VPS Vermont Pure Holdings Ltd

 

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

(Mark One)

þ		Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the fiscal year ended October 31, 2008.

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

Commission File Number 000-31797

VERMONT PURE HOLDINGS, LTD.

(Exact name of registrant as specified in its charter)

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

1050 Buckingham St., Watertown, CT 06795
(Address of principal executive offices and zip code)

Registrant’s telephone number, including area code: (860) 945-0661

Securities registered pursuant to Section 12(b) of the Act:		Common Stock, par value $.001 per share				NYSE Alternext US
		Title of each class				Name of exchange on which registered

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

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No þ

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No þ

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 þ No o

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. þ

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o		Accelerated filer o		Non-accelerated filer o (Do not check if smaller reporting company)		Smaller Reporting Company þ

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No þ

The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant, computed by reference to the last sale price per share of common stock on April 30, 2008, the last business day of the registrant’s most recently completed second fiscal quarter, as reported on the NYSE Alternext US, was $14,768,000.

The number of shares outstanding of the registrant’s Common Stock, $.001 par value, was 21,547,227 on January 9, 2009.

Documents Incorporated by Reference

Portions of the registrant’s definitive proxy statement, to be filed not later than 120 days after the registrant’s fiscal year ended October 31, 2008, and delivered in connection with the registrant’s annual meeting of stockholders, are incorporated by reference into Part III of this Form 10-K.

 

 

Table of Contents

				Page
Part I
Item 1.		Business			3
Item 1A.		Risk Factors			9
Item 1B.		Unresolved Staff Comments			14
Item 2.		Properties			15
Item 3.		Legal Proceedings			16
Item 4.		Submission of Matters to a Vote of Security Holders			17
Part II
Item 5.		Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities			18
Item 7.		Management’s Discussion and Analysis of Financial Condition and Results of Operations			19
Item 8.		Financial Statements and Supplementary Data			30
Item 9.		Changes in and Disagreements with Accountants on Accounting and Financial Disclosure			31
Item 9A(T).		Controls and Procedures			31
Item 9B.		Other Information			32
Part III
Item 10.		Directors, Executive Officers and Corporate Governance			33
Item 11.		Executive Compensation			33
Item 12.		Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters			33
Item 13.		Certain Relationships and Related Transactions, and Director Independence			34
Item 14.		Principal Accountant Fees and Services			34
Part IV
Item 15.		Exhibits and Financial Statement Schedules			35
		Signatures
EX-21.1 SUBSIDIARY
EX-23.1 CONSENT OF WOLF & COMPANY
EX-31.1 SECTION 302 CERTIFICATION OF CEO
EX-31.2 SECTION 302 CERTIFICATION OF CFO
EX-32.1 SECTION 906 CERTIFICATION OF CEO
EX-32.2 SECTION 906 CERTIFICATION OF CFO

Note: Items 6 and 7A are not required for smaller reporting companies and therefore are not furnished.

***************

In this annual report on Form 10-K, “Vermont Pure,” the “Company,” “we,” “us” and “our” refer to Vermont Pure Holdings, Ltd. and its subsidiary, taken as a whole, unless the context otherwise requires.

***************

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

***************

Except for historical facts, the statements in this annual report are forward-looking statements. Forward-looking statements are merely our current predictions of future events. These statements are inherently uncertain, and actual events could differ materially from our predictions. Important factors that could cause actual events to vary from our predictions include those discussed in this annual report under the heading “Risk Factors.” We assume no obligation to update our forward-looking statements to reflect new information or developments. We urge readers to review carefully the risk factors described in this annual report and in the other documents that we file with the Securities and Exchange Commission. You can read these documents at www.sec.gov.

PART I

ITEM 1. BUSINESS.

Introduction and Company Background

Vermont Pure Holdings, Ltd., incorporated in Delaware in 1990, is engaged in the production, marketing and distribution of bottled water and the distribution of coffee, ancillary products, and other office refreshment products. We operate primarily as a distribution business to homes and offices, using our own trucks for distribution throughout New England, New York, and New Jersey.

Our distribution sales and services evolved from our initial business, sales of bottled water and cooler rentals. We bottle our water and also have it bottled for us. All of our water products are still, non-sparkling waters as opposed to sparkling waters. In addition to water and related services our other significant offerings have grown to include distribution of coffee and ancillary products, and other refreshment products including soft drinks and snacks. To a lesser extent, we distribute these products through third party distributors and directly through vending machines.

Bottled water is a mainstream beverage and the centerpiece of many consumers’ healthy living lifestyles. In addition, we believe that the development and continued growth of the bottled water industry reflects growing public awareness of the potential contamination and unreliability of municipal water supplies. Conversely, bottled water has been the recent focus of publicity regarding concerns about the environmental and health effects of using polycarbonate plastic bottles (these are described in more detail in Item 1A, Risk Factors).

Coffee, a product that is counter seasonal to water, is the second leading product in the distribution channel, accounting for 23% of our total sales in fiscal year 2008. Because coffee is a commodity, coffee sales are affected by volatility in the world commodity markets. An interruption in supply or a dramatic increase in pricing could have an adverse effect on our business.

The increase in coffee sales in recent years has been driven by the market growth of single-serve coffee products. This development has revolutionized the marketplace and, while we expect the growth of these products to continue, innovation and changes in distribution will play a significant role in the profitability of the products.

Water Sources, Treatment, and Bottling Operations

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

If for any reason this municipal source for Crystal Rock ^® water were curtailed or eliminated, we could, though probably at greater expense, purchase water from other sources and have it shipped to our manufacturing facilities.

In conjunction with our acquisition of their Home and Office distribution assets, we entered into a contract with Mayer Brothers of Buffalo, New York to bottle our Crystal Rock ^® brand in that market.

The primary source of our natural spring water (primarily sold under the Vermont Pure ^® brand) is a spring owned by a third party in Stockbridge, Vermont that is subject to a 50- year water supply contract. We also obtain water, under similar agreements with third parties, from springs in Bennington and Tinmouth, Vermont. These three springs are approved by the State of Vermont as sources for natural spring water. The contractual terms for these springs provide spring water in excess of our current needs and within the apparent capacity of the springs, and accordingly we believe that we can readily meet our bulk water supply needs for the foreseeable future.

Percolation through the earth’s surface is nature’s best filter of water. We believe that the exceptionally long percolation period of natural spring water assures a high level of purity. Moreover, the long percolation period permits the water to become mineralized and pH balanced.

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

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

We are highly dependent on the integrity of the sources and processes by which we derive our products. Natural occurrences beyond our control, such as drought, earthquake or other geological changes, a change in the chemical or mineral content or purity of the water, or environmental pollution may affect the amount and quality of the water emanating from the springs or municipal sources that we use. There is a possibility that characteristics of the product could be changed either inadvertently or by tampering before consumption. Even if such an event were not attributable to us, the product’s reputation could be irreparably harmed. Consequently, we would experience economic hardship. Occurrence of any of these events could have an adverse impact on our business. We are also dependent on the continued functioning of our bottling processes. An interruption may result in an inability to meet market demand and/or negatively impact the cost to bottle the products.

We have no material contractual commitments to the owners of our outside sources and bottling facilities other than for the products and services we receive.

We use outside trucking companies to transport bulk spring water from the source site to our bottling facilities.

Products

We sell our three major brands in three and five gallon bottles to homes and offices throughout New England, New York, and New Jersey. In general, Crystal Rock ^® is distributed in southern New England and upstate and western New York, while Vermont Pure ^® is primarily distributed throughout northern New England and upstate New York and secondarily in southern New England. Hidden Spring ^® is generally sold to distributors in New England. We rent and sell water coolers to customers to dispense bottled water. Our coolers are available in various consumer preferences such as cold, or hot and cold, dispensing units. In addition, we sell and rent units to commercial accounts that filter water from the existing source on site. We also distribute a variety of coffee, tea and other hot beverage products and related supplies, as well as other consumable products used around the office. We offer vending services in some locations. We rent and sell single-serve coffee brewing equipment to customers. In addition, we supply whole beans and coffee grinders for fresh ground coffee and cappuccino machines to restaurants. We are the exclusive office coffee distributor of Baronet Coffee in New England, New York and New Jersey. In addition to Baronet Coffee, we sell other national brands, most notably, Green Mountain Coffee Roasters.

Marketing and Sales of Branded Products

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

We support this sales effort through promotional giveaways and Yellow Pages advertising, as well as radio, television and billboard advertising campaigns. We also sponsor local area sporting events, participate in trade shows, and endeavor to be highly visible in community and charitable events.

We market our Home and Office delivery service throughout most of New England and New York and parts of New Jersey. Telemarketers and outside/cold-call sales personnel are used to market our Home and Office delivery.

Advertising and Promotion

We advertise our products primarily through Yellow Pages and radio and billboard advertising. Radio and billboard has primarily been used in the southern New England market. We have also actively promoted our products through sponsorship of various local organizations and sporting events to endeavor to be highly visible in the communities that we serve. In recent years, we have sponsored professional minor league baseball and various charitable and cultural organizations, such as Special Olympics and the Multiple Sclerosis Society.

Sales and Distribution

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

Supplies

We currently source all of our raw materials from outside vendors. As one of the largest Home and Office distributors in the country, we are able to capitalize on volume to continue to reduce costs.

We rely on trucking to receive raw materials and transport and deliver our finished products. Consequently, the price of fuel significantly impacts the cost of our products. We purchase our own fuel for our Home and Office delivery and use third parties for transportation of raw materials and finished goods between our warehouses. While volume purchases can help control erratic fuel pricing, market conditions ultimately determine the price. In 2008, we experienced substantial increases in fuel prices as a result of market influences. Continued increases in fuel prices would likely affect our profitability if we are not able to adjust our pricing accordingly without losing sales volume.

No assurance can be given that we will be able to obtain the supplies we require on a timely basis or that we will be able to obtain them at prices that allow us to maintain the profit margins we have had in the past. We believe that we will be able to either renegotiate contracts with these suppliers when they expire or, alternatively, if we are unable to renegotiate contracts with our key suppliers, we believe that we could replace them. Any raw material disruption or price increase may result in an adverse impact on our financial condition and prospects. For instance, we could incur higher costs in renegotiating contracts with existing suppliers or replacing those suppliers, or we could experience temporary dislocations in our ability to deliver products to our customers, either of which could have a material adverse effect on our results of operations.

Seasonality

Our business is seasonal. The period from June to September, when we have our highest water sales, represents the peak period for sales and revenues due to increased consumption of cold beverages during the summer months in our core Northeastern United States market. Conversely, coffee, which represented 23% of our sales in 2008, has a peak sales period from November to March.

Competition

We believe that bottled water historically has been a regional business in the United States. The market includes several large regional brands owned by multi-national companies that operate throughout contiguous states. We also compete with smaller, locally-owned bottlers that operate in specific cities or market areas within single states.

With our Crystal Rock ^® and Vermont Pure ^® brands, we compete on the basis of pricing, customer service, quality of our products, attractive packaging, and brand recognition. We consider our trademarks, trade names and brand identities to be very important to our competitive position and defend our brands vigorously. In addition, in 2008 we began offering PET plastic as an alternative bottle and have converted customers with health concerns about polycarbonate plastic to this container.

We feel that installation of filtration units in the home or commercial setting poses a competitive threat to our business. To address this, we have continued to develop our plumbed-in filtration business.

In the past five years, cheaper water coolers from offshore sources have become more prevalent, making customer purchasing a more viable alternative to leasing. Traditionally, the rental of water coolers for offices and homes has been a very profitable business for us. As coolers have become

cheaper and more readily available at retail outlets, our cooler rental revenue has declined. Although this rental revenue is very profitable for us, it may continue to decline or become less profitable in the future as a result of this relatively new form of competition.

As discussed above, coffee is another significant component of our overall sales. The growth of this product line has been driven by single serve packages. Since these packages are relatively new, distribution channels are not yet fully developed. Increased competition for sales most likely will develop from other food and beverage distributors, retailers, and the internet. In addition, machines to brew these packages are different from traditional machines and packages ideally need to be brewed in machines that accommodate the specific package. It is conceivable that the popularity of a certain machine or brand may dictate what products are successful in the marketplace. Consequently, our success, both from a sales and profitability perspective, may be affected by our access to distribution rights for certain products and machines and our decisions concerning which equipment to invest in.

We believe that it has become increasingly important to our competitive advantage to decrease the impact of our business on the environment. We traditionally use five gallon containers that are placed on coolers and are reused many times. Recently we have taken additional steps to “green” our business including:

	•		Completed an extensive solar electricity generation installation in our Watertown facility to supply a significant amount of the energy for that facility.
	•		Upgraded the lighting in most of our facilities to high efficiency lighting.
	•		Instituted no-idling and other driving policies in all of our locations.
	•		Upgraded many of our older vehicles to new, more energy efficient vehicles.

Trademarks

We own the trade names of the principal water brands that we sell, Vermont Pure Natural Spring Water ^® and Crystal Rock ^® . We own or have rights to other trade names that currently are not a significant part of our business. Our trademarks as well as label designs are, in general, registered with the United States Patent and Trademark Office.

Government Regulation

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

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

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

We also must meet state regulations in a variety of areas to comply with purity, safety, and labeling standards. From time to time, our facilities and sources are inspected by various state departments and authorities. The jurisdiction of such regulation varies from state to state.

Our product labels are subject to state regulation (in addition to the federal requirements) in each state where the water products are sold. These regulations set standards for the information that must be provided and the basis on which any therapeutic claims for water may be made.

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

In the past year, there has been an increasing amount of proposed legislative and executive action in state and local governments that would ban the use of bottled water in municipal buildings, enact local taxes on bottled water, and limit the sale by municipalities of water supplies to private companies for resale. To date, none of this action has affected our business but such regulation could adversely affect our business and financial results. For additional information, see “Risk Factors” below.

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

Employees

As of January 9, 2009, we had 330 full-time employees and 17 part-time employees. None of the employees belong to a labor union. We believe that our relations with our employees are good.

Additional Available Information

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

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

The SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically at www.sec.gov. You may also read and copy the materials we file with the SEC at the SEC’s Public Reference Room at 100 F Street, N.E., Room 1580, Washington, D.C. 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.

ITEM 1A. RISK FACTORS.

We operate in a competitive business environment that is influenced by conditions that are both controllable and beyond our control. These conditions include, but are not limited to, the regional economy, monetary policy, and the political and regulatory environment. The following summarizes important risks and uncertainties that may materially affect our business in the future.

Over a period of years, we have borrowed substantial amounts of money to finance acquisitions. If we are unable to meet our debt service obligations to our senior and subordinated lenders, we would be in default under those obligations, and that could hurt our business or even result in foreclosure, reorganization or bankruptcy.

The underlying loans are secured by substantially all of our assets. If we do not repay our indebtedness in a timely fashion, our secured creditors could declare a default and foreclose upon our assets, which would likely result in harmful disruption to our business, the sale of assets for less than their fully realizable value, and possible bankruptcy. We must generate enough cash flow to service this indebtedness until maturity.

Fluctuations in interest rates could significantly increase our expenses. We will have significant interest expense for the foreseeable future, which in turn may increase or decrease due to interest rate fluctuations. To partially mitigate this risk, we have established fixed interest rates on 75% of our outstanding senior term debt.

As a result of our large amount of debt, we may be perceived by banks and other lenders to be highly leveraged and close to our borrowing ceiling. Until we repay some of our debt, our ability to access additional capital may be limited. In turn, that may limit our ability to finance transactions and to grow our business. In addition, our senior credit agreement limits our ability to incur incremental debt without our lender’s permission.

Our senior credit agreement contains numerous covenants and restrictions that affect how we conduct our business.

The Baker family currently owns a majority of our voting stock and controls the company. Such control affects our corporate governance, and could also have the effect of delaying or preventing a change of control of the company.

The Baker family group, consisting of four current directors Henry Baker (Chairman Emeritus), Peter Baker (CEO), John Baker (Executive Vice President) and Ross Rapaport (Chairman), as trustee, together own a majority of our common stock. Accordingly, these stockholders, acting together, can exert a controlling influence over the outcome of matters requiring stockholder approval, such as the election of directors, amendments to our certificate of incorporation, mergers and various other matters. The concentration of ownership could also have the effect of delaying or preventing a change of control of the company.

As permitted under the corporate governance rules of the NYSE Alternext US (NYSE Alternext), we have, at the direction of the Baker family group, elected “controlled company” status under those rules. A controlled company is exempted from these NYSE Alternext corporate governance rules: (1) the requirement that a listed company have a majority of independent directors, (2) the requirement that nominations to the company’s board of directors be either selected or recommended by a nominating committee consisting solely of independent directors, and (3) the requirement that officers’ compensation be either determined or recommended by a compensation committee consisting solely of independent directors. We do not currently utilize exemption (3) as we have a compensation committee consisting solely of three independent directors.

Our success depends on the continued services of key personnel.

Our continued success will depend in large part upon the expertise of our senior management. Peter Baker, our Chief Executive Officer and President, John Baker, our Executive Vice President, and Bruce MacDonald, our Chief Financial Officer, Treasurer and Secretary, have entered into employment agreements with Vermont Pure Holdings, Ltd. These “at will” employment agreements do not prevent these employees from resigning. The departure or loss of any of these executives individually could have an adverse effect on our business and operations.

The personal interests of our directors and officers create a conflict.

As mentioned above, the Baker family group owns a majority of our common stock. In addition, in connection with the acquisition of Crystal Rock Spring Water Company in 2000, we issued members of the Baker family group 12% subordinated promissory notes secured by all of our assets. The current balance on these notes is approximately $14,000,000. We also lease important facilities in Watertown and Stamford, Connecticut from Baker family interests. These interests of the Baker family create various conflicts of interest.

We face competition from companies with far greater resources than we have. In addition, methods of competition in the distribution of home and office refreshment products continue to change and evolve. If we are unable to meet these changes, our business could be harmed.

We operate in highly competitive markets. The principal methods of competition in the markets in which we compete are distribution capabilities, brand recognition, quality, reputation, and price. We have a significant number of competitors, some of which have far greater resources than us. Among our principal competitors are Nestlé Waters North America, large regional brands owned by private groups, and local competitors in the markets that we serve. Price reductions and the introduction of new products by our competitors can adversely affect our revenues, gross margins, and profits.

In addition, the industry has been affected by the increasing availability of water coolers in discount retail outlets. This has negatively impacted our rental revenue stream in recent years as more customers choose to purchase coolers rather than rent them. The reduction of rental revenue has been somewhat offset by the increase in coolers that we sell but not to the extent that rentals have declined. We do not expect retail sales to replace rentals completely because we believe that the purchase option does not provide the quality and service that many customers want. However, third party retail cooler sales may continue to negatively impact our rental revenues in the future.

The bottled water industry is regulated at both the state and federal level. If we are unable to continue to comply with applicable regulations and standards in any jurisdiction, we might not be able to sell our products in that jurisdiction, and our business could be seriously harmed.

The FDA regulates bottled water as a food. Our bottled water must meet FDA requirements of safety for human consumption, labeling, processing and distribution under sanitary conditions and production in accordance with FDA “good manufacturing practices.” In addition, all drinking water must meet Environmental Protection Agency standards established under the Safe Drinking Water Act for mineral and chemical concentration and drinking water quality and treatment, which are enforced by the FDA. We also must meet state regulations in a variety of areas. These regulations set standards for approved water sources and the information that must be provided and the basis on which any therapeutic claims for water may be made. We have received approval for our drinking water in Connecticut, Massachusetts, New Hampshire, New Jersey, New York, Rhode Island and Vermont. However, we can give no assurance that we will receive such approvals in the future.

Legislative and executive action in state and local governments banning the use of municipal funds for purchasing bottled water, enacting local taxes on bottled water or water extraction, and restricting water withdrawal and usage rights from public and private sources could adversely affect our business and financial results.

Recent initiatives have taken place in several major cities regarding bottled water, principally the smaller sizes sold in stores to retail consumers. Regulations have been proposed in some localities that would ban the use of public funds to purchase bottled water and enact local taxes on bottled water or water extraction, and restrict the withdrawal of water from public and private sources. These actions are purportedly designed to discourage the use of bottled water due in large part to concerns about the environmental effects of producing and discarding large numbers of plastic bottles. In developing these stories, local and national media have reported on the growth of the bottled water industry and on the pros and cons of consuming bottled water as it relates to solid waste disposal and energy consumption in manufacturing as well as conserving the supply of water available to the public.

We believe that the adverse publicity associated with these reports is generally aimed at the retail, small bottle segment of the industry that is now a minimal part of our business, and that our customers can readily distinguish our products from the retail bottles that are currently the basis for concern in some areas. Our customers typically buy their water in reusable five gallon containers that are placed on coolers and are reused many times and only approximately 4% of our total sales is from water sold in single serve packages. In addition, we continue to take steps to “green” our business by means of solar electricity generation, high efficiency lighting, no-idling and other driving policies, and the use of biodiesel.

While we believe that to date we have not directly experienced any adverse effects from these concerns, and that our products are sufficiently different from those under scrutiny, there is no assurance that adverse publicity about any element of the bottled water industry will not affect consumer behavior by discouraging buyers from buying bottled water products generally. In that case, our sales and other financial results could be adversely affected.

Various media outlets have reported that a chemical, bisphenol A, used in packaging and other products can possibly have adverse health effects on consumers, particularly on young children. Bisphenol A is contained in the three- and five- gallon polycarbonate plastic bottles that we use to bottle our water. Any significant change in perception by our customers or government regulation of polycarbonate plastic in food and beverage products could adversely affect our operations and financial results.

We feel that the scientific evidence suggests that polycarbonate plastic has been, and will continue to be, a safe packing material for all consumers. National and international organizations responsible for consumer safety, including the Food and Drug Administration, have continued to recognize the

safety of this packaging. Nonetheless, media reports have prompted concern in our marketplace among customers and potential customers.

To date, this situation has not adversely affected our business. However, it is possible that developments surrounding this issue could lead to adverse effects on our business. Such developments could include:

	•		Increased publicity that changes perception regarding packaging that uses bisphenol A, so that significant numbers of consumers stop purchasing products that are packaged in polycarbonate plastic.
	•		The emergence of new scientific evidence that proves polycarbonate plastic is unsafe, or interpretations of existing evidence by regulatory agencies that lead to prohibitions on the use of polycarbonate plastic as packaging for consumable products.
	•		Inability of sellers of consumable products to find an adequate supply of alternative packaging if polycarbonate plastic becomes an undesirable package.

If such events, or any of them, were to occur, our sales and operating results could be materially adversely affected.

We have begun offering PET plastic as an alternative bottle and have converted customers with a concern about polycarbonate plastic to this container. However, at this point, no assurance can be given that this is an adequate solution if materially adverse developments such as those noted above should occur.

We depend upon maintaining the integrity of our water resources and manufacturing process. If our water sources or bottling processes were contaminated for any reason, our business would be seriously harmed.

Our ability to retain customers and the goodwill associated with our brands is dependent upon our ability to maintain the integrity of our water resources and to guard against defects in, or tampering with, our manufacturing process. The loss of integrity in our water resources or manufacturing process could lead to product recalls and/or customer illnesses that could significantly reduce our goodwill, market share and revenues. Because we rely upon natural spring sites for sourcing some of our water supply, acts of God, such as earthquakes, could alter the geologic formation of the spring sites, constricting water flow.

In addition, we do not own any of our water sources. Although we feel the long term rights to our spring and municipal sources are well secured, any dispute over these rights that resulted in prolonged disruption in supply could cause an increase in cost of our product or shortages that would not allow us to meet the market demand for our product.

Fluctuations in the cost of essential raw materials and commodities, including fuel costs, for the manufacture and delivery of our products could significantly impact our business.

We rely upon the raw material of polycarbonate, a commodity that is subject to fluctuations in price and supply, for manufacturing our bottles. Bottle manufacturers also use petroleum-based products. Increases in the cost of petroleum will likely have an impact on our bottle costs.

Our transportation costs increase as the price of fuel rises. Because trucks are used extensively in the delivery of our products, the rising cost of fuel has impacted and can be expected to continue to

impact the profitability of our operations unless we are able to pass along those costs to our customers. Further, limitations on the supply or availability of fuel could inhibit our ability to get raw materials and distribute our products, which in turn could have an adverse affect on our business.

A significant portion of our sales, 23% in fiscal year 2008, is derived from coffee. The supply and price of coffee may be limited by climate, by international political and economic conditions, and by access to transportation, combined with consumer demand. An increase in the wholesale price of coffee could result in a reduction in our profitability. If our ability to purchase coffee were impaired by a market shortage, our sales might decrease, which would also result in a reduction of profitability.

We have a limited amount of bottling capacity. Significant interruptions of our bottling facilities could adversely affect our business.

We own three bottling facilities, and also contract with third parties, to bottle our water. If any of these facilities were incapacitated for an extended period of time, we would likely have to relocate production to an alternative facility. The relocation and additional transportation could increase the cost of our products or result in product shortages that would reduce sales. Higher costs and lower sales would reduce profitability.

We rely upon a single software vendor that supplies the software for our route accounting system.

Our route accounting system is essential to our overall administrative function and success. An extended interruption in servicing the system could result in the inability to access information. Limited or no access to this information would likely inhibit the distribution of our products and the availability of management information, and could even affect our compliance with public reporting requirements. Our supplier is Innovations in Software, or IIS, which has a limited number of staff that has proprietary information pertaining to the operation of the software. Changes in personnel or ownership in the firm might result in disruption of service. Any of these consequences could have a material adverse impact on our operations and financial condition.

Our customer base is located in New England, New York and New Jersey. If there were to be a material decline in the economy in these regions, our business would likely be adversely affected.

Essentially all of our sales are derived from New England, New York and New Jersey. A significant negative change in the economy of any of these regions, changes in consumer spending in these regions, or the entry of new competitors into these regional markets, among other factors, could result in a decrease in our sales and, as a result, reduced profitability.

Our business is seasonal, which may cause fluctuations in our stock price.

Historically, the period from June to September represents the peak period for sales and revenues due to increased consumption of beverages during the summer months in our core Northeastern United States markets. Warmer weather in our geographic markets tends to increase water sales, and cooler weather tends to decrease water sales. To the extent that our quarterly results are affected by these patterns, our stock price may fluctuate to reflect them.

Acquisitions may disrupt our operations or adversely affect our results

We regularly evaluate opportunities to acquire other businesses. The expenses we incur evaluating and pursuing acquisitions could have a material adverse effect on our results of operations. If we acquire a business, we may be unable to manage it profitably or successfully integrate its operations with our own. Moreover, we may be unable to realize the financial, operational, and other benefits we anticipate from these acquisitions. Competition for future acquisition opportunities in our markets could increase the price we pay for businesses we acquire and could reduce the number of potential acquisition targets. Further, acquisitions may involve a number of special financial and business risks, such as:

	•		charges related to any potential acquisition from which we may withdraw;
	•		diversion of our management’s time, attention, and resources;
	•		decreased utilization during the integration process;
	•		loss of key acquired personnel;
	•		increased costs to improve or coordinate managerial, operational, financial, and administrative systems including compliance with the Sarbanes-Oxley Act of 2002;
	•		dilutive issuances of equity securities, including convertible debt securities;
	•		the assumption of legal liabilities;
	•		amortization of acquired intangible assets;
	•		potential write-offs related to the impairment of goodwill;
	•		difficulties in integrating diverse corporate cultures; and
	•		additional conflicts of interests.

We are required to be in full compliance with Section 404 of the Sarbanes-Oxley Act as of our fiscal year ending October 31, 2009. Under current regulations, the financial cost of compliance with Section 404 is significant. Failure to achieve and maintain effective internal control in accordance with Section 404 could have a material adverse effect on our business and our stock price.

We are in the process of finally implementing the requirements of Section 404 of the Sarbanes-Oxley Act of 2002, which requires management to assess the effectiveness of our internal controls over financial reporting and include an assertion in our annual report as to the effectiveness of its controls. The cost to comply with this law will affect our net income adversely. In addition, management’s effort and cost are no assurance that our independent auditors will attest to the effectiveness of our internal controls in its report required by the law. If that is the case, the resulting report from our auditors may have a negative impact on our stock price.

ITEM 1B. UNRESOLVED STAFF COMMENTS.

None.

ITEM 2. PROPERTIES.

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

Location		Lease expiration		Sq. Ft.				Annual Rent
Williston, VT		June 2009			10,000			$	70,936
Southborough, MA		December 2013			15,271			$	114,533
Bow, NH		June 2010			9,600			$	48,360
Rochester, NY		January 2012			15,000			$	60,000
Buffalo, NY		September 2010			10,000			$	62,500
Syracuse, NY		December 2010			10,000			$	38,333
Halfmoon, NY		October 2011			22,500			$	148,500
Plattsburgh, NY		May 2010			5,000			$	24,000
Watertown, CT		October 2016			67,000			$	414,000
Stamford, CT		October 2010			22,000			$	248,400
White River Junction, VT		June 2009			12,000			$	76,647
Watertown, CT		May 2013			15,000			$	57,960
Groton, CT		June 2009			7,500			$	56,375

All locations are used primarily for warehousing and distribution and have limited office space for location managers and support staff. The exception is the Watertown, Connecticut location, which has a substantial amount of office space for sales, accounting, information systems, customer service, and general administrative staff.

In 2000, we entered into 10-year lease agreements to lease the buildings that are utilized for operations in Watertown and Stamford, Connecticut. Subsequently, on August 29, 2007, we finalized an amendment to our existing lease for the Watertown facility. The lease was scheduled to expire in October, 2010. Annual rent payments for the remainder of the original lease were scheduled to be $414,000 annually.

The amended lease extends the term of the lease six years, to 2016, with an option to extend it an additional five years. Annual lease payments over the extended term of the lease are as follows:

Years 1-2		$	452,250
Years 3-4		$	461,295
Years 4-5		$	475,521

The rent during the extended option term is to be negotiated by the parties or, in the event there is no agreement, by appraisers selected by them. Otherwise the lease remained substantially unchanged.

The principal reason for seeking to amend the lease was our decision to construct solar panels on the roof of the facility, in order to generate a portion of our electricity needs more cheaply than we currently pay to purchase that electricity. We determined that the economic payback period of the solar panels would exceed the remaining term of the lease unless we sought and obtained an amendment extending the term of the lease.

After finalizing the lease amendment, we entered into agreements for the construction of the solar panels as well as grant agreements from the State of Connecticut to subsidize the project in part. We believe that certain federal and state tax credits will also help to reduce the effective cost of the project.

The landlord for the buildings in Stamford and Watertown, Connecticut is a trust with which Henry, John, and Peter Baker, and Ross Rapaport are affiliated. We believe that the rent charged under these leases is not more than fair market rental value.

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

ITEM 3. LEGAL PROCEEDINGS.

On May 1, 2006, the Company filed a lawsuit in the Superior Court Department, County of Suffolk, Massachusetts, alleging malpractice and other wrongful acts, seeking damages in an unspecified amount, against three law firms that had been representing the Company in litigation involving Nestlé Waters North America, Inc.: Hagens Berman Sobol Shapiro LLP, Ivey & Ragsdale, and Cozen O’Connor. The case is Vermont Pure Holdings, Ltd. vs. Thomas M. Sobol et al., Massachusetts Superior Court CA No. 06-1814.

Until May 2, 2006, when the Company terminated their engagement, the three defendant law firms represented the Company in litigation in federal district court in Massachusetts known as Vermont Pure Holdings, Ltd. vs. Nestlé Waters North America, Inc. (the Nestlé litigation). The Company filed the Nestlé litigation in early August 2003.

The Company’s lawsuit alleges that the three defendant law firms wrongfully interfered with, and/or negligently failed to take steps to obtain, a proposed June 2003 settlement with Nestlé. The complaint includes counts involving negligence, breach of contract, breach of the implied covenant of good faith and fair dealing, breach of fiduciary duty, tortuous interference with economic relations, civil conspiracy, and other counts, and seeks declaratory relief and compensatory and punitive damages.

In July 2006, certain of the defendants filed a counterclaim against the Company seeking recovery of their fees and expenses in the Nestlé litigation. In August 2007, certain of the defendants filed a counterclaim against the Company that includes an abuse of process count in which it is alleged that our claims against them are frivolous and were not advanced in good faith, as well as a quantum meruit count in which these defendants allege that their services were terminated wrongfully and in bad faith and seek approximately $2.2 million in damages.

Discovery of fact witnesses and expert witnesses has been completed. In September 2008, the defendants in the lawsuit filed summary judgment motions seeking dismissal of the Company’s claims in their entirety, which the Company opposed. The Superior Court Judge denied these motions in a ruling dated December 26, 2008. No trial date for this lawsuit has been set.

Management intends to pursue its claims, and to the extent of the counterclaims, defend itself vigorously.

On May 15, 2006, the Company entered into an agreement with Nestlé Waters North America Inc. to resolve pending litigation known as Vermont Pure Holdings, Ltd. v Nestlé Waters North America Inc., which was in the United States District Court for the District of Massachusetts. In this lawsuit, filed in August 2003, the Company had made claims under the federal Lanham Act against Nestlé. The parties provided mutual releases and have stipulated to dismissal of the case, with neither side admitting liability or wrongdoing. Nestle paid the Company $750,000 in June 2006 in connection with the agreement. The Company recorded $750,000 as other income in the third quarter of 2006, related to this settlement.

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

No matter was submitted to a vote of security holders during the quarter ended October 31, 2008.

PART II

ITEM 5.		MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.

NYSE Euronext completed its acquisition of the American Stock Exchange (AMEX) on October 1, 2008. Post merger, the AMEX equities business has been re-branded NYSE Alternext US LLC (NYSE Alternext). Our Common Stock is traded on the NYSE Alternext under the symbol VPS. The table below indicates the range of the high and low daily closing prices per share of Common Stock as reported by the exchange.

		High				Low
Fiscal Year Ended October 31, 2008
First Quarter		$	1.72			$	1.38
Second Quarter		$	1.60			$	1.36
Third Quarter		$	1.41			$	1.27
Fourth Quarter		$	1.41			$	.94
Fiscal Year Ended October 31, 2007
First Quarter		$	1.75			$	1.38
Second Quarter		$	1.98			$	1.75
Third Quarter		$	1.94			$	1.79
Fourth Quarter		$	1.93			$	1.61

The last reported sale price of our Common Stock on the NYSE Alternext on January 15, 2009 was $.90 per share.

As of that date, we had 422 record owners and believe that there were approximately 2,000 beneficial holders of our Common Stock.

No dividends have been declared or paid to date on our Common Stock. Our senior credit agreement prohibits us from paying dividends without the prior consent of the lender. It is unlikely that we will pay dividends in the foreseeable future.

Issuer Purchase of Equity Securities

The following table summarizes the stock repurchases, by month, that were made during the fourth quarter of the fiscal year ended October 31, 2008.

										Total Number of				Maximum
										Shares				Number of
										Purchased as				Shares that May
		Total Number of								Part of Publicly				Yet be
		Shares				Average Price				Announced				Purchased Under
Period		Purchased				Paid per Share				Program (1)				the Program (1)
August 1-31			0			$	—				0				207,000
September 1-30			0			$	—				0				207,000
October 1-31			8,700			$	1.16				8,700				198,300
Total			8,700			$	1.16				8,700

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

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

	•		Business Overview — a brief description of fiscal year 2008.
	•		Results of Operations — an analysis of our consolidated results of operations for the three years presented in our consolidated financial statements.
	•		Liquidity and Capital Resources — an analysis of cash flows, sources and uses of cash, and contractual obligations and a discussion of factors affecting our future cash flow.
	•		Critical Accounting Policies — a discussion of accounting policies that require critical judgments and estimates. Our significant accounting policies, including the critical accounting policies discussed in this section, are summarized in the notes to the accompanying consolidated financial statements.

Business Overview

For our fiscal year ended October 31, 2008, we experienced a goodwill impairment (a non-cash charge) in the amount of $22,359,000, which materially reduced our income from continuing operations and net income. At October 31, 2008, the valuation by which we measure goodwill impairment was significantly affected by the lower value of our stock price which, among other things, was affected by general market conditions. Impairment of goodwill does not affect the Company’s liquidity or indicate its profitability prospects in the future. Nevertheless, it was a

substantial component of our Loss from operations of $15,862,000 and Net loss of $19,836,000. But for the impairment of goodwill, all of those line items would have shown income, not losses.

Except for the goodwill impairment charge, the financial performance of our business for fiscal year 2008 improved over fiscal year 2007. The improvement was a result of increased sales and gross profit and a reduction in interest expense, offset by higher selling, general, and administrative expenses. The increase in sales was generated primarily by non-traditional products, most notably single serve coffee and price increases to offset increasing fuel costs and, to a lesser extent, acquisitions. Product margins decreased, as a percentage of sales, as a result of the product mix skewing away from non-water products.

Excluding the non-cash impairment charge to goodwill, the financial performance of our business for fiscal 2008 improved over fiscal 2007. Over the first three quarters, the improvement reflected increased sales, an improved gross margin notwithstanding increased selling, general, and administrative expenses, and lower interest. The sales increase was generated primarily by non-water-related revenue, notably single-serve coffee and price increases to offset increasing fuel costs. To a lesser extent, acquisitions also contributed to revenues. However, the fourth quarter, again excluding the impairment charge, was less profitable than the prior year’s fourth quarter due to slower sales, lower margins, and higher administrative expenses. We believe that our fourth quarter financial performance in large measure reflected the overall softening of the economy. If, as many observers expect, the national and regional economy remains in a recession in 2009, we are likely to experience lower profitability going forward.

Results of Operations

Fiscal Year Ended October 31, 2008 Compared to Fiscal Year Ended October 31, 2007

Sales

Sales for fiscal year 2008 were $69,237,000 compared to $65,231,000 for 2007, an increase of $4,006,000 or 6%. Sales attributable to acquisitions in fiscal year 2008 were $501,000. Net of the acquisitions, sales increased 5%.

The comparative breakdown of sales is as follows:

Product Line		2008				2007				Difference				% Diff.
		(in 000’s $)				(in 000’s $)				(in 000’s $)
Water		$	29,250			$	29,560			$	(310	)			(1	%)
Coffee and Related			21,197				19,341				1,856				10	%
Equipment Rental			8,909				9,143				(234	)			(3	%)
Other			9,881				7,187				2,694				37	%
Total		$	69,237			$	65,231			$	4,006				6	%

Water — The aggregate decrease in water sales was a result of 2% increase in price and a 3% decrease in volume. The increase in price was attributable to general increases in list prices. The decrease in volume was primarily a result of lower market demand. Volume was favorably impacted by several small acquisitions completed during the year. Sales increased 1% as a result of these acquisitions. So, net of acquisitions, total water sales decreased 2% in fiscal year 2008.

Coffee — The increase in sales was primarily due to the growth of single serve coffee, which grew 25% to $9,184,000 in fiscal year 2008 compared to $7,328,000 in fiscal year 2007. Traditional coffee products and related products grew 4% in fiscal year 2008 compared to the year earlier. Acquisitions accounted for 1% of the growth in this category.

Equipment Rental — Equipment rental revenue decreased in fiscal year 2008 compared to the prior year primarily as a result of a decrease in the average rental price that more than offset an increase in placements of equipment. Sales were 1% higher in 2008 due to increased equipment placements and 4% lower as a result of lower rental prices as compared to 2007. Acquisitions had no impact on equipment rental revenue.

Other — The substantial increase in other revenue is reflective of fees that are charged as a result of higher energy costs for delivery and freight, raw materials, and bottling operations. These charges increased to $3,207,000 in fiscal year 2008 from $1,444,000 in 2007. Sales of other products such as single-serve drinks, cups, and vending items, in aggregate, increased 5% in 2008 compared to last year. In addition, the improvement in sales in this category reflects the fact that in the second quarter of 2007, we had a charge of $201,000 because our estimate of container deposit liability from a departing customer was too low. This effect did not recur in 2008. Acquisitions had no effect on other sales.

Gross Profit/Cost of Goods Sold

Gross profit increased $1,868,000, or 5% in fiscal year 2008 compared to 2007, from $37,042,000 to $38,910,000. As a percentage of sales, gross profit decreased to 56.2% of sales from 56.8% for the respective period. The dollar increase in gross profit was attributable to higher sales. The decrease in gross profit, as a percentage of sales, was attributable to a change in product sales mix. Product mix was influenced by higher volume growth of single serve coffee which has a lower profit margin than water and traditional coffee products.

Cost of goods sold includes all costs to bottle water, costs of purchasing and receiving products for resale, including freight, as well as costs associated with product quality, warehousing and handling costs, internal transfers, and the repair and service of rental equipment, but does not include the costs of distributing our product to our customers. We include distribution costs in selling, general, and administrative expense, and the amount is reported below. Other companies may include distribution costs in their cost of goods sold, in which case, on a comparative basis, such other companies may have a lower gross margin as a result.

(Loss) Income from Operations/Operating Expenses

The loss from operations was $15,862,000 in 2008 compared to income from operations of $6,643,000 in 2007, a decrease of $22,505,000. The most significant component of this decrease was goodwill impairment of $22,359,000 in 2008. There was no such impairment in 2007. Total operating expenses increased to $54,773,000 for the year, an increase from $30,399,000 the prior year, an increase of $24,374,000. Once again, the most significant contributor to the higher operating expenses in 2008 was the impairment charge of $22,359,000. Net of impairment, operating expenses increased moderately. The increase was a result of additional expenses due to increased sales as well as higher benefits expense and professional fees.

Selling, general and administrative (SG&A) expenses were $30,132,000 in fiscal year 2008 and $27,969,000 in 2007, an increase of $2,163,000, less than 8%. Of total SG&A expenses:

•

Route sales costs increased 5%, or $669,000, to $14,227,000 in fiscal year 2008 from $13,558,000 in fiscal year 2007, primarily related to labor for commission-based sales from increased sales and higher fuel costs. Total direct distribution related costs increased $596,000, or 5%, to $13,526,000 in fiscal year 2008 from $12,930,000 in fiscal year 2007;

	•		Selling costs increased 19%, or $453,000, to $2,825,000 in fiscal year 2008 from $2,732,000 in fiscal year 2007, as a result of an increase in labor for commission-based sales from increased sales; and
	•		Administrative costs increased 12%, or $1,401,000, to $13,080,000 in fiscal year 2008 from $11,679,000 in fiscal year 2007, as a result of higher health insurance costs, professional fees related to compliance and litigation, and a provision for bad debts of $532,043 on notes receivable that more than offset a reduction of accounting and computer-related fees.

Advertising expenses decreased to $1,530,000 in fiscal year 2008 from $1,602,000 in 2007, a decrease of $72,000, or 4%. The decrease in advertising costs is primarily related to the non recurrence of the southern New England advertising campaign that was implemented in the third quarter of 2007.

Amortization increased to $888,000 in fiscal year 2008 from $846,000 in 2007. Amortization is attributable to intangible assets that were acquired as part of acquisitions in recent years.

We had a gain from the sale of miscellaneous assets in fiscal year 2008 of $136,000 compared to a gain on the sale of assets of $18,000 in fiscal year 2007. The sales are of miscellaneous assets no longer used in the course of business.

In fiscal year 2008, we incurred an impairment loss of $22,359,000. The impairment loss was a non-cash charge and was a result of the assessment of our goodwill as of October 31, 2008. Goodwill had been recorded for acquisitions from 1996 through 2008. Our assessment concluded that goodwill on our books exceeded the value as prescribed by SFAS No. 142. In determining the impairment, we followed the two step approach provided in paragraphs 19-22 of SFAS 142. In step one and in determining the fair value of the Company (the reporting unit), we used a weighted average of three different market approaches: 1) Quoted stock price (30%); 2) Value comparisons to publicly traded companies (see note 1) believed to have comparable reporting units (20%); and 3) Discounted net cash flow (50%). We believe that this approach, consistent with paragraph 23 of SFAS 142, provided a reasonable estimation of the value of the Company and took into consideration our thin trading volume (which reflects, in part, the fact that Company is a “controlled company” under the governance rules of the NYSE Alternext), market comparable valuations, and expected results of operations. We compared the resulting estimated fair value to the equity value of the Company as of October 31, 2008 and determined that there was an impairment of goodwill. In step two, we then allocated the estimated fair value to all of the assets and liabilities of the Company (including unrecognized intangible assets) as if the Company had been acquired in a business combination and the estimated fair value was the price paid. We then recognized impairment in the amount by which the carrying value of goodwill exceeded the implied value of goodwill as determined in this allocation.

Company Name		Exchange		Symbol
Coca Cola Bottling Co. Consolidated		NYSE		COKE
Farmer Bros. Co.		NASDAQ		FARM
Green Mountain Coffee Roasters, Inc.		NASDAQ		GMCR
Hansen Natural, Corp.		NASDAQ		HANS
Coca Cola Inc.		NYSE		CCE
National Beverage Corp.		NASDAQ		FIZZ
PepsiAmericas, Inc.		NYSE		PAS
Pepsi Bottling Group, Inc.		NYSE		PBG

We believe that the impairment was primarily the result of a decline in the quoted market prices of our stock at year-end below our book carrying value, and was not due to any changes in our core business. There was no event or change in circumstance that would more likely than not reduce the fair value of our underlying net assets below their carrying amount prior to the annual impairment test.

We conducted a similar assessment of goodwill as of October 31, 2007 and concluded that goodwill was not impaired as of that date.

Other Income and Expense, Income Taxes, and (Loss) Income from Operations

Interest expense was $3,005,000 for fiscal year 2008 compared to $3,250,000 for fiscal year 2007, a decrease of $245,000. The decrease is attributable to lower outstanding debt and variable interest rates that more than offset higher interest rates. Higher interest rates were a result of fixing senior debt at a long term rate higher than short term market rates when the debt was re-financed in 2007.

Loss before income taxes in fiscal year 2008 was $18,867,000, compared to income before income taxes in fiscal year 2007 of $3,393,000, a decrease of $22,260,000. As noted above, the most significant component of the loss before income taxes in fiscal 2008 was goodwill impairment of $22,359,000. Aside from the impairment charge, operating results improved slightly as a result of higher sales, stable cost of goods sold and lower interest expense offset by higher operating costs. The tax expense for fiscal year 2008 was $969,000 compared to $1,317,000 for fiscal year 2007 and resulted in an effective tax rate of (5%) in 2008 and 39% in 2007. The negative tax rate in 2008 is attributable to the exclusion of the impairment loss from the determination of taxable income. In addition, the effective tax rate was impacted by the affect of expected tax credits for the installation of solar electricity generating equipment during fiscal year 2008 and by a valuation allowance set up for the write off of the notes for $532,043 referenced above. Our total effective tax rate is a combination of federal and state rates for the states in which we operate.

Net Income (Loss)

The net loss in fiscal year 2008 was $(19,836,000) compared to net income of $2,076,000 in 2007, a decrease of $21,912,000. As noted above, the most significant component of the net loss in 2008 was goodwill impairment of $22,359,000. Net income (loss) was completely attributable to continuing operations.

Based on the weighted average number of shares of Common Stock outstanding of 21,564,000 (basic and diluted), loss per share in fiscal year 2008 was ($.92) per share. This was a decrease of $1.02 per share from fiscal year 2007, when the weighted average number of shares of Common Stock outstanding was 21,624,000 (basic and diluted) and we had net income of $.10 per share.

The fair value of our swaps decreased $422,000 during fiscal year 2008 compared to a decrease of $244,000 in 2007. This resulted in unrealized losses of $263,000 and $144,000, net of taxes, respectively, for the fiscal years ended October 31, 2008 and 2007. The decrease during the year has been recognized as an adjustment to net income (loss) to arrive at comprehensive income (loss) as defined by the applicable accounting standards. Further, the cumulative adjustment over the life of the instrument has been recorded as a current liability and accumulated other comprehensive loss on our consolidated balance sheet.

Fiscal Year Ended October 31, 2007 Compared to Fiscal Year Ended October 31, 2006

Sales

Sales for fiscal year 2007 were $65,231,000 compared to $62,774,000 for 2006, an increase of $2,457,000 or 4%. Sales attributable to acquisitions in fiscal year 2007 were $493,000. Net of the acquisitions, sales increased 3%.

The comparative breakdown of sales is as follows:

Product Line		2007				2006				Difference				% Diff.
		(in 000’s $)				(in 000’s $)				(in 000’s $)
Water		$	29,560			$	28,886			$	674				2	%
Coffee and Related			19,341				17,430				1,911				11	%
Equipment Rental			9,143				9,013				130				1	%
Other			7,187				7,445				(258	)			(3	%)
Total		$	65,231			$	62,774			$	2,457				4	%

Water — The aggregate increase in water sales was a result of 3% increase in price and a 1% decrease in volume. The increase in price was attributable to general increases in list prices. The decrease in volume was primarily a result of a decrease in bottles sold to distributors. Sales to distributors, which are 3% of total water sales, decreased 15%. Bottles sold in our route system increased 1%. Volume was favorably impacted by several small acquisitions completed during the year. Sales increased 1% as a result of these acquisitions.

Coffee — The increase in sales was primarily due to the growth of single serve coffee, which grew 17% to $7,328,000 in fiscal year 2007 compared to $6,260,000 in fiscal year 2006. The profit margin on single serve coffee products increased in 2007 compared to 2006 but is lower than that for traditional water and coffee products. Acquisitions had no impact on coffee sales in 2007.

Equipment Rental — Rental equipment placements increased 6% in fiscal year 2007 compared to fiscal year 2006. Average rental charges for equipment decreased 3% in 2007 compared to 2006 and was primarily a result of retail competition and a higher demand for single serve coffee units. Coffee brewers generally have lower rental charges than water coolers. The impact of acquisitions on equipment rental was not material.

Other — Other revenue decreased as a result of a change of approximately $201,000 in the estimate of container deposit liability brought about by the loss of a customer as well as higher miscellaneous discounts. Otherwise, sales of other products such as soft drinks, single serve water, cups, and vending items increased 9%.

Gross Profit/Cost of Goods Sold

Gross profit increased $742,000, or 2% in fiscal year 2007 compared to 2006, to $37,042,000 from $36,300,000. As a percentage of sales, gross profit decreased to 56.8% of sales from 57.8% for the respective period. The dollar increase in gross profit was attributable to higher sales. The decrease in gross profit, as a percentage of sales, was attributable to a change in product sales mix as well as a higher container return charge in the second quarter. Product mix was influenced by higher volume growth of single serve coffee which has a lower profit margin than water and traditional coffee products.

Cost of goods sold includes all costs to bottle water, costs of purchasing and receiving products for resale, including freight, as well as costs associated with product quality, warehousing and handling costs, internal transfers, and the repair and service of rental equipment, but does not include the costs of distributing our product to our customers. We include distribution costs in selling, general, and administrative expense, and the amount is reported below. Other companies may include

distribution costs in their cost of goods sold, in which case, on a comparative basis, such other companies may have a lower gross margin as a result.

Income from Operations/Operating Expenses

Income from operations was $6,643,000 in 2007 compared to a loss from operations of $16,470,000 in 2006, an improvement of $23,113,000. The most significant component of this improvement was goodwill impairment of $22,950,000 in 2006. There was no such impairment in 2007. Total operating expenses decreased to $30,399,000 for the year, down from $52,771,000 the prior year, a decrease of $22,372,000. Once again, the most significant contributor to the higher operating expenses in 2006 was the impairment charge of $22,950,000. Net of impairment, operating expenses increased slightly. The increase, in general, was a result of additional expenses due to increased sales.

Selling, general and administrative (SG&A) expenses were $27,969,000 in fiscal year 2007 and $27,934,000 in 2006, an increase of $35,000, less than 1%. Of total SG&A expenses, route sales costs increased 1%, or $163,000, to $13,558,000 in fiscal year 2007 from $13,395,000 in fiscal year 2006, primarily related to labor for commission-based sales from increased sales. Included in our SG&A expenses, total direct distribution related costs increased $189,000, or 1%, to $12,930,000 in fiscal year 2007 from $12,741,000 in fiscal year 2006. Selling costs decreased 11%, or $329,000, to $2,732,000 in fiscal year 2007 from $3,061,000 in fiscal year 2006, as a result of a decrease in staffing costs. Administrative costs increased 2%, or $201,000, to $11,679,000 in fiscal year 2007 from $11,478,000 in fiscal year 2006, as a result of higher compensation expense.

Advertising expenses increased to $1,602,000 in fiscal year 2007 from $1,083,000 in 2006, an increase of $519,000, or 48%. The increase in advertising costs was related to higher print advertising, advertising production and an advertising campaign in southern New England comprised of radio, billboards, and distribution of samples to increase brand awareness.

Amortization decreased to $846,000 in fiscal year 2007 from $878,000 in 2006. This decrease is attributable to some intangible assets acquired in prior years being fully amortized.

We had a gain from the sale of miscellaneous assets in fiscal year 2007 of $18,000. We had a gain on the sale of assets of $74,000 in fiscal year 2006 that was primarily generated by the sale of a small portion of our customer lists.

In fiscal year 2006, we incurred an impairment loss of $22,950,000. The impairment loss was a non-cash charge and was a result of the assessment of our goodwill as of October 31, 2006. Goodwill had been recorded for acquisitions from 1996 through 2006. Our assessment concluded that goodwill on our books exceeded the value as prescribed by SFAS No. 142. The loss was a result of the acquisitions not yielding the anticipated economic benefit. We conducted a similar assessment of goodwill as of October 31, 2007 and concluded that goodwill was not impaired as of that date.

Other Income and Expense, Income Taxes, and Income from Operations

Interest expense was $3,250,000 for fiscal year 2007 compared to $3,268,000 for fiscal year 2006, a decrease of $18,000. Lower interest costs were primarily a result of reduced amounts of senior debt. Lower loan balances were partially offset by higher market interest rates and fixing new senior debt at higher rates.

We recorded $750,000 as other income in fiscal year 2006 related to the settlement of our case against Nestle. In fiscal year 2007 we had no legal settlements.

Income from operations before income taxes in fiscal year 2007 was $3,393,000, compared to a loss from continuing operations before income tax expense in fiscal year 2006 of $18,989,000, an improvement of $22,382,000. As noted above, the most significant component of loss from continuing operations in fiscal 2006 was goodwill impairment of $22,950,000. In addition, there was not a recurrence of the legal settlement in 2007 that occurred in 2006. Aside from those two items, the improvement reflected higher sales in 2007. The tax expense for fiscal year 2007 was $1,317,000 compared to $1,682,000 for fiscal year 2006 and resulted in an effective tax rate of 39% in 2007 and (9%) in 2006. The decrease in income tax expense is primarily a result of lower taxable income. The negative tax rate in 2006 is attributable to the exclusion of the impairment loss from taxable income. Our total effective tax rate is a combination of federal and state rates for the states in which we operate.

Net Income (Loss)

Net income in fiscal year 2007 was $2,076,000 compared to a net loss of $20,670,000 in 2006, an improvement of $22,746,000. As noted above, the most significant component of the net loss in 2006 was goodwill impairment of $22,950,000. Net income (loss) was completely attributable to continuing operations.

Based on the weighted average number of shares of Common Stock outstanding of 21,624,000 (basic and diluted), earnings per share in fiscal year 2007 was $.10 per share. This was an improvement of $1.06 per share over fiscal year 2006, when the weighted average number of shares of Common Stock outstanding in 2006 was 21,631,000 (basic and diluted) and we had a net loss of $(.96) per share.

The fair value of our swaps decreased $244,000 during fiscal year 2007 compared to a decrease of $134,000 in 2006. This resulted in unrealized losses of $144,000 and $92,000, net of taxes, respectively, for the fiscal years ended October 31, 2007 and 2006. The decrease during the year has been recognized as an adjustment to net income (loss) to arrive at comprehensive income (loss) as defined by the applicable accounting standards. Further, the cumulative adjustment over the life of the instrument has been recorded as a current liability and accumulated other comprehensive loss on our consolidated balance sheet.

Liquidity and Capital Resources

As of October 31, 2008, we had working capital of $3,103,000 compared to $2,608,000 as of October 31, 2007, an increase of $495,000. The increase is primarily a result of an increase in other current assets related to prepaid income taxes. The prepaid income taxes in 2008 reflect an anticipated refund for fiscal year 2008 compared to an expected liability for the previous fiscal year. The difference accounted for a net increase of $1,015,000. This more than offset a decrease in cash of $692,000.

Net cash provided by operating activities decreased $425,000, or 6%, to $6,521,000 from $6,946,000. The decrease was attributable to cash used for the reduction of accrued expenses that more than offset the net loss plus the non-cash goodwill impairment and other non-cash expenses. The usual non-cash expenses also included a provision for bad debt expense for two notes receivable described in more detail below.

We use cash provided by operations to repay debt and fund capital expenditures. In fiscal year 2008, we used $3,282,000 primarily for scheduled repayments of our term debt. We used $3,982,000 for capital expenditures and borrowed $422,000 from our line of credit to finance those expenditures. Capital expenditures were substantially higher than the same period last year because of $933,000 expended on our solar electricity generation project and in addition to routine expenditures for coolers, brewers, bottles and racks related to home and office distribution. The expenditures on the solar project are net of $1,159,000 received from a grant for the project through October 31, 2008. The total cost of the project was $2,092,000 and we anticipate receiving an additional $128,000 in related grant revenue in the next fiscal year. The grant is subject to certain conditions that management anticipates being able to comply with completely.

In the second quarter of fiscal year 2008, we recorded a provision for bad debt expense against the entire balance of an unsecured subordinated note that was receivable from Trident LLC. The note, which was due in full in 2011 and had a principal balance of $475,000, represented the remaining portion of the sales price that was receivable from the sale of our retail operations in March, 2004. The note was considered fully impaired primarily based on information from Trident that it had closed its principal facility and generally ceased its operations due to cash flow problems. We have also made a provision of $57,000 in 2008 against another note receivable that represents the portion that we estimate to be uncollectible.

As of October 31, 2008 we had outstanding balances of $16,800,000 on our term loan, and $1,000,000 on our $10,000,000 acquisition line of credit with Bank of America. As of that date there was no balance outstanding on our $6,000,000 revolving line of credit with Bank of America. In addition, there was an outstanding letter of credit for $1,485,000 issued against the revolving line of credit’s availability. As of October 31, 2008 there was $9,000,000 and $4,515,000 available on the acquisition and revolving lines of credit, respectively.

As of October 31, 2008, we had an interest rate swap agreement with Bank of America in effect. The intent of the instrument is to fix the interest rate on 75% of the outstanding balance on the Term Loan as required by the credit facility. The swap fixes the interest rate for the swapped amount at 6.62% (4.87% plus the applicable margin, 1.75%). As of October 31, 2008, we had approximately $5 million of debt subject to variable interest rates. Under the credit facility with Bank of America, interest is paid at a rate of LIBOR plus a margin of 1.75% on term debt and 1.50% on the line of credit resulting in variable interest rates of 5.56% and 5.31% respectively at October 31, 2008.

Our credit facility requires that we be in compliance with certain financial covenants at the end of each fiscal quarter. The covenants include senior debt service coverage as defined of greater than 1.25 to 1, total debt service coverage as defined of greater than 1 to 1, and senior debt to EBITDA as defined of no greater than 2.5 to 1. As of October 31, 2008, we were in compliance with all of the financial covenants of our credit facility and we expect to be in compliance in the foreseeable future.

We used $243,000 of cash to purchase shares of our common stock on the open market during fiscal year 2008.

The net deferred tax liability at October 31, 2008 represents temporary timing differences, primarily attributable to depreciation and amortization, between book and tax calculations. We have used all of our federal net operating loss carryforwards and will have to fund our tax liabilities with cash in the current fiscal year and in the future.

In addition to our senior and subordinated debt commitments, we have significant future cash commitments, primarily in the form of operating leases that are not reported on the balance sheet. These operating leases are described in Note 16 to our Audited Consolidated Financial Statements.

The following table sets forth our contractual commitments as of October 31, 2008:

		Payment due by Period
Contractual Obligations		Total				2009				2010-2011				2012-2013				After 2013
Debt		$	31,877,000			$	3,315,000			$	6,820,000			$	6,900,000			$	14,842,000
Interest on Debt (1)			12,961,000				2,686,000				4,716,000				3,862,000				1,697,000
Operating Leases			12,728,000				3,346,000				4,909,000				3,062,000				1,411,000
Total		$	57,566,000			$	9,347,000			$	16,445,000			$	13,824,000			$	17,950,000

As of the date of this Annual Report on Form 10-K, we have no other material contractual obligations or commitments.

Inflation has had no material impact on our performance.

Factors Affecting Future Cash Flow

Generating cash from operating activities and access to credit is integral to the success of our business. We continue to generate cash from operating activities to service scheduled debt repayment and fund capital expenditures. In addition, we have borrowed from our acquisition line of credit for capital expenditures and acquisitions. We also lease a significant amount of our vehicles. Our current revolving and acquisition lines of credit mature in April 2010.

Recent adverse economic conditions nationally have negatively impacted many businesses revenue and profitability and severely restricted credit availability. We began to experience the effect of this environment late in fiscal year 2008. Through the end of the year this impact has not materially jeopardized our cash flow or our credit standing but we expect that it will continue, possibly more severely based on many trends and forecasts, into 2009. Like most businesses, we are taking steps to preserve cash flow but no assurance can be given that the future economic environment will not adversely affect our cash flow and results of operations or that we will have adequate access to credit.

Factors Affecting Quarterly Performance

Our business and financial trends vary from quarter to quarter based on, but not limited to, seasonal demands for our products, climate, and economic and geographic trends. Consequently, results for any particular fiscal quarter are not necessarily indicative, through extrapolation, or otherwise, of results for a longer period.

Critical Accounting Policies

Our financial statements are prepared in accordance with generally accepted accounting principles. Preparation of the statements in accordance with these principles requires that we make estimates, using available data and our judgment for such things as valuing assets, accruing liabilities, and estimating expenses. We believe that the estimates, assumptions and judgments involved in the accounting policies described below have the greatest potential impact on our financial statements, so we consider these to be our critical accounting policies and estimates. Because of the uncertainty inherent in these matters, actual results could differ from the estimates we use in applying the critical accounting policies. We base our ongoing estimates on historical experience and other various assumptions that we believe to be reasonable under the circumstances.

Accounts Receivable — Allowance for Doubtful Accounts

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

Fixed Assets — Depreciation

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

Goodwill — Intangible Asset Impairment

We have acquired a significant number of companies. The difference between the value of the assets and liabilities acquired, including transaction costs, and the purchase price is recorded as goodwill. If goodwill is not impaired, it would remain as an asset on our balance sheet at the value acquired. If it is impaired, we would be required to write down the asset to an amount that accurately reflects its estimated value. We completed a valuation of the Company performed as of October 31, 2007, and goodwill was not impaired as of that date. As of October 31, 2008, using a similar valuation process, comparing the fair value to the carrying value of the Company, we determined that goodwill was impaired at that time. As a result of this process, the Company recorded an impairment loss on goodwill of $22,359,000 in 2008. In determining these valuations we relied, in part, on our projections of future cash flows. If these projections change in the future,

there may be a material impact on the valuation of the Company, which may result in an additional impairment of goodwill.

Income Taxes

In accordance with SFAS No. 109 “Accounting for Income Taxes”, we recognize deferred tax assets and liabilities based on temporary differences between the financial statement carrying amount of assets and liabilities and their corresponding tax basis. The valuation of these assets and liabilities is based on estimates that are dependent on rate and time assumptions. If these estimates do not prove to be correct in the future, we may have over or understated income tax expense and, as a result, earnings.

Financial Accounting Standards Board (“FASB”) Interpretation No. 48, “Accounting for Uncertainty in Income Taxes”, is an interpretation of FASB Statement 109 (“FIN 48”). This statement clarifies the criteria that an individual tax position must satisfy for some or all of the benefits of that position to be recognized in a company’s financial statements. FIN 48 prescribes a recognition threshold of more-likely-than-not, and a measurement attribute for all tax positions taken or expected to be taken on a tax return in order for those tax positions to be recognized in the financial statements. The Company adopted the provisions of FIN 48 at the beginning of fiscal year 2008.

Stock Based Compensation

At the beginning of fiscal year 2006, we adopted SFAS No. 123(R) “Share-based Payments” (revised 2004), which requires us to recognize the cost of equity issued in exchange for services. The cost of equity is determined using interest rate, volatility, and expected life assumptions. This pronouncement did not have a material impact on our financial position in fiscal years 2006, 2007, or 2008 since we had an immaterial amount of equity (options) issued or vesting during the period.

In prior years, following the accounting treatment prescribed by APB Opinion No. 25, “Accounting for Stock Issued to Employees,” we have recognized no compensation expense for our stock option awards because the exercise price of our stock options equaled the market price of the underlying stock on the date of option grant. If our compensation committee chose to award options at lower than market prices, we would have been required to recognize compensation expense. The compensation committee issued restricted shares of our stock and we recorded compensation expense over the vesting period as a result of the issuance.

We estimate a risk free rate of return based on current (at the time of option issuance) U. S. Treasury bonds and calculate the volatility of its stock price over the past twelve months from the option issuance date. The fluctuations in the volatility assumption used in the calculation over the years reported is a direct result of the increases and decrease in the stock price over that time. All other factors being equal, a 10% increase in the volatility percentage results in approximately a 12% increase in the fair value of the options, net of tax.

Off-Balance Sheet Arrangements

We lease various facilities and equipment under cancelable and non-cancelable short and long term operating leases, which are described in Note 16 to our Audited Consolidated Financial Statements contained in this Annual Report on Form 10-K.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

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

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

None.

ITEM 9A(T). CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

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

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

Internal Control Over Financial Reporting

a) Management’s Annual Report on Internal Control Over Financial Reporting

The management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting for the Company. Internal control over financial reporting is defined in Rule 13a-15(f) or 15d-15(f) promulgated under the Securities Exchange Act of 1934 as a process designed by, or under the supervision of, the Company’s principal executive and principal financial officers and effected by the Company’s board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:

	•		pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company;
	•		provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and
	•		provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

The Company’s management assessed the effectiveness of the Company’s internal control over financial reporting as of October 31, 2008. In making this assessment, the Company’s management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework.

Based on our assessment, management concluded that, as of October 31, 2008, the Company’s internal control over financial reporting is effective based on those criteria.

This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this annual report.

b) Changes in Internal Control Over Financial Reporting

No change in our internal control over financial reporting occurred during the fiscal quarter ended October 31, 2008 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

ITEM 9B. OTHER INFORMATION.

None.

PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.

The information required by this Item is incorporated by reference to the sections captioned “Directors”, “Our Executive Officers”, “Section 16(a) Beneficial Ownership Reporting Compliance” and “Corporate Governance” in our 2009 proxy statement to be filed with the SEC within 120 days after the end of our fiscal year ended October 31, 2008.

ITEM 11. EXECUTIVE COMPENSATION.

The information required by this Item is incorporated by reference to the sections captioned “Compensation of Executive Officers” and “Compensation of Non-Employee Directors” in our 2009 proxy statement to be filed with the SEC within 120 days after the end of our fiscal year ended October 31, 2008.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.

Securities Authorized for Issuance Under Equity Compensation Plans.

The following table sets forth certain information as of October 31, 2008 about shares of our Common Stock that may be issued upon the exercise of options and other rights under our existing equity compensation plans and arrangements, divided between plans approved by our stockholders and plans or arrangements that were not required to be and were not submitted to our stockholders for approval.

Equity Compensation Plan Information

(a)

(b)

(c)

Number of Securities remaining available for

Number of Securities to be

Weighted-average exercise

future issuance under

issued upon exercise of

price of outstanding

equity compensation plans

outstanding options,

options, warrants and

(excluding securities

Plan Category

warrants and rights

rights

reflected in column (a)).

Equity compensation plans approved by security holders

592,700

$

2.91

1,631,300

Equity compensation plans not approved by security holders

-0-

—

-0-

Total

592,700

$

2.91

1,631,300

Additional information required by this Item is incorporated by reference to the section captioned “Security Ownership of Certain Beneficial Owners and Management” in our 2009 proxy statement to be filed with the SEC within 120 days after the end of our fiscal year ended October 31, 2008.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.

The information required by this Item is incorporated by reference to the section captioned “Corporate Governance” in our 2009 proxy statement to be filed with the SEC within 120 days after the end of our fiscal year ended October 31, 2008.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.

The information required by this Item is incorporated by reference to the sections captioned “Independent Registered Public Accounting Firm Fees” and “Pre-Approval Policies and Procedures” in our 2009 proxy statement to be filed with the SEC within 120 days after the end of our fiscal year ended October 31, 2008.

PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

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

(1) Financial Statements
Report of Independent Registered Public Accounting Firm		F-1
Consolidated Balance Sheets as of October 31, 2008 and 2007		F-2
Consolidated Statements of Operations for the years ended October 31, 2008, 2007 and 2006		F-3
Consolidated Statements of Shareholders’ Equity and Comprehensive income (loss) for the years ended October 31, 2008, 2007 and 2006		F-4
Consolidated Statements of Cash Flows for the years ended October 31, 2008, 2007 and 2006		F-5
Notes to Consolidated Financial Statements		F-6 - F-27

     (2) Schedules

            None

     (3) Exhibits :

Filed with

Exhibit

this Form

Incorporated by Reference

No.

Description

10-K

Form

Filing Date

Exhibit No.

3.1

Certificate of Incorporation

S-4

September 6, 2000

Exhibit B to Appendix A

3.2

Certificate of Amendment to Certificate of Incorporation

8-K

October 19, 2000

4.2

3.3

By-laws

10-Q

September 14, 2001

3.3

4.1

Registration Rights Agreement with Peter K. Baker, Henry E. Baker, John B. Baker and Ross Rapaport

8-K

October 19, 2000

4.6

10.1

*

1998 Incentive and Non-Statutory Stock Option Plan, as amended

14A

March 10, 2003

A

10.2

*

1999 Employee Stock Purchase Plan

14A

March 15, 1999

A

10.3

*

2004 Stock Incentive Plan

14A

March 9, 2004

B

10.4

*

Instrument of Amendment dated September 22, 2005 amending the 1999 Employee Stock Purchase Plan

8-K

September 28, 2005

10.1

10.5

*

Employment Agreement dated May 2, 2007 with Peter K. Baker

8-K

May 2, 2007

10.1

10.6

*

Employment Agreement dated May 2, 2007 with Bruce S. MacDonald

8-K

May 2, 2007

10.3

10.7

*

Employment Agreement dated May 2, 2007 with John B. Baker

8-K

May 2, 2007

10.2

10.8

Lease of Grounds in Stamford, Connecticut from Henry E. Baker

S-4

September 6, 2000

10.24

10.9

Lease of Buildings and Grounds in Watertown, Connecticut from the Baker’s Grandchildren Trust

S-4

September 6, 2000

10.22

Filed with

Exhibit

this Form

Incorporated by Reference

No.

Description

10-K

Form

Filing Date

Exhibit No.

10.10

Lease of Building in Stamford, Connecticut from Henry E. Baker

S-4

September 6, 2000

10.23

10.11

First Amendment to the Lease of Buildings and Grounds in Watertown, Connecticut from the Baker’s Grandchildren Trust

10-Q

September 14, 2007

10.4

10.12

Credit Agreement dated April 5, 2005 with Bank of America and Webster Bank

10-Q

July 8, 2005

10.1

10.13

Form of Term Note dated April 5, 2005 issued to Bank of America and Webster Bank

10-Q

July 8, 2005

10.2

10.14

Form of Subordination and Pledge Agreement dated April 5, 2005 between Henry E. Baker, Joan Baker, John B. Baker, Peter K. Baker and Bank of America

10-Q

July 8, 2005

10.3

10.15

Form of Second Amended and Restated Promissory Note dated April 5, 2005 issued to Henry E. Baker, Joan Baker, John B. Baker and Peter K. Baker

10-Q

July 8, 2005

10.4

10.16

Form of Acquisition Note dated April 5, 2005 issued to Bank of America and Webster Bank

10-Q

July 8, 2005

10.5

10.17

Form of Revolving Credit Note dated April 5, 2005 issued to Bank of America and Webster Bank

10-Q

July 8, 2005

10.6

10.18

First Amendment to the Credit Agreement dated April 5, 2005 with Bank of America

10-Q

September 14, 2007

10.1

10.19

Second Amendment to the Credit Agreement dated April 5, 2005 with Bank of America

10-Q

September 14, 2007

10.2

10.20

Third Amendment to the Credit Agreement dated April 5, 2005 with Bank of America

10-Q

September 14, 2007

10.3

10.21

Form of Indemnification Agreement dated November 2, 2005 with each of Henry E. Baker, John B. Baker, Peter K. Baker, Phillip Davidowitz,David Jurasek, Bruce S. MacDonald and Ross S. Rapaport

10-K

January 30, 2006

10.21

10.22

Form of Indemnification Agreement dated November 2, 2005 with each of John M. Lapides and Martin A. Dytrych

10-K

January 30, 2006

10.22

10.23

Purchase and Sale Agreement dated March 1, 2004 with MicroPack Corporation

10-Q

March 16, 2004

10.27

10.24

Supply and License Agreement dated March 1, 2004 with MicroPack Corporation

10-Q

March 16, 2004

10.29

10.25

Agreement dated May 5, 2006 with Nestle Waters of North America Inc. to discontinue the Civil Action Vermont Pure Holdings, Ltd. v. Nestle Waters of North America Inc.

10-Q

June 14, 2006

10.1

10.26

Installation Agreement with American Capital Energy, Inc. dated August 29, 2007

10-K

January 29, 2008

10.29

10.27

Financial Assistance Agreement with Connecticut Innovations dated August 20, 2007

10-K

January 29, 2008

10.30

10.28

Fourth Amendment to the Credit Agreement dated April 5, 2005 with Bank of America

10-Q

September 15, 2008

10.1

21.1

Subsidiary

X

23.1

Consent of Wolf & Company, P.C.

X

31.1

Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

X

Filed with

Exhibit

this Form

Incorporated by Reference

No.

Description

10-K

Form

Filing Date

Exhibit No.

31.2

Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

X

32.1

Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

X

32.2

Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

X

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/ Peter K. Baker
Dated: January 29, 2009				Peter K. Baker, Chief Executive Officer

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

Name		Title		Date
/s/ Ross S. Rapaport   Ross S. Rapaport		Chairman of the Board of Directors		January 29, 2009
/s/ Henry E. Baker   Henry E. Baker		Director, Chairman Emeritus		January 29, 2009
/s/ John B. Baker   John B. Baker		Executive Vice President and Director		January 29, 2009
/s/ Peter K. Baker   Peter K. Baker		Chief Executive Officer and Director		January 29, 2009
/s/ Phillip Davidowitz   Phillip Davidowitz		Director		January 29, 2009
/s/ Martin A. Dytrych   Martin A. Dytrych		Director		January 29, 2009
/s/ John M. Lapides   John M. Lapides		Director		January 29, 2009
/s/ Bruce S. MacDonald   Bruce S. MacDonald		Chief Financial Officer, Chief Accounting Officer and Secretary		January 29, 2009

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

		PAGE
Report of the Independent Registered Public Accounting Firm		F-1
Financial Statements:
Consolidated Balance Sheets, October 31, 2008 and 2007		F-2
Consolidated Statements of Operations, Fiscal Years Ended October 31, 2008, 2007, and 2006		F-3
Consolidated Statements of Stockholders’ Equity and Comprehensive Income Fiscal Years Ended October 31, 2008, 2007, and 2006		F-4
Consolidated Statements of Cash Flows, Fiscal Years Ended October 31, 2008, 2007, and 2006		F-5
Notes to Consolidated Financial Statements		F-6 - F-27

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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

We have audited the accompanying consolidated balance sheets of Vermont Pure Holdings, Ltd. and subsidiary as of October 31, 2008 and 2007, and the related consolidated statements of operations, comprehensive income (loss), stockholders’ equity, and cash flows for each of the three years in the period ended October 31, 2008. 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 the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Vermont Pure Holdings, Ltd. and subsidiary as of October 31, 2008 and 2007, and the results of their operations and their cash flows for each of the three years in the period ended October 31, 2008, in conformity with U.S. generally accepted accounting principles.

/s/ Wolf & Company, P.C.
Boston, Massachusetts
January 27, 2009

VERMONT PURE HOLDINGS, LTD. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

		October 31,				October 31,
		2008				2007
ASSETS
CURRENT ASSETS:
Cash and cash equivalents		$	1,181,737			$	1,873,385
Accounts receivable, trade — net of reserve of $414,301 and $354,825 for 2008 and 2007, respectively			7,842,819				7,522,831
Inventories			1,669,949				1,711,366
Current portion of deferred tax asset			744,087				499,441
Other current assets			1,612,605				683,212
TOTAL CURRENT ASSETS			13,051,197				12,290,235
PROPERTY AND EQUIPMENT — net			10,563,388				10,697,018
OTHER ASSETS:
Goodwill			32,080,669				54,423,997
Other intangible assets — net			2,084,542				2,653,488
Other assets			152,333				696,139
TOTAL OTHER ASSETS			34,317,544				57,773,624
TOTAL ASSETS		$	57,932,129			$	80,760,877
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Current portion of long term debt		$	3,315,079			$	3,260,030
Accounts payable			2,542,711				2,101,399
Accrued expenses			2,859,277				3,454,487
Current portion of customer deposits			699,921				755,965
Unrealized loss on derivatives			531,673				109,722
TOTAL CURRENT LIABILITIES			9,948,661				9,681,603
Long term debt, less current portion			28,561,928				31,441,667
Deferred tax liability			3,403,696				3,123,091
Customer deposits			2,666,870				2,910,875
TOTAL LIABILITIES			44,581,155				47,157,236
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS’ EQUITY:
Common stock — $.001 par value, 50,000,000 authorized shares, 21,862,739 issued and 21,489,489 outstanding shares as of October 31, 2008 and 21,800,555 issued and 21,606,305 outstanding as of October 31, 2007			21,863				21,800
Additional paid in capital			58,395,551				58,307,395
Treasury stock, at cost, 373,250 shares as of October 31, 2008 and 194,250 shares as of October 31, 2007			(717,301	)			(474,441	)
Accumulated deficit			(44,019,502	)			(24,183,977	)
Accumulated other comprehensive (loss) income			(329,637	)			(67,136	)
TOTAL STOCKHOLDERS’ EQUITY			13,350,974				33,603,641
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY		$	57,932,129			$	80,760,877

See the accompanying notes to the consolidated financial statements.

VERMONT PURE HOLDINGS, LTD. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF OPERATIONS

		Fiscal Year Ended October 31,
		2008				2007				2006
NET SALES		$	69,237,456			$	65,230,997			$	62,773,812
COST OF GOODS SOLD			30,327,137				28,188,533				26,473,269
GROSS PROFIT			38,910,319				37,042,464				36,300,543
OPERATING EXPENSES:
Selling, general and administrative expenses			30,131,964				27,968,022				27,934,390
Advertising expenses			1,530,000				1,602,327				1,082,725
Amortization			887,813				846,160				877,855
Gain on disposal of property and equipment			(136,204	)			(17,511	)			(74,092	)
Impairment loss — goodwill			22,359,091				—				22,950,018
TOTAL OPERATING EXPENSES			54,772,664				30,398,998				52,770,896
INCOME (LOSS) FROM OPERATIONS			(15,862,345	)			6,643,466				(16,470,353	)
OTHER INCOME (EXPENSE):
Interest			(3,004,626	)			(3,249,999	)			(3,268,192	)
Miscellaneous income (expense)			—				—				750,000
TOTAL OTHER EXPENSE, NET			(3,004,626	)			(3,249,999	)			(2,518,192	)
INCOME (LOSS) BEFORE INCOME TAXES			(18,866,971	)			3,393,467				(18,988,545	)
INCOME TAX EXPENSE			968,554				1,317,103				1,681,573
NET INCOME (LOSS)		$	(19,835,525	)		$	2,076,364			$	(20,670,118	)
NET INCOME (LOSS) PER SHARE — BASIC:		$	(0.92	)		$	0.10			$	(0.96	)
NET INCOME (LOSS) PER SHARE — DILUTED:		$	(0.92	)		$	0.10			$	(0.96	)
WEIGHTED AVERAGE SHARES USED IN COMPUTATION — BASIC			21,564,384				21,624,381				21,630,739
WEIGHTED AVERAGE SHARES USED IN COMPUTATION — DILUTED			21,564,384				21,624,381				21,630,739

See the accompanying notes to the consolidated financial statements.

VERMONT PURE HOLDINGS, LTD. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
AND COMPREHENSIVE INCOME (LOSS)

																														Accumulated
		Common								Additional												Treasury								Other
		Shares				Stock				Paid in				Unearned				Treasury				Stock				Accumulated				Comprehensive								Comprehensive
		Issued				Par Value				Capital				Compensation				Shares				Amount				Deficit				Income (Loss)				Total				Income (Loss)
Balance, October 31, 2005			21,744,817			$	21,744			$	58,207,645			$	(134,250	)			71,550			$	(264,735	)		$	(5,590,223	)		$	168,582			$	52,408,763			$	936,075
Shares issued under employee stock purchase plan			82,315				82				124,349																								124,431
Non cash compensation											14,064																								14,064
Restricted stock forfeiture			(75,000	)			(75	)			(134,175	)			134,250																				—
Exercise of stock options			5,000				5				8,995																								9,000
Share retirements			(9,560	)			(9	)			9																								—
Shares repurchased																			67,100				(104,927	)											(104,927	)
Net loss																											(20,670,118	)							(20,670,118	)		$	(20,670,118	)
Unrealized loss on derivatives, net of taxes																															(91,922	)			(91,922	)			(91,922	)
Balance, October 31, 2006			21,747,572				21,747				58,220,887				—				138,650				(369,662	)			(26,260,341	)			76,660				31,689,291			$	(20,762,040	)
Shares issued under employee stock purchase plan			52,983				53				86,508																								86,561
Shares repurchased																			55,600				(104,779	)											(104,779	)
Net income																											2,076,364								2,076,364			$	2,076,364
Unrealized loss on derivatives, net of taxes																															(143,796	)			(143,796	)			(143,796	)
Balance, October 31, 2007			21,800,555				21,800				58,307,395				—				194,250				(474,441	)			(24,183,977	)			(67,136	)			33,603,641			$	1,932,568
Shares issued under employee stock purchase plan			62,184				63				88,156																								88,219
Shares repurchased																			179,000				(242,860	)											(242,860	)
Net loss																											(19,835,525	)							(19,835,525	)		$	(19,835,525	)
Unrealized loss on derivatives, net of taxes																															(262,501	)			(262,501	)			(262,501	)
Balance, October 31, 2008			21,862,739			$	21,863			$	58,395,551			$	—				373,250			$	(717,301	)		$	(44,019,502	)		$	(329,637	)		$	13,350,974			$	(20,098,026	)

See the accompanying notes to the consolidated financial statements.

VERMONT PURE HOLDINGS, LTD. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

		Fiscal Year Ended October 31,
		2008				2007				2006
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)		$	(19,835,525	)		$	2,076,364			$	(20,670,118	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation			4,063,178				4,118,134				4,041,448
Provision for bad debts			345,812				326,435				300,811
Provision for bad debts on notes receivable			532,043				—				—
Amortization			887,813				846,160				877,855
Impairment loss — goodwill			22,359,091				—				22,950,018
Non cash interest expense			110,450				105,783				103,881
Deferred tax expense			195,408				174,594				1,323,734
Gain on disposal of property and equipment			(136,204	)			(17,511	)			(74,092	)
Non cash compensation			—				—				14,064
Changes in assets and liabilities:
Accounts receivable			(665,800	)			(637,212	)			(262,427	)
Inventories			41,417				(519,080	)			(58,971	)
Other current assets			(929,392	)			200,819				211,454
Other assets			11,763				74,073				—
Accounts payable			441,312				96,116				(576,822	)
Accrued expenses			(595,210	)			(30,865	)			423,907
Customer deposits			(305,049	)			132,231				(131,958	)
NET CASH PROVIDED BY OPERATING ACTIVITIES			6,521,107				6,946,041				8,472,784
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment — net of debt			(3,560,014	)			(3,468,690	)			(4,131,441	)
Proceeds from sale of property and equipment			253,725				93,722				190,999
Cash used for acquisitions			(429,608	)			(290,540	)			(409,277	)
Cash used for purchase of trademark			(40,000	)			—				—
NET CASH USED IN INVESTING ACTIVITIES			(3,775,897	)			(3,665,508	)			(4,349,719	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on debt			(3,282,217	)			(3,509,041	)			(3,927,268	)
Purchase of treasury stock			(242,860	)			(104,779	)			(104,927	)
Proceeds from issuance of common stock			88,219				86,561				133,431
NET CASH USED IN FINANCING ACTIVITIES			(3,436,858	)			(3,527,259	)			(3,898,764	)
NET (DECREASE) INCREASE IN CASH			(691,648	)			(246,726	)			224,301
CASH AND CASH EQUIVALENTS — beginning of year			1,873,385				2,120,111				1,895,810
CASH AND CASH EQUIVALENTS — end of year		$	1,181,737			$	1,873,385			$	2,120,111
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION, EXCLUDING NON-CASH FINANCING AND INVESTING ACTIVITIES
Cash paid for interest		$	2,922,374			$	3,297,499			$	3,239,583
Cash paid for taxes		$	2,354,300			$	895,373			$	182,758
NON-CASH FINANCING AND INVESTING ACTIVITIES:
Reduction in notes payable for acquisition		$	—			$	—			$	23,668
Notes payable issued in acquisitions		$	36,000			$	100,407			$	167,750
Note receivable for sale of assets		$	—			$	—			$	195,212
Equipment purchased by acquisition line		$	421,527			$	663,678			$	—