SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549
                                   FORM 10-QSB


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

                       For the Quarter Ended July 25, 1998
                           Commission File No. 1-11254

                           VERMONT PURE HOLDINGS, LTD.

             (Exact name of registrant as specified in its charter)

          Delaware                                             06-1325376
(State or other jurisdiction of                            (I.R.S. Employer
incorporation or organization)                            Identification No.)

   Route 66; PO Box C; Randolph, VT                            05060
(Address of principal executive offices)                    (Zip Code)

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

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

                  Yes        X                                         No

Indicate the number of shares  outstanding  of each of the  issuer's  classes of
common stock, as of the latest practicable date.

                                                        Outstanding at
                  Class                               September 4, 1998

Common Stock, $.001 Par Value                            10,287,187



<PAGE>


                  VERMONT PURE HOLDINGS, LTD. AND SUBSIDIARIES

                                      INDEX

                                                                    Page Number
Part I - Financial Information

         Item 1.   Financial Statements

                   Consolidated Balance Sheet as of
                   July 25, 1998 (unaudited) and
                   October 25, 1997                                           3

                   Consolidated Statement of Operations (unaudited)
                   for the Nine Months and Three Months ended
                   July 25, 1998 and July 26, 1997                            4

                   Consolidated Statement of Cash Flows
                   (unaudited) for the Nine Months ended
                   July 25, 1998 and July 26, 1997                            5

                   Notes to Consolidated Financial Statements
                   (unaudited)                                           6 - 11

         Item 2.   Management's Discussion and Analysis of
                   Financial Condition and Results of
                   Operation                                            12 - 15

Part II - Other Information                                                  16

         Item 1.   Legal Proceedings

         Item 2.   Changes in Securities

         Item 3.   Defaults upon Senior Securities

         Item 4.   Submission of Matters to a Vote of Security Holders

         Item 5.   Other Information

         Item 6.   Exhibits and Reports on Form 8-K
                   
                   Signature                                                 17

                                       2

<PAGE>
PART I - Item 1
<TABLE>
<CAPTION>

                   VERMONT PURE HOLDINGS, LTD. AND SUBSIDIARY

                           CONSOLIDATED BALANCE SHEETS

                                                                       July 25       October 25,
                                                                         1998           1997
                                                                    -------------   ------------
                                                                      (Unaudited)

                                     ASSETS
<S>                                                               <C>              <C>    
CURRENT ASSETS:
  Cash                                                              $    382,028    $     93,808
  Accounts receivable                                                  3,812,908       1,974,765
  Inventory                                                            1,758,933         978,473
  Current portion of deferred tax asset                                  326,000         326,000
  Other current assets                                                   138,436         288,627
                                                                    -------------   -------------

  TOTAL CURRENT ASSETS                                                 6,418,305       3,661,673
                                                                    -------------   -------------

PROPERTY AND EQUIPMENT - net of accumulated depreciation               8,675,771       7,332,912
                                                                    -------------   -------------

OTHER ASSETS:
  Intangible assets - net of accumulated amortization                  9,411,390       5,216,300
  Deferred tax asset                                                     218,000         218,000
  Other assets                                                            63,708         117,881
                                                                    -------------   -------------

  TOTAL OTHER ASSETS                                                   9,693,098       5,552,181
                                                                    -------------   -------------

TOTAL ASSETS                                                        $ 24,787,174    $ 16,546,766
                                                                    =============   =============

                      LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
  Accounts payable                                                  $  3,175,326    $  1,099,094
  Current portion of customer deposits                                    68,191          49,534
  Accrued expenses                                                     1,135,513         986,961
  Line of credit                                                                         238,021
  Current portion of long term debt                                      508,891         885,748
  Current portion of obligations under capital lease                     125,332         144,944
                                                                    -------------   -------------

  TOTAL CURRENT LIABILITIES                                            5,013,253       3,404,302

  Long term debt                                                       1,543,892       5,435,292
  Long term obligations under capital lease                              240,380         304,597
  Line of credit                                                       8,884,266               -
  Long term portion of customer deposits                               1,068,324         760,559
                                                                    -------------   -------------

  TOTAL LIABILITIES                                                   16,750,115       9,904,750
                                                                    -------------   -------------

STOCKHOLDERS' EQUITY:
  Common stock - $.001 par value, 20,000,000 authorized shares,     
    10,131,980 issued and outstanding shares at October 25, 1997
    and 10,287,187 issued and outstanding shares at July 25, 1998         10,288          10,132

  Paid in capital                                                     23,070,349      22,447,092
  Accumulated deficit                                               (15,043,578)     (15,815,208)
                                                                    -------------   -------------

  TOTAL STOCKHOLDERS' EQUITY                                           8,037,059       6,642,016
                                                                    -------------   -------------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                          $ 24,787,174    $ 16,546,766
                                                                    =============   =============
</TABLE>
                       See notes to financial statements
                                       3
<PAGE>
                           VERMONT PURE HOLDINGS, LTD. AND SUBSIDIARY

                             CONSOLIDATED STATEMENTS OF OPERATIONS


<TABLE>
<CAPTION>
<S>                                                   <C>                  <C>               <C>               <C>  
                                                                        Nine months ended              Three months ended
                                                         -----------------------------------   -----------------------------------
                                                              July 25            July 26           July 25            July 26
                                                               1998               1997              1998                1997
                                                         ----------------   ----------------  ----------------   -----------------
                                                         ----------------   ----------------  ----------------   -----------------
                                                            (Unaudited)        (Unaudited)        (Unaudited)        (Unaudited)

SALES                                                     $    19,717,417   $    12,255,738   $     9,155,404    $      5,724,061

COST OF GOODS SOLD                                              7,907,932         5,361,124         3,447,622           2,271,827
                                                         ----------------   ----------------  ----------------   -----------------

GROSS PROFIT                                                   11,809,485         6,894,614         5,707,782           3,452,234
                                                         ----------------   ----------------  ----------------   -----------------

OPERATING EXPENSES:
  Selling, general and administrative expense                   7,155,741         4,176,986         2,784,268           1,629,189
  Advertising expenses                                          2,887,685         2,410,552         1,407,505           1,145,522
  Amortization                                                    436,948           136,659           174,267              54,256
                                                         ----------------   ----------------  ----------------   -----------------

TOTAL OPERATING EXPENSES                                       10,480,374         6,724,197         4,366,040           2,828,967
                                                         ----------------   ----------------  ----------------   -----------------

PROFIT (LOSS) FROM OPERATIONS                                   1,329,111           170,417         1,341,742             623,267
                                                         ----------------   ----------------  ----------------   -----------------

OTHER INCOME (EXPENSE):
  Interest - net                                                 (574,526)         (230,939)         (228,746)            (79,068)
  Miscellaneous                                                    17,045            17,954            15,521              15,818
                                                         ----------------   ----------------  ----------------   -----------------

TOTAL OTHER INCOME (EXPENSE)                                     (557,481)         (212,985)         (213,225)            (63,250)
                                                         ----------------   ----------------  ----------------   -----------------

NET  INCOME  (LOSS)                                      $        771,630   $       (42,568)  $     1,128,517    $        560,017
                                                         ================   ================  ================   =================

NET INCOME  (LOSS) PER SHARE - BASIC                     $           0.08   $         (0.00)  $          0.11    $           0.06
                                                         ================   ================  ================   =================
NET INCOME  (LOSS) PER SHARE - DILUTED                   $           0.07   $         (0.00)  $          0.10    $           0.06
                                                         ================   ================  ================   =================
Weighted Average Shares Used in Computation - Basic            10,240,294         9,697,316        10,284,633           9,716,363
                                                         ================   ================  ================   =================
Weighted Average Shares Used in Computation -Diluted           11,021,476         9,697,316        11,044,279           9,761,451
                                                         ================   ================  ================   =================
</TABLE>
                       See notes to financial statements
                                       4
<PAGE>
                   VERMONT PURE HOLDINGS, LTD. AND SUBSIDIARY

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                                  Nine months ended
                                                                 ----------------------------------------------------
                                                                         July 25,                     July 26
                                                                           1998                        1997
                                                                 ------------------------    ------------------------
                                                                 ------------------------    ------------------------
                                                                        (Unaudited)                (Unaudited)
<S>                                                              <C>                       <C>   
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net profit/(loss)                                                     $       771,630     $               (42,568)
                  
    Depreciation                                                                747,292                     552,046
    Amortization                                                                436,948                     136,659
    (Gain) loss on disposal of property and equipment                             7,100                     (14,440)

  Changes in assets and liabilities (net of effect of acquisitions):
    (Increase) Decrease in accounts receivable                               (1,729,996)                 (1,237,659)
    (Increase) Decrease in inventory                                           (718,518)                    270,534
    (Increase) Decrease in other current assets                                 190,191                      18,583
    (Increase) Decrease in other  assets                                        262,414                     191,020
    (Decrease) Increase in accounts payable                                   1,943,987                     345,462
    (Decrease) Increase in customer deposits                                    245,329                      68,319
    (Decrease) Increase in accrued expenses                                     148,552                     765,445
                                                                 ------------------------    ------------------------
CASH PROVIDED BY OPERATING ACTIVITIES                                         2,304,928                   1,053,401
                                                                 ------------------------    ------------------------

CASH FLOWS FROM INVESTING ACTIVITIES:
    Purchase of property, plant and equipment                                (1,853,044)                   (638,030)
    Proceeds from sale of fixed assets                                           60,500                      40,500
    Cash used for acquistions                                                (3,927,899)                   (769,903)
                                                                 ------------------------    ------------------------
CASH USED IN INVESTING ACTIVITIES                                            (5,720,443)                 (1,367,433)
                                                                 ------------------------    ------------------------

CASH FLOWS FROM FINANCING ACTIVITIES:
    Proceeds from line of credit                                                879,855                    (441,811)
    Proceeds from debt                                                       10,419,756                     808,468
    Principal payments of debt                                               (7,606,826)                   (587,852)
    Sale of common stock                                                         10,950                           0
                                                                 ------------------------    ------------------------
CASH PROVIDED BY FINANCING ACTIVITIES                                         3,703,735                    (221,195)
                                                                 ------------------------    ------------------------
NET INCREASE (DECREASE) IN CASH                                                 288,220                    (535,227)

CASH - Beginning of period                                                       93,808                     783,081
                                                                 ------------------------    ------------------------

CASH  - End of period                                                   $       382,028     $               247,854
                                                                 ========================    ========================



Cash paid for interest                                                  $       574,526     $               266,201
                                                                 ========================    ========================
</TABLE>


                       See notes to financial statements
                                       5
<PAGE>


                  VERMONT PURE HOLDINGS, LTD. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                   (Unaudited)


         1.       BASIS OF PRESENTATION

         The accompanying  unaudited consolidated financial statements have been
         prepared in accordance with Form 10-QSB instructions and in the opinion
         of  management  contain  all  adjustments  (consisting  of only  normal
         recurring accruals) necessary to present fairly the financial position,
         results of operations,  and cash flows for the periods  presented.  The
         results  have  been  determined  on the  basis  of  generally  accepted
         accounting  principles and practices applied consistently with the Form
         10-KSB for the year ended October 25, 1997.

         Certain  information  and  footnote  disclosures  normally  included in
         financial  statements  presented in accordance with generally  accepted
         accounting  principles have been condensed or omitted. The accompanying
         consolidated  financial  statements  should be read in conjunction with
         the financial  statements and notes thereto  incorporated  by reference
         from the  Company's  Form  10-KSB and Annual  Report for the year ended
         October 25, 1997.


2.       SIGNIFICANT ACCOUNTING POLICIES

         In February  1997,  the  Financial  Accounting  Standards  Board issued
         Statement on Financial  Accounting  Standards  No. 128,  "Earnings  Per
         Share" (FAS No. 128) which became effective for both interim and annual
         financial  statements  for periods  ending after December 15, 1997. FAS
         No. 128  requires a  presentation  of  "Basic"  and (where  applicable)
         "Diluted"  earnings per share.  Generally  Basic earnings per share are
         computed on only the weighted  average number of common shares actually
         outstanding  during the period and the  Diluted  computation  considers
         potential   shares  issuable  upon  exercise  or  conversion  of  other
         outstanding instruments where dilution would result.  Furthermore,  FAS
         No. 128 requires the restatement of prior period  reported  earnings to
         conform to the new standard.


3.       ACQUISITIONS

         A. Akva - On December 9, 1997 the  Company  entered  into a packing and
         distribution  rights agreement and a distribution rights agreement with
         Akva,  Hf. The  purpose of the  agreements  is to allow the  Company to
         distribute  Akva, an Icelandic spring water, on an exclusive basis. The
         rights were acquired for 25,000  shares of the  Company's  common stock
         and 50% of the profits  resulting  from the sale of Akva  products from
         January 1, 1999 through December 31, 2004 to a maximum of $500,000. The
         Company pays a packing fee to Akva for bottling the product and charges
         a  marketing/administration  fee as  outlined  in the  agreements.  The
         agreements are cancelable by the Company with 90 days written notice.
                                       6
<PAGE>

         B. Vermont Coffee Time - On January 5, 1998, the Company  completed the
         purchase of  substantially  all of the assets of Vermont  Coffee  Time,
         Inc., a company operating  distribution  routes for water and coffee to
         homes  and  offices  and  commercial  vending  services,  primarily  in
         Northern  Vermont.  The  purchase  price of the assets was  $1,431,564.
         Chittenden Bank financed $1,000,000 of the purchase from an acquisition
         credit  facility  provided by a loan agreement dated June 20, 1997. The
         balance of the purchase  price was settled by the issuance of a note to
         the seller of $250,000  and by the  issuance  of $181,564  worth of the
         Company's common stock. The note was subsequently  paid off on April 8,
         1998 with borrowings  under a line of credit with CoreStates Bank, N.A.
         which is described in item 4b below.

         C. Sagamon Springs Water of Vermont, Inc.  - On January 30, 1998 the 
         Company purchased certain assets of Sagamon Springs Water Company of 
         Rutland, Vermont. The assets included a five gallon water bottle filler
         and ancillary equipment, exclusive water rights to a spring  located in
         Tinmouth,  Vermont,  and exclusive use of the Sagamon trade name.  The 
         spring site and bottling equipment from this acquisition are 
         geographically located close to the Company's New York operations to 
         help them meet their increased demands for product. The purchase price 
         of the assets was $275,000.  Of this amount $170,000 was paid with cash
         and the  remaining  balance  financed  with notes from the sellers.

         D. Vermont Naturals - On May 15, 1998 the Company purchased the assets 
         of Vermont  Naturals based in Clifton  Park, New York. In addition to 
         customers, the Company acquired  trucks, bottles, coolers and product 
         inventory. The approximate purchase price was $200,000.

         E. Perrier Group of America - On May 29, 1998 the Company  acquired the
         Poland  Spring and Deer Park home and office  customers  in the Albany,
         New York  market  from the  Perrier  Group of  America.  In addition to
         customers,  the Company  acquired  trucks,  bottles,  coolers,  product
         inventory and office furniture. The approximate purchase price was $2.5
         million.  The Company  borrowed $2.6 million from CoreStates  under its
         line of credit for the transaction.


4.       LONG TERM DEBT

         A.  Vermont  Coffee  Time,  Inc.- The Company  issued a note to Vermont
         Coffee Time,  Inc. on January 5, 1998 in conjunction  with the purchase
         of  certain  assets  from  that  Company.  The term of the note is five
         years. It is payable in equal monthly  installments based on a ten year
         amortization  at 8.5% interest.  There is a lump sum of $154,179 due on
         January 5, 2003.  The loan is secured by all  tangible  and  intangible
         assets  purchased  pursuant to the Asset Purchase  agreement  governing
         this  transaction.  As noted in item 3B above  this  note has been paid
         off.
                                       7
<PAGE>

         B.  CoreStates  Banks N.A. - The Company  entered  into a five (5) year
         revolving credit line with CoreStates Banks N.A. on April 18, 1998. The
         purpose  of  the  loan  is  for  permitted   acquisitions  and  capital
         expenditures,  working capital and to refinance existing term debt. The
         Company is  entitled  to borrow up to $15  million  under the terms and
         conditions of the  agreement.  Of this amount $2 million is allowed for
         working capital with the balance available for acquisitions. As of July
         25,1998  $7,766,390  had  been  borrowed  against  this  facility.  The
         facility was used to repay working  capital and  acquisition  debt from
         Chittenden  Bank, the acquisition  debt incurred in connection with the
         purchase  of Happy Ice and  Vermont  Coffee  Time,  Inc. as well as the
         mortgage  note to  Randolph  National  Bank  which was  secured  by the
         Company's principal  facility.  The acquisition line of credit was also
         used for the Vermont Naturals and the Perrier  acquisitions.  Under the
         agreement the Company is required to pay interest  monthly at a rate of
         LIBOR plus 2.5%,  currently  approximately 7.75%. The interest rate can
         decrease  during  the term  based  on  certain  performance  parameters
         outlined in the agreement.  Due to the Company  exceeding the financial
         covenants  established  by  CoreStates  the interest was lowered at the
         beginning  of the  third  quarter  in  1998.  The  line  of  credit  is
         contingent  upon the Company  continuing to meet certain loan covenants
         which require the Company to comply with certain  financial  ratios, as
         well as other affirmative and negative  covenants that are standard for
         credit facilities of this type.


5.       LINE OF CREDIT

         As of  July 25,1998 the Company had borrowed $1,117,876 from the 
         working capital portion of its line of credit with CoreStates Banks. 
         The Company was eligible to borrow $2,000,000 as of that date.


6.       INTANGIBLE ASSETS

         The value of the distribution rights obtained from Akva, Hf. in 
         exchange for the Company's stock will be amortized over six years.  
         The price of the Company's stock was $4.3125 per share at the time of
         the closing.  Based on the issuance of 25,000 shares, distribution 
         rights at the time of the sale were valued at $107,812.

         Goodwill that resulted  from the  acquisition  of the assets of Vermont
         Coffee  Time,  Inc.,  Sagamon  Spring Water of Vermont,  Inc.,  Vermont
         Naturals and the purchase of the Albany,  New York market area from the
         Perrier  Group of  America  will be  amortized  over 30  years  and was
         calculated, in the aggregate, as follows:
                                       8
<PAGE>

         Purchase Price                                              $4,436,489
         Acquisition Costs                                              272,651
         Fair Value of Tangible and Identifiable Intangible Assets   (1,333,317)
         Liabilities Assumed                                            402,207
                                                                      ----------
         Total                                                     $  3,778,030
                                                                      ==========

         In  conjunction   with  the   acquisition   the  Company  entered  into
non-competition,  employment and consulting agreements with the owner of Vermont
Coffee Time, Inc.

         In  conjunction  with the  acquisition  the Company has entered  into a
non-competition  agreement  with the owners of Sagamon  Spring Water of Vermont,
Inc.

         In  conjunction  with the  acquisition  the Company has entered  into a
non-competition agreement with the owners of Vermont Naturals.


7.         COMMITMENTS

         A. Leased Space - The Company  entered  into a lease for 18,000  square
         feet of  space in  Halfmoon,  New  York.  The  space  will be used as a
         bottling,  warehouse,  and distribution plant for the Company's upstate
         New York Home and Office  operations.  This space  replaces  the former
         headquarters  of Excelsior  Spring  Water,  in  Saratoga,  NY which the
         Company currently leases on a month to month basis. The lease commenced
         on April 1, 1998 and the term of the new lease is 10 years. The monthly
         lease  payments  are  approximately  $7,500 per month.  The Company has
         subsequently leased an additional 4,500 square feet from this landlord.

         B. Production Capacity - In order to increase production capacity,  the
         Company has leased new production  equipment.  The equipment includes a
         five gallon filling line and associated  equipment for  installation in
         the Albany, New York area.  Additionally,  the Company is replacing its
         filling  and  packaging  machinery  in its  PET  bottling  facility  in
         Randolph, VT. The acquisition of this equipment for an aggregate amount
         of  $764,132  is being  financed  by an  operating  lease with  KeyCorp
         Leasing.  The lease is for seven  years with a market  value buy out of
         the equipment after that term.


8.       STOCK ISSUE

         In conjunction with acquisitions during the fiscal year the Company 
         issued 150,207 shares of  its common stock valued at $612,464 with 
         share prices ranging from $4.00 to $4.31.
                                       9
<PAGE>

         On April 8, 1998, in connection with the financing arrangement with 
         CoreStates Bank, the Company issued warrants to the bank to purchase 
         shares of its common stock.  The exercise price was below the stock's 
         market price on the issuance date.  The Company will amortize the value
         of the warrants over the five year term of the agreement.


9.       STOCK OPTION PLAN

         On  April  2,  1998,  the  Company's  shareholders  approved  the  1998
         Incentive and  Non-Statutory  Stock Option Plan.  The plan provides for
         issuance of up to 500,000  options to  purchase  the  Company's  common
         stock under the administration of the Board of Directors. The intent of
         the plan is to award  options to officers,  employees,  directors,  and
         other individuals  providing services to the Company.  Through July 25,
         1998, 30,000 options had been issued under the plan.


10.      EARNINGS PER SHARE

         The  Company's  dilutive  instruments  are "in the money" stock options
         with various  exercise dates and prices.  The Company uses the treasury
         stock  method to  calculate  the effect  that the  conversion  of these
         instruments  would have on earnings per share. The following table sets
         forth the computation of basic and diluted earnings per share:
<TABLE>
<CAPTION>
<S>                                     <C>                 <C>             <C>                  
                                                   9 Months Ended                       3 Months Ended 
                                                       July 25,                              July 25,
                                               1998                1997            1998                 1997
                                          _________________________________  __________________________________
         Numerator
         Net Income (Loss)                 $ 771,630          $ (42,568)     $ 1,128,517            $ 560,017
         Denominator
         Wt. Avg. Shares
           Outstanding                    10,240,294          9,697,316       10,284,633            9,716,363
         Denominator for Basic EPS
         Effect of Dilutive Securities/
           Options                           781,182                  -          759,646               45,088
                                          _________________________________  __________________________________
         Total- Denominator for           11,021,476          9,697,316       11,044,279            9,761,451
           Fully diluted EPS

         Basic EPS                              $.08               $.00             $.11                 $.06
         Fully Diluted EPS                      $.07               $.00             $.10                 $.06
</TABLE>



                                       10
<PAGE>

11.      CONTINGENCIES

         Former Employees
         On  March 1,  1996,  the  Company  brought  suits  against  two  former
         employees  alleging that they had breached  their  agreements  with the
         Company.  The suits seek permanent  injunctive  relief and damages.  On
         April 1, 1996 the  Company  was  granted a  preliminary  injunction  in
         Vermont  Superior  Court  that  prevented  the  former  employees  from
         pursuing  ventures  competitive  to the Company.  A future hearing will
         address the permanency of the injunction.  Subsequently, both employees
         filed counterclaims  against the Company seeking monetary damages.  The
         Company has  certain  defenses  arising  out of its claims  against the
         employees that it will assert when necessary.

         On February 24, 1997 the Company reached a settlement with one of the 
         two former employees involved in this litigation.  The settlement had 
         no material financial impact on the Company and both parties agreed to 
         release their claims against each other.

         In August 1998,  the court  granted an  attachment  against the Vermont
         Pure  Holdings,  Ltd.  common stock owned by the former  employee still
         involved in the suits.  The court has stayed the  attachment  pending a
         further hearing,  but issued an injunction  prohibiting the sale of any
         of these shares until the hearing.

         The Company does not anticipate  that the outcome of the remaining suit
         will have a material financial impact on the Company.

                                       11
<PAGE>

PART I - Item 2

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

The following  discussion and analysis  should be read in  conjunction  with the
financial statements and notes thereto as filed in the Company's Form 10-KSB for
the year ended October 25, 1997.

                           Forward-Looking Statements

When used in the Form  10-QSB  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.  Among these
risks  are  water  supply  and  bottling  capacity  constraints  in the  face of
significant  growth,  dependence  on  outside  distributors,   and  reliance  on
commodity price fluctuations as they influence raw material pricing. 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

Sales - Sales for the first nine months of fiscal year 1998 were $19,717,417, an
increase of $7,461,679 or 61% over sales of  $12,255,738  for the  corresponding
period  last  year.  Sales  for the  third  quarter  of  fiscal  year  1998 were
$9,155,404,  an increase of $3,431,343  or 60% over sales of $5,724,061  for the
corresponding period last year. Excluding sales attributable to the acquisitions
in the nine and three months ending July 25, 1998, sales increased approximately
32% and 35%, respectively, over the corresponding periods last year.

Sales for retail-size products increased $2,619,345,  or 29%, for the first nine
months of fiscal  year 1998  compared  to the  corresponding  period a year ago.
Sales for these products increased $1,386,415,  or 32%, for the third quarter of
fiscal year 1998 compared to the  corresponding  period a year ago. The increase
was a result of volume  increases  related to the  continued  growth of both the
Vermont  Pure brand and  secondary  labels.  Increased  promotional  expense was
incurred  to  enhance  brand  awareness.   Increased   market   penetration  and
development of new markets also contributed to the sales growth. Average selling
prices for the nine and three months ending April 25, 1998 were down 1% for both
of the corresponding  periods from the previous year reflecting increased volume
of private and secondary  labels and the competitive  nature of the marketplace.
The total 29% increase for the year to date was  accounted  for in the following
distribution  channels:  21% attributable to Vermont Pure sizes, 5% attributable
to secondary labels,  and 3% attributable to private labels.  The Akva brand had
no material impact on sales for either period reported.
                                       12
<PAGE>

Sales for the home and office division  increased  $4,680,991,  or 156%, for the
first nine months of fiscal year 1998  compared to the  corresponding  period of
the prior year. Sales for this category increased  $2,037,891,  or 174%, for the
third  quarter of fiscal year 1998 compared to the  corresponding  period of the
prior year. A substantial portion of the increase in sales for this division can
be  attributed to  acquisitions.  Exclusive of  acquisitions,  sales of home and
office related products  increased  approximately 18% and 19% for the first half
and third quarter of fiscal 1998, respectively.

Cost of Goods Sold - For the first  nine  months of fiscal  1998,  Cost of Goods
Sold was  $7,907,932  compared to  $5,361,124  in fiscal year 1997  resulting in
gross profits of $11,809,485,  or 60% of sales, and $6,894,614, or 56% of sales,
respectively.  For the third quarter,  Cost of Goods Sold was $3,447,622 in 1998
compared to $2,271,827 in 1997 resulting in gross profits of $5,707,782,  or 62%
of sales, and $3,452,234, or 60% of sales,  respectively.  The increase in gross
profit for the respective nine and three month periods was due to a considerable
increase in sales volume which  resulted in a lower cost per unit.  In addition,
the  Company's  sales  continued,  through  acquisition,  to become more heavily
skewed toward higher margin home and office sales. Raw material pricing remained
stable throughout the first three quarters of 1998.  However,  the Company's PET
bottle prices are  dependant on the market costs of resin,  and the stability of
these costs cannot be guaranteed.  Significant price  fluctuations in the future
could result in corresponding positive or negative effects on cost of goods sold
and gross profit.


Operating  Expenses - For the first nine months of fiscal year 1998  compared to
the  corresponding  period in fiscal year 1997,  total  operating  expenses were
$10,480,374 and $6,724,197,  respectively, an increase of $3,756,177 or 56%. For
the third  quarter,  operating  expenses  were  $4,366,040  in 1998  compared to
$2,828,967  in 1997, an increase of  $1,537,073,  or 54%.  Selling,  general and
administrative  expenses  increased  by  $2,978,755  or 71%,  for the first nine
months of fiscal  1998 and  $1,155,079  or 71% for the third  quarter  of fiscal
1998.  The  increase in these  costs was  primarily  due to the  addition of the
operating costs of the acquired  companies and the conversion costs to integrate
these  companies.  The  Company  anticipates  that it will  continue  to  pursue
acquisitions  in the future and that a key part of this growth  strategy will be
maximizing the operating  efficiencies of the acquired  companies.  However,  no
assurance  can be  given  that  this  effort  will  yield  savings  and  profit.
Advertising  expenses increased by $477,133,  or 20%, and $261,983,  or 23%, for
the  nine  and  three  month  periods,  respectively,  in 1998  compared  to the
corresponding  periods of fiscal 1997.  Advertising expenses are associated with
the  retail-size  category.   The  increase  in  advertising  expenses  for  the
respective  periods  was due to  higher  promotional  expenses  associated  with
increased market penetration and brand awareness. The sales growth rate exceeded
the rate of growth in promotional expenses.  Given the competitive nature of the
industry,  the Company  anticipates  that it will continue to spend  significant
amounts in the future for  advertising  and promotion as it continues to develop
brand  recognition  and increase  market  penetration but can give no assurances
that  increases  in  spending  will result in higher  sales.  For the first nine
months and third quarter of fiscal year 1998,  amortization  increased  $300,289
and  $120,011,  respectively,  from the same  periods  a year ago as a result of
increased goodwill from new acquisitions.
                                       13
<PAGE>
Profit From  Operations  - Profit from  operations  for the first nine months of
fiscal 1998 was $1,329,111 as compared to $170,417 for the corresponding period
last year, an improvement  of  $1,158,694. Profit from  operations for the third
quarter of fiscal 1998 was $1,341,742 as compared to $623,267 for the 
corresponding  period last year, an increase of $718,475. The improvement is 
attributable to the increase in sales combined with a decrease in raw material 
costs and production and distribution  volume  efficiencies.  The Company plans 
to continue to create greater consumer awareness and to find alternate  
distribution  channels for its retail  product  and  expand  its less  seasonal
home and  office distribution business. No assurance can be given that this plan
will be successful.

Other  Income/Expense - Net interest expense increased $343,587 and $149,678 for
the first nine  months  and third  quarter  of fiscal  year 1998,  respectively,
compared  to the  corresponding  periods in fiscal  year 1997.  The  increase in
interest expense was a result of increased borrowing to finance acquisitions and
fund operations through a bank line of credit.

Net  Income/Loss-  The  Company's net income for the first nine months of fiscal
year 1998 was $771,630  compared to a net loss of $42,568 for the  corresponding
period last year, an improvement  of $814,198.  Net income for the third quarter
of fiscal 1998 was $1,128,517 compared to $560,017 for the same quarter in 1997,
an improvement of $568,500. The increase in net income for the first nine months
and third quarter,  respectively are indicative of the improvement in results of
operations more than  offsetting  increased  interest  charges to finance growth
through acquisitions.

                         Liquidity and Capital Resources

As a result of a  profitable  first nine months of fiscal  year 1998,  cash flow
from operations showed an improvement as compared to the corresponding period in
fiscal year 1997 when the Company reported a small net loss. The net cash inflow
from  operations  improved to $2,304,928  from  $1,053,402 for those  respective
periods,  an improvement of $1,251,526.  The Company's primary  requirements for
cash  continues to be for the marketing  and  promotional  activities  needed to
effect market  penetration  and expand sales,  acquisition  of operating  assets
needed to  accommodate  the growth of the business,  and debt  repayment.  These
requirements may result in future net cash outflows on a seasonal basis.

As of April 25, 1998, the Company had working capital of $1,405,052  compared to
$257,371 on October 25, 1997,  the end of the last fiscal year.  The increase in
working  capital of  $1,147,681  reflects,  primarily,  the  refinancing  of the
Company's  operating line of credit with CoreStates bank and cash generated from
operations.  Scheduled debt repayments  from the financing of  acquisitions  and
resulting  integration costs and capital expansion continues to be a significant
use of cash for the  Company.  As of August 25, 1998 the  Company  had  borrowed
$1,227,000  from  the  working  capital  portion  of its  line  of  credit  with
CoreStates  Bank  compared  to a  $238,021  balance  under the  prior  line from
Chittenden  Bank  at the  beginning  of the  fiscal  year.  The  maximum  amount
available to borrow under this facility is $2,000,000.
                                       14
<PAGE>
In addition to the working  capital line of credit,  the Company  refinanced its
existing  acquisition  debt with  CoreStates  Bank. The total  acquisition  debt
refinanced with CoreStates was $5.2 million.  Subsequently, the Company borrowed
an additional $2.8 million for other acquisitions leaving $5.1 million,  subject
to  certain  acquisition  criteria,  available  under the  agreement  for future
acquisitions.

All of the  CoreStates  borrowings  are  under one  facility  and  divided  into
separate working capital and acquisition segments.  The Company pays interest on
any  outstanding  principal  at the London  Interbank  Offered Rate (LIBOR) plus
2.00%,  which was approximately 7.7% per annum on August 25, 1998. This rate was
lowered subject to performance  covenants in the loan agreement on June 15, 1998
from LIBOR plus 2.50%. The facility is secured by all the inventory, receivables
and intangible assets of the Company and expires April 2003.

At October 25, 1997, the Company had recorded a deferred tax asset of $544,000. 
No adjustments were made to this amount through the third quarter of 1998.  
Further recognition is dependent on future earnings.

The Company has reduced its cash usage over the last year and  anticipates  that
its working capital  position will improve in future quarters and is adequate to
fund operations when supplemented by its operating line of credit.  Future sales
growth and acquisitions may require significant  capital additions.  The Company
anticipates  that it will be able to use its own resources and obtain  financing
for this  expansion  although no assurance can be given that this financing will
be  available.  The  Company  is  continuing  to  pursue an  active  program  of
evaluating  acquisition  options.  To  complete  any  acquisitions,  the Company
anticipates  using its capital resources and the CoreStates  facility  described
above.

                                       15

<PAGE>

PART II - Other Information

Item 1 - Legal Proceedings

         Note 11 to the consolidated  financial statements included in this Form
10-QSB is hereby incorporated by reference.

Item 2 - Changes in Securities

(a)      None

(b)      None

(c)      None

Item 3 - Defaults upon Senior Securities

         None

Item 4 - Submission of Matters to a Vote of Security Holders

         None

Item 5 - Other Information

         None

Item 6 - Exhibits and Reports on Form 8-K

         On June 12,  1998,  the  Company  filed a report on form 8-K to report,
under Item 2, the  acquisition of certain assets of the Perrier Group of America
in the Albany, New York area.
                                       16

<PAGE>
                                    SIGNATURE


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




Dated:            September 8, 1998
                  Randolph, Vermont



                                            VERMONT PURE HOLDINGS, LTD.




                   By: /s/ Bruce S. MacDonald
                   Bruce S. MacDonald
                   Vice President, Chief Financial Officer
                  (Principal Accounting Officer and Principal Financial Officer)




                                       17