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, 2001
                                       or
       [ ] Transition report pursuant to Section 13 or 15(d) of the Securities
           Exchange  Act of 1934 for the transition period from
                           ___________ to ___________

                        Commission File Number 333-45226

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



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

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

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

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

          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]

Based on the last sale at the close of  business on January 17, 2002 as reported
on the  American  Stock  Exchange,  the  aggregate  market value of the Issuer's
common stock held by non-affiliates of the Issuer was approximately $59,988,000.

The number of shares  outstanding of the Issuer's Common Stock, $.001 par value,
was 21,073,734 on January 17, 2002.

                       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, 2001, to be delivered in connection with the registrant's  annual meeting of
stockholders, are incorporated by reference to Part III to this Form 10-K.

                                       1
<PAGE>

ITEM 1.  BUSINESS.

         The Company bottles, markets and distributes natural spring water under
the Vermont  Pure(R)  and Hidden  Spring(R)  brands,  and  distilled  water with
minerals  added under the Crystal  Rock(R)  brand,  to the retail  consumer  and
home/office  markets.  The Company sells its products  primarily in New England,
New York and New Jersey as well as the mid-atlantic and the mid-western states.

Industry Background

         Bottled water has been and continues to be one of the  fastest  growing
segments of the beverage  industry.  According  to studies  prepared by Beverage
Marketing Corporation,  total bottled water consumption on a per capita basis in
the United  States  increased  88%, or 7.7  gallons,  from 1990 to 2000.  Annual
consumption  increased  from 8.8 gallons per capita in 1990 to 16.5  gallons per
capita  in  2000.   Bottled   water  volume  in  the  United  States  has  grown
significantly,  increasing  from  approximately  2.2 billion  gallons in 1990 to
approximately 5 billion gallons in 2000, a 127% increase. The retail sales value
in 1990 was  approximately  $2.6  billion  and has grown to  approximately  $5.0
billion in 2000. In the period 1993 to 2000,  bottled water has been the fastest
growing beverage category in the United States.

         The  bottled  water  market  is  divided  into two distinct categories:
non-sparkling  (defined as still or  non-carbonated  water),  which accounts for
approximately  91% of bottled  water sales,  and sparkling  (carbonated),  which
accounts for  approximately 9% of bottled water sales.  Non-sparkling  water was
responsible for 99% of the incremental volume increase from 1990 to 2000. All of
the Company's  natural spring water and distilled  water with minerals added are
in the non-sparkling category.

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

         In recent years, the  bottled water industry has experienced periods of
consolidation. Large multi-national companies such as Perrier (owned by Nestle),
Groupe  Danone and Suntory  Water Group have been active  acquirers of small and
medium sized  regional  bottled  water  companies.  The primary  drivers of this
consolidation  are the  incremental  growth  realized  by  acquiring  the target
company's customer base, and the synergies  resulting from integrating  existing
operations.  Additionally,  permitting spring sources has been increasingly more
difficult due to increased state and federal  regulation.  Companies that have a
strong and densely serviced customer base and permitted natural spring sites are
attractive targets for acquisitions.

                                       2
<PAGE>

         Another  significant  impact  in the  industry has been the entrance of
major soft drink  bottlers  into the  bottling and  distribution  segment of the
industry.  Both  Coca-Cola  and Pepsi Cola have started  producing and marketing
their own brands of reverse osmosis  drinking water within the last three years.
Consequently, by 2000 both companies, based on dollar sales, had entered the top
10 bottled water companies in the United States.

Company Background

         Vermont Pure  Holdings,  Ltd. is primarily  comprised of two  operating
subsidiaries,  Crystal Rock Spring Water  Company and Vermont Pure Springs, Inc.

         Established  in  1990,  the  Company  developed Vermont Pure(R) Natural
Spring Water as its flagship brand in the still,  non-carbonated retail consumer
category.  Over the next decade,  the Company grew  aggressively both internally
and through acquisitions, primarily in the home and office market. Additionally,
growth in the retail  consumer  market  resulted  from  establishing  productive
relationships  with beverage  distributors  throughout  the Northeast as well as
brand and  product  extensions.  In addition to  marketing  the Vermont  Pure(R)
brand,  in 1995 the  Company  renewed  marketing  efforts  with  respect  to its
original  trademark  Hidden  Spring(R).  The Company  expanded  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.

         At  the  end  of  fiscal  year  2000,  the Company consummated a merger
involving  the Crystal  Rock Spring  Water  Company of  Watertown,  Connecticut.
Crystal Rock has historically focused its manufacturing  resources on the still,
non-carbonated,  segment of the bottled  water  industry.  Although  its primary
business has 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  distributes  coffee,  other  refreshment  type  products,  and  vending
services in Connecticut, New York and Massachusetts.

         The  Company  continued  its  acquisition strategy in 2001 with smaller
acquisitions in its established Home and Office markets. The most significant of
these was  Iceberg  Springs.  Iceberg  was a Home and  Office  distributor  that
serviced  Fairfield and New Haven counties in  Connecticut  and the suburban New
York  communities in Westchester and Putnam  counties.  Iceberg's annual revenue
was approximately $3 million while servicing 4,500 customers.

         To  date,  the  Company  has  not  experienced  significant problems in
integrating its acquired businesses with its 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 the Company.

         Notwithstanding  such  risks,  management  believes  that the Company's
acquisition  strategy  has been a  success.  In  particular,  as a result of the
merger with Crystal Rock, in terms of sales, the Company nearly doubled its size
as a result of the transaction.  In addition,  it significantly  accelerated its
home and office growth strategy and added to its management depth. Following the
merger,  the home and office segment has accounted for 75% of Company sales with
the retail consumer products comprising the balance.

                                       3
<PAGE>

         The Company has also pursued a strategy  of  diversifying  its  product
offerings.  In particular,  the Company began to utilize an acquisition strategy
in 1996 to minimize its reliance on the retail consumer side of the business and
to  increase  growth  in other  categories.  Prior to 1996 the  retail  business
represented  90% of the  Company's  total  sales  revenue.  In the coming  year,
management  expects that the Company's  Home and Office  delivery  category will
represent  approximately  75% of the Company's total sales.  Based on historical
data, this would place the Company fourth in the United States and second in the
northeast  region  for  this  type  of  distribution.   Additional  benefits  of
increasing the Home & Office channel have included higher gross margins and less
seasonal influence in that area.

         The  growth in the Company's Home and Office delivery category has been
predominantly  fueled by market  expansion  through this  acquisition  strategy,
which the Company has pursued  primarily  in New England and  northern New York.
The Company has also  experienced  subsequent  internal growth in those acquired
markets following such acquisitions.

         Additionally,  the  Company  has  leveraged  its distribution system to
expand its product  lines.  In  particular,  coffee,  a product  that is counter
seasonal to water, became the second leading product in the distribution channel
and grew to account for almost 10% of the  Company's  total  sales.  The Company
purchases coffee under contracts that set prices for a period of six to eighteen
months to maintain price and supply  stability.  Since coffee is a commodity the
Company  cannot  insure 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 affect on the business.

         In  the  consumer retail market, the Company has taken advantage of its
customer  relationships  and quality  water  sources and bottling  operations by
co-packing private brands.  Private labels are a growing portion of the category
and are  increasingly  competitive  with branded  products in terms of price and
market  share.   In  addition  to  providing   increased   bottling  volume  and
contributing  margin,  management believes this business enhances  relationships
with the retailers the Company serves. Current customers include large northeast
retail grocers such as A&P, Giant Carlisle, Finast, Hannaford, Shop Rite, Stop &
Shop, and Tops among others.

         To  accommodate  the  growing  demand  for the Company's bottled spring
water products, the Company has increased its investment in plant and equipment.
When the company was  founded,  the assets  included  one spring on 1.7 acres of
land,  a 9,000  square foot office  facility  and a bottling  plant in Randolph,
Vermont.  Since  that time,  the  Company  has  acquired  additional  springs on
approximately 65 acres of land and built a second office, bottling and warehouse
facility of 32,000 square feet in Randolph, Vermont, which was recently expanded
to  approximately  72,000 square feet.  Most  recently,  the Company has added a
second bottling line for its retail consumer  products.  As of January 2002, the
new line will more than double the production  capacity for this  category.  The
Company also leases a second 72,000 square foot facility located on ten acres in
Watertown,  Connecticut. This site houses the bottling operations, the Company's
largest home and office  distribution  center, and centralized  customer service
and administration for the Company's  subsidiary,  Crystal Rock. The Company has
also  developed a five-gallon  bottling  facility  near Albany,  NY and expanded
distribution  centers in New England and northern New York.  The Company has the
original office and bottling facility in Randolph for sale.

                                       4
<PAGE>

Water Sources and Bottling Operations

         The primary sources of the natural spring water used by the Company are
springs located at the Company's  properties in Randolph and Tinmouth,  Vermont,
and a spring owned by a third party in Stockbridge,  Vermont, that is subject to
a water supply contract in favor of the Company.

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

         Management believes that the age and extended percolation period of its
natural  spring water  provides the natural  spring water with certain  distinct
attributes: a purer water, noteworthy mineral characteristics including the fact
that the water is sodium  free and has a  naturally  balanced  Ph,  and a light,
refreshing taste.

         In  addition  to  drawing  water  from  its  own  springs,  the Company
purchases  bulk  quantities  of water from natural  springs owned or operated by
non-affiliated  entities.  All of such springs are approved  sources for natural
spring water.  Over the past two years,  purchases of spring water from a source
in  Vermont  that is not  owned or  affiliated  with  the  Company  amounted  to
approximately  15% of the  Company's  usage of  spring  water.  The  Company  is
actively  exploring  the  acquisition  of additional  spring  sources that would
enable it to reduce its reliance on third-party springs.

         The Company  has purchased spring water for several years from a source
in  Stockbridge,  Vermont.  Until late 1999,  the Company  had no contract  with
respect to this source.  Commencing in November 1999, the Company has 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 the Company's current needs and within the apparent capacity of the
spring, the Company believes it can readily meet its bulk water supply needs for
the foreseeable  future.  An interruption or  contamination of any of its spring
sites would  materially  affect the Company.  The Company believes that it could
find  adequate  supplies of bulk spring  water from other  sources,  but that it
might suffer inventory  shortages or inefficiencies,  such as increased purchase
or transport costs, in obtaining such supplies.

         Municipal water is the primary raw water source for the Crystal Rock(R)
brand.  Although  the water source is currently  made  available  from the local
municipality,  if the source were  eliminated,  The Company could purchase water
from other sources and have it shipped to the Watertown  manufacturing facility.
The raw  water  is  purified  through  a  number  of  processes  beginning  with
filtration.  Utilizing carbon and ion exchange filtration systems,  chlorine and
other volatile compounds and dissolved solids are removed.  After the filtration
process,  approximately 98% of all impurities are removed by reverse osmosis and
any remaining impurities are removed through distillation. This process produces
highly purified water in conformance  with U.S.  Pharmacopoeia  (23rd Revision).
Purified water is ozonated (the process of injecting  ozone into the water as an
agent  to  prohibit  the  formation  of  bacteria)  prior  to  storage  in  four
30,000-gallon   storage   tanks.   Prior  to   bottling,   drinking   water  has
pharmaceutical  grade minerals  including calcium and potassium added 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.

                                       5
<PAGE>
         The  Company  is  highly  dependent on the integrity of the sources and
processes  by which it  derives  its  product.  Natural  occurrences  beyond the
control of the Company 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  the  Company  uses.  Any such  occurrence  may have an adverse
impact on the  business of the  Company.  The Company is also  dependent  on the
availability of water and the continued  functioning of its 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 and consumption of the product is dependent on other businesses and
consumers.  There is a possibility that  characteristics of the product could be
changed either inadvertently or by tampering before consumption. Even if such an
event  was  not  attributed  to the  Company,  the  product's  integrity  may be
irreparably  harmed.   Consequently,   the  Company  would  experience  economic
hardship.

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

Products

         The  Company's  natural  spring  water  is  sold in the retail consumer
market  under the  Vermont  Pure(R)  and Hidden  Spring(R)  brands,  packaged in
various  bottle  sizes  ranging  from 8 ounces to 1.5  liters and sold in single
units and plastic  shrinkfilm of six, eight,  and twelve  bottles.  Products are
sold in 12-pack and 24-pack  cases.  In recent  years,  sales  indicate that the
preferred  container  sizes are  "single  serve"  sizes - 750 ml and 500 ml. The
Company uses a sports cap on various product sizes to create convenience and add
extra   value.   Consumer   sizes  are   bottled  in  clear  PET   (polyethylene
terephthalate)  recyclable  bottles that are perceived in the  marketplace  as a
high quality package. Although the Crystal Rock(R) brand is bottled in this type
of bottle for retail  sale,  in similar  sizes,  this outlet does not comprise a
significant  amount of the Company's sales. The Company's three major brands are
sold in three and five  gallon  bottles  to homes  and  offices  throughout  New
England and New York. In general, Crystal Rock(R) is distributed in southern New
England while Vermont  Pure(R) and Hidden  Spring(R) are distributed in northern
New England and upstate and western New York. The Company rents water coolers to
dispense bottled water.  Coolers are available in various  consumer  preferences
such as cold, and hot & cold dispensing  units. In conjunction with the home and
office accounts, the Company also distributes a variety of coffee, tea and other
hot beverage  products and related  supplies,  other  consumable  products  used
around the office,  and offers vending  services in some locations.  The Company
rents or supplies multi burner coffee  machines to customers.  In addition,  the
Company supplies whole beans and coffee grinders for fresh ground coffee as well
as cappuccino machines to restaurants.  Coffee has grown to become the Company's
second largest selling product,  accounting for close to 10% of total sales. The
Company sells its own branded coffee  (Crystal  Rock(R) and Vermont  Pure(R)) as
well as other national brands, most notably, Green Mountain Coffee Roasters(R).

                                       6
<PAGE>
Marketing and Sales

         Marketing

         The  Company  generally  markets  its  products  as  "premium" domestic
bottled water products in two categories.

         Home and Office Delivery
          The Company distributes and markets its water in five and three-gallon
bottles as "premium" bottled water products.  It seeks brand  differentiation by
offering quality service. Home and office sales are generated and serviced using
directly operated facilities, Company employees and vehicles.

     The Company also uses tele-marketers and outside/cold-call  sales personnel
to market its home and office  delivery.  The sales effort is supported  through
promotional giveaways and Yellow Page advertising,  as well as radio, television
and  billboard  advertising  campaigns.  The Company  also  sponsors  local area
professional  sports and  professional  sporting  events,  participates in trade
shows and is highly visible in community and charitable events.

         The  Company  markets  its  home and office delivery service throughout
most of New England and New York.

         Retail Consumer (PET)
         In  the  retail  consumer  category, a premium bottled water product is
distinguished  from other available  bottled water products by being packaged in
small portable  containers,  typically PET recyclable  bottles.  PET bottles are
sleek,  clear  plastic  and the  Company  believes  that this is the  "ultimate"
consumer bottle package because it is clean,  clear,  light and recyclable,  and
generally perceived by consumers to be higher quality. The Company believes that
the high  quality  packaging  of its  products  enhances  their image as premium
domestic bottled water products.

         The  Company  prices  its  Vermont  Pure(R)  brand competitive to other
domestic  premium  brands but lower than imported  premium water  products.  The
Hidden  Spring(R)  brand  products  are  similarly  packaged  and sold to retail
grocery  and  convenience  markets.  Both of these  brands,  as well as  Crystal
Rock(R), are marketed from the Company's own delivery routes.

         The  Crystal  Rock(R)  brand  is  marketed  by  assimilating  the  same
consistent,  refreshing  taste in a small package that  customers have relied on
from  their  coolers  in their  homes and  offices.  It has also  been  actively
distributed for sponsorship of organizations and events.

         The  Company  markets  its  spring  water  products by highlighting the
unique  characteristics of the Company's water,  namely a natural spring source,
purity, mineral composition and desirable taste. The Company also uses the image
of the State of Vermont in its marketing and brand  identification.  The Company
believes that products  originating from Vermont have the general reputation for
being pure, wholesome, trustworthy and natural.

         The  Company  has  focused  its  consumer  product  marketing and sales
activities in the eastern and mid-western  United States.  The Company currently
distributes its products in the New England, New York, New Jersey,  mid-atlantic
and northern  mid-western states and the northern Virginia - Washington,  D.C. -
Baltimore metropolitan area.

                                       7
<PAGE>

         Slotting Fees

         For the Company to achieve placement of its retail consumer products in
certain  supermarket chains and individual  supermarket  stores, it is sometimes
necessary  for the Company to  purchase  shelf  space by paying  slotting  fees.
Typically,  supermarket  chains and prominent  local  supermarkets  impose these
charges as a one time payment  before the products are permitted in the store or
chain.  Other types of retail outlets such as individual  convenience stores and
delicatessens  less frequently  impose slotting fees. The fees are negotiated on
an individual basis. As the Company has become better established and its brands
have  achieved  greater  recognition,  the Company has become less  dependent on
slotting fees to gain space. Nevertheless, like many producers of food products,
the Company pays slotting fees in some cases, and expects to continue to do so.

         Advertising and Promotion

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

         Sales and Distribution

         Home and Office Delivery
         The Company sells and delivers products directly to its customers using
its employees and route delivery  trucks.  Deliveries are made to customers on a
regularly  scheduled  basis.  Water is bottled in the  Company's  facilities  in
Watertown,  Connecticut,  Randolph, Vermont, and Halfmoon, New York. The Company
also uses a third party co-packer in Syracuse,  New York. The Company  maintains
numerous  distribution  locations  throughout  its market area.  An inventory of
water  dispensing  equipment,  a variety  of coffee,  tea and other  refreshment
products  and related  supplies is  distributed  from these  locations  as well.
Product is shipped between the production and  distribution  sites by either the
Company's own trucks or contracted carrier.

         The  Company  also  utilizes  outside  distributors  in  areas that the
Company  currently does not distribute its product.  Distributor sales represent
less than one percent of total revenue.

         The Company is continuing to pursue an acquisition strategy to purchase
independent  home and office  bottlers and  distributors  in New England and New
York State.  Management's  decision to expand in this market has been driven by,
among  other  things,  attractive  margins  and good cash flows  from  equipment
rentals,  as well  as by the  advantages  of  product  diversification,  such as
diminished  reliance on a single  segment of the market.  Moreover,  the Vermont
Pure and Crystal  Rock  brands in the  multi-gallon  or Home and Office  setting
affords  consumers  an  opportunity  to sample the  product,  which the  Company
believes augments retail sales and contributes to brand awareness.

         Retail Consumer (PET)
         The  Company  uses  major beverage distributors for the distribution of
most of its  retail  consumer  products,  and  distributes  its Home and  Office
products directly.  Using distributors is typical in the beverage industry as an
efficient use of capital for maximum market penetration.  Beverage  distributors
purchase the products of many companies and then wholesale them to retail chains
or make bulk retail sales. Distributors generally have established relationships
with local retail outlets for beverage  products and facilitate  obtaining shelf
space.  Occasionally,  the Company sells its products  directly to grocery store
chains.
                                       8
<PAGE>

         The  Company  distributes  its  Vermont  Pure(R) brand with a number of
distributors.  The Company is  obligated to supply the  distributors  with their
requirements of the Vermont Pure brand at established prices.  Arrangements with
the  distributors  of  the  Hidden   Spring(R)  brand  are,  in  general,   less
restrictive.

         During 2000,  the  Company  modified  its distribution  agreements with
certain  distributors  in the  metropolitan  New York  City  area.  As a result,
Vermont Pure is the exclusive spring water brand carried by these distributors.

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

         The  Company  employs  a  sales  force  of  8  persons  for  retail and
distributor coverage on a geographic basis. The Company's sales personnel act as
liaison between distributors and customers and the Company for ordering product,
facilitating distribution,  servicing retail outlets, and coordinating warehouse
distribution.  Sales  personnel  actively  seek to expand  the  number of retail
outlets and distributors, and they participate in overall market development.

Contract Packaging

         In addition to its own brands, the Company bottles private label brands
for grocery and food  service  distributors.  The Company also packs five gallon
home and office  containers for third parties.  Contract  packaging is a growing
part of the retail consumer  marketplace and is price  competitive.  The Company
seeks  opportunities for contract packaging for a variety of reasons,  including
the fact that it develops favorable  relationships with retail chains. In fiscal
year 2001,  contract packing  represented the most significant growth portion of
the  Company's  retail  consumer  product  sales  revenue - doubling in revenue.
Private label revenue was 9% of the Company's total sales in 2001 compared to 7%
in 2000.

Supplies

         The  Company  currently  sources  all of its raw materials from outside
vendors.  On the retail PET business the Company  sources PET bottles,  caps and
corrugated  packaging under supply  agreements  ranging from one to three years.
Pricing is fixed in the agreement with pass through formulas for price increases
or  decreases  based  on total  market  prices  for  these  commodities.  Due to
increases in demand or shortage of key raw materials, the Company has, at times,
had difficulty procuring raw materials. Supply shortages or subsequent increases
in  pricing  of these  materials  have had an  adverse  effect on the  Company's
expense  structure.  The Company entered into a new supply agreement for bottles
effective  January 1, 2001 that enables the Company to significantly  reduce the
weight of its bottles.  During the most recent year, the Company has effectively
reduced  its cost per case for bottles  due to the  reduction  in gram weight of
resin.  In  addition,   this  reduction  has  had  a  favorable  impact  on  the
environment,  reducing the amount of plastic in its containers and the amount of
plastic entering the waste stream by over 1,000,000 pounds per year.  Management
is undertaking  further raw material cost saving initiatives for caps,  plastic,
and   corrugated   packaging   in  fiscal  year  2002.   Notwithstanding   these
expectations,   the  Company  may  experience  shortages  or  unscheduled  price
increases that would adversely effect its cost of goods.

                                       9
<PAGE>

         The  merger  of  Crystal  Rock  and Vermont Pure has nearly doubled the
Company's operations in the Home and Office category and, as a result,  afforded
the Company the  opportunity  to increase  its  combined  buying  power for such
things as bottles, dispensing equipment, supplies, and administrative needs. The
Company has  experienced  some success in this area since the  completion of the
merger and expects further synergies to be realized.  The Company is a member of
the Quality Bottlers  Cooperative (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 due to its size that it can effectively
purchase  equipment  and  supplies  at levels  competitive  to  larger  national
entities. The Company also believes that its relationship with other QBC members
provides access to potential acquisition targets.

         No  assurance  can be given that the Company will be able to obtain the
supplies  it  requires  on a timely  basis or that the  Company  will be able to
obtain them at prices that allow it to maintain the profit  margin it has had in
the past. Any raw material disruption or price increase may result in an adverse
impact on the financial condition and prospects for the Company.

Seasonality

         The  Company's  business  is seasonal, with the consumer portion of the
business  being  somewhat  more seasonal  than the home and office  market.  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 the
Company's core  Northeastern  United States market. As the larger share of total
sales has trended toward the home and office category, the business, as a whole,
has become less seasonal.

Competition

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

                                       10
<PAGE>
         The  United  States  bottled  water  market  is   dominated  by   large
multi-national  companies such as Nestle (Perrier Group), Groupe Danone, and the
Suntory Water Group. Perrier markets such regional brands such as Poland Spring,
Deer Park, Ice Mountain, Great Bear, Arrowhead, Calistoga, Ozarka, Zephyr Hills,
and its recent  acquisition  Aberfoyle  Springs,  and the Aqua-Cool  division of
Ionics.  Groupe  Danone  distributes  Evian,  Dannon,  and Naya  nationally  and
Sparkletts  regionally.  Suntory  markets  primarily  through  the home & office
channel  regional brands such as Belmont  Springs,  Kentwood,  Crystal  Springs,
Sierra  Springs,  and  Hinckley  Springs.  Recently  Pepsi Cola  (Aquafina)  and
Coca-Cola (Dasani) have begun marketing drinking water in the PET retail segment
leveraging  their  production  and  distribution  infrastructure.  These  global
competitors have greater resources and their brands are often better established
than the Company's brands.

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

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

         The  Company,  with  its  Vermont  Pure brand, competes on the basis of
pricing,  customer service,  quality of its products,  the image of the State of
Vermont,  attractive  packaging,  and brand  recognition.  With the Crystal Rock
brand, the Company competes on the basis of the purity of the distilled  product
with minerals added back for taste. The Company considers its trademarks,  trade
names and brand identities to be very important to its competitive  position and
defends its brands vigorously.

         The  Company feels that installation of filtration units in the home or
commercial setting poses a competitive threat to the business.  To address this,
the Company makes available plumbed-in  filtration units and servicing contracts
on a limited basis.

Trademarks

         The  Company  sells  its  bottled  water products under the trade names
Vermont Pure Natural Spring Water(R),  Crystal Rock(R),  Hidden  Spring(R),  and
Stoneridge(R).  It has rights to other trade  names  including,  Pequot  Natural
Spring Water(R),  Excelsior  Spring Water(R),  Happy Spring Water(R) and Vermont
Naturals(R).  The Company's  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,  the  Company's  bottled  water  must meet FDA
requirements  of safety for human  consumption,  of processing and  distribution
under  sanitary  conditions  and of production in accordance  with the FDA "good
manufacturing  practices."  To assure the safety of bottled  water,  the FDA has
established quality standards that address the substances that may be present in
water which may be harmful to human health as well as substances that affect the
smell,  color and taste of water.  These quality  standards  also require public
notification  whenever the microbiological,  physical,  chemical or radiological
quality of bottled water falls below standard. The labels affixed to bottles and
other  packaging  of the water are  subject  to FDA  restrictions  on health and
nutritional  claims for foods  under the Fair  Packaging  and  Labeling  Act. In
addition, all drinking water must meet Environmental Protection Agency standards
established  under  the  Safe  Drinking  Water  Act  for  mineral  and  chemical
concentration and drinking water quality and treatment which are enforced by the
FDA.
                                       11
<PAGE>
         The Company is subject to the food labeling regulations required by the
Nutritional  Labeling and Education Act of 1990.  The Company  believes it is in
substantial compliance with these regulations.

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

         In  May  1996, new FDA regulations became effective which redefined the
standards  for the  identification  and  quality of bottled  water.  The Company
believes  that it  meets  the  current  regulations  of the FDA,  including  the
classification as spring water.

         The Company 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,  the  Company's  bottling  facilities  are
inspected by the Department of Health of the State of Vermont.

         The  Company's  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. The Company
has received  approval for its Vermont Pure and its Hidden Spring brands from 49
states.
         The   bottled   water   industry   has  a  comprehensive   program   of
self-regulation.  The  Company is a member of the  International  Bottled  Water
Association  ("IBWA").  As a member of the IBWA,  the Company's  facilities  are
inspected  annually  by  an  independent  laboratory,  the  National  Sanitation
Foundation  ("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.

Employees

         As of  January 11, 2002, the Company had 351 full-time employees and 33
part-time employees. None of the employees belongs to a labor union. The Company
believes that its relations with its employees are good.

         The continued success of the Company will depend in large part upon the
expertise of senior management.  On October 5, 2000, Timothy G. Fallon, Chairman
and Chief Executive Officer; Peter K. Baker, President; John B. Baker, Executive
Vice President;  and Bruce  MacDonald,  Chief Financial  Officer,  Treasurer and
Secretary entered into five-year  employment  contracts with the Company.  These
agreements  do not prevent  these  employees  from  resigning  and John  Baker's
contract has a "reduced  employment"  option starting in April 2002 which allows
for part-time  employment at his option.  The departure or loss of Mr. Fallon or
Mr. Peter Baker in particular  could have a negative  effect on the business and
operations of the combined entity.

                                       12
<PAGE>

ITEM 2.  DESCRIPTION OF PROPERTY.

         The Company owns office, bottling  and warehouse properties and natural
springs in  Randolph,  Vermont.  The Company also rents on a monthly  basis,  an
office in an office suite in White Plains, New York.

         The Company rents warehouse space in different locations from  time  to
time for the purpose of the  trans-shipment of its bottled water products to its
distributors and retailers. This space is rented on a per pallet basis.

         As part of the Company's home and office  delivery  operations,  it has
entered  into  or  assumed  various  lease  agreements  for  properties  used as
distribution  points and office space.  The  following  table  summarizes  these
arrangements:


Location                   Lease Expiration      Sq. Ft.         Annual Rent
---------                  ----------------      -------         -----------

Williston, VT              July, 2003             8,500          $    61,995
Wilmington, MA             October, 2003         10,670          $    97,273
Rochester, NY              August, 2003           8,000          $    29,180
Buffalo, NY                September, 2005       10,000          $    60,000
Syracuse, NY               December, 2005        10,000          $    33,420
Halfmoon, NY               October, 2011         15,000          $   125,043
Plattsburgh, NY            August, 2004           3,640          $    20,568
Watertown, CT              October, 2010         72,000          $   360,000
Stamford, CT               October, 2010         22,000          $   216,000
White River Junction, VT   March, 2004            3,275          $    16,211

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

         To  increase  efficiency,  the  Company shut down operations in a 9,000
square foot  building in  Randolph,  VT and moved the  operations  to its larger
facility in  Randolph.  The smaller  building is  presently  on the market to be
sold. The Company has sold all of its land in Sharon Springs,  NY that never had
been used in the operation of the business.

         These current  facilities  are currently expected to meet the Company's
needs for the next two years.

                                       13
<PAGE>

ITEM 3.  LEGAL PROCEEDINGS.

         In  March of 1999, the Company contracted with Descartes Systems Group,
Inc.  ("Descartes"),  an Ontario corporation,  to provide professional  services
related to the design,  installation,  maintenance,  operation  and training for
computer hardware and software.  The computer hardware and software was marketed
to the Company as a product that would  provide  computerized  management of the
Company's  direct  distribution  through its delivery  network,  and  associated
billing and accounting.

         On July 27,  2000,  the  Company  filed  a  lawsuit  against  Descartes
and an affiliate of Descartes entitled Vermont Pure Holdings,  Ltd. v. Descartes
Systems Group, Inc. and Endgame Systems, Inc. f/k/a DSD Solutions,  Inc., in the
United States District Court for the District of Vermont. The action is docketed
as Civil Action No.  2:00-CV-269.  The Company sought  monetary  damages against
Descartes and Endgame in an amount  exceeding  $100,000 for the Company's losses
associated with failures of the systems and services provided by the defendants.
In addition,  the Company has sought a  Declaratory  Judgment  invalidating  the
defendant's demand for payments in the amount of $411,841.10.

         The defendants filed a Motion to dismiss the  case based on the premise
that the Federal court does not have the proper jurisdiction and the case should
be arbitrated in Ontario, Canada. In an order dated April 11, 2001, the District
Court granted DesCartes' Motion to Dismiss the case.  Subsequently,  the parties
have reached an  agreement  to  arbitrate  the case in the state of Florida at a
date uncertain.  The Company intends to vigorously  defend its claim through out
this process.

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

         No  matter  was  submitted to a vote of our security holders during the
quarter ended October 31, 2001.

                                     PART II

ITEM 5.  MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

         The  Common  Stock  is  traded  on the American Stock Exchange ("AMEX")
under the symbols "VPS". The table below indicates the range of the high and low
daily closing  prices of the Common Stock as reported by AMEX.  Prior to May 18,
1999, the Company's  common stock traded on the NASDAQ SmallCap Market under the
symbols "VPUR".

         Fiscal Year Ended October 30, 1999
                  First Quarter........................       $4.81       $3.13
                  Second Quarter.......................       $4.50       $3.81
                  Third Quarter........................       $3.88       $3.81
                  Fourth Quarter.......................       $3.63       $2.63

         Fiscal Year Ended October 31, 2000
                  First Quarter........................       $3.00       $2.50
                  Second Quarter.......................       $3.75       $3.69
                  Third Quarter........................       $4.00       $3.00
                  Fourth Quarter.......................       $3.75       $3.00

         Fiscal Year Ended October 31, 2001
                  First Quarter........................       $3.00       $1.75
                  Second Quarter.......................       $2.85       $2.05
                  Third Quarter........................       $4.07       $2.59
                  Fourth Quarter.......................       $3.55       $2.55

         The last reported sale price of the common stock on AMEX on January 17,
2002 was $5.40.
                                       14
<PAGE>

         The Company had 353 record owners of the Common Stock as of January 17,
2002. As of that date,  the Company  believes that there were in excess of 1,800
beneficial holders of the Common Stock.

         No dividends have been declared or paid to date on the Company's common
stock,  and the Company does not anticipate  paying dividends in the foreseeable
future.  The Company follows a policy of cash preservation for future use in the
business.

Securities Sold and Exemption from Registration Claimed.

         On  October 1, 1999, the Company issued a $975,000 non-interest bearing
Convertible Debenture due September 30, 2001 (the "Debenture") to Marcon Capital
Corporation,  now  known as  Middlebury  Venture  Partners  ("Middlebury").  The
transaction was exempt from  registration  under the Securities Act of 1933 as a
private placement under Section 4(2) thereof. Middlebury was entitled to convert
the Debenture  into shares of the Company's  Common Stock at a conversion  price
equal to 85% of the  average  closing  price of the Common  Stock  during the 20
business days prior to conversion. If the Debenture was not sooner converted, it
would,  subject to the  satisfaction  of various  conditions,  be  automatically
converted into Common Stock on the maturity date, September 30, 2001.

         The following table sets forth the conversion schedule of the Debenture
in fiscal year 2001:

                                                         Exercise     Conversion
      Date                  Debt           Cost           Price          Shares
      ----                  ----           ----           -----          ------
  October 1, 1999         $975,000
  January 26, 2001        $825,000      $150,000          $2.12          70,621
  March 12, 2001          $675,000      $150,000          $2.13          70,422
  May 4, 2001             $525,000      $150,000          $2.13          70,422
  June 20, 2001           $250,000      $275,000          $2.29         120,087
  September 30, 2001      $      -      $250,000          $2.52          99,331


         The transactions were exempt from registration under the Securities Act
of 1933 under Section 3(a)(9) thereof.

                                       15
<PAGE>
         On  November 1,  2001,  the  Company  acquired substantially all of the
assets  of  Iceberg  Springs  Water,  Inc.  for  total  consideration  valued at
$5,700,000,  of which $600,000 was paid in cash,  $4,395,373 in debt and assumed
liabilities  and  $704,627 by the  issuance of 213,912  shares of the  Company's
common stock. The transaction was exempt from registration  under the Securities
Act of 1933 as a private placement under Section 4(2) thereof.

         On  the  dates  set forth below, each of the following Directors of the
Corporation  exercised  options to purchase 10,000 shares of the Common Stock of
the  Company  at a per  share  price of $2.12,  being,  in the case of each such
director, an aggregate sales price of $21,200.

         Director                           Date of Transaction
         --------                           -------------------
         Robert Getchell                    May 23, 2001
         David Preston                      May 10, 2001
         Norman Rickard                     May 25, 2001
         Beat Schlagenhauf                  May 30, 2001

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

ITEM 6.  SELECTED FINANCIAL DATA

The  selected  consolidated  financial  data set forth  below  should be read in
conjunction   with  the  Company's   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 30,   October 31,     October 27,
                                 2001          2000          1999          1998            1997
                              ----------    -----------    -----------   -----------   -------------
<S>                        <C>             <C>            <C>           <C>           <C>
Net sales                  $  67,170,895   $ 35,124,813   $31,396,375   $29,169,185   $ 17,685,442

Net Income (loss)          $   1,168,844   $ (2,382,678)  $ 3,398,641   $ 2,858,750   $  1,067,395

Net Income (loss)
    per share- diluted     $         .06   $       (.22)  $       .31   $       .26   $        .11

Total assets               $ 106,216,430   $110,825,640   $33,834,230   $26,173,503   $ 16,546,766

Long term obligations      $  47,851,386   $ 51,888,257   $13,733,268   $10,422,803   $  5,739,889

</TABLE>

                                       16
<PAGE>

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

Forward-Looking Statements

         When  used  in  the Form 10-K and in future filings by the Company with
the  Securities  and  Exchange  Commission,  the words or phrases  "will  likely
result"  and  "the  Company   expects",   "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. The Company wishes 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 certain
risks and  uncertainties  that could cause actual  results to differ  materially
from  historical  earnings and those  presently  anticipated  or projected.  The
Company has no obligation to publicly  release the result of any revisions which
may  be  made  to any  forward-looking  statements  to  reflect  anticipated  or
unanticipated  events  or  circumstances   occurring  after  the  date  of  such
statements.

Results of Operations

         Year Ended October 31, 2001 Compared to Year Ended October 31, 2000

         The Company completed a merger with Crystal Rock Spring  Water  Company
in October 2000. This transaction had a significant  impact on nearly all of the
Company's quantitative results. For comparison purposes only, the tables for the
respective reporting periods set forth,

         (1) the  fiscal  year 2000 consolidated condensed operating results for
             Vermont Pure Holdings, Ltd.,

         (2) the fiscal year  2000  consolidated condensed operating results for
             Crystal Rock Spring Water Company,

         (3) adjustments  consistent  with  the  pro  forma financial statements
             presented  in  the  Company's   Proxy  Statement/Prospectus   dated
             September 8, 2000 with respect to the transaction, as if the merger
             had occurred on October 31, 1999, and

         (4) the "Combined" totals of (1), (2) and (3).

         The tables also set forth,

         (5) the fiscal  year  2001 consolidated condensed operating results for
             Vermont Pure Holdings, Ltd.

Although  they are  derived  from the  financial  statements  of the Company and
Crystal Rock, the figures in the tables,  including without  limitation the "Pro
Forma Combined"  column,  are not, and should not be considered to be, financial
statements prepared in accordance with generally accepted accounting principles,
nor are they  necessarily  indicative of future  results.  The table is intended
solely to provide a basis for a more meaningful  comparison of the  consolidated
unaudited  financial  information  with the combined  operating  results for the
Company  for the  respective  reporting  periods in fiscal  year  2000.  Certain
expenses have been  reclassified  from  operating  expense to cost of goods sold
from the  Company's  operating  statement  of a year ago to provide  consistency
between the two companies and comparison to 2001.

                                       17
<PAGE>
<TABLE>
<CAPTION>

                                                              For the Year Ending:

                                   ---------------- -------------- --------------- ------------------- ----------------
(000's of $)                             (1)             (2)            (3)               (4)                (5)
                                   ---------------- -------------- --------------- ------------------- ----------------
                                     October 31,     October 31,        2000        October 31, 2000    Oct. 31, 2001
                                        2000            2000         Pro Forma       FY00 Pro Forma         FY01
                                   ---------------- -------------- --------------- ------------------- ----------------
                                    Vermont Pure    Crystal Rock    Adjustments         Combined        Consolidated
                                   ---------------- -------------- --------------- ------------------- ----------------
<S>                                  <C>               <C>          <C>                  <C>                  <C>
Sales                                $ 35,125        $ 24,536                            $59,661            $ 67,171
Cost of Goods Sold                     17,072          10,804       $     16              27,892              29,803
                                   ----------       ---------      ----------         -----------       ---------------
Gross Profit                           18,053          13,732            (16)             31,769              37,367
Operating Expenses                     19,001          11,318          1,298              31,617              30,491
                                   ----------       ---------      ----------         -----------       ---------------
Income (Loss) from Operations            (948)          2,414         (1,314)                152               6,877
Interest Expense                        1,893             280          3,428               5,601               5,034
Other (Income) Expense                    311            (392)           -                   (81)                  6
                                   ----------       ---------      ----------         -----------       ---------------
Income (Loss) before Taxes             (3,152)          2,526         (4,742)             (5,368)               1,849
Income Tax Expense (Benefit)             (769)            842         (1,176)             (1,103)                 680
                                   ----------       ---------      ----------         -----------       ---------------
Net Income (Loss)                    $ (2,383)         $1,684       $ (3,566)            $(4,265)             $ 1,169
                                   ==========       =========      ==========         ===========       ===============
Weighted Average Shares                                                               20,743,540           20,447,609
                                                                                      ===========       ===============
Basic Earnings Per Share                                                                 $  (.21)              $  .06
                                                                                      ===========       ===============
</TABLE>

         Sales for 2001 were $67,171,000 compared to $59,661,000  for  2000,  an
increase of $7,510,000 or 13%.

         Sales  through  the  home  and  office distribution channel were 71% of
total sales and increased in 2001 to  $47,552,000  from  $44,348,000 in 2000, an
increase of $3,204,000 or 7%. The growth  represented  market growth typical for
the industry  category.  Water sales  totaled  $23,001,000  in 2001  compared to
$20,117,000 in 2000, an increase of $2,884,000, or 14%. Coffee and other product
sales in this area were  $16,528,000  in 2001 compared to $16,593,000 in 2000, a
decrease of $65,000.  Equipment  rentals totaled  $8,023,000 in 2001 compared to
$7,638,000  in 2000,  an  increase  of  $385,000,  or 5%. In  addition to market
growth,  the  increase in water sales is  indicative  of the  relatively  cooler
summer  weather in 2000  compared to the normal  seasonal  weather in 2001.  The
decrease in the sales of other  products is due to the shift of the sale of some
of the  Company's  products to an outside  distributor  in the  consumer  retail
channel.

         Sales of the Company's retail-size products were 29% of total sales and
increased  to  $19,620,000  in 2001 from  $15,313,000  in 2000,  an  increase of
$3,526,000, or 28%. The sales increase is attributable to increased sales volume
for the  Company's  Vermont Pure brand and other private label brands it bottles
as well as new private label  relationships that were finalized during the year.
In addition,  average selling prices stabilized from a decreasing trend over the
last few years, increasing 1%, and the weather in the northeastern United States
resumed a normal  summer  pattern from a cooler than normal  2000.  Vermont Pure
brand sales increased 9% compared to 2000 as a result of strengthening  existing
distributor  relationships  and market  expansion.  Hidden  Spring  brand  sales
decreased 3% for the year due to competitive  activity in mature markets and the
loss of a major customer through  bankruptcy.  The Company continued to increase
the private  label  volume that it bottles,  resulting  in an increase of 45% in
sales for these products.  The increase was due to growing market demand and the
addition of two major grocery chains as customers during the year. Private label
is a  growing  category  in the  marketplace  and the  Company  has been able to
capitalize on its position as quality  bottler and branding  partner in consumer
product  lines.  Total case sales of all consumer  retail  products were also up
18%.

                                       18
<PAGE>

         Cost of goods sold for 2001 were $29,803,000, or 44% of sales, compared
to $27,892,000 or 47% of sales, for 2000. The decrease in cost of goods sold, as
a percentage of sales,  compared to the prior year is attributable to production
efficiency and cost savings as a result of the merger with Crystal Rock.  Higher
sales  volume for both retail and home and office  packages  continue to enhance
efficiency and lower costs per unit.  Material pricing was stable.  Although the
Company  decreased  its bottle  costs  during  the year,  it  experienced  price
increases for other raw materials.  The Company's  retail  products cost more to
bottle because the process is more complex and it requires more material, labor,
and handling.  The home and office category is  characterized  by lower bottling
costs  because of larger  product  sizes and  re-fillable  bottles.  The Company
expanded its production capabilities in 2001 and will continue that expansion in
2002.

         Gross  profit  increased  to $37,367,000, or 56% of sales, in 2001 from
$31,769,000,  or 53% of sales, in 2000. Overall, gross profit increased 18% from
the prior year. The increase is  attributable to higher sales volume and selling
prices combined with lower costs of goods sold.

         Total  operating  expenses decreased to $30,491,000 from $31,617,000 in
2000, a decrease of $1,126,000,  or 4%. Of these amounts,  selling,  general and
administrative  ("SG&A")  expenses were $24,317,000 and $23,999,000 for 2001 and
2000,  respectively,  an increase of  $318,000,  or 1%. The increase in selling,
general  and  administrative  expenses  is a result of the  increase in Home and
Office sales. This category is characterized by higher selling expenses than the
retail category.  The relatively small increase in SG&A costs as compared to the
growth in the Company's sales is attributable to savings realized as a result of
the Crystal Rock merger.

         As  a  result  of  the  merger with Crystal Rock, the Company owned and
operated  two  major  delivery  accounting  systems.   The  Company  decided  to
consolidate  operations onto one system and  consequently  wrote down $1,292,000
for the system that was terminated in 2000. This charge  consisted of licensing,
installation,  training,  and  consulting  costs.  There were no such charges in
2001.

         Advertising expenses increased to $3,630,000 in 2001 from $3,410,000 in
2000, an increase of $220,000,  or 6%. The increase is primarily  related to the
increase in sales  volume for  consumer  retail  products.  On a per case basis,
advertising  and  promotional  spending  decreased  in 2001 as a  result  of the
Company's use of different  distribution  channels that require less promotional
support and the  Company's  strategy to compete  with lower  pricing  instead of
promotion.  However,  given the competitive nature of the industry,  the Company
anticipates  that it is likely to continue to spend  significant  amounts in the
future for  advertising  and  promotion  as it  continues to promote and develop
brand recognition and increase market penetration. It can give no assurance that
increases in spending or lower pricing will result in higher sales.

         As  a  result of  the  merger  with  Crystal Rock, amortization expense
decreased to $2,544,000 in 2001 from  $2,797,000 on a pro forma basis in 2000, a
decrease of  $253,000.  This is a result of a decrease in the  goodwill  charges
during the year for  agreements  that had reached full  amortization  as well as
actual  goodwill being less than the amount  projected on a pro forma basis.  In
2000,  the  compensation  committee  of the  Board  of  Directors  approved  the
extension  of exercise  periods for stock  options  for  certain  employees  and
directors.  It recognized  compensation  expense of $119,000 in conjunction with
this for 2000. There was no such cost in 2001.

         Income  from operations was $6,877,000 compared to $152,000 in 2000, an
increase of  $6,725,000.  The  increase was a result of higher  sales,  improved
gross margin,  and lower  operating  costs.  Net interest  expense  decreased to
$5,034,000  in 2001 from the pro forma amount of  $5,601,000 in 2000, a decrease
of $567,000.  This was  reflective of  substantially  lower interest  rates.  In
conjunction  with the  financing of the merger,  the Company  wrote off fees and
expenses  amounting  to $406,000  related to the  financing it closed with First
Union and Key Banks.  It had expected to charge these over the five year term of
the facility.  Additional  expense of $181,000 was incurred on the write down of
land the Company  owned in New York State.  There were no such  charges in 2001.
The Company had $668,000 of  miscellaneous  income in 2000 related to settlement
of litigation and sale of fixed assets which did not reoccur in 2001. Net income
before  taxes of  $1,849,000  in 2001  compared  to a net loss  before  taxes of
$5,368,000 in 2000 is an improvement of $7,217,000.  The return to profitability
is a result of increased sales, including a higher percentage of Home and Office
sales, and effective integration of the Vermont Pure and Crystal Rock businesses
to take advantage of cost savings.  During the year, interest rates decreased to
levels  that  they had not been in many  years.  A  significant  portion  of the
Company's   debt  is  variable.   The  Company's   interest   average  rate  was
substantially  lower in 2001 as a result.  Cost  increased  since the  amount of
debt,  as a result of the  Crystal  Rock  merger,  increased  significantly.  No
assurance  can be  given  that  rates  will  remain  low  for  the  term  of the
outstanding debt. (For more information, see Item 7A "Interest Rate Risk.")

                                       19
<PAGE>

         Net  income  of $1,169,000 in 2001 compared to a net loss of $4,265,000
in 2000 was an improvement of $5,434,000.  The Company  recorded net tax expense
of  $680,000  in 2001  compared  to  $1,103,000  in  2000.  Tax  expense  in the
respective  years was offset by deferred  tax  benefits of $973,000 and $769,000
that was recognized based on its profitability  trends. The Company's  effective
tax rate in 2001 was 37% compared to its assumed statutory rate on 40%. The rate
was lowered by the  recognition  of the deferred tax benefit but the benefit was
offset by  amortization  from the Crystal Rock merger that is not deductible for
tax purposes.  (For a reconciliation of the effective and statutory expense, see
footnote 17 to the Company's Notes to the Consolidated Financial Statements.)

         Based  on  the  weighted  average  number  of  shares  of  common stock
outstanding  of 20,447,609  (basic) and  20,651,239  (diluted)  during 2001, net
income was $.06 per share  under both  methods.  This  compares to a net loss of
$.21 per share based on 20,743,540  (basic) pro forma weighted average shares in
2000. Calculation of diluted weighted average shares outstanding in 2000 for use
as a denominator for earnings per share would be anti-dilutive.

         On June 29, 2001 the Financial Accounting Standards Board approved SFAS
141 and 142 concerning new accounting  procedures for business  combinations and
goodwill and  intangible  assets.  SFAS 141 requires that business  combinations
after June 30, 2001 to be accounted for using the purchase  method of accounting
and outlines new criteria  for purchase  price  allocation.  The Company did not
complete any material  transactions  after June 30, 2001 during the fiscal year.
It plans to adopt  SFAS 142 in fiscal  year  2002.  As a result,  the  Company's
financial  statements will be materially impacted.  Under the new statement,  in
fiscal year 2002 and beyond, the Company will no longer be amortizing  goodwill.
Consequently, the Company's amortization will decrease by $2.3 million from 2001
to 2002.  Accordingly,  net income is  expected  to include an  increase of that
amount. In addition, the Company is required to assess its goodwill to determine
if it is  impaired  within  the  first  six  months  of  fiscal  year  2002  and
periodically  thereafter.  If any  portion  of the  goodwill  on  the  books  is
determined to be impaired, that total impaired amount will be written off during
the year. The Company has not yet tested its goodwill in accordance with the new
standards.

         As  discussed  above,  the  Company periodically executes interest rate
swaps  as  part  of its  strategy  to  curtail  its  interest  rate  risk.  Such
instruments  are  considered  hedges  under  SFAS  No.  133 and 137.  Since  the
instrument is intended to hedge against  variable cash flows, it is considered a
cash flow  hedge.  As a result,  the change in the fair value of the  derivative
will be  recognized  as  comprehensive  income  (loss)  until the hedged item is
recognized  in earnings.  Cumulatively,  the fair value of the  Company's  three
outstanding  swaps  decreased  $973,537  for the  year.  This  amount  has  been
recognized as an adjustment to net income to arrive at  comprehensive  income as
defined by the standards.  Further,  it has been recorded as a current liability
and decreased owners equity on the Company's balance sheet.

                                       20
<PAGE>


         Year Ended October 31, 2000 Compared to Year Ended October 30, 1999

         Sales  for  2000  were $35,125,000 compared to $31,396,000 for 1999, an
increase  of  $3,729,000  or 12%.  2000 sales  attributable  to the merger  with
Crystal  Rock were  $2,023,000  which  accounted  for 7% of the total  increase.
Excluding  revenues   attributable  to  the  merger,   sales  for  2000  net  of
acquisitions  were  $33,102,000.  Revenue  growth was primarily due to growth of
home and office delivery markets.

         Sales  of  the  Company's  retail-size  products  were  $14,561,000,  a
decrease  of  9%  compared  to   $15,996,000  in  1999.  The  sales  decline  is
attributable  to  decreased  average  selling  prices as a result  of  increased
competition  and  changes  in  distributor   relationships.   In  addition,   an
unseasonably  cool,  rainy summer in 2000 negatively  impacted  overall beverage
sales in the Company's major market, the Northeastern United States. Prices fell
in the marketplace  with the entrance of large  competitors  that have low water
processing, bottling, and raw material costs. Year-to-year average selling price
was down 12%.  Vermont Pure brand sales  decreased 26% compared to 1999.  Hidden
Spring  brand sales were up 18% for the year,  due to continued  growth  through
market  expansion  in  secondary  distribution  channels.  During the year,  the
Company  increased the private label volume that it bottles,  resulting in an 8%
increase in sales for these products.  Total case sales were up 4%. The increase
in volume was due to the continued growth of Hidden Spring,  which increased 19%
during the year and private label brands,  which  increased 28% during the year.
Vermont  Pure case volume  decreased  15%. The decrease in revenue and volume of
the  Vermont  Pure brand in 2000  compared  to 1999 was a result of the  Company
terminating  its  distribution  agreement with its largest  distributor in April
1999. This major customer  accounted for 16% of the Company's volume in 1999 and
30% in 1998. The Company  terminated  this  distribution  agreement  because the
distributor had indicated that it planned to bottle and distribute its own brand
of  water.  Alternative   distribution   arrangements  were  significantly  less
effective  in late  1999 and  early  2000.  However  in March  2000 the  Company
modified its agreements  with its new  distributors in the New York City area so
that Vermont Pure is the exclusive water being distributed by those companies.

         Net  of  the  merger  with  Crystal Rock, sales for the home and office
delivery  category  of the  business  increased  in  2000  to  $18,541,000  from
$15,400,000  in 1999, an increase of $3,142,000 or 20%. The increase in internal
growth in existing market areas was a result of strong market growth for bottled
water, in general, and greater brand awareness.  In addition to internal growth,
the Company completed a major expansion into the home and office market with the
merger  with  Crystal  Rock.  Sales  attributable  to the  merger  in 2000  were
$2,023,000 resulting in total home and office sales of $20,564,000.

         Cost of goods sold for 2000 were $14,682,000, or 42% of sales, compared
to $11,742,000 or 37% of sales,  for 1999. The increase in cost of goods sold as
a percentage of sales  compared to the prior year is partially  attributable  to
lower average selling prices combined with increases in raw materials for retail
products.  These  factors more than offset the fact that higher sales volume for
both retail and home and office  packages  continue to increase  efficiency  and
lower costs per unit. The Company experienced price increases for bottles, caps,
and  corrugated  paper that averaged  8-10% during the year. The home and office
category is  characterized  by lower  bottling costs because of larger sizes and
re-fillable  bottles.  Of the Company's total sales, home and office were 59% in
2000 - up from 49% in 1999. As a result of the product mix and higher sales,  in
general, the gross profit increased $788,000 to $20,442,000,  or 58% of sales in
2000, from $19,654,000, or 63% of sales in 1999.

                                       21
<PAGE>

         Total  operating  expenses increased to $21,391,000 from $17,019,000 in
1999, an increase of $4,372,000,  or 26%. Of these amounts, selling, general and
administrative  ("SG&A")  expenses were $16,425,000 and $13,149,000 for 2000 and
1999, respectively,  an increase of $3,276,000, or 25%. The increase in selling,
general and  administrative  expenses was reflective of the increase in home and
office sales. This category is characterized by higher selling expenses than the
retail category.  The Company experienced  significant increases during the year
for  personnel  costs as tight labor markets drove costs higher and fuel expense
increased  nearly 75%. Since the merger with Crystal Rock occurred at the end of
the fiscal year, many of the anticipated synergies had not yet materialized.

         The  Company  incurred $110,000 of non-recurring charges related to the
merger with Crystal Rock that were  included in SG&A  expenses.  These  expenses
were related to personnel  changes and  elimination  of a product  line.  Net of
non-recurring  charges, SG&A expenses increased 24%. In addition, as a result of
the merger with Crystal Rock the Company consolidated operations on one combined
system  and  consequently   wrote  down  $1,292,000  for  the  system  that  was
terminated.

         Advertising expenses decreased to $2,754,000 in 2000 from $3,258,000 in
1999, a decrease of $504,000,  or 15%. The decrease is related  primarily to the
Company's use of different  distribution  channels that require less promotional
support and the  Company's  strategy to compete  with lower  pricing  instead of
promotion.  As a result of the merger with Crystal  Rock,  amortization  expense
increased  to $802,000 in 2000 from  $612,000 in 1999,  an increase of $190,000.
The Company booked  $58,733,000 of goodwill in fiscal year 2000,  primarily as a
result of the merger.  This is had been amortized over 30 years  resulting in an
annual charge of  approximately  $1,950,000 per year but will be subject to SFAS
142  in  future  years  (see  discussion  above).  During  the  year  2000,  the
compensation  committee  of the Board of  Directors  approved  the  extension of
exercise  periods for stock  options for certain  employees  and  directors.  It
recognized compensation expense of $119,000 in conjunction with this.

         Loss  from  operations in 2000 totaled $948,000 compared to profit from
operations in 1999 of $2,635,000, a decrease of $3,583,000. Net interest expense
increased to $1,893,000 from  $1,030,000 in 1999, an increase of $863,000.  This
was  reflective  of higher  interest  rates and increased  borrowing  during the
period for operating  capital,  capital  expansion,  and the merger with Crystal
Rock. The Company  increased its debt  approximately  $33,000,000 as a result of
the merger  with  Crystal  Rock.  It is  expected  that this debt will  increase
interest approximately  $3,600,000 in the first year of combined operations.  In
the years following interest will decrease but continue to be a very significant
cost for the Company.  Also in conjunction with the financing of the merger, the
Company  wrote  off fees and  expenses  amounting  to  $406,000  related  to the
financing  it closed with First Union and Key Banks in January  when it expected
to charge these over the five year term of the facility.  Additional  expense of
$181,000  was  incurred on the write down of land the Company  owned in New York
State.  The land was  originally  purchased  by the  Company  in 1991 for spring
development. The development did not take place and the land was sold in January
2001.  Miscellaneous income represents a cash settlement of litigation.  The net
loss before taxes of  $3,152,000  in 2000 compared to net income before taxes of
$1,605,000 in 1999 is a decrease of $4,757,000. The decrease in profitability is
a result of decline in the  Company's  sales  growth  trend due to the  weather,
lower selling  prices,  higher  material costs,  and ongoing  integration  costs
related to operations as well as $2,108,000 of non-recurring costs.

                                       22
<PAGE>

         The net loss of $2,383,000 in 2000 compared to net income of $3,399,000
in 1999 was a decrease  of  $5,782,000.  The  Company  recorded a tax benefit of
$769,000 in 2000  compared to  $1,793,000  in 1999.  The decrease in the benefit
corresponds with the interruption in the Company's profit trend and is a partial
recognition   of  the  Company's   total   available   deferred  tax  assets  of
approximately  $5,527,000 at October 31, 2000,  based on an evaluation of likely
utilization. If the Company returns to profitability,  the remaining $973,000 of
unrecorded  deferred tax benefits  will be available for  recognition  in future
years.  Based  on  the  weighted  average  number  of  shares  of  common  stock
outstanding  of  10,992,995  during  2000 the net loss was $.22 per share.  This
compares to net income of $.33 per share based on  10,279,377  weighted  average
shares and diluted net income per share of $.31 per share based on the  weighted
average  number of shares of diluted  common stock  outstanding of 10,790,722 in
1999.

Liquidity and Capital Resources

         At  October 31, 2001,  the  Company  had working capital of $4,244,000.
This represents an increase of $1,267,000 from the $2,977,000 of working capital
on  October  31,  2000.  The  increase  is a result of the  Company's  return to
profitability while servicing its debt. A considerable  portion of the Company's
expenses  do not  require  cash.  Depreciation,  amortization  and  other  items
totaling $6,248,000 more than offset the usage of cash for changes in assets and
liabilities  of $1,869,000.  When combined with net income,  these items provide
$5,548,000 from operating activities compared to $1,432,000 in 2000, an increase
of  $4,116,000.  This is  indicative  that the Company's  consolidated  home and
office  operations,   which  are  capital  intensive,  have  been  effective  at
generating cash in its first full year.

         Cash flows from investing activities had a net inflow of $152,000.  The
inflow was  generated  from the release of  restricted  money  market  funds for
scheduled debt payment of $4,276,000. Otherwise, the Company invested $4,156,000
on capital  equipment for operations and small  acquisitions  to increase market
density. Capital expenditures in the normal course of the Company's business are
typically vehicles, bottles, and water dispensing,  manufacturing,  and computer
equipment.  During  2000,  the Company  had a net cash  outflow  from  investing
activities  of  $19,155,000.  This was  primarily  attributable  to funding  the
Crystal  Rock  merger and the pay down of debt  related to the  merger.  Capital
expenditures  totaled  $3,861,000 in 2000. The majority of capital  expenditures
were for expansion of the Company's facility in Randolph, Vermont.

         To  finance  the  merger  with  Crystal  Rock,  the Company re-financed
existing  debt and borrowed  additional  funds from  Webster Bank of  Waterbury,
Connecticut in 2000. It also financed a substantial amount of the purchase price
from  the  former   shareholders  of  Crystal  Rock.  The  debt  to  the  former
shareholders  is  subordinated to the bank debt. The increased debt has resulted
in  significantly  higher  interest  costs for the Company  compared to historic
levels.  Management expects growth and efficiencies  gained through  integration
will increase the cash flow and  profitability  sufficiently to pay down debt on
schedule  but  assurance  can be given  that this  will be the  case.  (For more
information on the Company's  debt, see Note 8 of the Notes to the  Consolidated
Financial Statements.)

                                       23
<PAGE>


         During  the  past fiscal year, the Company paid down $5,872,000 of debt
in cash  primarily  related to the  financing  of the merger.  In  addition,  it
borrowed  $3,040,000  and repaid  $3,500,000 of its operating  line of credit to
fund  seasonal  cash  needs.  As of October 31, 2001 the Company did not have an
outstanding  balance on the line. The Company issued stock for the retirement of
debt. On October 1, 1999,  the Company  issued a $975,000  non-interest  bearing
convertible  debenture due September  30, 2001 to Middlebury  Venture  Partners,
Inc. ("Middlebury",  formerly Marcon Capital Corporation). As a result of claims
the Company made under the loan documents,  the Company received $1,270,000 from
the obligor. Of the proceeds received, $975,000 was invested in a Certificate of
Deposit and was  restricted as collateral in favor of Middlebury  until the note
was  converted.  During  2001,  the note was  converted  to stock  (see  Item 5,
"Securities Sold and Exemption from Registration Claimed" for details concerning
the  conversion.)  In addition,  the Company  issued stock  pursuant to the 1999
Employee  Stock  Purchase  Plan and for the  exercise of options of Director and
Officers.

         The  Company's  cash  balance  at  October  31, 2001 decreased by a net
amount of $309,000 from October 31, 2000.  The decrease in cash is  attributable
to the pay down of debt. Based on 2001 financial  results as of and for the year
ended  October  31,  2001,  the  Company  is in  compliance  with its  financial
covenants  in its  senior  debt  agreement  with  Webster  Bank.  Since the 2001
financial  results  demonstrated the achievement of a specified  covenant in the
agreement, the margin for the Company's borrowings is scheduled to decrease from
1.75% to 1.50% over LIBOR as of March 1, 2002.

         At October 31, 2001, the Company had recognized  all available deferred
tax  assets  and  recorded a deferred  tax asset  balance  of  $4,614,000  after
application  of a portion  of the asset to the  current  year's  liability.  The
Company has recorded all available  deferred tax  benefits.  Based on historical
pre-tax income and projected profitability, the realization of such deferred tax
asset  would  take  approximately  two more  years.  Management  estimates  that
$2,313,000 will be applied in 2002 and $2,301,000 will be applied in 2003.

         On  November  1,  2001,  the  Company acquired substantially all of the
assets  of  Iceberg  Springs  Water,  Inc.  for  total  consideration  valued at
$5,700,000,  of which $600,000 was paid in cash,  $4,395,373 in debt and assumed
liabilities  and  $704,627 by the  issuance of 213,912  shares of the  Company's
common  stock.  The assets were merged into the Company's  Connecticut  Home and
Office  operations.  To  complete  the  transaction,  the  Company  amended  its
agreement  with Webster Bank in order to borrow an  additional  $4,200,000.  The
additional  borrowings  are at an interest rate 100 basis points higher than the
original  term  debt.  Otherwise,  the  terms of the  agreement  did not  change
materially.

         The  Company  continues  to  pursue  an  active  program  of evaluating
acquisition  opportunities.  As a  result,  the  Company  anticipates  using its
capital  resources  and  obtaining  financing  from outside  sources in order to
complete any further acquisitions. The Company has no other current arrangements
with respect to, or sources of, additional  financing for its business or future
plans.  There can be no assurance  given that financing will be available to the
Company on acceptable terms or at all.

         Inflation has not had a material impact on the Company's operations  to
date.

                                       24
<PAGE>

         Other Recent Accounting Developments

         In  August 2001,  the  Financial  Accounting  Standards  Board ("FASB")
issued SFAS No. 144,  "Accounting  for the  Impairment or Disposal of Long Lived
Assets." SFAS No. 144 supercedes SFAS No. 121, "Accounting for the Impairment of
Long Lived Assets and Assets to be Disposed of" and the accounting and reporting
provisions of Accounting  Principles Board Opinion No. 30 "Reporting the Results
of Operations - Reporting the Effects of Disposal of a Segment of Business,  and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions." SFAS
No. 144 also amends Accounting Research Bulletin No. 51, "Consolidated Financial
Statements,"  to eliminate the exception to  consolidation  for a subsidiary for
which  control is likely to be  temporary.  SFAS  No.144 will be  effective  for
fiscal years beginning after December 15, 2001.

         The  most  significant changes made by SFAS No. 144 are (1) goodwill is
removed from its scope and therefore, it eliminates the requirements of SFAS 121
to allocate  goodwill to long lived assets to be tested for impairment,  and (2)
it describes a  probability-weighted  cash flow estimation  approach to apply to
situations in which alternative  course of action to recover the carrying amount
of long lived assets are under  consideration  or a range is  estimated  for the
amount of possible future cash flows.

         The Company is required to adopt SFAS No. 144 for its fiscal 2003 year.
It has not yet  determined  the effect that the  pronouncement  will have on its
consolidated financial position or results of operations.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

Interest Rate Risks

         At  October  31, 2001 the Company had approximately $13,500,000 of long
term debt  subject  to  variable  interest  rates.  Under the loan and  security
agreement  with Webster Bank the Company  currently  pays  interest at a rate of
LIBOR  plus a margin of 1.75%.  The  margin is  subject  to change  based on the
Company's performance as outlined in the loan agreement with Webster Bank and is
subject to  decrease  to 1.50% as of March 1,  2002.  A  hypothetical  100 basis
increase in the LIBOR rate would  result in an  additional  $135,000 of interest
expense  on an  annualized  basis.  Conversely,  a  decrease  would  result in a
proportionate interest cost savings.

         The Company uses  interest rate "swap"  agreements to curtail  interest
rate risk. On November 3, 2000,  the Company  entered into a swap agreement with
Webster Bank to fix $8,000,000 of its long term debt at 8.32% interest for three
years.  On April 2, 2001, the Company entered into a swap agreement with Webster
Bank to fix an additional $4,000,000 of its long term debt at 7.03% interest for
three years.  On July 24, 2001,  the Company  entered into a swap agreement with
Webster  Bank to fix an  additional  $4,000,000  of its long  term debt at 6.75%
interest for three years.

         In  aggregate,  the  Company  has  fixed  the  interest  rate  on  this
$16,000,000  of debt at 7.5%  over  the  next  two to  three  years.  Currently,
management  believes that this is above market rates though the  agreements  are
based on three year rate projections. They serve to stabilize the Company's cash
flow and expense but  ultimately  may cost more or less in interest  than if the
Company had carried all of its debt at a variable rate over the swap term. Since
significantly  increasing  its debt in October 2001,  management's  strategy has
been to keep the fixed and  variable  portions of its senior debt  approximately

                                       25
<PAGE>

equal to offset and  minimize  the  respective  the risk of rising  and  falling
interest rates.  Future low rates may compel  management to fix a higher portion
to further stabilize cash flow and expenses as it monitoring short and long term
rates and debt balances.

Commodity Price Risks

         Plastic - PET
         -------------
         Although  the Company has a three-year  contract  with its vendors that
sets the purchase price of its PET bottles,  the vendors are entitled to pass-on
to the Company any resin price increases. These prices are related to supply and
demand market factors for PET and, to a lesser  extent,  the price of petroleum,
an essential  component of PET. A hypothetical  resin price increase of $.05 per
pound would result in an  approximate  price increase per bottle of $.005 or, at
current volume levels, $350,000 a year.

         Coffee
         ------
         The cost of the  Company's  coffee  purchases are dictated by commodity
prices.  It enters into contracts to mitigate market  fluctuation of these costs
by fixing the price for certain periods. Currently it has fixed the price of its
anticipated  supply  through  December 31, 2002 at "green"  prices  ranging from
$.46-$.57 per pound. The Company is not insulated from price fluctuations beyond
that date. At existing  sales  levels,  an increase in pricing of $.10 per pound
would  result in  approximately  $100,000  of  additional  cost  annually to the
Company.  In  this  case,  competitors  that  had  fixed  pricing  might  have a
competitive advantage.

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

         Since inception, the Company has not changed accountants and has had no
disagreement  on any matter of  accounting  principles or practices or financial
statement disclosure.

ITEM 9.  FINANCIAL STATEMENTS AND OTHER SUPPLEMENTARY DATA

         Financials  statements  and their  footnotes are set forth on pages F-1
through F-22




                        INDEX TO THE FINANCIAL STATEMENTS

Financial Statements:......                                           Page

         Independent Auditors Report                                   F-2

         Consolidated Balance Sheets                                   F-3

         Consolidated Statements of Operations                         F-4

         Consolidated Statement of Changes in Stockholders' Equity     F-5

         Consolidated Statement of Changes in Cash Flows               F-6

         Notes to Consolidated Financial Statements                    F-7




                                      F-1
<PAGE>



                          INDEPENDENT AUDITORS' REPORT


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


         We have audited the accompanying consolidated balance sheets of Vermont
Pure  Holdings,  Ltd. and  Subsidiaries  as of October 31 2001 and 2000, and the
related consolidated  statements of operations,  changes in stockholders' equity
and cash flows for each of the three years in the period ended October 31, 2001.
These financial  statements are the responsibility of the Company's  management.
Our responsibility is to express an opinion on these financial  statements based
on our audits.

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

         In  our  opinion,  the  financial  statements referred to above present
fairly, in all material respects, the consolidated financial position of Vermont
Pure  Holdings,  Ltd.  and  Subsidiaries  at October 31, 2001 and 2000,  and the
consolidated  results of their  operations  and their cash flows for each of the
three years in the period ended October 31, 2001, in conformity  with accounting
principles generally accepted in the United States of America.


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

New York, New York
December 14, 2001




                                      F-2

<PAGE>



              VERMONT PURE HOLDINGS, LTD. AND SUBSIDIARIES

                       CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                                             October 31,
                                                                            -----------------------------------------
                                                                                  2001                    2000
                                                                            -----------------        ----------------
                                 ASSETS
CURRENT ASSETS:
<S>                                                                       <C>                      <C>
        Cash and cash equivalents                                         $        1,099,223       $       1,408,158
        Investments - Money Market Fund (restricted balance)                               -               3,301,064
        Investments - Certificate of Deposit (restricted balance)                          -                 975,000
        Accounts receivable - net of allowance                                     7,470,152               6,725,810
        Inventories                                                                3,147,985               2,778,535
        Current portion of deferred tax asset                                      2,313,000                 798,000
        Other current assets                                                       2,297,358               1,145,311
                                                                          -------------------      ------------------
          TOTAL CURRENT ASSETS                                                    16,327,718              17,131,878
                                                                          -------------------      ------------------

PROPERTY AND EQUIPMENT - net of accumulated depreciation                          21,231,954              21,052,513
                                                                          -------------------      ------------------
OTHER ASSETS:
        Intangible assets - net of accumulated amortization                       66,100,712              68,469,382
        Deferred tax asset                                                         2,301,000               3,756,000
        Other assets                                                                 255,046                 415,867
                                                                          -------------------      ------------------
          TOTAL OTHER ASSETS                                                      68,656,758              72,641,249
                                                                         -------------------      ------------------
TOTAL ASSETS                                                              $      106,216,430       $     110,825,640
                                                                         ===================      ==================

                  LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
        Accounts payable                                                  $        4,102,235       $       4,535,118
        Current portion of customer deposits                                         155,943                  50,525
        Accrued expenses                                                           3,291,923               2,738,930
        Unrealized loss on derivatives                                               973,537                       -
        Current portion of long term debt                                          3,560,128               6,821,673
        Current portion of obligations under capital leases                                -                   9,064
                                                                          -------------------      ------------------
          TOTAL CURRENT LIABILITIES                                               12,083,766              14,155,310

        Long term debt                                                            47,851,386              51,411,510
        Long term obligations under capital leases                                         -                  16,747
        Line of credit                                                                     -                 460,000
        Customer deposits                                                          2,443,100               2,453,335
                                                                          -------------------      ------------------
          TOTAL LIABILITIES                                                       62,378,252              68,496,902
                                                                          -------------------      ------------------
STOCKHOLDERS' EQUITY:
        Preferred stock - $.001 par value, 500,000 authorized shares, none
        issued and outstanding
        Common stock - $.001 par value, 50,000,000
        authorized shares, 20,767,670 issued and outstanding
        shares at October 31, 2001 and 20,217,774 at October 31, 2000                 20,768                  20,218
        Paid in capital                                                           55,562,599              54,249,016
        Accumulated deficit                                                      (10,771,652)            (11,940,496)
        Other comprehensive loss                                                    (973,537)                      -
                                                                          -------------------      ------------------
          TOTAL STOCKHOLDERS' EQUITY                                              43,838,178              42,328,738
                                                                          -------------------      ------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                $      106,216,430       $     110,825,640
                                                                          ===================      ==================

                 See notes to consolidated financial statements

                                      F-3

</TABLE>
<PAGE>

           VERMONT PURE HOLDINGS, LTD. AND SUBSIDIARIES

              CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>


                                                                                           Years Ended
                                                                   ---------------------------------------------------------
                                                                       October 31,         October 31,         October 30,
                                                                          2001                2000                1999
                                                                   -----------------   -----------------    ----------------
<S>                                                                <C>                  <C>                  <C>
SALES                                                              $     67,170,895     $    35,124,813      $   31,396,375

COST OF GOODS SOLD                                                       29,803,176          14,682,361          11,742,003
                                                                   -----------------   -----------------    ----------------
GROSS PROFIT                                                             37,367,719          20,442,452          19,654,372
                                                                   -----------------   -----------------    ----------------
OPERATING EXPENSES:
          Selling, general and administrative expenses                   24,317,316          16,424,730          13,149,023
          Advertising expenses                                            3,629,608           2,753,734           3,257,918
          Writedown of computer software                                          -           1,291,719                   -
          Amortization                                                    2,543,820             801,695             612,057
          Other compensation                                                      -             118,670                   -
                                                                   -----------------   -----------------    ----------------
TOTAL OPERATING EXPENSES                                                 30,490,744          21,390,548          17,018,998
                                                                   -----------------   -----------------    ----------------
INCOME (LOSS) FROM OPERATIONS                                             6,876,975            (948,096)          2,635,374
                                                                   -----------------   -----------------    ----------------
OTHER INCOME (EXPENSE):
          Interest                                                       (5,033,760)         (1,893,087)         (1,030,151)
          Debt exit fees and expenses                                             -            (405,972)                  -
          Loss on writedown of land                                               -            (180,837)                  -
          Miscellaneous                                                       5,836             276,150                   -
                                                                   -----------------   -----------------    ----------------
TOTAL OTHER                                                              (5,027,924)         (2,203,746)         (1,030,151)
                                                                   -----------------   -----------------    ----------------
INCOME (LOSS) BEFORE INCOME TAXES                                         1,849,051          (3,151,842)          1,605,223

INCOME TAX (EXPENSE) BENEFIT                                               (680,207)            769,164           1,793,418
                                                                   -----------------   -----------------    ----------------
NET INCOME (LOSS)                                                  $      1,168,844    $     (2,382,678)    $     3,398,641
                                                                   -----------------   -----------------    ----------------
NET INCOME (LOSS) PER SHARE - BASIC                                $           0.06    $          (0.22)    $          0.33
                                                                   =================   =================    ================
NET INCOME (LOSS) PER SHARE - DILUTED                              $           0.06    $          (0.22)    $          0.31
                                                                   =================   =================    ================
Weighted Average Shares Used in Computation - Basic                      20,447,609          10,992,995          10,279,377
                                                                   =================   =================    ================
Weighted Average Shares Used in Computation - Diluted                    20,651,239          10,992,995          10,790,722
                                                                   =================   =================    ================

</TABLE>

                 See notes to consolidated financial statements

                                     F-4
<PAGE>

                 VERMONT PURE HOLDINGS, LTD. AND SUBSIDIARIES

              CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>


                                 Common     Stock               Treasury    Stock                     Other
                               ---------------------  Paid in  -------------------  Accumulated    Comprehensive      Comprehensive
                                 Shares    Par Value  Capital    Shares     Amount   Deficit           Loss       Total     Loss
                               -----------------------------------------------------------------------------------------------------

<S>              <C>            <C>         <C>      <C>          <C>              <C>                   <C>   <C>
Balance, October 31,1998        10,287,187  $ 10,288 $23,080,049  50,000$(168,750) $(12,956,458)         $ -  $ 9,965,129

Issuance of Common Stock            52,571        52     117,675                                                  117,727

Net Income                                                                            3,398,641                 3,398,641
                               -----------------------------------------------------------------------------------------------------
Balance, October 30,1999        10,339,758    10,340  23,197,724  50,000 (168,750)   (9,557,817)           -   13,481,497

Common Stock Issued for
  Acquisition                    9,873,016     9,873  31,090,127                                               31,100,000

Sale of Common Stock                 5,000         5      11,245                                                   11,250

Stock Compensation                                       118,670                                                  118,670

Retirement of Treasury Stock       (50,000)      (50)   (168,700)(50,000) 168,750                                       -

Net Loss                                                                             (2,382,679)               (2,382,679)
                               -----------------------------------------------------------------------------------------------------
Balance, October 31, 2000       20,167,774    20,168  54,249,066       -        -   (11,940,496)           -   42,328,738

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

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

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

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

Net Income                                                                            1,168,844                 1,168,844 1,168,844

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

</TABLE>


                 See notes to consolidated financial statements

                                      F-5
<PAGE>
                   VERMONT PURE HOLDINGS, LTD. AND SUBSIDIAIES

                        CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
                                                                                                   Years Ended
                                                                                   ----------------------------------------------
                                                                                    October 31,     October 31,     October 30,
                                                                                       2001            2000            1999
                                                                                   --------------  --------------  --------------

CASH FLOWS FROM OPERATING ACTIVITIES:
<S>                                                                                 <C>             <C>             <C>
    Net income/(loss)                                                               $ 1,168,844     $(2,382,678)    $ 3,398,641
    Adjustments to reconcile net income (loss) to net cash
      provided by operating activities:

      Depreciation                                                                    3,690,675       2,083,204       1,489,384
      Amortization                                                                    2,543,820         801,695         612,057
      Increase in deferred tax asset                                                    (60,000)       (769,164)     (1,793,418)
      Gain on settlement of note receivable                                                   -        (295,000)              -
      Loss on disposal of property and equipment                                         56,962         101,499          72,315
      Non cash compensation                                                              15,752         118,670

    Changes in assets and liabilities (net of effect of acquisitions):
    Accounts receivable                                                                (744,342)         93,831        (250,476)
    Inventories                                                                        (369,450)        559,824        (720,525)
    Other current assets                                                             (1,152,046)       (163,905)       (558,998)
    Other assets                                                                        160,821          80,218      (1,466,274)
    Accounts payable                                                                   (432,883)         83,972         435,578
    Customer deposits                                                                    95,184          76,651        (225,038)
    Accrued expenses                                                                    574,839       1,043,446        (253,500)
                                                                                    --------------  --------------  --------------
NET CASH PROVIDED BY OPERATING ACTIVITIES                                             5,548,176       1,432,263         739,746
                                                                                    --------------  --------------  --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
    Purchase of property, plant and equipment                                        (3,827,225)     (3,680,793)     (2,115,945)
    Purchase of property, plant and equipment from bond financing                             -      (2,467,931)              -
    Purchase of Money Market Investment from bond financing                                   -      (4,125,424)              -
    Reduction of Money Market Investment Account                                              -       2,467,931               -
    Reduction of Money Market Investment Account for pay-off of bond issuance         3,301,064       1,657,493               -
    Purchase of Money Market Investment for pay-off of remaining bond issuance                -      (3,301,064)              -
    Sale (Purchase) of Certificate of Deposit securing outstanding debt                 975,000        (975,000)
    Proceeds from sale of fixed assets                                                   31,700         329,550         113,752
    Collection of note receivable                                                             -       1,270,000               -
    Cash used for acquisitions - net of cash acquired                                  (328,550)    (10,330,062)     (2,023,610)
                                                                                   --------------  --------------  --------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES                                     151,989     (19,155,300)     (4,025,803)
                                                                                   --------------  --------------  --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
    Proceeds from line of credit                                                      3,040,000       5,658,208       2,905,999
    Proceeds from debt                                                                               35,067,765       1,278,420
    Payment on line of credit                                                        (3,500,000)              -               -
    Principal payments of debt                                                       (5,872,482)       (726,307)       (780,355)
    Principal payment of debt relating to refinancing                                         -     (21,246,739)              -
    Exercise of stock options                                                           227,200               -          87,740
    Sale of common stock                                                                 96,182          11,250               -
                                                                                   --------------  --------------  --------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES                                  (6,009,100)     18,764,177       3,491,804
                                                                                   --------------  --------------  --------------

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                                   (308,935)      1,041,140         205,747

CASH AND CASH EQUIVALENTS - Beginning of year                                         1,408,158         367,018         161,271
                                                                                   --------------  --------------  --------------

CASH  AND CASH EQUIVALENTS - End of year                                            $ 1,099,223     $ 1,408,158     $   367,018
                                                                                   ==============  ==============  ==============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

Cash paid for interest                                                              $ 4,421,322     $ 1,579,381     $   852,638
                                                                                   ==============  ==============  ==============
Cash paid for taxes                                                                 $   301,000     $   118,503     $         -
                                                                                   ==============  ==============  ==============
NON-CASH FINANCING AND INVESTING ACTIVITIES:
    Equipment acquired under capital leases                                         $         -     $   145,844     $   212,315
                                                                                   ==============  ==============  ==============
    Debt converted to common stock                                                  $   975,000     $         -     $         -
                                                                                   ==============  ==============  ==============
</TABLE>

                 See notes to 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.  (the  "Company")  is  engaged  in  the
         production,  marketing and distribution of bottled water. The Company's
         products  are  sold   predominately   in  the   Northeast  as  well  as
         Mid-Atlantic  and  Mid-Western  states.  Distribution  is  accomplished
         through a network of  independent  beverage  distributors  and with the
         Company's own trucks and employees.

2.      SIGNIFICANT ACCOUNTING POLICIES

        a.     Basis of  Presentation - The  consolidated  financial  statements
               include the accounts of the Company and its subsidiaries, Vermont
               Pure Springs,  Inc.,  Crystal Rock Spring Water Company ("Crystal
               Rock"),  Excelsior  Spring Water Company Co. Inc. and  Adirondack
               Coffee  Services,  Inc.  The  Company's  subsidiaries  are wholly
               owned. All intercompany profits,  transactions, and balances have
               been eliminated.

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

        c.     Accounts  Receivable - Accounts  receivable  are presented net of
               allowance for doubtful accounts.

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

        e.     Property  and  Equipment - Property and  equipment  are stated at
               cost. 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 40  years  for
               buildings and improvements.

        f.     Intangible  Assets - The Company  records  goodwill in connection
               with its  acquisitions.  Goodwill is amortized over 30 years. The
               value of covenants not to compete are amortized  over the term of
               the agreements.

        g.     Securities   Issued  for  Services  -  The  Company  follows  the
               accounting  treatment  prescribed by Accounting  Principles Board
               Opinion No.25  ("Accounting  for Stock Issues to Employees") when
               accounting for stock-based  compensation granted to employees and
               directors.  It provides the required pro forma  disclosures as if
               the fair value method


                                      F-7
<PAGE>

               under Statement of Financial  Accounting Standards No. 123 ("SFAS
               No.123"),  "Accounting for Stock Based Compensation" was adopted.
               Any  stock-based   compensation   awards  to  non-employees   are
               accounted for using the provisions of SFAS No. 123.

        h.     Net  Income  (Loss)  Per Share - Net  Income  (Loss) 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 during each period that
               income is reported.  In periods that the Company  reports a loss,
               potential  common shares are not included in the diluted earnings
               per share  calculation since the inclusion of those shares in the
               calculation would be anti-dilutive.

        i.     Advertising  Expenses - The Company expenses advertising costs at
               the time that the advertising begins to run with the exception of
               advertising   from  which  it  derives   direct   responses  from
               customers.  The Company  expenses  direct  response  advertising,
               which  consists  of  yellow  page  advertising,  over a period of
               twelve  months  consistent  with its  expected  period  of future
               benefit based on historical  responses.  Prepaid  advertising  at
               October   31,   2001  and  2000  was   $202,000   and   $163,000,
               respectively.

        j.     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 a company's  product will be carried
               for any definite  period of time.  The Company pays for such fees
               in cash,  providing free goods or issuing  credits for previously
               sold goods. The cost of the slotting fees is valued at the amount
               of cash paid, or the cost to the Company of the goods provided in
               exchange.  The Company expenses slotting fees when the obligation
               is incurred.

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

        l.     Income  Taxes - The  Company  accounts  for  income  taxes  under
               Statement of Financial Accounting  Standards No.109,  "Accounting
               for Income  Taxes" (SFAS  No.109).  Pursuant to SFAS No.109,  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.

                                      F-8
<PAGE>

        m.     Use of Estimates - The  preparation  of financial  statements  in
               conformity with generally accepted accounting principals 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.

        n.     Fair  Value  of  Financial  Instruments  - The  carrying  amounts
               reported  in the  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  approximate  fair
               value based on the prevailing market interest rates.

        o.     Accounting for Long-Lived Assets - The Company reviews long-lived
               assets,  certain  identifiable assets and any goodwill related to
               those assets for impairment whenever circumstances and situations
               change such that there is an indication that the carrying amounts
               may not be recovered.  At October 31, 2001, the Company  believes
               that there has been no impairment of its long-lived assets.

        p.     Revenue  Recognition  - The Company  adopted the guidance  issued
               under United  States  Securities  and Exchange  Commission  Staff
               Accounting Bulletin No. 101 ("SAB No.101"),  "Revenue Recognition
               in Financial  Statements in its fiscal 2001 year. Adoption of the
               pronouncement  had no material effect on the Company's  Financial
               Statements.  Revenue is recognized when products are delivered to
               customers  through  the  Company's  home and office  distribution
               channel. For consumer retail product,  revenue is recognized upon
               shipment  or  delivery  of  the  product   based  on  the  F.O.B.
               arrangements with the customer.

        q.  New Accounting Pronouncements

              (i) In July 2001 the Financial  Accounting  Standards Board issued
                  Statement of Financial  Accounting Standards ("SFAS") No. 141,
                  "Business  Combinations," and SFAS No.142, "Goodwill and Other
                  Intangible  Assets."  SFAS 141 is  effective  for all business
                  combinations   completed  after  June  30,2001.  SFAS  142  is
                  effective for fiscal years  beginning  after December 15, 2001
                  with  provisions  for early  adoption.  However,  the  Company
                  intends to adopt the new standard  for fiscal year 2002.  With
                  the adoption of SFAS No. 142, the Company will discontinue the
                  periodic  amortization  of  existing  goodwill  and  test  the
                  remaining  value of relevant  intangible  assets for  possible
                  impairment  within six months,  and  periodically  thereafter,
                  based on the required valuation  criteria.  Based on the value
                  of intangible  assets as of October 31, 2001,  application  of
                  the non-amortization provisions would result in a reduction of

                                      F-9
<PAGE>

                  expenses  of $2.3  million  in the first full  fiscal  year in
                  which  they  are  applied.  The  new  pronouncements   require
                  business  combinations after June 30, 2001 to be accounted for
                  using the  purchase  method of  accounting  and  outlines  new
                  criteria  for purchase  price  allocation.  Goodwill  acquired
                  after  June  30,  2001  will  not be  amortized.  No  material
                  transactions  were  completed  during  the year after June 30,
                  2001.

            (ii)  The  Emerging  Issues  Task Force  ("EITF")  of the  Financial
                  Accounting  Standards  Board  took  definitive  action  on two
                  issues  during  2001 that  potentially  effect  the  Company's
                  accounting  policies.  The issues  relate to  "Accounting  for
                  Certain  Sales  Incentives"  (EITF  00-14) and "Vendor  Income
                  Statement   Characterization  of  Consideration  Paid  to  the
                  Reseller of the Vendors  Products"  (EITF 00-25).  The Company
                  plans to implement these  pronouncements  in the first quarter
                  of its 2002 fiscal year but has not yet  determined the impact
                  that it will have on its consolidated financial statements.

          (iii)   The Company has adopted  SFAS No. 133 and No. 137  "Accounting
                  for Derivative  Instruments  and Hedging  Activities"  for the
                  year ended  October 31, 2001.  SFAS No. 133  establishes a new
                  model for accounting for derivatives  and hedging  instruments
                  and supersedes and amends a number of existing standards.  The
                  Company  periodically  executes interest rate swaps as part of
                  its  strategy  to  curtail  its  interest   rate  risk.   Such
                  instruments are considered  hedges under SFAS No. 133 and 137.
                  Moreover,  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 will be
                  recognized  as  comprehensive  income  (loss) until the hedged
                  item is recognized in earnings. The Company entered into three
                  such  instruments  during the year,  fixing $16 million of its
                  senior  term  debt.  Cumulatively,   the  fair  value  of  the
                  Company's three outstanding  swaps decreased  $973,537 for the
                  twelve months ending October 31, 2001.

         (iv)     In August  2001,  the  Financial  Accounting  Standards  Board
                  ("FASB")  issued SFAS No. 144,  "Accounting for the Impairment
                  or Disposal  of Long Lived  Assets."  SFAS No. 144  supercedes
                  SFAS No. 121,  "Accounting  for the  Impairment  of Long Lived
                  Assets and Assets to be Disposed  of" and the  accounting  and
                  reporting  provisions of Accounting  Principles  Board Opinion
                  No. 30  "Reporting  the Results of  Operations - Reporting the
                  Effects   of   Disposal   of  a  Segment  of   Business,   and
                  Extraordinary,  Unusual and Infrequently  Occurring Events and
                  Transactions."  SFAS No. 144 also amends  Accounting  Research
                  Bulletin  No.  51,  "Consolidated  Financial  Statements,"  to
                  eliminate the exception to consolidation  for a subsidiary for
                  which control is likely to be  temporary.  SFAS No.144 will be
                  effective for fiscal years beginning after December 15, 2001.

                                      F-10
<PAGE>

                  The most  significant  changes  made by SFAS  No.  144 are (1)
                  goodwill  is  removed  from  its  scope  and   therefore,   it
                  eliminates the  requirements of SFAS 121 to allocate  goodwill
                  to long lived assets to be tested for  impairment,  and (2) it
                  describes a probability-weighted cash flow estimation approach
                  to apply to situations in which  alternative  course of action
                  to recover the carrying  amount of long lived assets are under
                  consideration  or a  range  is  estimated  for the  amount  of
                  possible future cash flows.

                  The  Company is  required to adopt SFAS No. 144 for its fiscal
                  2003  year.  It has not yet  determined  the  effect  that the
                  pronouncement will have on its consolidated financial position
                  or results of operations.

3.       CASH EQUIVALENTS

         The Company  maintains a money  market  account  and a  certificate  of
         deposit with a local financial institution.  The balances as of October
         31, 2001 were $ 394,215 and $ 252,157 respectively.  These amounts were
         treated as cash equivalents for financial reporting purposes.

4.       ACCOUNTS RECEIVABLE

         The  Company  reduces  its  receivables  by  an  allowance  for  future
         uncollectible  accounts.  The  reconciliation  of these  balances is as
         follows:
<TABLE>
<CAPTION>

                                                                          Year Ended
                                                       ----------------------------------------------------
                                                       October 31,       October 31,      October 30,
         Allowance for Doubtful Accounts:              2001              2000             1999
                                                       ----------------- ---------------- -----------------
<S>                                                    <C>               <C>              <C>
         Beginning Balance                              $732,133          $348,167         $307,020
         Additions Charged to Expenses                   522,004           547,645          187,113
         Deductions                                     (740,508)         (163,679)        (145,966)
                                                       ----------------- ---------------- -----------------
         Ending Balance                                 $513,629          $732,133         $348,167
                                                       ================= ================ =================
</TABLE>


5.       PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
                                                                                 October 31,
                                                                        ----------------------------
                                                            Life             2001              2000
                                                                        -----------    -------------

<S>                                         <C>   <C>                <C>                <C>
         Land, buildings, and improvements...10 - 40 yrs.            $   5,722,756      $  5,631,785
         Machinery and equipment.... ........  3 -10 yrs.               24,358,545        21,964,103
         Equipment held under capital leases...3 -10 yrs.                        -            30,067
                                                                        ----------        ----------
                                                                        30,081,301        27,625,955
         Less accumulated depreciation............................       8,849,347         6,573,442
                                                                        ----------        ----------
                                                                      $ 21,231,954       $21,052,513
                                                                        ==========       ===========
</TABLE>

                                      F-11
<PAGE>

6.       INTANGIBLE ASSETS
                                                          October 31,
                                                     ---------------------
                                         Life        2001             2000
                                         --------  -----------     -------------
         Goodwill                        30 yrs.   $69,799,534      $69,654,383
         Covenants not to compete         5 yrs.       435,599          405,599
         Customer lists                   3 yrs.     1,146,661        1,146,661
            Other                         Various      105,754          105,755
                                                   -----------     -------------
                                                   $71,487,548      $71,312,398
         Less accumulated amortization               5,386,836        2,843,016
                                                   -----------     -------------
                                                   $66,100,712      $68,469,382
                                                   ===========     =============
7.       ACCRUED EXPENSES
                                                   October 31,
                                       ---------------------------------------
                                        2001                     2000
                                       -------------          -----------
         Advertising and promotion   $    85,275                $   153,627
         Payroll and vacation          1,343,533                    974,792
         Income taxes                    300,000                    345,899
         Capital expenses                      -                    307,428
         Interest                        810,413                    386,307
         Miscellaneous                   752,704                    570,877
                                       ------------             -----------
                                     $ 3,291,925                $ 2,738,930
                                       ============             ===========
8.       DEBT

         a) Senior Debt - The Company entered into a loan agreement with Webster
         Bank of Waterbury, Connecticut effective October 5, 2000. The financing
         provides for a $31,000,000 term loan. The loan is for a term of seven
         years and has scheduled monthly payments of principal and interest
         ranging from $417,000 in the first year to $610,000 in the last year.
         The balance as of October 31, 2001 was $28,500,000.

         The commitment also provides for a $5,000,000 working capital line of
         credit for operating capital, capital expenditures, and acquisitions.
         The Company had no balances against this facility as of October 31,
         2001. There is a separate limit within the line for letters of credit.

         The line of credit is for two years. Both loans are initially priced at
         the current 30 day LIBOR interest rate plus 175 basis points (4.1% at
         October 31, 2001) and are secured by a lien against all of the assets
         of Vermont Pure Holdings and its subsidiaries. The interest rate is
         subject to periodic adjustments based on evaluation of the Company's
         senior funded debt to EBITDA ratio. In addition, there are other
         customary covenants that the Company must achieve to comply with the
         agreement.

                                      F-12
<PAGE>

         b) Subordinated Debt - As part of the merger agreement with the
         shareholders of Crystal Rock, the Company gave notes in the amount of
         $22,600,000, effective October 5, 2000. The interest rate is 12% for
         the seven year term of the note. Scheduled repayments are made
         quarterly and are interest only for the first three years. Quarterly
         payment of principal and interest range from $678,000 the first year to
         $2,062,000 the last year. There is a principal payment of $6,600,000
         due at maturity.

         The notes are secured by all of the assets of Vermont Pure Holdings and
         its subsidiaries but specifically subordinated, with a separate
         agreement between the debt holders, to the senior debt described above.

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

                                                                        October 31,       October 30,
                                                                           2001              2000
                                                                     --------------    -----------------
<S>                                                                  <C>               <C>
         Mortgage  on  property   acquired  in  October  1993,
         interest at 4.5%, with interest only due through July
         1996, principal and interest due through 2000 secured
         (subordinated) by the prperty..............                 $    254,732      $      287,250

         Bonds, principal payable on November 1, 2000; secured
         by a money market account.....................                         -           3,195,000

         Promissory  note,  to be paid by conversion to equity
         by October, 2002. Note is secured by a certificate of
         deposit................................................                -             975,000

         Various secured/unsecured notes ranging in amounts of
         $14,000 to  $58,000  with  interest  rates of 8.5% to
         10%. These notes are unsecured.......................             56,782             201,745
                                                                     --------------    -----------------
                                                                          311,514           4,633,183
     Less current portion....................................              60,128           4,321,673
                                                                     --------------    -----------------
                                                                     $    251,386      $      311,510
                                                                     ==============    =================
     * repaid during the year ended October 31, 2001
</TABLE>


                                      F-13
<PAGE>
<TABLE>
<CAPTION>
d)       Annual maturities of long term debt are summarized as follows:

                                    Senior         Subordinated             Other       Total
         Current Portion           $3,500,000               -         $    60,128      $3,560,128
                                   ----------                         -----------    -----------
<S>                        <C>      <C>              <C>                     <C>        <C>
         Long Term Portion
         Year Ending Oct. 31,
                           2003     4,000,000               -                41,817     4,041,817
                           2004     4,000,000        2,000,000               44,105     6,044,105
                           2005     4,500,000        3,000,000               46,537     7,546,537
                           2006     5,500,000        4,000,000               49,122     9,549,122
                           2007     7,000,000        7,000,000               44,060    14,044,060
         Thereafter                         0        6,600,000               25,745     6,625,745
                                   ------------    -----------         ------------  ------------
         Long Term Portion        $25,000,000      $22,600,000          $   251,386   $47,851,386
                                   ------------    -----------         ------------  ------------
         Total Debt               $28,500,000      $22,600,000          $   311,514   $51,411,514
                                   -----------     -----------         -----------   -----------
</TABLE>

9.       INTEREST RATE HEDGES

         a)       On  November  3, 2000,  April 2, 2001 and July 24,  2001,  the
                  Company  entered into  separate  three year "swap"  agreements
                  with Webster Bank to fix a total of  $16,000,000 of its senior
                  debt with the bank. The agreements fix the variable LIBOR rate
                  portion of the debt at 6.57%,  5.28% and 5.00%,  respectively.
                  Under the Company's  loan agreement with the bank, the current
                  applicable  margin is 1.75% resulting in a total fixed rate of
                  8.32%,  7.03% and 6.75% for each respective  agreement for the
                  contract period.  The margin is subject to change based on the
                  Company's  performance  as outlined in the loan agreement with
                  Webster Bank.

         b)       The  Company  adopted  SFAS No. 133 and No. 137 on November 1,
                  2001. Such  instruments  are considered  hedges under SFAS No.
                  133 and 137. Since the instrument is intended to hedge against
                  variable cash flows,  it is considered a cash flow hedge. As a
                  result, the change in the fair value of the derivative will be
                  recognized  as  comprehensive  income  (loss) until the hedged
                  item is recognized in earnings.  Cumulatively,  the fair value
                  of the Company's three  outstanding  swaps decreased  $973,537
                  during the year.

10.      STOCK OPTION PLANS

         In November 1993, the Company's Board of Directors adopted the 1993
         Performance Equity Plan (the "1993 Plan"). The plan authorizes the
         granting of awards for up to 1,000,000 shares of common stock to key
         employees, officers, directors and consultants. Grants can take the
         form of stock options (both qualified and non-qualified), restricted
         stock awards, deferred stock awards, stock appreciation rights and
         other stock based awards. During fiscal 1999 and 2000, there were no
         options issued under this plan.

                                      F-14
<PAGE>

         On April 2, 1998 the Company's shareholders approved the 1998 Incentive
         and Non Statutory Stock Option Plan (the "1998 Plan"). The 1998 plan
         was amended by shareholder approval on October 5, 2000. This plan
         provides for issuance of up to 1,500,000 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. During fiscal 2001 and 2000, 183,103
         and 870,000 options were issued under this plan, respectively.

         The following table illustrates the Company's issuances of stock
         options and outstanding stock option balances during the last three
         fiscal years:
                                                             Weighted-
                                               Option        Average
                                              (Shares)      Exercise Price
                                           ---------------------------------
           Balance at October 31, 1998       2,415,018         $3.41
                  Granted                       48,200          3.13
                  Retired                     (540,000)         5.87
                  Exercised                    (36,000)         2.44
                                           ---------------------------------
           Balance at October 30, 1999       1,887,218         $2.71
                  Granted                      870,000          3.23
                  Exercised                     (5,000)         2.25
                  Expired                      (63,000)         3.27
           Balance at October 31, 2000       2,689,218         $2.79
                                           ---------------------------------
                  Granted                      183,103          3.12
                 Exercised                    (100,000)         2.27
                 Expired                      (104,000)         1.94
                                           --------------------------------
           Balance at October 31, 2001       2,668,321         $2.70
                                           ===========================

         The following table summarizes information pertaining to outstanding
stock options as of October 31, 2001:
<TABLE>
<CAPTION>

                                                       Weighted                            Weighted
      Exercise                           Remaining      Average                             Average
        Price        Outstanding        Contractual    Exercise        Exercisable          Exercise
        Range          Options                 Life        Price          Options            Price
------------------------------------------------------------------------------------------------------
<S>      <C>           <C>                  <C>            <C>           <C>                  <C>
   $2.19-$2.50         1,297,000            4.18           $2.47         1,228,000            $2.47
   $2.81-$3.38         1,256,321            7.49            3.19           430,452             3.11
   $3.50-$4.25           115,000            6.98            3.76            39,800             3.87
                  -----------------------------------------------------------------------------------
                       2,668,321            5.86           $2.70         1,698,252            $2.51
                  -----------------------------------------------------------------------------------
</TABLE>

         Outstanding options include options issued under the 1993 Plan, the
         1998 Plan and non-plan options. There were 1,698,252, 1,572,528, and
         1,485,000 options exercisable at October 31, 2001, October 31, 2000,
         and October 30, 1999, respectively.

                                      F-15
<PAGE>

         The weighted average fair value of the options granted in 2001, 2000,
         and 1999 using the Black-Scholes option pricing model were $2.29,
         $1.63, and $2.11 per share, respectively.

11.      EMPLOYEE STOCK PURCHASE PLAN

         On June 15, 1999 the Company's shareholders approved the "Vermont Pure
         Holdings, Ltd. 1999 Employee Stock Purchase Plan." On January 1, 2001,
         employees commenced participation in the plan. The total number of the
         Company's common shares issued during the year under the plan was
         62,415.

12.      ACCOUNTING FOR STOCK-BASED COMPENSATION

         During 2000, the Board of Directors voted to extend the exercise period
         for the options of the estate of a deceased employee and two directors
         that were leaving the Board. Consequently, compensation of $118,670 was
         recorded, representing the aggregate difference in market price on the
         date of the extension over the options exercise price.

         The Company has elected to follow Accounting Principles Board Opinion
         No.25, "Accounting for Stock Issues to Employees." 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; such pro-forma information is not
         necessarily representative of the effects on reported net income for
         future years due primarily to the options vesting periods and to the
         fair value of additional options in future years.

         Had compensation cost for the option plans been determined using the
         methodology prescribed under the Black-Scholes option pricing model,
         the Company's income (loss) would have been $462,783 and $.02 in 2001;
         ($2,806,851) and ($.26) per share in 2000; and $3,307,489 and $.32 per
         share in 1999. Assumptions used for each of the three years were:
         expected dividend yield of 0%; risk free interest of 5.7% and expected
         life of 5 years. Expected volatility assumptions used were: 91% in
         2001, 51% in 2000, and 79% in 1999.

13.      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 $ 94,000, $
         44,000, and $34,000 for the years ended October 31, 2001, October 31,
         2000, and October 30, 1999, respectively.

                                      F-16
<PAGE>

14.      OPERATING LEASES

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

                                            2002                1,509,000
                                            2003                1,458,000
                                            2004                1,250,000
                                            2005                1,141,000
                                            Thereafter          4,016,000

         Rent expense under all operating leases was $1,003,479, $533,974, and
         $413,217 for fiscal years ending October 31, 2001, October 31, 2000,
         and October 30, 1999, respectively.

15.     LEGAL PROCEEDINGS

        a)        Trademark  Infringement  During  2001,  the Company  brought a
                  civil  suit  against  another  company  alleging  that  it was
                  infringing on the Company's rights in a trademark. The parties
                  negotiated  a  settlement  in the  matter  in which  the other
                  company  agreed  to buy the  trademark  for  $250,000  and the
                  Company has agreed to dismiss the civil suit.  The  settlement
                  was finalized in January 2002.

        b)        DesCartes/Endgame Systems On July 27, 2000 the Company filed a
                  lawsuit   in   Vermont   Federal   Court   against   Descartes
                  Systems/Endgame   Solutions   for   non-performance   of   the
                  professional services agreement between the two companies.  In
                  the suit Vermont  Pure alleges that vendor did not  adequately
                  perform the services rendered in connection with approximately
                  $500,000  of  unpaid  billings.  Descartes  filed a motion  to
                  dismiss  the case based on the  premise  the  Vermont  Federal
                  Court is not the proper  jurisdiction and that the case should
                  be arbitrated in Ontario, Canada.

                  In an order dated April 11, 2001,  the District  Court granted
                  Descartes'  motion  to  dismiss  the case.  Subsequently,  the
                  parties  have agreed to  arbitrate  the matter in the state of
                  Florida at a time and place that has yet to be determined.


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 and other bonuses and
         benefits. The trustee of the Baker family trusts, which is a major

                                      F-17
<PAGE>

         shareholder of the Company, is also a director. Such trustee is also a
         principal in a law firm, to which the Company paid legal fees of
         $57,000 in 2001 and $10,000 in 2000.

         In addition, the Company paid consulting fees to a director of $22,000
         in each of 2000 and 1999. This director resigned in October, 2000

         The Company leases a 72,000 square foot facility in Watertown, CT and a
         22,000 square foot facility in Stamford, CT from a Baker trust. Annual
         rent payments for the ten year leases are as follows:

                                        First             Next
                                       5 Years           5 Years
                                       --------          --------
              Stamford                $216,000          $248,400
              Watertown               $360,000          $414,000

         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. The Company paid service
         fees to CDS during October 2000 totaling $2,031. During 2001, the
         Company paid $207,861 for service, $24,660 for software, and $61,790
         for hardware. As of October 31, 2001, the Company holds a note from CDS
         entered into August 1, 1998 for the principal amount of $120,000 with
         accrued interest of $33,150. The note is scheduled to mature August 15,
         2003. During 2001, the Company's share of CDS losses decreased its
         equity investment in CDS from $70,000 to $14,000, under the equity
         method of accounting..



                                      F-18
<PAGE>
17.       INCOME TAXES

         The Company has approximated $11 million of available loss
         carryforwards at October 31, 2001 expiring from 2005 through 2018.

         The major deferred tax asset (liability) items at October 31, 2001 and
         October 31, 2000 are as follows:

                                                            October 31,
                                                   -----------------------------
                                                       2001            2000
                                                   ------------    -------------
         Accounts receivable allowance..........$     206,000   $    209,000

         Amortization...........................    1,123,000        353,000
         Depreciation...........................   (1,440,000)    (1,228,000)
         Other..................................      105,000        186,000
         Net operating loss carryforwards.......    4,620,000      6,007,000
                                                    ---------       ---------
                                                   $4,614,000     $5,527,000
         Valuation allowance....................            -        973,000
                                                    ---------      ----------
         Deferred tax asset recorded...........    $4,614,000     $4,554,000
                                                    =========      =========


         The income tax expense (benefit) differs from the amount computed by
         applying the statutory tax rate to net income (loss) before income tax
         as follows:
<TABLE>
<CAPTION>

                                                                     Year Ended
                                                        --------------------------------------
                                                        October 31,  October 30,   October 31,
                                                         2001           2000            1999
                                                       ---------   ------------    -----------
<S>                                               <C>              <C>            <C>
     Income tax benefit (expense) computed
     at the statutory rate........................$   (628,000)    $ 1,072,000    $   (546,000)
     Effect of permanent differences...............    (35,000)        (22,000)         (7,000)
     Effect of temporary differences...............   (250,000)          5,000         115,000
     Tax benefit of net operating losses..........           -               -         438,000
     Losses for which no benefit recorded.....               -      (1,055,000)              -
     Federal alternative minimum tax................   (65,000)              -               -
     State income taxes.............................  (535,000)              -               -
     Other..........................................  (140,000)              -               -
     Decrease in valuation allowance.................  973,000         769,000       1,793,000
                                                     ----------    ------------   -------------
     Income tax benefit (expense)...............  $   (680,000)    $   769,000    $  1,793,000
                                                     ==========    ============   =============
</TABLE>



                                      F-19
<PAGE>





     The following is a composition of income tax expense:
<TABLE>
<CAPTION>

                                                                           Year Ending:
                                                          --------------------------------------------------
                                                          October 31,       October 31,     October 30,
                                                          ----------------- --------------- ----------------
                                                               2001              2000            1999
                                                          ----------------- --------------- ----------------
<S>                                                            <C>           <C>             <C>
     Current:
        Federal                                                 66,000              -                 -
        State                                                  674,000              -                 -
                                                          ----------------- --------------- ----------------
     Total current payable                                     740,000              -                 -
                                                          ----------------- --------------- ----------------

     Deferred:
        Federal                                                (60,000)      (769,000)       (1,793,000)
        State                                                        -              -                 -
                                                          ----------------- --------------- ----------------
     Total deferred tax expense (benefit)                      (60,000)       (769,000)       (1,793,000)
                                                          ----------------- --------------- ----------------

                                                          ----------------- --------------- ----------------
     Total Income tax expense  (benefit)                       680,000        (769,000)       (1,793,000)
                                                          ================= =============== ================
</TABLE>

18.       MAJOR CUSTOMER AND CUSTOMER COMMITMENTS

         The Company's sales to a single customer, located in the greater
         metropolitan New York City area, were 16% of the total sales for the
         year ended October 31, 1999.

19.      EARNINGS PER SHARE

         As required by SFAS 128, the Company considers outstanding in-the-money
         stock options as potential common stock in its calculation of diluted
         earnings per share and uses the treasury stock method to calculate the
         applicable number of shares. The following calculation provides the
         reconciliation of the denominators used in the calculation of basic and
         fully diluted earnings per share:
<TABLE>
<CAPTION>

                                                                                Year Ended
                                                       ----------------- ----------------- -----------------
                                                       October 31,       October 31,       October 30,
                                                       2001              2000              1999
                                                       ----------------- ----------------- -----------------
<S>                                                    <C>               <C>               <C>
     Net Income (Loss)                                 $1,168,844        $(2,382,678)      $3,398,641
                                                       ================= ================= =================
     Denominator:
     Basic Weighted Average Shares Outstanding
                                                       20,447,609        10,992,995        10,279,377
     Effect of Stock Options                           203,630           -                 511,345
                                                       ----------------- ----------------- -----------------
     Diluted Weighted Average Shares Outstanding
                                                       20,651,239        10,992,995        10,790,722
                                                       ================= ================= =================
     Basic Earnings Per Share                          $.06              $(.22)            $.33
     Diluted Earnings Per Share                        $.06              $(.22)            $.31
</TABLE>
         For the year ended October 31, 2000 potentially dilutive securities
         have not been included in the calculation of the denominator for the

                                      F-20
<PAGE>

         purposes of computing diluted earnings per share since the Company had
         a net loss that year and the inclusion of additional potential shares
         of common stock would have been anti-dilutive. The additional shares
         issued if outstanding options were exercised net of repurchased shares
         at the yearly average price amount to 402,401.

20.       UNAUDITED QUARTERLY FINANCIAL DATA

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

         Fiscal 2001                                          For the quarter ending:
                                                              -----------------------
     (000's of $ except  earnings  per  January 31,       April 30,         July 31,         October 31,
     share)                             2001              2001              2001             2001
                                        ---------------- ----------------- ---------------- ----------------
<S>                                     <C>              <C>               <C>              <C>
     Net Sales                          $14,219          $15,546           $18,974          $18,432
     Gross Profit                       $7,991           $8,619            $10,486          $10,273
     Net Income                         $24              $74               $1,009           $62
     Earnings per Share:
     Basic                              $.00             $.00              $.05             $.00
     Diluted                            $.00             $.00              $.05             $.00


         Fiscal 2000                                          For the quarter ending:
                                                              -----------------------
     (000's of $ except  earnings  per  January 29,      April 30,         July 31,         October 31,
     share)                             2000             2000              2000             2000
                                        ---------------- ----------------- ---------------- ----------------
     Net Sales                          $6,424           $8,225            $10,158          $10,318
     Gross Profit                       4,112            4,969             5,483            5,854
     Net (Loss)                         (91)             (88)              (59)             (2,144)
     (Loss) per Share:
     Basic                              $.00             $(.01)            $(.01)           $(.20)
     Diluted                            $.00             $(.01)            $(.01)           $(.20)
</TABLE>

21.      CONCENTRATION OF CREDIT RISK

         The Company maintains their cash accounts at various financial
         institutions. The balances at times may exceed federally insured
         limits. At October 31, 2001, the Company had cash in deposits exceeding
         the insured limit by approximately $700,000.

22.      SUBSEQUENT EVENTS
         ------------------

         Acquisition Financing
         ----------------------
         On November 1, 2001, the Company acquired substantially all of the
         assets of Iceberg Springs Water, Inc. for total consideration valued at
         $5,700,000, of which $600,000 was paid in cash, 4,395,373 in debt and
         assumed liabilities and $704,627 by the issuance of 213,912 shares of
         the Company's common stock. The acquired assets were merged into the
         Company's home and office operations in Connecticut.

                                      F-21
<PAGE>

         Tax Audit

         On October 31, 2001 the Company was in the process of being audited by
         the State of New York (the "State") concerning compliance with the
         State's sales and use tax regulations for the period March 1, 1997 to
         August 31, 2000. The Company conducts a significant amount of its
         business in the State. The State has informed the Company that it may
         have underpaid these taxes by $282,000. The Company does not believe
         that this estimate is accurate and is working with the State to
         ascertain the amount, if any, that is due.

         To date, no additional tax has been assessed. If or when it is probable
         that an estimated assesment is due, the Company will reconize the
         liability.                                  .







                                      F-22

<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 the Company's  Annual Meeting of Stockholders  scheduled
to be held April 9, 2002.

ITEM 11. EXECUTIVE COMPENSATION.

         The information required by this Item is incorporated by reference from
the Proxy Statement for the Company's  Annual Meeting of Stockholders  scheduled
to be held April 9, 2002.

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

         The information required by this Item is incorporated by reference from
the Proxy Statement for the Company's  Annual Meeting of Stockholders  scheduled
to be held April 9, 2002.

                                       26
<PAGE>

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

         The information required by this Item is incorporated by reference from
the Proxy Statement for the Company's  Annual Meeting of Stockholders  scheduled
to be held April 9, 2001.


ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.

a)       The Company  did  not  file  any reports on Form 8-K during the quarter
         ended October 31, 2001.

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

         Financial Statements and Financial Statement Schedules.

                  Reference  is  made  to  the  Index  to  Financial  Statements
                  included in Item 7 of Part II hereof, where such documents are
                  listed.

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

       Exhibit
       Number             Description
      -------     --------------------------------------------------------------
       2.1        Agreement  and Plan of Merger  and  Contribution  by and among
                  Vermont  Pure  Holdings,   Ltd.,  Crystal  Rock  Spring  Water
                  Company,  VP Merger Parent,  Inc. VP Acquisition Corp. and the
                  stockholders   named  therein,   dated  as  of  May  5,  2000.
                  (Incorporated  by  reference  to  Appendix  A to the  Form 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").)

       2.2        Amendment to Agreement and Plan of Merger and  Contribution by
                  and among  Vermont Pure  Holdings,  Ltd.,  Crystal Rock Spring
                  Water Company,  VP Merger Parent,  Inc., VP Acquisition Corp.,
                  and the  stockholders  named  therein,  dated as of August 28,
                  2000.  (Incorporated  by  reference  to Exhibit 2.1 of the S-4
                  Registration Statement.)

       2.3        Amendment to Agreement and Plan of Merger and  Contribution by
                  and among  Vermont Pure  Holdings,  Ltd.,  Crystal Rock Spring
                  Water Company,  VP Merger Parent,  Inc., VP Acquisition  Corp.
                  and the stockholders named therein,  dated as of September 20,
                  2000.  (Incorporated by reference to Exhibit 2.2 of the Merger
                  8-K.)

                                       27
<PAGE>
       Exhibit
       Number             Description
      -------     --------------------------------------------------------------
       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.)

       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 Merger 8-K.)

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

       4.1        Form of Lockup  Agreement  among the Company,  Peter K. Baker,
                  Henry E. Baker, and John B. Baker.  (Incorporated by reference
                  to Exhibit N to Appendix A to the Proxy Statement  included in
                  the S-4 Registration Statement.)

       4.2        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 C to the Proxy
                  Statement included in the S-4 registration statement.)


       10.3*      1999 Employee Stock Purchase Plan.  (Incorporated by reference
                  to  Exhibit A of the 1999  Proxy  Statement  of  Vermont  Pure
                  Holdings, Ltd. f/k/a Platinum Acquisition Corp.)

       10.4       Amended  and  Restated   Spring  Water   Licenses  and  Supply
                  Agreement  between  Vermont Pure  Holdings,  Ltd. and Pristine
                  Mountain Springs of Vermont, Inc and Amsource, LLC dated April
                  13, 1999.  (Incorporated  by reference  from Exhibit  10.25 of
                  Form 10-K for the Year Ended October 30, 1999.)

       10.5       Convertible  Debenture  Agreement  dated  September  30,  1999
                  between  Vermont Pure Holdings,  Ltd. and  Middlebury  Venture
                  Partners,  Inc.  (f/k/a  Marcon  Capital  Corporation)  in the
                  amount of $975,000.  (Incorporated  by reference  from Exhibit
                  10.27 of Form  10-K  for the Year  Ended  October  30,  1999.)


                                       28
<PAGE>
       Exhibit
       Number             Description
      -------     --------------------------------------------------------------
       10.6*      Employment  Agreement  between  the  Company  and  Timothy  G.
                  Fallon. (Incorporated by reference to Exhibit 10.13 of the S-4
                  Registration Statement.)

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

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

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

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

       10.11      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.)

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

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

       10.14      Amended and Restated Loan and Security  Agreement  between the
                  Company and Webster Bank dated November 1, 2001.

       10.15      Term Note from the  Company to Webster  Bank dated  October 5,
                  2000

       10.16      Subordinated  Note from the  Company to Henry E.  Baker  dated
                  October 5, 2000.  (Incorporated  10.16 by reference to Exhibit
                  10.16 of Form 10-K for the year ending October 31, 2000.)


                                       29
<PAGE>
       Exhibit
       Number             Description
      -------     --------------------------------------------------------------
       10.17      Subordinated Note from the Company to Joan Baker dated October
                  5, 2000.  (Incorporated  by reference to Exhibit 10.17 of Form
                  10-K for the year ending October 31, 2000.)

       10.18      Subordinated  Note from the  Company  to John B.  Baker  dated
                  October 5, 2000.  (Incorporated  10.18 by reference to Exhibit
                  10.18 of Form 10-K for the year ending October 31, 2000.)

       10.19      Subordinated  Note from the  Company to Peter K.  Baker  dated
                  October 5, 2000.  (Incorporated  by reference to Exhibit 10.19
                  of Form 10-K for the year ending October 31, 2000.)

       10.20      Subordinated  Note  from  the  Company  to Ross  S.  Rapaport,
                  Trustee, dated October 5, 2000.  (Incorporated by reference to
                  Exhibit  10.20 of Form 10-K for the year  ending  October  31,
                  2000.)

       10.21      Reaffirmation of Subordination and Pledge Agreement from Henry
                  E. Baker to Webster Bank dated November 1, 2001.

       10.22      Reaffirmation of Subordination  and Pledge Agreement from Joan
                  Baker to Webster Bank dated November 1, 2001.

       10.23      Reaffirmation of Subordination  and Pledge Agreement from John
                  B. Baker to Webster Bank dated November 1, 2001.

       10.24      Reaffirmation of Subordination and Pledge Agreement from Peter
                  K. Baker to Webster Bank dated November 1, 2001.

       10.25      Reaffirmation of Subordination  and Pledge Agreement from Ross
                  S. Rapaport, Trustee, to Webster Bank dated November 1, 2001.

       10.26      Agreement    between   Vermont   Pure   Springs,    Inc.   and
                  Zuckerman-Honickman Inc. dated October 15, 1998. (Incorporated
                  by reference to the S-4 Registration Statement.

       10.27      Term Note from the Company to Webster  Bank dated  November 1,
                  2001.

       10.28      Amended and Restated Revolving Line of Credit Note between the
                  Company and Webster Bank.

       21         Subsidiaries of the Registrant

       23.1       Consent of Independent Auditors

         *  Relates to compensation


                                       30
<PAGE>





                                   SIGNATURES

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

                           VERMONT PURE HOLDINGS, LTD.

                           By: /s/ Timothy G. Fallon
                           -----------------------------------------------------
Dated: January 29, 2002    Timothy G.Fallon, Chief Executive Officer, President,
                           and Chairman of the Board of Directors

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

Name                   Title                                    Date
----                   -----                                    ----

/s/ Timothy G. Fallon  Chief Executive Officer and Chairman of the
---------------------  Board of Directors                       January 29, 2002
Timothy G. Fallon

/s/ Henry E. Baker     Director, Chairman Emeritis              January 29, 2002
---------------------
Henry E. Baker

/s/ Peter K. Baker     President and Director                   January 29, 2002
-------------
Peter K. Baker

/s/Phillip Davidowitz  Director                                 January 29, 2002
---------------------
Phillip Davidowitz

/s/ Robert C. Getchell Director                                 January 29, 2002
----------------------
Robert C. Getchell

/s/ Carol R. Lintz     Director                                 January 29, 2002
------------------
Carol R. Lintz

/s/ David R. Preston   Director                                 January 29, 2002
---------------------
David R. Preston


/s/ Ross S. Rapaport   Director                                 January 29, 2002
--------------------
Ross S. Rapaport

/s/ Norman E. Rickard  Director                                 January 29, 2002
---------------------
Norman E. Rickard

                                                                January 29,2002
/s/ Beat Schlagenhauf  Director
---------------------
Beat Schlagenhauf


/s/ Bruce S. MacDonald Chief Financial Officer and Secretary     January 29,2002
----------------------
Bruce S. MacDonald


                                       31
<PAGE>


                     EXHIBITS TO VERMONT PURE HOLDINGS, LTD.
                           ANNUAL REPORT ON FORM 10-K
                   FOR THE FISCAL YEAR ENDED OCTOBER 31, 2001
                             Exhibits Filed Herewith


          Exhibit
          Number           Description
          -------          ------------------
          10.14            Amended  and  Restated  Loan and  Security  Agreement
                           between the Company and Webster  Bank dated  November
                           1, 2001

          10.21            Reaffirmation  and Subordination and Pledge Agreement
                           from Henry E. Baker to Webster Bank dated November 1,
                           2001.

          10.22            Reaffirmation of  Subordination  and Pledge Agreement
                           from Joan Baker to Webster  Bank  dated  November  1,
                           2001.

          10.23            Reaffirmation of  Subordination  and Pledge Agreement
                           from John B. Baker to Webster Bank dated  November 1,
                           2001.

          10.24            Reaffirmation of  Subordination  and Pledge Agreement
                           from Peter K. Baker to Webster Bank dated November 1,
                           2001.

          10.25            Reaffirmation of  Subordination  and Pledge Agreement
                           from Ross S. Rapaport,  Trustee to Webster Bank dated
                           November 1, 2001.

          10.27            Term Note from the  Company  to  Webster  Bank  dated
                           November 1, 2001.

          10.28            Amended and  Restated  Revolving  Line of Credit Note
                           between the Company and Webster Bank.

          21               Subsidiaries of the Registrant

          23.1             Consent of Independent Auditors


                                       32