.
Similarly, internal company estimates, while believed to be reliable, have not
been verified by any independent sources, and neither we nor any other person
makes any representation as to the accuracy of the information. While we are not
aware of any misstatements regarding any industry or similar data presented
herein, such data involves risks and uncertainties and is subject to change
based on various factors.


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                                     PART I

ITEM 1. BUSINESS.

INTRODUCTION AND INDUSTRY TRENDS

Vermont Pure Holdings, Ltd. is engaged in the production, marketing and
distribution of bottled water and the distribution of coffee, ancillary
products, and other office refreshment products. Through February 2004, when we
divested the retail segments of our business, our products were sold
predominantly in the Northeast, as well as in the Mid-Atlantic and Mid-Western
United States. Commencing March 2004, we operate exclusively as a Home and
Office delivery business, using our own trucks to distribute throughout New
England, New York, and New Jersey. All of our water products are still
(non-sparkling) waters.

We believe that consumers perceive bottled water to be a healthy and refreshing
beverage alternative to beer, liquor, wine, soft drinks, coffee and tea. United
States bottled water sales have risen at an average annual rate of approximately
8% over the past 10 years, and 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 many consumers' healthy living
lifestyles. In addition, we believe that the development and continued growth of
the bottled water industry 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 and aggressive price competition. 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
and 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. Moreover, the entrance of major soft drink bottlers,
notably Coca-Cola (with Dasani) and Pepsi Cola (with Aquafina), into the
bottling and distribution segment of the industry has had a major impact on the
bottled water industry.

COMPANY BACKGROUND

Incorporated in Delaware 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 and 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 and Office

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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 and 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 and Office
delivery markets, it also distributed coffee, other refreshment type products,
and vending services in Connecticut, New York and Massachusetts. We continued
our acquisition strategy in fiscal 2002 and 2003 with smaller acquisitions in
our established Home and Office markets.

We closed acquisitions in fiscal year 2004 with $5 million in annual sales in
our core market areas. The activity for the year culminated with the acquisition
of Mayer Brothers Home and Office division in Buffalo, NY, making us the largest
distributor in that market. Previously in the year, we had acquired Mayer
Brothers smaller Rochester operations. Combined these acquisitions solidified
our presence in the western New York region.

In 2004, we sold the retail segments (which we traditionally have referred to
separately as "PET" and "Gallon") of our business, while retaining our Home and
Office distribution business. The segments sold included our retail consumer
business under our own brands, as well as the private label business that we
packed for others. The asset sale included the springs, manufacturing facility,
inventory, and the related machinery and equipment located in Randolph Center,
Vermont. We retained the Vermont Pure(R) trademark and continue to distribute
water under that brand throughout our Home and Office distribution area, while
licensing it to the buyer, for a period of 30 years, for use in the bottling and
distribution of retail products. The buyer acquired our Hidden Spring(R)
trademark and licenses it back to us for Home and Office distribution. We
relocated our five-gallon Home and Office bottling operations from Randolph to
White River Junction, Vermont, and source our spring water under an existing
water supply agreement. Also in conjunction with the sale, we relocated our
corporate headquarters to our Williston, Vermont facility.

Although we are proud of the business and brands we built in the retail consumer
market, the goal of the transaction was to enable us to concentrate on our
higher margin, and more profitable, Home and Office business, which distributes
the Crystal Rock(R) brand of water, as well as our Vermont Pure(R) water, coffee
and other products. It is the culmination of a strategy that we began pursuing
in 1996, when we originally diversified into the Home and Office segment. Over
time, the retail segments became unprofitable to us, as margins have been
squeezed by intense competition in this segment of the market.

We continue to pursue an acquisition strategy to purchase independent Home and
Office bottlers and distributors in New England and New York State, and to grow
the business internally as well. 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 and Office setting affords consumers an opportunity to sample the product,
which we believe augments retail sales and contributes to brand awareness.

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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. We believe
that, despite such risks, our acquisition strategy has been and continues to be
a success.

EXPANSION OF PRODUCT LINES

Following our merger with Crystal Rock, we 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 17% of our total sales in fiscal year 2004. We
generally buy coffee under contracts that set prices for up to eighteen months,
in order to maintain price and supply stability. Please refer to "Commodity
Price Risks -- Coffee" on page 25 of this report for additional information on
our coffee supply agreements. 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.

WATER SOURCES, TREATMENT, AND BOTTLING OPERATIONS

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 (by 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.

The primary source of our natural spring water is a spring owned by a third
party in Stockbridge, Vermont, that is subject to a water supply contract. We
also obtain water, under similar agreements with third parties, from springs in
Bennington and Tinmouth, Vermont. All of the springs we use are approved by the
State of Vermont as sources for natural spring water.

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

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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. We started using water from this
site in November 2004.

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
assures a high level of purity. Moreover, the long percolation period permits
the water to become mineralized and pH balanced. 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.

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.

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 or municipal sources that we
use. There 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 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 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 we believe 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 three major brands in three and five gallon bottles to homes and
offices throughout New England, New York, and New Jersey. 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 and 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

                                       6
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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.

Please refer to Note 7 to our Consolidated Financial Statements for information
on inventories at October 31, 2004.

MARKETING AND SALES OF BRANDED PRODUCTS

Our water products are marketed and distributed in five and three-gallon bottles
as "premium" bottled water. We seek brand differentiation by offering a choice
of high quality spring and purified water along with a wide range of coffee and
office refreshment products, and value-added service. Home and Office sales are
generated and serviced using our own facilities, employees and vehicles.

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

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

Advertising and Promotion

We advertise our products primarily through Yellow Pages and other print media
and secondarily through print, television and radio media. 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
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

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, White River Junction, 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 2004.

SUPPLIES

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We currently source all of our raw materials from outside vendors. As one of the
largest Home and Office distributors in the country, we are able 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 and 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.

We rely on trucking to receive raw materials and transport and deliver our
finished products. Consequently, the price of fuel significantly impacts the
cost of our products. We purchase our own fuel for our Home and Office delivery
and use third parties for transportation of raw materials and finished goods
between our warehouses. 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.

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. We believe that we will
be able to either renegotiate contracts with these suppliers when they expire
or, alternatively, if we are unable to renegotiate contracts with our key
suppliers, we believe that we could replace them. Any raw material disruption or
price increase may result in an adverse impact on our financial condition and
prospects. For instance, we could incur higher costs in renegotiating contracts
with existing suppliers or replacing those suppliers, or we could experience
temporary dislocations in its ability to deliver products to our customers,
either of which could have a material adverse effect on our results of
operations.

SEASONALITY

Our business is somewhat seasonal. 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.

COMPETITION

We believe that bottled water historically has been a regional business in the
United States. However, the Home and Office market includes 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 and Leisure Time
in the Hudson Valley of New York.

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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 taste, service, and the purity of the distilled product
with minerals added back. 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 our business. To address this, we make available
plumbed-in filtration units and servicing contracts on a limited basis.

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.

There has also a been a trend developing in the marketplace for consumers to own
their own water coolers, thereby foregoing rental charges on the unit. If this
trend continues, it could have a negative impact on our sales as a result of the
reduced rental income.

TRADEMARKS

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

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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.

The laws that regulate our activities and properties are subject to change. As a
result, there can be no assurance that additional or more stringent requirements
will not be imposed on the our operations in the future. Although we believes
that our water supply, products and bottling facilities are in substantial
compliance with all applicable governmental regulations, failure to comply with
such laws and regulations could have a material adverse effect on our business.

EMPLOYEES

As of January 21, 2005, we had 317 full-time employees and 27 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 January 1, 2005, Timothy G. Fallon, Chairman and Chief Executive
Officer; Peter K. Baker, President; and John B. Baker, Executive Vice President;
entered into three-year employment contracts with the Company. Bruce MacDonald,
Chief Financial Officer, Treasurer and Secretary is under contract until October
2005. These agreements do not prevent these employees from resigning. 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

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Our principal website 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 Securities and Exchange
Commission. 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.

The information on our website is not incorporated by reference in this annual
report on Form 10-K or in any other report, schedule, notice or registration
statement filed with or submitted to the SEC.

The SEC maintains an Internet site that contains reports, proxy and information
statements, and other information regarding issuers that file electronically at
www.sec.gov. You may also read and copy the materials we file with the SEC at
the SEC's Public Reference Room at 450 Fifth Street, NW., Washington, DC 20549.
You may obtain information on the operation of the Public Reference Room by
calling the SEC at 1-800-SEC-0330.

ITEM 2.  PROPERTIES.

As part of our Home and 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:

<TABLE>
<CAPTION>
Location                               Lease expiration                  Sq. Ft.       Annual Rent
--------                               ----------------                  -------       -----------
<S>                                    <C>                               <C>           <C>
Williston, VT                           Month-to-Month                    10,000       $    67,500
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       $    34,500
Halfmoon, NY                            October, 2011                     22,500       $   165,825
Plattsburgh, NY                         Month to month                     3,640       $    20,568
Watertown, CT                           October, 2010                     67,000       $   360,000
Stamford, CT                            October, 2010                     22,000       $   216,000
White River Junction, VT                June, 2009                        12,000       $    69,100
Waterbury, CT                           June, 2007                         5,000       $    24,200
</TABLE>

All locations are used primarily for warehousing and distribution and have
limited office space for location managers and support staff. The exception is
the Watertown, CT location that has a substantial amount of office space for
sales, accounting, information systems, customer service, and general
administrative staff. We also rent, on a monthly basis, an office in White
Plains, New York.

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. Rent charged
under these leases approximate fair value.

We expect that these facilities will meet our needs for the next several years.
For leases that expire in 2005, we plan to negotiate a renewal arrangement or
enter into a lease in another facility that better meets our needs on a long
term basis.

                                       11
<PAGE>

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 alleged 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 denied in part and granted in part the motion to dismiss filed by
Nestle. The Court ruled that the definition of "spring water" is governed by FDA
regulations and therefore any claim asserting a violation of the regulations can
only be brought by the FDA; any private right of action is preempted. The Court
ruled however, that the claims of false advertising relating to misrepresenting
the source of Poland Spring Water and false claims that it is from "protected
sources deep within the woods of Maine" are actionable. The Company accordingly
filed an amended complaint based on the Court ruling. Nestle filed a second
motion to dismiss and the Court dismissed that motion. The case is now
proceeding in its discovery phase.

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, 2004.

                                       12
<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.

      Fiscal Year Ended October 31, 2004

<TABLE>
<CAPTION>
                                                         High          Low
                                                        -----         -----
<S>                                                     <C>           <C>
First Quarter                                           $3.45         $3.00
Second Quarter                                          $3.50         $2.75
Third Quarter                                           $3.10         $2.05
Fourth Quarter                                          $2.24         $1.79
</TABLE>

      Fiscal Year Ended October 31, 2003

<TABLE>
<S>                                                     <C>           <C>
First Quarter                                           $4.40         $3.54
Second Quarter                                          $4.15         $3.00
Third Quarter                                           $3.92         $3.05
Fourth Quarter                                          $3.70         $3.33
</TABLE>

The last reported sale price of our Common Stock on AMEX on January 25, 2005 was
$2.39 per share.

As of that date, we had 394 record owners and 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, 2004,
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.

                                       13
<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                                  2,179,655                      $3.10                       515,697

Equity compensation plans
not approved by security
holders (1)(2)(3)                          483,135                      $2.50                           -0-

Total                                    2,662,790                      $2.98                       515,697
</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 in
September 2007. 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 expired on
December 1, 2004. In February 2002 and May 2004, Mr. Fallon exercised 33,200 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.

(4) Please refer to Note 13 to our Consolidated Financial Statements for
additional information on stock option plans approved by our stockholders.

SECURITIES SOLD AND EXEMPTION FROM REGISTRATION CLAIMED.

None

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

In August 2004, the following officers and directors purchased shares of the
Company's Common Stock on the open market:

                                       14
<PAGE>

<TABLE>
<CAPTION>
Director                        Number of Shares      Average Price
--------                        ----------------      -------------
<S>                             <C>                   <C>
John Baker                           5,000            $        2.20
Timothy Fallon                       3,984            $        3.10
Bruce MacDonald                      1,300            $        3.10
David Preston                        3,000            $        2.00
</TABLE>

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,
     (000's except per share)               2004          2003          2002          2001           2000
                                        ------------  ------------  ------------  ------------   -----------
<S>                                     <C>           <C>           <C>           <C>            <C>
Net sales                               $     52,473  $     49,854  $     49,068  $     47,551   $    20,922
Net income (loss) from continuing
  operations                            $        491  $        962  $      2,069  $        853   $    (1,600)
Net income (loss) per share from
  continuing operations - diluted       $        .02  $        .04  $        .09  $        .04   $      (.15)
Total assets                            $    103,983  $    111,334  $    109,334  $    106,216   $   110,826
Long term debt                          $     37,854  $     48,274  $     46,540  $     47,851   $    51,412
</TABLE>

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

The following Management's Discussion and Analysis (MD&A) is intended to help
the reader understand our company. The MD&A should be read in conjunction with
our consolidated financial statements and the accompanying notes. This overview
provides our perspective on the individual sections of the MD&A, as well as a
few helpful hints for reading these pages. The MD&A includes the following
sections:

      -     Forward-Looking Statements -- cautionary information about
            forward-looking statements and a brief description of certain risks
            and uncertainties that could cause our actual results to differ
            materially from the Company's historical results or our current
            expectations or projections.

      -     Business Overview - Trends -- a brief description of fiscal year
            2004 and our prospects for fiscal year 2005. We have also provided
            in this section a brief description of certain acquisitions and a
            divesture we made that affect the comparability of the results being
            analyzed.

      -     Results of Operations -- an analysis of our consolidated results of
            operations for the three years presented in our consolidated
            financial statements.

                  -     We present the discussion in this MD&A on a consolidated
                        basis.

                                       16
<PAGE>

                  -     We no longer report segment information in this report
                        because following the sale of our retail segments in
                        March 2004, our company operates in one business - the
                        Home and Office business.

                  -     The results of operations for the retail segments are
                        classified as discontinued operations in the periods
                        reported.

      -     Liquidity, Capital Resources and Financial Position -- an analysis
            of cash flows, sources and uses of cash, contractual obligations,
            and financial position and a discussion of factors affecting our
            future cash flow.

      -     Critical Accounting Policies -- a discussion of accounting policies
            that require critical judgments and estimates. Our significant
            accounting policies, including the critical accounting policies
            discussed in this section, are summarized in the notes to the
            accompanying consolidated financial statements.

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 or
projected. We have no obligation to publicly release the result of any revisions
that 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

Business Overview - Trends

Fiscal year 2004 was a transitional and transformational year for the Company.
We sold the retail segments of our business due primarily to our view that the
competitive pricing environment and advertising investments from multinational
competitors would continue to outweigh any returns that we could generate from
these segments. This divestiture provided the opportunity to reduce costly debt.
Subsequently, we made several acquisitions to strengthen the core markets of our
Home and Office business. Although net income declined from fiscal year 2003 to
2004, we feel that the transformation of our business will lead to increased
profitability.

Fiscal Year Ended October 31, 2004 Compared to Fiscal Year Ended October 31,
2003

Sales

Sales for fiscal year 2004 were $52,473,000 compared to $49,854,000 for 2003, an
increase of $2,619,000 or 5%. Sales attributable to acquisitions in fiscal year
2004 were $3,022,000. Net of the acquisitions, sales decreased 1%.

The comparative breakdown of sales is as follows:

                                       15
<PAGE>

<TABLE>
<CAPTION>
                                        2004             2003         Difference       % Diff.
          Product Line               ------------    ------------    ------------    -----------
---------------------------------    (in 000's $)    (in 000's $)    (in 000's $)
<S>                                  <C>             <C>             <C>             <C>
Water                                $     25,043    $     24,030    $      1,013         4%

Coffee and Other Products                  18,524          17,284           1,240         7%

Equipment Rental                            8,906           8,540             366         4%
                                     ------------    ------------    ------------
Total                                $     52,473    $     49,854    $      2,619         5%
                                     ============    ============    ============
</TABLE>

      Water - Net of acquisitions, water sales decreased 2%. The decrease was
primarily a result of a decrease in distributor volume. This was a result of the
loss of a major distributor and lower volume from remaining distributors. Sales
to distributors are the least profitable part of our business and account for
about 4% of water sales. The volume of water from our own distribution system
was flat while the average selling price per delivered bottle increased 1%,
reflecting competitive pressures in our core market. The increase in selling
price was not enough to offset the decrease in distributor volume.

      Coffee and Other Products - The acquisition of a large office coffee
distributor during the second half of fiscal year 2003 and in the last quarter
of fiscal year 2004 accounted for 6% of the increase in sales. Net of
acquisitions, the category increased 1%. Sales of Keurig single-serve coffee
packages more than offset a decrease in conventional coffee sales to account for
the growth. However, the margin on single serve distribution is lower than
traditional coffee products. In addition, a non-recurring favorable adjustment a
year ago related to deposits for bottles not returned resulted in a 2% decrease
in sales for this category.

      Equipment Rental - Growth from acquisitions resulted in a 5% increase in
cooler rental placements. Average rental price was down 1%. Brewer rentals
increased slightly as a result of demand for single serve units. Net of
acquisitions, rental income was down 1%.

Gross Profit/Cost of Goods Sold

Gross profit increased $642,000, or 2% in fiscal year 2004 compared to 2003, to
$29,696,000 from $29,054,000. The increase in gross profit was attributable to
higher sales. As a percentage of sales, gross profit decreased to 57% of sales
from 58% for the respective period. The decrease in gross profit, as a
percentage of sales, was attributable to higher costs of sales and a higher
percentage of sales of non-water related products. The increase in cost of sales
is attributable to 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.

Income from Operations/Operating Expenses

Income from operations decreased to $4,490,000 from $5,837,000 in 2003, a
decrease of $1,347,000, or 23%. The decrease was related to a higher sales mix
of lower margin products, higher production and service costs and higher
operating costs.

Total operating expenses increased to $25,206,000 for the year, up from
$23,217,000 the prior year, an increase of $1,989,000, or 9%. Selling, general
and administrative (SG&A) expenses were $23,714,000 in fiscal year 2004 and
$22,190,000 in 2003, an increase of $1,524,000, or 7%. Of total SG&A expenses,
route distribution costs, significantly influenced by labor, fuel, vehicle, and
insurance costs, increased 11%. In addition, selling costs decreased 8% as a
result of vacancies in our sales staffing and administration costs increased 5%
as a result of the costs of serving more customers and increasing regulatory
requirements.

                                       17
<PAGE>

Advertising expenses were $1,049,000 in fiscal year 2004 compared to $802,000 in
2003, an increase of $247,000, or 31%. The increase in advertising costs is
related to additional yellow page advertising in 2004.

Amortization increased to $409,000 in fiscal year 2004 from $186,000 in 2003.
This increase is attributable to intangible assets that were acquired as part of
several acquisitions in fiscal years 2003 and 2004.

Other compensation in fiscal year 2004 totaled $34,000 compared to $39,000 in
2003. This expense relates to compensation paid to directors and officers in
Company stock in lieu of cash for board fees and bonus compensation.
Compensation paid in cash is accounted for in SG&A expenses.

Interest, Taxes, and Other Expenses - Income from Continuing Operations

Interest expense was $3,507,000 for fiscal year 2004 compared to $4,269,000 in
2003, a decrease of $762,000. Lower interest costs were primarily a result of
reduced amounts of senior and subordinated debt combined with lower fixed rate
commitments compared to a year ago.

The gain on sale of equipment was $10,000 in fiscal year 2004 compared to a loss
of $2,000 in 2003 primarily related to the sale of bottling equipment when new
equipment was purchased in 2004 for relocation of a bottling line from Randolph
to White River Junction Vermont. We also recognized an impairment charge related
to our investment in a software provider as we determined it was likely that the
investment was not recoverable. The amount of the charge was $153,000. See Note
16 b) of our Notes to Consolidated Financial Statements for further information.
We expect to continue to receive reliable products and service from the
provider.

Income from continuing operations before income tax expense was $840,000 in
fiscal year 2004 compared to income from continuing operations before taxes of
$1,567,000 in 2003. The tax expense for fiscal year 2004 was $349,000 compared
to tax expense of $605,000 in 2003 and was based on an expected effective tax
rate of 41% in 2004 and 39% in 2003. The increase in the tax rate is a result of
higher estimated tax liability for fiscal year 2004 in some of the states where
we conduct business. 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.
For a reconciliation of the effective and statutory expense, see Note 18 to our
Notes to the Consolidated Financial Statements.

Income from continuing operations was $491,000 in 2004, $471,000 less than
income from continuing operations of $962,000 in 2003.

Discontinued Operations

The loss from operations for discontinued retail segments in fiscal year 2004
was $79,000. This related to the four months of operations of those segments.
The gain on the sale of assets of the discontinued operations was $353,000. The
corresponding tax expense of loss from discontinued operations combined with the
gain on the sale of $114,000 was calculated at 42%. Income from discontinued
operations in fiscal year 2003 was $637,000. Tax expense, calculated at an
effective rate of 40%, was $246,000. Total income from discontinued operations
was $160,000 in 2004 compared to $391,000 in 2003.

                                       18
<PAGE>

Net Income

Net income of $651,000 in fiscal year 2004 was attributable to income from
continuing operations and loss from discontinued operations combined with a gain
on the sale of a portion of the retail business. This was a decrease in net
income of $702,000 from net income of $1,353,000 in 2003.

Based on the weighted average number of shares of Common Stock outstanding of
21,497,000 (basic) and 21,575,000 (diluted) during 2004, net income was $.03 per
share - basic and diluted. Of the $.03 earnings per share, $.02 was attributable
to continuing operations while $.01 was from discontinued operations, basic and
diluted. This compares to $.06 per share, $.04 continuing and $.02 discontinued,
basic and diluted, in 2003.

Cumulatively, the fair value of our swaps increased $139,000 during the year,
resulting in an unrealized gain of $103,000, net of taxes. 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 asset and a decrease in stockholders' equity on our balance sheet.

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

Sales

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

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

<TABLE>
<CAPTION>
                                        2003             2002         Difference       % Diff.
          Product Line               ------------    ------------    ------------    ------------
---------------------------------    (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 billed to customers 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.

                                       19
<PAGE>

Gross Profit/Cost of Goods Sold

Gross profit decreased to $29,054,000, or 58% of sales, in 2003 from
$30,009,000, or 61% of sales, in 2002. 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.

Income from Continuing Operations/Operating Expenses

Total operating expenses increased to $23,217,000 in 2003 from $21,799,000 in
2002, an increase of $1,418,000, or 7%. Higher operating costs, combined with
lower selling prices and higher production costs, resulted in a decrease in
income from continuing operations of $2,373,000, to $5,837,000 in 2003 compared
to $8,210,000 in 2002.

Selling, general and administrative (SG&A) expenses increased to $22,190,000 in
2003 from $20,410,000 in 2002, an increase of $1,780,000, or 9%. This increase
was primarily driven by an increase in the sales force to maintain and improve
sales volume.

Advertising expenses decreased 27% to $802,000 in 2003 from $1,104,000 in 2002.
The decrease is reflective of a sales strategy that focused more on direct sales
than advertising.

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. Our annual independent test of goodwill indicated no impairment existed at
October 31, 2003 or 2002.

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 $4,269,000 in 2003 from $4,409,000 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.

We had a loss of $2,000 on the sale of equipment in the normal course of
business in fiscal year 2003 compared to a loss of $228,000 in 2002.

Income from continuing operations before income tax expense was $1,567,000 for
2003 compared to $3,513,000 in 2002. Lower taxable income resulted in a $839,000
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%. The reduction was
a result our estimated tax liability for fiscal year in some of the states in
which we operate. For a reconciliation of the effective and statutory expense,
see Note 18 to our notes to the consolidated financial statements

                                       20

<PAGE>
Income from Continuing Operations

Lower interest and taxes did not offset lower prices and higher costs mentioned
earlier. As a result, net income decreased to $962,000 in 2003 from $2,069,000
in 2002, a decrease of $1,107,000, or 53%.

Discontinued Operations

The income from operations for discontinued segments in fiscal year 2003 was
$391,000 compared to $441,000 in 2002. The lower income was attributable to
lower margins as a result of lower average selling prices. The corresponding tax
expense of loss from discontinued operations combined with the gain on the sale
of $114,000 was calculated at 42%. Income from discontinued operations in fiscal
year 2003 was $637,000. Tax expense, calculated at an effective rate of 40%, was
$246,000. Total income from discontinued operations was $160,000 in 2003
compared to $391,000 in 2002.

Net Income

Net income of $1,353,000 in fiscal year 2003 was attributable to income from
continuing operations and income from discontinued operations combined with a
gain on the sale of a portion of the retail business. This was a decrease in net
income of $1,156,000 from net income of $2,509,000 in 2002.

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. Of the total earnings per share, $.04 was
attributable to continuing operations while $.02 was derived from discontinued
operations, basic and diluted. This compares to $.12 per share ($.10 from
continuing operations, $.02 from discontinued operations), basic, and $.11 per
share ($.09 from continuing operations, $.02 from discontinued operations),
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 $807,000 during the 2003 fiscal 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.

LIQUIDITY AND CAPITAL RESOURCES

As of October 31, 2004 we had working capital of $637,000 compared to $5,061,000
on October 31, 2003, a decrease of $4,425,000. The decrease in working capital
was primarily the result of our operating line of credit becoming current debt
during the year. It is due April 1, 2005.

In addition, we used cash for capital expenditures, acquisitions, and repayment
of debt in fiscal year 2004. Capital expenditures of $3,231,000 excluding
acquisitions were applied to the purchase of bottling equipment, and coolers,
brewers, bottles and racks related to Home and Office distribution. During the
year, we also paid $3,104,000 for regularly scheduled debt repayments on our
senior credit facility.

As of October 31, 2004, we had borrowed $1,500,000 on our working capital line
of credit and $5,346,000 on our acquisition line of credit. We borrowed
$3,746,000 from the acquisition line, spent $702,000 in cash, and gave $640,000
of notes to the sellers in fiscal year 2004 for acquisitions. In addition, there
is $1,050,000 committed for letters of credit on our working capital line of
credit.

                                       21

<PAGE>

As noted above, we sold the assets of our retail segments in March, 2004. The
sale produced gross cash proceeds of $10,068,000. The proceeds were used reduce
our debt as follows: $5,000,000 was used to pay down the senior term debt with
Webster Bank and $5,000,000 was used to pay down our subordinated debt. Also, in
conjunction with the sale we paid down $210,000 of senior and subordinated debt
to other lenders. In addition, we received a promissory note from the buyer for
$500,000 and we used $1,147,000 in cash for transactions related to the sale.
Transaction costs primarily included severance and other personnel related
costs, legal, accounting, and bank fees, and equipment and software transition
costs.

On November 3, 2003 a swap agreement for $10,000,000 matured, on April 2, 2004 a
swap agreement for $4,000,000 matured, and on August 5, 2004 another swap
agreement for $4,000,000 matured. As of October 31, 2004, we had $10,000,000 of
fixed rate debt in an outstanding swap agreement.

In fiscal year 2004 we reduced our deferred tax asset by $144,000 to reflect
usage of federal net operating loss carryforwards. This reflects our utilization
of net operating losses to offset taxes that would have been payable in cash for
the period. We have increased the current portion and decreased the long-term
portion of the deferred tax asset to reflect current estimates of future
utilization. There is a total deferred tax asset of $2,105,000 as of October 31,
2004.

In 2003 and 2004, an independent firm completed a valuation of our business. We
used the reports to determine that there was no impairment of goodwill related
to acquisitions as of October 31, 2002 and 2003.

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 until April 1, 2005 at which time any
balance remaining on the operating line is payable and the acquisition line of
credit will convert to a term note.

We believe that we will be able to negotiate acceptable terms with the Bank to
extend the operating line of credit on a long term basis in conjunction with the
existing senior financing arrangement, which runs until 2008. In addition, we
are actively pursuing a new senior credit facility in an effort to continue to
reduce our cost of capital. Whether it is by renewal of the line of credit or
establishing a new senior credit facility, we are confident that we will have
long term credit capacity to provide sufficient availability to supplement
operating cash flows during our peak business cycles.

In the event we cannot refinance our current credit facility we would use cash
flows from operations to pay the outstanding balance of the working capital line
on April 1, 2005 and would seek additional sources of working capital to
supplement operating cash flows during our peak business cycle. If we cannot pay
the working capital line of credit upon maturity, it would constitute an event
of default and the entire balance of the facility, approximately $25,754,000 as
of October 31, 2004, would become due and payable. We expect the balance of the
operating line of credit to be $2,000,000 as of April 1, 2005 Although, we feel
the probability is remote, no assurance can be given that adequate financing at
reasonable interest rates will be secured if more cash is needed other than that
generated from operations. We are in compliance with the financial covenants of
our financing agreements as of October 31, 2004 and current on our scheduled
interest and principal payments for all of our financing arrangements.

                                       22
<PAGE>

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 our contractual
commitments as of July 31, 2004:

<TABLE>
<CAPTION>
Fiscal                           Interest on Fixed       Operating       Coffee Purchase
 Year              Debt (1)        Rate Debt (1)         Leases (2)      Commitments (3)          Total
------           -----------     -----------------       ----------      ---------------       -----------
<S>              <C>             <C>                     <C>             <C>                   <C>
2005             $ 6,141,000     $       2,112,000       $2,206,000      $       230,000       $10,689,000
2006               4,627,000     $       2,112,000        1,964,000                    0         8,703,000
2007               5,081,000     $       2,112,000        1,711,000                    0         8,904,000
2008              28,145,000     $       1,232,000        1,462,000                    0        30,839,000
2009                       0                     0        1,033,000                    0         1,033,000
Thereafter                 0                     0          973,000                    0           973,000
                 -----------     -----------------       ----------      ---------------       -----------
Total            $43,994,000     $       7,568,000       $9,349,000      $       230,000       $60,141,000
                 ===========     =================       ==========      ===============       ===========
</TABLE>

(1) Please refer to Notes 11 and 21 to our Consolidated Financial Statements for
additional information regarding our debt obligations.

(2) Please refer to Note 15 to our Consolidated Financial Statements for
additional information regarding operating leases. We lease office space in
several locations in the US.

(3) Please refer to "Commodity Price Risks -- Coffee" on page 25 of this report
for additional information on our coffee supply agreements.

The debt obligation in fiscal year 2005 includes payoff of the operating line of
credit balance as of October 31, 2004 which matures in March 2005. As of the
date of this report, we have no other material contractual obligations or
commitments.

Factors Affecting Future Cash Flow

As mentioned above, we are in the process of actively pursuing new financing. We
are seeking either to renew our operating line of credit or obtain other
financing to continue to have sufficient cash, on a seasonal basis, to operate
our business. In addition, we will continue to pursue an active program of
evaluating acquisition opportunities. As a result, we anticipate that we may use
capital resources and financing from outside sources in order to complete any
further acquisitions. Finally, since we have relied on debt to finance our
acquisition strategy and accumulated a significant amount of debt, it is our
objective to continue to lower our blended interest rate by maximizing our
senior debt capacity and retiring as much of our higher rate subordinated debt
as possible.

However, interest rates have been trending up and 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 2005 to remain
relatively unchanged from 2004, 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 will provide sufficient
cash flow for routine operations and growth in the foreseeable future. There is
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.

                                       23

<PAGE>

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.

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 of the Home
and Office reporting unit performed, where all goodwill is recorded. By
comparing the fair value of the reporting unit 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

                                       24
<PAGE>

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

INTEREST RATE RISKS

At October 31, 2004, we had approximately $16,400,000 of long-term debt subject
to variable interest rates. Under the loan and security agreement with Webster
Bank, we currently pay interest at a rate of LIBOR plus a margin of 2.25%. A
hypothetical 100 basis point increase in the LIBOR rate would result in an
additional $164,000 of interest expense on an annualized basis. Conversely, a
decrease would result in a proportionate interest cost savings.

We have fixed the interest rate on $10,000,000 of debt at 4.99% with a swap
agreement until June 2006. Currently, this is a rate favorable to the market. 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

Coffee

The cost of our coffee purchases are dictated by commodity prices. Currently, we
are purchasing green coffee on the spot market and fixed price contracts with
our vendors. 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 January 2005 at a "green" price of $.82 -$1.00
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 the most recent quarter,
fuel prices have increased significantly. We estimate that a $0.10 increase per
gallon in fuel cost would result in an increase to operating costs of
approximately $60,000. In aggregate, we have spent approximately an additional
$120,000 on fuel as a result of higher prices in fiscal year 2004 compared to
2003.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Our Consolidated Financial statements and their footnotes are set forth on pages
F-1 through F-25.

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

None.

                                       25

<PAGE>

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.

ITEM 9B. OTHER INFORMATION

None.

                                       26
<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, 2005.

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, 2005.

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,
2005.

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, 2005.

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, 2005.

                                       27

<PAGE>

                                     PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES.

a) 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.

b) 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.)

10.3*          1999 Employee Stock Purchase Plan. (Incorporated by reference to
               Exhibit A of the 1999 Definitive Proxy Statement dated May 15,
               1999.)

10.4*          Employment Agreement dated January 1, 2005 between the Company
               and Timothy G. Fallon.
</TABLE>

                                       28
<PAGE>

<TABLE>
<S>            <C>
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 dated January 1, 2005 between the Company
               and Peter K. Baker.

10.7*          Employment Agreement January 1, 2005 between the Company and John
               B. Baker.

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          Amended and Restated Loan and Security Agreement between the
               Company and Webster Bank, M &T Bank, Banknorth Group, and
               Rabobank dated December 29, 2004.

10.13          Form of Amended and Restated Term Note from the Company to
               Webster Bank and participants dated December 29, 2004.

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.)

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.)
</TABLE>

                                       29
<PAGE>

<TABLE>
<S>            <C>
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          Reaffirmation of Subordination from Henry E. Baker to Webster
               Bank dated December 29, 2004.

10.20          Reaffirmation of Subordination from Joan Baker to Webster Bank
               dated December 29, 2004.

10.21          Reaffirmation of Subordination from John B. Baker to Webster Bank
               dated December 29, 2004.

10.22          Reaffirmation of Subordination from Peter K. Baker to Webster
               Bank dated December 29, 2004.

10.23          Reaffirmation of Subordination from Ross S. Rapaport, Trustee, to
               Webster Bank dated December 29, 2004.

10.24          Form of Amended and Restated Acquisition/Capital Line of Credit
               Note from the Company to Webster Bank and participants dated
               December 29, 2004.

10.25          Form of Amended and Restated Revolving Line of Credit Note from
               the Company to Webster Bank and participants dated December 29,
               2004.

10.26**        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.)

10.27          Purchase and Sale Agreement among Vermont Pure Springs, Inc.,
               Vermont Pure Holdings, Ltd. and Micropack Corporation dated as of
</TABLE>

                                       30
<PAGE>

<TABLE>
<S>            <C>
               March 1, 2004. (Incorporated by reference to Exhibit 10.27 of
               Form 10-Q for the quarter ended January 31, 2004.)

10.28          Trademark License Agreement between Vermont Pure Holdings Ltd.
               and MicroPack Corporation dated March 1, 2004. (Incorporated by
               reference to Exhibit 10.28 of Form 10-Q for the quarter ended
               January 31, 2004.)

10.29          Supply and Sublicense Agreement between Vermont Pure Holdings
               Ltd. and MicroPack Corporation dated March 1, 2004. (Incorporated
               by reference to Exhibit 10.29 of Form 10-Q for the quarter ended
               January 31, 2004.)

10.30*         2004 Stock Incentive Plan. (Incorporated by reference to Annex B
               to the Definitive Proxy Statement dated March 9, 2004.)

10.31*         Amendment to Non-Incentive Stock Option Agreement dated as of
               September 12, 1997 between the Company and Robert Getchell.
               (Incorporated by reference to Exhibit 10.3 of Registration
               Statement on Form S-8, File No. 333-100310 dated October 4,
               2002.)

10.32*         Amendment to Non-Incentive Stock Option Agreement dated as of
               September 12, 1997 between the Company and Beat Schlagenhauf.
               (Incorporated by reference to Exhibit 10.5 of Registration
               Statement on Form S-8, File No. 333-100310 dated October 4,
               2002.)

10.33*         Non-Incentive Stock Option Agreement dated as of May 15, 1995
               between the Company and Norman Rickard. (Incorporated by
               reference to Exhibit 10.8 from Registration Statement on Form
               S-8, No. 33-95908.)

10.34*         Amendment to Non-Incentive Stock Option Agreement dated as of
               September 12, 1997 between the Company and Norman Rickard.
               (Incorporated by reference to Exhibit 10.7 of Registration
               Statement on Form S-8, File No. 333-100310 dated October 4,
               2002.)

10.35*         Non-Incentive Stock Option Agreement dated as of December 6, 1995
               between the Company and David Preston. (Incorporated by reference
               to Exhibit 10.8 of Registration Statement on Form S-8, File No.
               333-100310 dated October 4, 2002.)

10.36*         Amendment to Non-Incentive Stock Option Agreement dated as of
               September 12, 1997 between the Company and David Preston.
               (Incorporated by reference to Exhibit 10.9 of Registration
               Statement on Form S-8, File No. 333-100310 dated October 4,
               2002.)

10.37*         Non-Incentive Stock Option Agreement dated as of July 24, 1996
               between the Company and Robert Getchell. (Incorporated by
               reference to Exhibit 10.12 of Registration Statement on Form S-8,
               File No. 333-100310 dated October 4, 2002.)
</TABLE>

                                       31
<PAGE>

<TABLE>
<S>            <C>
10.38*         Non-Incentive Stock Option Agreement dated as of July 24, 1996
               between the Company and Beat Schlagenhauf. (Incorporated by
               reference to Exhibit 10.13 of Registration Statement on Form S-8,
               File No. 333-100310 dated October 4, 2002.)

10.39*         Non-Incentive Stock Option Agreement dated as of July 24, 1996
               between the Company and Norman Rickard. (Incorporated by
               reference to Exhibit 10.14 of Registration Statement on Form S-8,
               File No. 333-100310 dated October 4, 2002.)

10.40*         Non-Incentive Stock Option Agreement dated as of July 24, 1996
               between the Company and David Preston. (Incorporated by reference
               to Exhibit 10.15 of Registration Statement on Form S-8, File No.
               333-100310 dated October 4, 2002.)

21             Subsidiaries of the Registrant

23.1           Consent of Independent Registered Public Accounting Firm

23.2           Consent of Independent Registered Public Accounting Firm

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>

*     Relates to compensation

**    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.

                                       32
<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 31, 2005             Timothy G. Fallon, Chief Executive Officer

      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/ David R. Preston            Chairman of the Board of Directors       January 31, 2005
--------------------
David R. Preston

/s/ Henry E. Baker              Director, Chairman Emeritis              January 31, 2005
------------------
Henry E. Baker

/s/ John B. Baker               Executive Vice President and Director    January 31, 2005
-----------------
John B. Baker

/s/ Peter K. Baker              President and Director                   January 31, 2005
------------------
Peter K. Baker

/s/ Philip Davidowitz           Director                                 January 31, 2005
---------------------
Phillip Davidowitz

/s/ Timothy G. Fallon           Director                                 January 31, 2005
---------------------
Timothy G. Fallon

/s/ Robert C. Getchell          Director                                 January 31, 2005
----------------------
Robert C. Getchell

/s/ Carol R. Lintz              Director                                 January 31, 2005
------------------
Carol R. Lintz

/s/ Ross S. Rapaport            Director                                 January 31, 2005
--------------------
Ross S. Rapaport

/s/ Norman E. Rickard           Director                                 January 31, 2005
---------------------
Norman E. Rickard

/s/ Beat Schlagenhauf           Director                                 January 31, 2005
---------------------
Beat Schlagenhauf

/s/ Bruce S. MacDonald          Chief Financial Officer and Secretary    January 31, 2005
----------------------
Bruce S. MacDonald
</TABLE>

<PAGE>

                     EXHIBITS TO VERMONT PURE HOLDINGS, LTD.
                           ANNUAL REPORT ON FORM 10-K
                   FOR THE FISCAL YEAR ENDED OCTOBER 31, 2004
                             EXHIBITS FILED HEREWITH

<TABLE>
<CAPTION>
Exhibit
Number         Description
------         -----------
<S>            <C>
10.4*          Employment Agreement dated January 1, 2005 between the Company
               and Timothy G. Fallon.

10.6*          Employment Agreement dated January 1, 2005 between the Company
               and Peter K. Baker.

10.7*          Employment Agreement January 1, 2005 dated between the Company
               and John B. Baker.

10.12          Amended and Restated Loan and Security Agreement between the
               Company and Webster Bank, M &T Bank, Banknorth Group, and
               Rabobank dated December 29, 2004.

10.13          Form of Amended and Restated Term Note from the Company to
               Webster Bank and participants dated December 29, 2004.

10.19          Reaffirmation of Subordination from Henry E. Baker to Webster
               Bank dated December 29, 2004.

10.20          Reaffirmation of Subordination from Joan Baker to Webster Bank
               dated December 29, 2004.

10.21          Reaffirmation of Subordination from John B. Baker to Webster Bank
               dated December 29, 2004.

10.22          Reaffirmation of Subordination from Peter K. Baker to Webster
               Bank dated December 29, 2004.

10.23          Reaffirmation of Subordination from Ross S. Rapaport, Trustee, to
               Webster Bank dated December 29, 2004.

10.24          Form of Amended and Restated Acquisition/Capital Line of Credit
               Note from the Company to Webster Bank and participants dated
               December 29, 2004.

10.25          Form of Amended and Restated Revolving Line of Credit Note from
               the Company to Webster Bank and participants dated December 29,
               2004.

21             Subsidiaries of the Registrant

23.1           Consent of Independent Registered Public Accounting Firm

23.2           Consent of Independent Registered Public Accounting Firm

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>

<PAGE>

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

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

Financial Statements:

     Consolidated Balance Sheets,
      October 31, 2004 and 2003                                           F-3

     Consolidated Statements of Operations,
      Fiscal Years Ended October 31, 2004, 2003, and 2002                 F-4

     Consolidated Statements of Stockholders' Equity
      and Comprehensive Income
      Fiscal Years Ended October 31, 2004, 2003, and 2002                 F-5

     Consolidated Statements of Cash Flows,
      Fiscal Years Ended October 31, 2004, 2003, and 2002                 F-6

     Notes to Consolidated Financial Statements                           F-7 - F-25
</TABLE>

<PAGE>

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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

We have audited the accompanying consolidated balance sheets of Vermont Pure
Holdings, Ltd. and subsidiaries (the "Company") as of October 31, 2004 and 2003,
and the related consolidated statements of operations, stockholders' equity and
comprehensive income and cash flows for the years 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 audits.

We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Company's internal control
over financial reporting. Accordingly, we express no such opinion. An audit also
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Vermont Pure Holdings, Ltd. and
subsidiaries at October 31, 2004 and 2003, and the results of their operations
and their cash flows for the years then ended, in conformity with accounting
principles generally accepted in the United States of America.

/s/ DELOITTE & TOUCHE LLP

January 18, 2005
Hartford, Connecticut

                                       F-1

<PAGE>

             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors
Vermont Pure Holdings, Ltd.
Williston, VT 05495

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, 2002. 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. 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 provide 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,
changes in stockholders' equity and cash flows of Vermont Pure Holdings Ltd. and
Subsidiaries for the year ended October 31, 2002, 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
(Except Note 19 which is dated January 28, 2005).

                                       F-2
<PAGE>

                  VERMONT PURE HOLDINGS, LTD. AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                               October 31,
                                                                     ----------------------------
                                                                         2004            2003
                                                                     ------------    ------------
<S>                                                                  <C>             <C>
                                ASSETS
CURRENT ASSETS:
  Cash and cash equivalents                                          $    783,445    $  1,170,321
  Accounts receivable - net of reserve of $303,304 and $335,321
    for 2004 and 2003, respectively                                     7,065,530       6,198,942
  Inventories                                                           1,069,834       1,018,970
  Current portion of deferred tax asset                                 1,439,446       1,093,000
  Other current assets                                                  1,665,831       1,761,617
  Unrealized gain on derivatives                                          103,100               -
  Discontinued operations                                                       -       3,876,654
                                                                     ------------    ------------

      TOTAL CURRENT ASSETS                                             12,127,186      15,119,504
                                                                     ------------    ------------

PROPERTY AND EQUIPMENT - net of accumulated depreciation               12,147,200      13,482,857
Discontinued Operations                                                         -       7,142,676
                                                                     ------------    ------------
TOTAL PROPERTY AND EQUIPMENT                                           12,147,200      20,625,533
                                                                     ------------    ------------

OTHER ASSETS:
  Goodwill                                                             74,772,591      72,899,355
  Other intangible assets - net of accumulated amortization             3,734,899       1,247,994
  Deferred tax asset                                                      665,271       1,156,000
  Other assets                                                            536,000         285,678
                                                                     ------------    ------------

      TOTAL OTHER ASSETS                                               79,708,761      75,589,027
                                                                     ------------    ------------

TOTAL ASSETS                                                         $103,983,147    $111,334,064
                                                                     ============    ============

                 LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
  Current portion of long term debt                                  $  6,140,635    $  3,148,274
  Accounts payable                                                      2,828,787       2,318,720
  Accrued expenses                                                      2,318,486       2,329,163
  Current portion of customer deposits                                    202,244         169,504
  Unrealized loss on derivatives                                                -          35,504
  Discontinued operations                                                       -       2,056,938
                                                                     ------------    ------------

      TOTAL CURRENT LIABILITIES                                        11,490,152      10,058,103

  Long term debt, less current portion                                 37,853,696      48,273,782
  Customer deposits                                                     3,168,483       2,655,560
                                                                     ------------    ------------

      TOTAL LIABILITIES                                                52,512,331      60,987,445
                                                                     ------------    ------------

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' EQUITY:
  Common stock - $.001 par value, 50,000,000 authorized shares
    21,569,711 issued and 21,498,161 outstanding shares as of
    July 31, 2004 and 21,430,987 issued and 21,359,437
    outstanding as of October 31, 2003                                     21,569          21,431
  Additional paid in capital                                           57,869,411      57,535,069
  Treasury stock, at cost, 71,550 shares as of October 31, 2003
    and 2004                                                             (264,735)       (264,735)
  Accumulated deficit                                                  (6,258,531)     (6,909,642)
  Accumulated other comprehensive income (loss)                           103,100         (35,504)
                                                                     ------------    ------------
      TOTAL STOCKHOLDERS' EQUITY                                       51,470,815      50,346,619
                                                                     ------------    ------------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                           $103,983,146    $111,334,064
                                                                     ============    ============
</TABLE>

      See the accompanying notes to the consolidated financial statements.

                                       F-3
<PAGE>

                      VERMONT PURE HOLDINGS, LTD. AND SUBSIDIARIES

                          CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                        Fiscal Year Ended October 31,
                                                                ------------------------------------------
                                                                    2004           2003           2002
                                                                ------------   ------------   ------------
<S>                                                             <C>            <C>            <C>
NET SALES                                                       $ 52,473,401   $ 49,854,313   $ 49,068,325

COST OF GOODS SOLD                                                22,777,542     20,799,833     19,059,180
                                                                ------------   ------------   ------------

GROSS PROFIT                                                      29,695,859     29,054,480     30,009,145
                                                                ------------   ------------   ------------

OPERATING EXPENSES:
  Selling, general and administrative expenses                    23,713,854     22,190,138     20,410,354
  Advertising expenses                                             1,048,835        802,297      1,104,248
  Amortization                                                       409,380        186,060        232,201
  Other compensation                                                  34,234         38,997         52,400
                                                                ------------   ------------   ------------

TOTAL OPERATING EXPENSES                                          25,206,303     23,217,492     21,799,203
                                                                ------------   ------------   ------------

INCOME FROM OPERATIONS                                             4,489,556      5,836,988      8,209,942
                                                                ------------   ------------   ------------

OTHER EXPENSE:
          Interest                                                (3,506,769)    (4,268,958)    (4,408,791)
          Gain/(Loss) on disposal of property and equipment            9,649         (1,523)      (228,025)
          Miscellaneous                                             (152,838)             -        (60,574)
                                                                ------------   ------------   ------------

TOTAL OTHER EXPENSE                                               (3,649,958)    (4,270,481)    (4,697,390)
                                                                ------------   ------------   ------------

INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAX EXPENSE          839,598      1,566,507      3,512,552

INCOME TAX EXPENSE                                                   348,708        604,974      1,443,620
                                                                ------------   ------------   ------------

INCOME FROM CONTINUING OPERATIONS                                    490,890        961,533      2,068,932

DISCONTINUED OPERATIONS:
  (Loss) income from discontinued operations                         (78,555)       637,044        747,903
  Gain on disposal of discontinued operations                        352,535              -              -
  Income tax expense from discontinued operations                   (113,759)      (246,022)      (307,380)
                                                                ------------   ------------   ------------
INCOME FROM DISCONTINUED OPERATIONS                                  160,221        391,022        440,523
                                                                ------------   ------------   ------------

NET INCOME                                                      $    651,111   $  1,352,555   $  2,509,455
                                                                ============   ============   ============

NET INCOME PER SHARE - BASIC
  Continuing operations                                         $       0.02           0.04           0.10
  Discontinued operations                                               0.01           0.02           0.02
                                                                ------------   ------------   ------------
NET INCOME                                                      $       0.03   $       0.06   $       0.12
                                                                ============   ============   ============

NET INCOME PER SHARE - DILUTED
  Continuing operations                                         $       0.02           0.04           0.09
  Discontinued operations                                               0.01           0.02           0.02
                                                                ------------   ------------   ------------
NET INCOME                                                      $       0.03   $       0.06   $       0.11
                                                                ============   ============   ============

WEIGHTED AVERAGE SHARES USED IN COMPUTATION - BASIC               21,497,251     21,282,294     21,091,837
                                                                ============   ============   ============
WEIGHTED AVERAGE SHARES USED IN COMPUTATION - DILUTED             21,574,515     21,764,698     22,035,269
                                                                ============   ============   ============
</TABLE>

      See the accompanying notes to the consolidated financial statements.

                                       F-4
<PAGE>

                  VERMONT PURE HOLDINGS, LTD. AND SUBSIDIARIES

           CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
                            AND COMPREHENSIVE INCOME

<TABLE>
<CAPTION>

                                                                   Additional
                                              Common      Stock      Paid in    Treasury    Stock
                                              Shares    Par Value    Capital     Shares    Amount
                                            ----------  ---------  -----------  --------  ---------
<S>                                         <C>         <C>        <C>          <C>       <C>
Balance, October 31, 2001                   20,767,670     20,768   55,562,599         -  $       -

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

Stock compensation                              12,105         12       52,388

Exercise of stock options                      179,500        179      482,859

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

Net income

Unrealized gain on derivatives

                                            ----------  ---------  -----------  --------  ---------
Balance, October 31, 2002                   21,235,927     21,236   57,023,093         -  $       -

Stock compensation                               9,285          9       38,988

Exercise of stock options                      125,000        125      281,124

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

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

Net income

Unrealized gain on derivatives

                                            ----------  ---------  -----------  --------  ---------
Balance, October 31, 2003                   21,359,437  $  21,431  $57,535,069    71,550  $(264,735)
                                            ==========  =========  ===========  ========  =========

Stock compensation                               7,484          7       56,350

Exercise of stock options                       33,200         33       82,967

Restricted Stock Grants                         26,000         26       57,174

Shares purchased under employee                 72,040         72      179,777
  stock plan

Officer share purchases                                                  5,741

Deferred Compensation                                                  (47,667)

Net income

Unrealized gain on derivatives

                                            ----------  ---------  -----------  --------  ---------
Balance, October 31, 2004                   21,498,161  $  21,569  $57,869,411    71,550  $(264,735)
                                            ==========  =========  ===========  ========  =========
</TABLE>

<TABLE>
<CAPTION>
                                                           Accumulated
                                                              Other
                                            Accumulated    Comprehensive                  Comprehensive
                                              Deficit       Gain (Loss)        Total          Income
                                            ------------   -------------   ------------   -------------
<S>                                         <C>            <C>             <C>            <C>
Balance, October 31, 2001                    (10,771,652)       (973,537)    43,838,178

Common stock issued for acquisition                                             704,627

Stock compensation                                                               52,400

Exercise of stock options                                                       483,038

Shares purchased under employee
  stock plan                                                                    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                     (8,262,197)       (842,898)    47,939,234   $   2,640,094
                                                                                          =============

Stock compensation                                                               38,997

Exercise of stock options                                                       281,249

Treasury stock purchase                                                        (264,735)

Shares purchased under employee                                                 191,925
  stock plan

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                   $ (6,909,642)  $     (35,504)  $ 50,346,619   $   2,159,949
                                            ============   =============   ============   =============

Stock compensation                                                               56,357

Exercise of stock options                                                        83,000

Restricted Stock Grants                                                          57,200

Shares purchased under employee                                                 179,849
  stock plan

Officer share purchases                                                           5,741

Deferred Compensation                                                           (47,667)

Net income                                       651,111                        651,111   $     651,111

Unrealized gain on derivatives                                   138,604        138,604         138,604

                                            ------------   -------------   ------------   -------------
Balance, October 31, 2004                   $ (6,258,531)  $     103,100   $ 51,470,815   $     789,715
                                            ============   =============   ============   =============
</TABLE>

      See the accompanying notes to the consolidated financial statements.

                                      F-5
<PAGE>

                  VERMONT PURE HOLDINGS, LTD. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                                             Fiscal Year Ended October 31,
                                                                                      ------------------------------------------
                                                                                          2004           2003           2002
                                                                                      ------------   ------------   ------------
<S>                                                                                   <C>            <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income                                                                          $    651,111   $  1,352,555   $  2,509,455

Adjustments to reconcile net income to net cash provided by operating activities:
    Depreciation                                                                         5,091,470      5,074,159      4,398,432
    Provision for bad debts                                                                366,844        598,142        443,633
    Amortization                                                                           409,380        186,060        232,201
    Change in deferred tax asset                                                           144,283        585,776      1,779,000
    (Gain) Loss on disposal of property and equipment                                       (9,649)        42,137        228,025
    Gain on sale of a segment of business                                                 (352,535)             -              -
    Non cash compensation                                                                   34,234         38,997         52,400
    Loss on investment in CDS                                                              152,838

Changes in assets and liabilities (net of effect of acquisitions):
    Accounts receivable                                                                   (154,303)    (1,011,285)      (689,447)
    Inventories                                                                           (594,561)     1,102,285       (919,755)
    Other current assets                                                                    45,636       (559,154)     1,125,000
    Other assets                                                                          (136,027)       603,765        (21,676)
    Accounts payable                                                                       178,516        446,557       (594,173)
    Accrued expenses                                                                      (477,290)       (58,536)      (483,191)
    Customer deposits                                                                      235,867       (157,212)       187,860
                                                                                      ------------   ------------   ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES                                                5,585,814      8,244,246      8,247,764
                                                                                      ------------   ------------   ------------

CASH FLOWS FROM INVESTING ACTIVITIES:
    Purchase of property, plant and equipment                                           (3,231,338)    (4,171,835)    (4,692,785)
    Proceeds from sale of a segments of business - net of transaction costs              8,921,693              -              -
    Proceeds from sale of property and equipment                                           584,565        106,526        271,262
    Cash used for acquisitions - net of cash acquired                                   (4,448,477)    (3,953,692)    (4,987,073)
    Other investing activities                                                                   -       (116,236)             -
                                                                                      ------------   ------------   ------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES                                      1,826,443     (8,135,237)    (9,408,596)
                                                                                      ------------   ------------   ------------

CASH FLOWS FROM FINANCING ACTIVITIES:
    Proceeds from line of credit borrowings                                              6,689,248      1,866,433      3,865,706
    Proceeds from debt                                                                           -      3,746,653      4,200,000
    Payments on line of credit                                                          (1,443,248)    (1,866,433)    (3,865,706)
    Principal payments of debt                                                         (13,313,725)    (3,545,984)    (4,190,123)
    Exercise of stock options                                                               83,000        281,249        483,039
    Purchase of treasury stock                                                                   -       (264,735)             -
    Proceeds from sale of common stock                                                     185,590        191,925        220,897
                                                                                      ------------   ------------   ------------
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES                                     (7,799,135)       409,108        713,813
                                                                                      ------------   ------------   ------------

NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS                                      (386,878)       518,117       (447,019)

CASH AND CASH EQUIVALENTS - beginning of year                                            1,170,321        652,204      1,099,223
                                                                                      ------------   ------------   ------------

CASH AND CASH EQUIVALENTS - end of year                                               $    783,443   $  1,170,321   $    652,204
                                                                                      ============   ============   ============

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

Cash paid for interest                                                                $  3,715,739   $  4,398,114   $  4,556,831
                                                                                      ============   ============   ============

Cash paid for taxes                                                                   $     72,079   $    360,238   $    193,372
                                                                                      ============   ============   ============

NON-CASH FINANCING AND INVESTING ACTIVITIES:

Notes payable issued in acquisitions                                                  $    640,000   $    200,000   $          -
Note receivable on sales of segments of business                                          (500,000)             -              -
                                                                                      ------------   ------------   ------------
                                                                                      $    140,000   $    200,000   $          -
                                                                                      ============   ============   ============
</TABLE>

      See the accompanying notes to the consolidated financial statements.

                                       F-6
<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
      and distribution of coffee, ancillary products, and other office
      refreshment products. Through February, 2004, when the Company divested
      the retail segments of its business, the Company's products were sold,
      predominantly in the Northeast, as well as in the Mid-Atlantic and
      Mid-Western United States. Distribution was accomplished through a network
      of independent beverage distributors and with the Company's own trucks and
      employees. Commencing March 2004, the Company operated exclusively as a
      home and office delivery business, using its own trucks to distribute
      throughout New England, New York, and New Jersey.

2.    SIGNIFICANT ACCOUNTING POLICIES

            a.    Basis of Presentation - For 2002 and 2003, 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. In 2004, the Company merged the subsidiaries
                  mentioned above into Vermont Pure Holdings, Ltd. 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 - In 2002 and 2003, inventories consisted
                  primarily of the packaging material, labor and overhead
                  content of the Company's products and were stated at the lower
                  of cost or market using average costing. In 2004, inventories
                  primarily consist of products that are purchased for resale
                  are stated at the lower of cost or market on a first in, first
                  out basis.

            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.    Goodwill and Other - The Company adopted Statement of
                  Financial Accounting Standards ("SFAS") No. 142 which
                  eliminates the amortization of goodwill and other intangible
                  assets with indefinite lives. Intangible assets with lives
                  restricted by contractual, legal, or other means

                                      F-7
<PAGE>

            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 years 2004 and 2003, and, as a result, the Company concluded
            that there was no current impairment of goodwill as of such date.
            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.

      f.    Securities Issued for Services - The Company follows the accounting
            treatment prescribed by Accounting Principles Board Opinion ("APB")
            No. 25, "Accounting for Stock Issued to Employees" when accounting
            for stock-based compensation granted to employees and directors. Any
            stock-based compensation awards to non-employees and non-directors
            are accounted for using the provisions of Emerging Issues Task Force
            No. 96-18 "Accounting for Equity Instruments That Are Issued to
            Other Than Employees for Acquiring, or in Conjunction with Selling
            Goods or Services."

            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,
            Accounting for Stock Based Compensation, 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.

                                       F-8

<PAGE>


<TABLE>
<CAPTION>
                                                            Years Ended
                                                            October 31,
                                                2004           2003            2002
                                              --------      -----------     ----------
<S>                                           <C>           <C>             <C>
Net Income - As Reported                      $651,111      $ 1,352,555     $2,509,455

Deduct: Total stock-based employee
compensation expense determined under
fair value based method for all
awards, net of related tax effects             347,626          249,656        633,742
                                              --------      -----------     ----------
Pro Forma Net Income                          $303,485      $ 1,102,899     $1,875,713
                                              ========      ===========     ==========

Basic Net Income Per Share:

        As Reported                           $    .03      $       .06     $      .12
                                              ========      ===========     ==========
        Pro Forma                             $    .01      $       .05     $      .09
                                              ========      ===========     ==========
Diluted Net Income Per Share:

        As Reported                           $    .03      $       .06     $      .11
                                              ========      ===========     ==========
        Pro Forma                             $    .01      $       .05     $      .09
                                              ========      ===========     ==========
</TABLE>

            The weighted average fair values of the options granted for the
            respective fiscal years, using the Black-Scholes option pricing
            model, were $1.15, $1.70, and $2.26, respectively.

            Assumptions used for estimating the fair value of the options on the
            date of grant under the Black-Scholes option pricing model are as
            follows for the fiscal years ended October 31, 2004, 2003 and 2002:

<TABLE>
<CAPTION>
                                               2004         2003           2002
                                             --------     ---------      ---------
<S>                                          <C>          <C>            <C>
Expected Dividend Yield                       0%            0%              0%
Expected Life                                 5 Years       5 Years         5 Years
Risk free Interest Rate                       3.0%          5.7%            5.7%
Volatility                                    39%           36%             54%
</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 in which 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 anti-dilutive. 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.

                                      F-9

<PAGE>

      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 Pages
            advertising, over a period of twelve months consistent with its
            expected period of future benefit based on historical responses.
            Prepaid advertising at October 31, 2004 and 2003 was $288,000 and
            $302,000, 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. Slotting fees were not incurred following the sale of the
            retail segments of the business.

      j.    Customer Deposits - Customers receiving home or office delivery of
            water pay the Company a deposit for the water bottle that is
            refunded when the bottle is returned. Based on historical
            experience, the Company uses an estimate of the deposits it expects
            to refund over the next twelve 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 uses SFAS 109 when calculating its tax
            expense and the value of tax related assets and liabilities. This
            requires that the tax impact future events be considered when
            determining the value of assets and liabilities in its financial
            statements and tax returns. The Company accounts for income taxes
            under the liability method. Under the liability method, a deferred
            tax asset or 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.

                                      F-10

<PAGE>

      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, 2004 and 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 $706,000,
            $2,308,000, and $2,030,000 for fiscal years ended October 31, 2004,
            2003 and 2002, respectively. The Company does not charge these costs
            to its customers. These charges apply to the retail segment of
            business that the Company disposed of in March, 2004.

3.    RECENT ACCOUNTING PRONOUNCEMENTS

   In November 2004, the FASB issued SFAS No. 151, "Inventory Costs, and
   Amendment of ARB No. 43, Chapter 4." SFAS No. 151 clarifies the accounting
   for abnormal amounts of idle facility expense, freight, handling costs, and
   wasted material (spoilage). SFAS No. 151 is effective for inventory costs
   incurred after October 31, 2005. The Company does not believe SFAS No. 151
   will have a material impact on its consolidated financial statements.

   Also in November 2004, the FASB issued SFAS No. 152 "Accounting for Real
   Estate Time Sharing Transactions, an Amendment of FASB Statements No. 66 and
   67," and SFAS No. 153, "Exchange of Nonmonetary Assets, and Amendment of APB
   Opinion No. 29." These statements are not expected to have a material impact
   on the Company's consolidated financial condition or results of operations.

   In December 2004, the FASB issued SFAS No. 123R, "Share-Based Payment,"
   ("SFAS 123R"), which requires that the cost resulting for all share-based
   payment transactions be recognized in the financial statements. This
   statement is effective for the Company as of August 1, 2005.

                                      F-11

<PAGE>

4.    SEGMENTS

   The Company has historically prepared detailed information to evaluate its
   operations on a segment basis. It accounted for the business in three
   separate segments, "Retail", "Retail-Gallons" and "Home and Office."
   Following the sale by the Company of its two retail segments in March 2004,
   its remaining operations consist solely of the Home and Office business. As a
   result of the sale, the results of operations for the retail segments are
   classified as discontinued operations in the periods reported. Consequently,
   the Company will not report segment information in this report.

5.    MERGERS AND ACQUISITIONS

   During 2004, Vermont Pure Holdings, Ltd. made seven acquisitions and merged
   these into the Company's Home and Office operations:

   The purchase price paid for the acquisitions is was follows:

<TABLE>
<S>                                                                                <C>
Cash                                                                               $ 4,331,351
Notes Payable                                                                          640,000
Acquisition Costs                                                                      552,125
                                                                                   -----------
                                                                                   $ 5,523,476
                                                                                   ===========
</TABLE>

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

   The allocation of purchase price related to these acquisitions is as follows:

<TABLE>
<S>                                                                               <C>
Accounts Receivable                                                               $    296,189
Inventory                                                                            1,048,320
Goodwill                                                                             1,875,263
Other Intangibles                                                                    2,613,500
Bottle Deposits                                                                       (309,796)
                                                                                  ------------
Purchase Price                                                                    $  5,523,476
                                                                                  ============
</TABLE>

   The following table summarizes the pro forma consolidated condensed results
   of operations (unaudited) of the Company for the fiscal years ended October
   31, 2004 and October 31, 2003 as though the acquisitions had been consummated
   at the beginning of the periods presented:

<TABLE>
<CAPTION>
                                                                          October 31,
                                                                  -------------------------
                                                                     2004          2003
                                                                  -----------   -----------
                                                                          (Unaudited)
<S>                                                               <C>           <C>
Total Sales                                                       $56,502,401   $54,617,313
                                                                  ===========   ===========
  Net Income                                                      $   741,113   $ 1,512,555
                                                                  ===========   ===========
  Net  Income Per Share - Diluted                                 $      0.03   $      0.07
                                                                  ===========   ===========
  Weighted Average Common Shares
  Outstanding - Diluted                                            21,574,515    21,764,698
                                                                  ===========   ===========
</TABLE>

                                      F-12

<PAGE>

   During 2003, the purchase price paid for acquisitions was as follows:

<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.

   The allocation of the purchase price of the 2003 acquisitions is as follows:

<TABLE>
<S>                                                               <C>
Accounts Receivable                                               $  895,620
Inventory                                                            116,875
Goodwill                                                           2,355,232
Other Intangibles                                                    785,965
                                                                  ----------
Purchase Price                                                    $4,153,692
                                                                  ==========
</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 Sales                                                       $52,715,313    $53,304,325
                                                                  ===========    ===========
Net Income                                                        $ 1,705,555    $ 2,994,075
                                                                  ===========    ===========
Net  Income Per Share - Diluted                                   $      0.08    $      0.14
                                                                  ===========    ===========
Weighted Average Common Shares
Outstanding - Diluted                                              21,764,698     22,035,269
                                                                  ===========    ===========
</TABLE>

6.    ACCOUNTS RECEIVABLE

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

<TABLE>
<CAPTION>
                                                             October 31,
                                                             -----------
                                                  2004          2003            2002
                                                ---------    -----------     ----------
<S>                                             <C>          <C>             <C>
Balance, beginning of year                      $ 335,321    $   248,880     $  255,629
Provision                                         366,844        598,142        443,633
Write-offs                                       (398,861)      (511,701)      (450,382)
                                                ---------    -----------     ----------
Balance, end of year                            $ 303,304    $   335,321     $  248,880
                                                =========    ===========     ==========
</TABLE>

                                      F-13

<PAGE>

7.    INVENTORIES

   Inventories at October 31, consisted of:

<TABLE>
<CAPTION>
                                      October 31,
                                ------------------------
                                   2004         2003
                                ----------   -----------
<S>                             <C>          <C>
Finished Goods                  $  900,917   $   947,397
Raw Materials                      168,917        71,573
                                ----------   -----------
Total Inventories               $1,069,834   $ 1,018,970
                                ==========   ===========
</TABLE>

8.    PROPERTY AND EQUIPMENT

   Property and equipment at October 31, consisted of:

<TABLE>
<CAPTION>
                                                           October 31,
                                       Useful      ---------------------------
                                        Life          2004             2003
                                    ------------   -----------     -----------
<S>                                 <C>            <C>             <C>
Buildings and improvements          10 - 40 yrs.   $   332,518     $   287,869
Machinery and equipment              3 - 10 yrs.    26,504,296      25,662,405
                                                   -----------     -----------
                                                    26,836,814      25,950,274
Less accumulated depreciation                       14,689,614      12,467,417
                                                   -----------     -----------
                                                   $12,147,200     $13,482,857
                                                   ===========     ===========
</TABLE>

   Depreciation expense for the fiscal years ended October 31, 2004, 2003 and
   2002 was $5,091,470, $5,074,159, and $4,398,432, respectively.

9.    GOODWILL AND OTHER INTANGIBLE ASSETS

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

<TABLE>
<CAPTION>
                                                 2004                            2003
                                   -----------------------------    -------------------------------
                                   Gross Carrying   Accumulated     Gross Carrying      Accumulated
                                       Amount       Amortization        Amount         Amortization
                                   --------------   ------------    --------------     ------------
<S>                                <C>              <C>             <C>                <C>
Amortized Intangible
Assets:
Customer Lists and
Covenants Not to Compete           $    4,152,840   $    759,591    $    2,984,887     $  1,779,674
Other Intangibles                         513,604        171,954           123,467           80,686
                                   --------------   ------------    --------------     ------------
Total                              $    4,666,444   $    931,545    $    3,108,354     $  1,860,360
                                   ==============   ============    ==============     ============
</TABLE>

   Amortization expense for fiscal years 2004, 2003, and 2002 was $409,380,
   186,060, and 232,201, respectively.

<TABLE>
<S>                                <C>                   <C>
Estimated Amortization Expense:
for the fiscal year ending         October 31, 2005      $761,459
                                   October 31, 2006       729,884
                                   October 31, 2007       591,278
                                   October 31, 2008       548,149
                                   October 31, 2009       371,452
</TABLE>

                                      F-14

<PAGE>

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

<TABLE>
<CAPTION>
                                                                          2004              2003
                                                                       -----------       -----------
<S>                                                                    <C>               <C>
Beginning Balance                                                      $72,899,355       $70,427,887
Goodwill acquired during the year                                        1,875,263         2,471,468
Goodwill disposed of during the year                                        (2,027)               --
                                                                       -----------       -----------
Balance as of October 31                                               $74,772,591       $72,899,355
                                                                       ===========       ===========
</TABLE>

10.   ACCRUED EXPENSES

   Accrued expenses as of October 31, were as follows:

<TABLE>
<CAPTION>
                                                                     October 31,
                                                             -------------------------
                                                                2004          2003
                                                             ----------     ----------
<S>                                                          <C>            <C>
Payroll and vacation                                         $  959,633     $  877,043
Income taxes                                                    205,133         35,000
Interest                                                        607,203        799,140
Miscellaneous                                                   546,517        617,980
                                                             ----------     ----------
                                                             $2,318,486     $2,329,163
                                                             ==========     ==========
</TABLE>

11.   DEBT

   The Company borrowed up to $3,045,000 during fiscal year 2004 on its
   operating line of credit and had $1,500,000 outstanding as of October 31,
   2004. During the twelve months ended October 31, 2004 and 2003 the Company
   borrowed approximately $3,746,000 and $1,600,000 from its acquisition line of
   credit with Webster Bank to finance acquisitions of Home and Office
   distribution assets. The rate of interest on the acquisition line is current
   30 day LIBOR rate plus 250 basis points (4.5% at October 31, 2004) 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. In addition, letters of
   credit totaling $1,050,000 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 was
   established at the 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 made 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
   was available for acquisitions in the Company's Home and Office business, and
   up to $5 million was potentially available for, but ultimately was not
   applied to, the repayment of subordinated debt if the Company was able to
   achieve specified financial performance targets in fiscal year 2003.

                                      F-15

<PAGE>

   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, starting on May 1, 2005. During the first two
   years, interest only is paid on a monthly basis for amounts drawn down for
   acquisitions and subordinated debt repayment (see section b). The operating
   line of credit was renewed for two years for a total of $6,500,000. The
   operating line will expire on April 1, 2005. The Company is currently
   negotiating to renew the line or replace it and the rest of the entire New
   Credit Facility.

   Interest on all borrowings is tied to the Company's performance. At October
   31, 2004 the rate was the 30-day LIBOR plus 225 basis points.

   Use of the proceeds related to acquisitions and retirement of subordinated
   debt are restricted by the Company's attainment of certain covenants,
   requirements, and projections. The Company's 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 the fiscal year ended October 31, 2004.

   b) Subordinated Debt

   As part of the acquisition agreement in 2000 with the former shareholders of
   Crystal Rock, the Company issued subordinated notes in the amount of
   $22,600,000. The notes have an effective date of October 5, 2000, are for an
   original term of seven years (subsequently extended to 2008) and bear
   interest at 12% per year. Scheduled repayments are made quarterly and are
   interest only for the life of the note unless specified financial targets are
   met. In April 2004, the Company repaid $5,000,000 of the outstanding
   principal. Payments of interest only of $528,000 are due quarterly with a
   principal payment of $17,600,000 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 above.

   c) Annual maturities of debt as of October 31, 2004 are summarized as
      follows:

<TABLE>
<CAPTION>
                                                  Senior     Credit Lines     Subordinated         Other            Total
                                                  ------     ------------     ------------         -----            -----
<S>                                            <C>           <C>              <C>                 <C>           <C>
Fiscal year ending October 31,
                          2005                   3,733,000      1,768,000                -          640,000       6,141,000
                          2006                   3,958,000        669,000                -                -       4,627,000
                          2007                   4,146,000        936,000                -                -       5,082,000
                          2008                   7,071,000      3,473,000       17,600,000                -      28,144,000
                                               -----------   ------------     ------------        ---------     -----------
Total Debt                                     $18,908,000   $  6,846,000     $ 17,600,000        $ 640,000     $43,994,000
                                               ===========   ============     ============        =========     ===========
</TABLE>

                                      F-16

<PAGE>

12.   INTEREST RATE HEDGES

   The Company uses interest rate swaps to fix its long term interest rates. The
   swap rates are based on the floating 30-day LIBOR rate and are structured
   such that if the loan rate for the period exceeds the fixed rate of the swap
   then the bank pays the Company to lower the effective interest rate.
   Conversely, if the rate is lower than the fixed rate, the Company pays the
   bank additional interest. As of October 31, 2004, the Company had one swap
   for $10,000,000 for a three year term maturing in June, 2006. Based on the
   rates for fiscal year 2004, the Company paid $304,000 more in interest than
   it would have without the swaps.

   This instrument is considered a hedge 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 until the hedged item is
   recognized in earnings. The net unrealized realized gain for the years ended
   October 31, 2004, 2003 and 2002 was $138,604, 807,394 and 130,639,
   respectively. The accumulated other comprehensive gain (loss) as of October
   31, 2004 and 2003 was $103,100 and $(35,504), respectively.

13.   STOCK BASED COMPENSATION

   a) Stock Option Plan

   In November 1993, the Company 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 until November 2003. 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
   2004, 2003, and 2002 there were no options issued under this plan.

   In April 1998, the Company's shareholders approved the 1998 Incentive and Non
   Statutory Stock Option 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:

                                      F-17

<PAGE>

<TABLE>
<CAPTION>
                                                     Outstanding Options            Weighted Average
                                                          (Shares)                   Exercise Price
                                                     -------------------            ----------------
<S>                                                  <C>                            <C>
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
          Granted                                          265,000                          2.96
          Exercised                                        (33,200)                         2.50
          Expired                                          (47,831)                         2.77
                                                         ---------
Balance at October 31, 2004                              2,662,790                         $2.96
                                                         =========                         =====
</TABLE>

   The following table summarizes information pertaining to outstanding stock
   options as of October 31, 2004:

<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                 1,017,800        1.43            $2.50             1,017,800      $2.50
$2.81 - $3.38                 1,404,990        6.28             3.13             1,199,990       3.13
$3.50 - $4.25                   185,000        6.71             3.89               185,000       3.89
$4.28 - $4.98                    55,000        5.57             4.82                55,000       4.82
                              ---------        ----            -----             ---------      -----
                              2,662,790        4.44            $2.96             2,457,790      $2.96
                              =========        ====            =====             =========      =====
</TABLE>

   Outstanding options and warrants include options issued under the 1993 Plan,
   the 1998 Plan and non-plan options and warrants. There were 2,096,795
   exercisable options at a weighted average price of $2.91 per share and
   2,018,045 exercisable options at a weighted average price of $2.80 per share
   as of October 31, 2003 and 2002, respectively.

   Outstanding options have lives ranging from 5-10 years, vesting from 0-5
   years, and have exercise prices ranging from $1.81-$4.98 per share.

   b) Employee Stock Purchase Plan

   In June 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 72,040, 60,775, and
   62,740 common shares for the fiscal years ended October 31, 2004, 2003 and
   2002, respectively.

   c) 2004 Stock Incentive Plan

   In April 2004 the Company's shareholders approved the 2004 Stock Incentive
   Plan. The plan provides for issuance of awards up to 250,000 restricted or
   unrestricted shares, or incentive or non-statutory stock options, of the
   Company's common stock. On

                                      F-18

<PAGE>

   September 17, 2004, the Company issued 26,000 restricted shares for two
   awards to employees under this plan. These awards vest one year from the
   anniversary date and were valued at the market price at the acceptance date.
   The total value of the awards was $57,200. The Company recognizes
   compensation over the vesting period resulting in $9,533 of expense in fiscal
   2004.

14.   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
   $107,000, $102,000, and $114,000 for the fiscal years ended October 31, 2004,
   2003, and 2002, respectively.

15.   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:

<TABLE>
<CAPTION>
Fiscal Year Ending October 31,
<S>                               <C>
2005                              $2,206,019
2006                               1,963,678
2007                               1,710,599
2008                               1,462,242
2009                               1,033,057
Thereafter                           973,202
                                  ----------
Total                             $9,348,797
                                  ==========
</TABLE>

   Rent expense was $2,502,739, $2,136,596, and $2,020,296 for the fiscal years
   ended October 31, 2004, 2003, and 2002, 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, and 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.

                                      F-19

<PAGE>

16.   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 family trust controlled by
   a related party. The lease expires in October 2010. Future minimum rental
   payments under these leases are as follows:

<TABLE>
<CAPTION>
Fiscal year ending October 31,          Stamford      Watertown         Total
<S>                                     <C>          <C>              <C>
                           2005         $  216,000   $  360,000       $  576,000
                           2006            248,400      414,000          662,400
                           2007            248,400      414,000          662,400
                           2008            248,400      414,000          662,400
                           2009            248,400      414,000          662,400
Thereafter                                 248,400      414,000          662,400
                                        ----------   ----------       ----------
Totals                                  $1,458,000   $2,430,000       $3,888,000
                                        ==========   ==========       ==========
</TABLE>

   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 2004, 2003 and 2002, the Company paid
   $582,277, $113,193, and $275,332, respectively, for service, software, and
   hardware.

   As of October 31, 2003, the Company held 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 was $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, representing approximately 24% of the common stock of CDS. In July
   2004, the Company exercised the option to convert the interest amount into
   additional common shares of CDS. In 2004, the Company determined that it's
   investment in Voyageur was impaired and wrote off the remaining balance of
   $152,838 which is reflected as a charge to operations as a miscellaneous
   expense in the accompanying statement of operations.

                                      F-20

<PAGE>

17. INCOME TAXES

   The Company has approximately $6.4 million of available net operating loss
   carryforwards at October 31, 2004 expiring from 2005 through 2018.

   The major deferred tax asset (liability) items at October 31, 2004 and
   October 31, 2003 are as follows:

<TABLE>
<CAPTION>
                                                      October 31,
                                             --------------------------------
                                                 2004                2003
                                             ------------        ------------
<S>                                          <C>                 <C>
Accounts receivable allowance                $    115,256        $    447,000
Amortization                                      159,587             632,000
Payroll                                           228,270             338,000
Tax effect of operating loss carryforwards      2,415,924           3,222,000
Sale of Business Segment                          807,564                   -
Other                                             298,860                   -
                                             ------------        ------------
Total deferred tax asset                        4,025,461           4,639,000
                                             ------------        ------------
Depreciation                                     (838,519)         (1,630,000)
Returnable Containers                          (1,082,225)           (694,000)
Other                                                   -             (66,000)
                                             ------------        ------------
Total deferred tax liability                   (1,920,744)         (2,390,000)
                                             ------------        ------------
Deferred tax asset, net                      $  2,104,717        $  2,249,000
                                             ============        ============
</TABLE>

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

<TABLE>
<CAPTION>
                                                                  Fiscal Year Ended October 31,
                                                          -------------------------------------------
                                                            2004             2003             2002
                                                          --------         --------        ----------
<S>                                                       <C>              <C>             <C>
Income tax expense computed at the statutory rate         $378,577         $748,004        $1,449,000
Effect of permanent differences                             22,661           28,881            64,000
State income taxes                                          61,229           74,115           201,000
Other                                                            -                -            37,000
                                                          --------         --------        ----------
Income tax expense                                        $462,467         $851,000        $1,751,000
                                                          ========         ========        ==========
</TABLE>

                                      F-21

<PAGE>

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

<TABLE>
<CAPTION>
                                                                 Fiscal Year Ended October 31,
                                                           ------------------------------------------
                                                             2004             2003            2002
                                                           --------         --------       ----------
<S>                                                        <C>              <C>            <C>
Current:
   Federal                                                 $199,000         $ 53,000       $  (66,000)
   State                                                    119,000          212,000           38,000
                                                           --------         --------       ----------
Total current                                               318,000          265,000          (28,000)
                                                           --------         --------       ----------
Deferred:
   Federal                                                  105,000          586,000        1,513,000
   State                                                     39,000                -          266,000
                                                           --------         --------       ----------
Total deferred tax expense (benefit)                        144,000          586,000        1,779,000
                                                           --------         --------       ----------
Total income tax expense                                   $462,000         $851,000       $1,751,000
                                                           ========         ========       ==========
</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.

   In calculating its effective tax rate, the Company has considered the effect
   of certain contingent factors involving state and local income taxes.
   Although it believes that the tax returns filed accurately reflect operations
   and financial results, the deferred tax liability as of October 31, 2004
   contains approximately $160,000 for the purpose of settling disputes in the
   event that certain jurisdictions viewed particular tax laws differently than
   the Company did when the returns were filed.

18.      EARNINGS PER SHARE

   The following calculation provides the reconciliation of the denominators
   used in the calculation of basic and fully diluted earnings per share:

                                      F-22

<PAGE>

<TABLE>
<CAPTION>
                                                                  Fiscal Year Ended October 31,
                                                           2004                2003               2002
                                                       -----------         -----------         -----------
<S>                                                    <C>                 <C>                 <C>
Income from Continuing Operations                      $   490,892         $   961,533         $ 2,068,932
Income from Discontinued Operations                        160,221             391,022             440,523
                                                       -----------         -----------         -----------
Net Income                                             $   651,113         $ 1,352,555         $ 2,509,455
                                                       ===========         ===========         ===========
Denominator:
Basic Weighted Average Shares
     Outstanding                                        21,497,251          21,282,294          21,091,837
Effect of Stock Options                                     77,264             482,404             943,432
                                                       -----------         -----------         -----------
Diluted Weighted Average Shares Outstanding             21,574,515          21,764,698          22,035,269
                                                       ===========         ===========         ===========
Basic Earnings Per Share:
Income from Continuing Operations                      $       .02         $       .04         $       .10
Income from Discontinued Operations                    $       .01         $       .02         $       .02
                                                       -----------         -----------         -----------
Net Income                                             $       .03         $       .06         $       .12
                                                       ===========         ===========         ===========
Diluted Earnings Per Share:
Income from Continuing Operations                      $       .02         $       .04         $       .09
Income from Discontinued Operations                    $       .01         $       .02         $       .02
                                                       -----------         -----------         -----------
Net Income                                             $       .03         $       .06         $       .11
                                                       ===========         ===========         ===========
</TABLE>

   In addition to the options used to calculate the effect of dilution, there
   were 1,645,000 and 185,000 options outstanding for the years ended October
   31, 2004 and 2003, respectively, 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 period in 2002, all
   outstanding options were used to determine the effect of dilution because the
   market price exceeded the exercise prices.

19.      SALE OF BUSINESS SEGMENTS

   On March 2, 2004 the Company completed the sale of substantially all of the
   assets related to its Retail and Retail - Gallons segments. These segments
   have been accounted for as discontinued operations.

   The sale resulted in a gain before income taxes, reported in discontinued
   operations, of $352,535. The gain was calculated by deducting the net
   carrying value of the assets and liabilities and transaction costs from the
   net proceeds as follows:

<TABLE>
<S>                                                               <C>
Selling Price                                                     $ 10,567,998
Accounts Receivable                                                 (1,147,229)
Inventory                                                           (2,490,181)
Property, Plant, and Equipment                                      (7,093,641)
Accounts Payable                                                     1,739,347
Transaction Costs                                                   (1,223,759)
                                                                  ------------
Gain before Income Taxes                                          $    352,535
                                                                  ============
</TABLE>

         In addition to cash proceeds of $10,067,998, the Company received a
         $500,000, 5% subordinated note from the buyer as consideration for the
         sale. Interest is payable by the

                                      F-23

<PAGE>

   seller on a quarterly basis and the total principal is due on the second
   anniversary of the sale. Substantially all of the proceeds of the sale were
   used to reduce debt. $5,000,000 was used to pay down the Company's senior
   term debt with Webster Bank and $5,000,000 was used to pay down its
   subordinated debt.

   Revenues, expenses, and costs have been excluded from the respective captions
   in the related financial statements and reported as (loss) income from
   discontinued operations, net of income taxes, for all periods presented. For
   the year ended October 31, 2004, 2003 and 2002, net sales from discontinued
   operations were $6,434,000, $26,341,000 and $22,652,000, respectively. The
   loss before income taxes was $79,000 for fiscal year 2004 and income before
   taxes was $637,000 and $748,000 for fiscal years 2003 and 2002, respectively.
   The respective losses and income do not include any allocation of corporate
   costs that were previously allocated to the discontinued operations. Those
   costs are expected to continue in the future and will be allocated only to
   the remaining line of business.

20.      UNAUDITED QUARTERLY FINANCIAL DATA

      The Company's unaudited quarterly financial data for the last two fiscal
      years is as follows: Fiscal 2004:

<TABLE>
<CAPTION>
                                                                 For the quarter ended:
         Fiscal 2004                                             ----------------------
(000's of $ except net income per               January 31,      April 30,       July 31,    October 31,
           share)                                  2004            2004           2004          2004
                                                -----------      ---------       --------    -----------
<S>                                             <C>              <C>             <C>         <C>
Net Sales                                         $11,998         $13,182        $13,555       $13,738
Gross Profit                                      $ 5,360         $ 5,960        $ 5,745       $ 5,713
Income(Loss) from Continuing
  Operations                                      $  (320)        $   187        $   390       $   235
Income from Discontinued
  Operations                                      $    64         $    96              -             -
Net Income (Loss)                                 $  (256)        $   283        $   390       $   235
Earnings (Loss) per Share:
Continuing Operations - Basic and
  Diluted                                         $  (.01)        $   .01        $   .02             -
Discontinued Operations - Basic
  and Diluted                                           -         $   .01              -             -
                                                  -------         -------        -------       -------
Net Income - Basic and Diluted                    $  (.01)        $   .02        $   .02             -
                                                  =======         =======        =======       =======
</TABLE>



                                      F-24

<PAGE>

<TABLE>
<CAPTION>
                                                               For the quarter ended:
         Fiscal 2003                                           ----------------------
(000's of $ except net income per           January 31,      April 30,         July 31,        October 31,
           share)                              2003             2003             2003             2003
                                           ------------     ------------     ------------     ------------
<S>                                        <C>              <C>              <C>              <C>
Net Sales                                  $     11,518     $     11,923     $     13,352     $     13,061
Gross Profit                               $      4,825     $      4,844     $      5,537     $      5,594
Income from Continuing
  Operations                               $         53     $        386     $        420     $        103
Income(Loss) from Discontinued
  Operations                               $         54     $        101     $        146     $         90
Net Income                                 $        107     $        487     $        566     $        193
Earnings per Share:
Continuing Operations - Basic and
  Diluted                                             -     $        .02     $        .01     $        .01
Discontinued Operations - Basic
  and Diluted                              $        .01                -     $        .01                -
                                           ------------     ------------     ------------     ------------
Net Income - Basic and Diluted             $        .01     $        .02     $        .02     $        .01
                                           ============     ============     ============     ============
</TABLE>

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,
      2004, the Company had cash in deposits exceeding the insured limit by
      approximately $583,000.

22. SUBSEQUENT EVENTS

      In conjunction with the merger of its direct and indirect wholly owned
      subsidiaries into Vermont Pure Holdings, Ltd, in December 2004, the
      Company organized a new wholly owned subsidiary, Crystal Rock, LLC, and
      assigned all of its material operating assets, leases and other contracts
      to the new subsidiary.

      On December 30, 2004 the Company signed an Amended and Restated Loan and
      Security Agreement with Webster Bank. The primary purpose of the agreement
      was to modify the parties named in the agreement to reflect the change in
      subsidiaries.

                                     F- 25