Crystal Rock 10K 2012 Annual report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

[X]	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended October 31, 2012.

[ ]	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

CRYSTAL ROCK HOLDINGS, INC.

(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:

Title of each class		Name of exchange on which registered
Common Stock, par value $.001 per share		NYSE MKT

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 [_] No [X]

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 [_] No [X]

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [X] No [ ]

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

Indicate by check mark whether the registrant is 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 [ ] Accelerated filer [ ]

Non-accelerated filer [ ] Smaller Reporting Company [X]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).

Yes [ ] No [X]

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, 2012, the last business day of the registrant’s most recently completed second fiscal quarter, as reported on the NYSE MKT, was $10,697,241.

The number of shares outstanding of the registrant's Common Stock, $.001 par value per share, was 21,380,731 on January 18, 2013.

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, 2012, 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	4
Item 1A.	Risk Factors	11
Item 1B.	Unresolved Staff Comments	18
Item 2.	Properties	18
Item 3.	Legal Proceedings	18
Item 4.	Mine Safety Disclosure	19
Part II
Item 5.	Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	20
Item 7.	Management's Discussion and Analysis of Financial Condition and Results of Operations	22
Item 8.	Financial Statements and Supplementary Data	34
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	34
Item 9A.	Controls and Procedures	34
Item 9B.	Other Information	35
Part III
Item 10.	Directors, Executive Officers and Corporate Governance	36
Item 11.	Executive Compensation	36
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	36
Item 13.	Certain Relationships and Related Transactions, and Director Independence	37
Item 14.	Principal Accountant Fees and Services	37
Part IV
Item 15.	Exhibits and Financial Statement Schedules	38
	Signatures

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

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In this Annual Report on Form 10-K, “Crystal Rock,” the “Company,” “we,” “us” and “our” refer to Crystal Rock Holdings, Inc. 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 Crystal Rock Holdings, Inc. 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 Crystal Rock Holdings, Ltd. or its subsidiary. All other trademarks are the properties of their respective owners.

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Except for historical facts, the statements in this Annual Report on Form 10-K 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 on Form 10-K 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 on Form 10-K 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

Crystal Rock Holdings, Inc., incorporated in Delaware in 1990, is engaged in the production, marketing and distribution of bottled water (the Crystal Rock® and Vermont Pure® brands) and the distribution of coffee (including our Cool Beans® brand), ancillary products, and other office refreshment products as well as office products (the Crystal Rock Office® brand). 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. Sales of bottled water accounted for 41% and 40% of our total sales in fiscal years 2012 and 2011, respectively. In addition, we believe that the development of the bottled water industry reflects public awareness of the potential contamination and unreliability of some municipal water supplies. Conversely, bottled water has been the recent focus of publicity regarding concerns about the environmental effects of using plastic bottles, as well as the effect on the environment of water extraction and the production and disposal of plastic bottles (see Item 1A, Risk Factors).

Coffee, a product that is counter seasonal to water, is the second leading product in the distribution channel, accounting for 24% of our total sales in fiscal year 2012 and 23% of our total sales in 2011. We sell different brands and sizes of coffee products. We continue to promote our Cool Beans® brand coffee in an effort to increase profitability and create brand equity in the coffee category. 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 are likely to play a significant role in the profitability of these products.

Water Sources, Treatment, and Bottling Operations

Water from local municipalities is the primary source for the Crystal Rock Waters® brand in 3 and 5 gallon bottles. This accounts for 60% of our water bottled in these types of containers. Municipal 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 the municipal sources 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. Water from these springs account for 40% of our total water bottled.

Percolation through the earth's surface is nature's best filter of water. 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 in 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, flood, 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 available 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 could 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 Crystal Rock® and Vermont Pure® water 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. 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 rent and sell coffee brewing equipment and 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 own the Cool Beans® brand of coffee which we distribute throughout our market area. In addition to Cool Beans®, we sell other brands of coffee, most notably, Baronet and Green Mountain Coffee Roasters.

Our extensive distribution system and large customer lists afford us the opportunity to introduce new products that may benefit our current customers or appeal to new customers. From time to time we may capitalize on these opportunities by expanding our product lines or replacing existing products with new ones. In response to the increasingly competitive sales environment, we will consider distributing new products that we believe may enhance our sales and profitability.

Office Products Line

In 2010 we announced that we would add to our product lines in the future by offering a full line of office products using our Crystal Rock OfficeTM brand. Recognizing the value inherent in our distribution system, we do not maintain large inventories of office products. Rather, we primarily purchase office products from large national vendors such as United Stationers that provide just-in-time delivery, with the result that the introduction of our office product line has not resulted, and is not expected to result, in a material outlay of resources to accommodate increased inventory. We anticipate that the broader range of office products will contribute to our sales in the future so that this product line becomes a growing portion of our total sales.

We also expect to grow this part of our business by making appropriate acquisitions. In November 2010 we acquired the assets of a small office products company in Hartford, Connecticut. This acquisition provides us with a customer base and proven product line from which to expand in central Connecticut. In 2011, we introduced office products sold under the Crystal Rock OfficeTM brand throughout Connecticut, and we plan to offer this class of products on a region-by-region basis throughout our entire market area in the future. How rapidly we do this will depend, of course, on our level of success in the office products market.

Despite the advantage of not having to maintain a significant inventory for office products, we note that this line of products does not yield as much margin as our traditional lines, so that incremental sales will not proportionately be as profitable as our traditional lines have been. No assurance can be given that we will achieve the anticipated sales and profitability in the future.

In addition to barriers to entry in this market such as establishing our brand name in the marketplace and developing our information technology systems, we face significant competition from other office products suppliers that have considerably greater assets and resources than we do and may be better known for office products sales in our markets. We believe that we have a well-established distribution system and that the Crystal Rock® family of brands is well known in the regions in which we operate, and we hope to successfully leverage those advantages. Nevertheless, price competition in the office product market can be robust, and there can be no assurance that our office products strategy will be successful.

Marketing and Sales of Branded Products

Crystal Rock products are marketed and distributed under four house brands - Crystal Rock Waters, Vermont Pure Natural Spring Water, Cool Beans Coffee and Crystal Rock Office. Through this combination of brands - and resale of other manufactured brands - we provide a choice of high quality products and value-added services to homes and offices.

Both our water brands feature three and five gallon premium bottled water in addition to a variety of small pack case offerings. Our coffee line includes over 70 varieties in fractional, pod and beans in bags, additionally, we also re-sell other coffee and tea selections. The new office products line will feature over 40,000 products for supplying small and medium-sized business.

Over the last two years we have refocused our efforts on sales and marketing in order to better serve all of our product lines and enhance the value of our distribution system and customer base. With the intent of increasing sales over the long term, we have hired and trained an expanded sales force. In addition, we have incurred significant expenditures to build an information technology infrastructure designed to enhance sales administration and run our business more efficiently. We expect to complete the first phase of these projects in 2013. However, the full impact may not be realized until 2014 and 2015. We have also worked to improve our sales and distribution systems, and we have established a Learning and Development Center in Watertown, Connecticut for our sales force. Concurrently, we have worked to upgrade our website to improve our customers’ abilities to order office and other products online and established a social media presence. (For more information on our sales and technology project see Item 1A, Risk Factors, and Item 7, Management’s Discussion and Analysis.)

We support this marketing and sales effort through a number of methods, including: e-commerce, direct mail, internet advertising, traditional advertising, social media, sales collateral, email marketing, digital/internet technologies, referrals and public relations. We also sponsor local area sporting events, participate in trade shows, maintain high community visibility, and donate to many charitable events.

We market our home and office delivery service throughout most of New England, New York and parts of New Jersey. A combination of telemarketers and sales personnel sell our products and services, and a professional marketing agency develops and manages our brands and market position. Our goal is to optimize our marketing and sales returns through efficient technology investments, personal customer interactions and maintaining consistent visibility.

Advertising and Promotion

We advertise our products through a digital, online strategy focused on promoting expanded product and services, and we look to collect customer data in order to engage and market customer relationships both on and offline. Through a combination of websites, social platforms and internet advertising, we are centralizing and transitioning our marketing efforts to offer and incentivize current and new customers through a larger online presence while providing customers direct purchasing capability. In addition to Yellow Page advertising, we also promote our products through sales collateral, direct mail, various public relations and sponsorship opportunities.

We endeavor to be highly visible in the communities that we serve. In recent years, we have sponsored professional minor league baseball and local sporting events and various charitable and cultural organizations, such as Special Olympics and the Multiple Sclerosis Society, by donating both product and money. In addition, we have been a significant sponsor of a United Way giving campaign to support Live United through the Greater Waterbury Connecticut United Way and featuring local giving options to support the United Way throughout our entire market area.

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 Clayton, 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 the past, we have experienced substantial market fluctuation of fuel prices. However, when fuel prices have increased, we have been able to establish a fuel adjustment charge for our customers that covered the incremental rising cost of fuel. When fuel prices have decreased, they have not decreased enough to offset the incremental fuel cost over what we considered our “base” level for fuel cost. The risk remains that we may not be able to use fuel price adjustments to cover the cost of fuel increases in a volatile market for petroleum products, which could adversely affect our profitability.

Our principal coffee suppliers are Green Mountain Coffee Roasters and Baronet Coffee. Our principal bottle supplier is Parker Plastics.

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 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, the 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, we offer polyethylene terephthalate (“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 expanding it internally and through acquisitions and actively offering it as an alternative product to our bottled water.

Over the years, cheaper water coolers available from retail outlets 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 retail 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. Increased competition has developed for these products, not only from other food and beverage distributors, but office products distributors as well. In addition, retail and internet availability has increased. Machines to brew these packages are different from traditional machines and packages ideally need to be brewed in machines that accommodate the specific package. As a result, the popularity of a certain machine often dictates 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. To further “green” our business we generate solar electricity in our Watertown, Connecticut facility, use high efficiency lighting and vehicles and have instituted no-idling and other driving policies in all of our locations.

Trademarks

We own the trade names of the principal water brands that we sell, Vermont Pure Natural Spring Water® and Crystal Rock®. We also own the Cool Beans® coffee brand, Crystal Rock Office® products brand and 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 is 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. All of our plants and distribution locations are registered with the FDA under the "Public Health Security and Bioterrorism Preparedness and Response Act of 2002". Most recently, the FDA put into effect the Bottled Water Microbial Rule to monitor water sources for E. coli bacteria. We have been in compliance with the testing requirements for this rule prior to and since its inception in December 2009.

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.

Our product labels are subject to state regulation (in addition to 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 recent years, 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. 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 18, 2013, we had 361 full-time employees and 12 part-time employees. None of the employees belong to a labor union. We believe that our relationships with our employees are good.

Additional Available Information

Our principal website is www.crystalrock.com. We make our annual, quarterly and current reports, and amendments to those reports, available free of charge on www.crystalrock.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, officers and greater-than-10% shareholders 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 some of which are controllable and other are 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.

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 MKT, 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 MKT 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 two independent directors.

The personal interests of our directors and officers create conflicts.

As mentioned above, the Baker family group owns a majority of our common stock. In addition, in connection with the acquisition of the 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. As of October 31, 2012, the balance on these notes is $13,000,000. 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. Transactions between the Company and related parties are subject to review and approval by the Audit Committee, which consists entirely of 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 and their ability to execute our strategic planning. 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 Crystal Rock Holdings, Inc. 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.

We depend upon maintaining the integrity of our water sources 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 sources or manufacturing process could lead to product recalls and/or customer illnesses that could materially adversely affect 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 or even contaminating water flow.

In addition, we do not own any of our water sources. Although we believe 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.

Our Company is significantly leveraged. Over the 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.

At October 31, 2012 and 2011, our outstanding senior debt was $9,566,000 and $12,179,000, respectively, and our outstanding subordinated debt was $13,000,000 on both dates. In December 2012 we used cash to re-pay $1,500,000 of subordinated debt. 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 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 used swaps to establish fixed interest rates on 79% 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.

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 in our traditional water market, 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. As we have expanded our product lines, most notably single serve coffee, we have become competitive with other businesses. These include large national and regional office supply companies and retail store chains. Price reductions and the introduction of new products by our competitors can adversely affect our revenues, gross margins, and profits.

Our industry has also been affected by the increasing availability of water coolers in discount retail outlets. This has negatively affected 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, although 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, 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 reused many times. 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.

Our expansion strategy, which began in 2011 and has involved hiring additional sales personnel and building a new information technology (IT) infrastructure system, has been more difficult to execute than we expected. This has resulted in some operating inefficiencies and has negatively affected our earnings and cash flow. While we believe that we can resolve the issues facing us with modifications to our strategy, there is no assurance that we can manage the necessary changes in an optimal way so as to increase revenues and net income, and improve our cash flow.

Beginning in 2011 we have increased operating expenses primarily in two areas, the first by hiring additional sales personnel, and the second by building a new information technology (IT) infrastructure system, the cost of which has been part of selling, general and administrative expense.

In 2011, we began to distribute products under the Crystal Rock OfficeTM brand and commenced a hiring effort to increase our sales force substantially. We believed that we would be able to finish this process in 2012 and obtain the full benefit of it in 2013, but the hiring and training of sales staff has gone slower than anticipated. We now estimate that the benefit of a larger, well trained sales staff may not be fully realized until 2014 or 2015.

The development of our enhanced IT infrastructure system has also been more costly and difficult than we expected. We have been working to build an enhanced system for customer relationship management (CRM) using the well-known platform Salesforce.com, a platform we originally intended to use for all of our CRM needs, including sales, our route system, and customer service. As originally devised, our strategy would have involved replacing our existing route system software with this platform, but difficulties encountered in making the different software systems compatible have pushed this plan back and resulted in operating inefficiencies over the past two years. We are currently assessing the issues involved in this installation and are executing a plan to have the system operational in 2013. We are also not satisfied with the status of our Crystal Rock OfficeTM brand website for online ordering of office products, and believe that a website as robust and effective as we would like may not be fully developed until 2014.

We are working to control our expenses by scaling back our implementation of Salesforce.com and deferring some of our IT investment until revenues stabilize and increase, but there can be no assurance that we can manage these changes in an optimal way so as to increase revenues and net income, and improve our cash flow.

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.

Bottle manufacturers use plastic and other petroleum-based products for the manufacturing of our bottles. Increases in the cost of petroleum will likely have an impact on our bottle costs.

A significant portion of our sales 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.

Our business has been and may continue to be affected from time to time by extremes of weather, which may adversely affect our business.

While changing weather is a constant in our market area, we experienced extreme weather events in 2011 and 2012 that affected sales in those years and beyond. In late August 2011, Tropical Storm Irene caused considerable, widespread damage in parts of our market area. Flooding and resulting road damage reduced our ability to service customers in Vermont and Northern New York. In addition, our costs increased to access our springs and ship products. Subsequently, parts of Connecticut and Massachusetts experienced a major snowstorm in late October 2011, shutting off power and reducing access in some parts of those states for more than a week, with resulting service interruptions and operating cost increases in those areas. More recently, in late October 2012, Hurricane Sandy caused significant destruction in the coastal Connecticut, New York City, and northern New Jersey portions of our market area. Again, our customer service was interrupted, and we incurred extra costs. The effects of extreme weather like these storms is difficult to quantify because of other variables, but in general these disruptions were temporary and without permanent effects on our business. However, the cumulative effect of extremely adverse weather is not favorable to our business.

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 software vendor has a limited number of staff possessing the proprietary information pertaining to the operation of the software. Changes in personnel or ownership in the firm might result in disruption of service. Such changes would be addressed by retaining a new vendor to service the existing software or purchasing a new system. However, any of these events 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. We believe that the economic recession experienced in these areas, particularly in 2008 and 2009, adversely affected our financial results, and these regions are still experiencing a variety of adverse effects from the recession. Continued adverse effects in the regional economies, or 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.

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 2014	10,720	$81,686
Bow, NH	May 2015	12,800	60,000
Rochester, NY	January 2017	15,000	60,000
Buffalo, NY	September 2021	20,000	92,000
Syracuse, NY	October 2017	17,680	75,140
Halfmoon, NY	October 2016	22,500	166,275
Plattsburgh, NY	Month-to-month	5,000	24,000
Watertown, CT*	October 2016	67,000	452,250
Stamford, CT	October 2020	22,000	248,400
White River Junction, VT	May 2014	15,357	77,706
Watertown, CT	May 2013	15,000	57,960
Groton, CT	June 2014	7,500	56,375
Canton, MA Middlebury, CT Watertown, CT	January 2015 February 2016 September 2013	23,966 3,750 1,931	149,788 24,413 24,000
* Corporate headquarters

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

The landlord for the buildings in Stamford and the headquarters in 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.

None.

ITEM 4.

MINE SAFETY DISCLOSURE

None.

PART II

ITEM 5.

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

Our Common Stock is traded on the NYSE MKT under the symbol CRVP. The table below indicates the range of the high and low daily closing prices per share of Common Stock as reported by the exchange.

Fiscal Year Ended October 31, 2012

	High	Low
First Quarter	$ .87	$.65
Second Quarter	$1.12	$.81
Third Quarter	$1.06	$.96
Fourth Quarter	$1.10	$.94

Fiscal Year Ended October 31, 2011

	High	Low
First Quarter	$ .90	$.66
Second Quarter	$1.00	$.77
Third Quarter	$1.54	$.72
Fourth Quarter	$ .90	$.68

The last reported sale price of our Common Stock on the NYSE MKT on January 18, 2013 was $1.04 per share.

As of that date, we had 347 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 Purchases of Equity Securities

The following table summarizes the stock repurchases, by month, that were made during the fourth quarter ended October 31, 2012.

Issuer Purchases of Equity Securities
	Total Number of Shares Purchased	Average Price Paid per Share (1)	Total Number of Shares as Part of a Publicly Announced Program (2)	Maximum Expenditure that May Yet be used for Purchases Under the Program (2)
August 1-31	2,800	$1.02	2,800	$491,831
September 1-30	-	-	-	491,831
October 1-31	-	-	-	491,831
Total	2,800	$1.02	2,800

(1)	Includes transaction costs.

(2)	On May 14, 2012 we announced a program to repurchase up to $500,000 of our common stock. There is no expiration date for the plan to repurchase additional shares and the dollar limit may not be reached.

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 suggestions for reading these pages. The MD&A includes the following sections:

§	Business Overview — a brief description of fiscal year 2012.

§	Results of Operations — an analysis of our consolidated results of operations for the two 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

Sales were slightly lower and our business was less profitable for fiscal 2012 than in fiscal 2011. This continued a trend of lower operating income, net income and cash flow from fiscal 2010 to fiscal 2012. There are a number of factors that contributed to this trend, most notably (a) operational issues such as competition and our response to competitive factors, as well as (b) less controllable factors such as adverse weather conditions and environmental and political issues. The 2012 decrease in sales was largely due to a decrease in coffee sales for the period, without offsetting sales in other product categories, partly due to continuing weather issues in our core market areas.

Competition – In past years, we have discussed the effect of competition on our water sales and water cooler rentals, including pressure from large competitors, both distribution and retail, as well as the movement by consumers to water filtration units. More recently, we have experienced competition for coffee sales from a number of non-traditional competitors. In particular, single-serve coffee and coffee machines have become significant products for office products companies, and have become available in an increasing number of retail and online outlets.

Operational Initiatives – In the face of competition, companies that do not cut prices face significant loss in volume of sales, but cutting prices adversely affects margins and operating income. In the current market environment, we have had to cut our prices to preserve our volume. In response to the competitive pressures noted above, we have, as previously disclosed, an opportunity to leverage our distribution network by selling other products, notably office products under the Crystal Rock OfficeTM brand. Our expansion strategy has also involved refocusing on sales and marketing with a view to enhancing the value of our distribution system and customer relationship. In furtherance of this strategy, beginning in 2011 we have increased operating expenses primarily in two areas, the first by hiring additional sales personnel, and the second by building a new information technology (IT) infrastructure system, the cost of which has been part of SG&A expense. The IT infrastructure build-up is intended both to modernize our existing IT systems in all facets of our business and to develop a first-class web-based system for consumers to order our products.

The execution of our strategy has been somewhat more lengthy than anticipated. In 2011, we began to distribute products under the Crystal Rock OfficeTM brand and commenced a hiring effort to increase our sales force substantially. We believed that we would be able to finish this process in 2012 and obtain the full benefit of it in 2013, but the hiring and training of sales staff has gone slower than anticipated. We now estimate that the benefit of a larger, well trained sales staff may not be fully realized until 2014 or 2015. However, for a larger sales force to increase revenue, we will have to continue to be committed to offering quality products and customer service.

Similarly, the development of our enhanced IT infrastructure system has been more costly and difficult than we expected. We have been working to build an enhanced system for customer relationship management (CRM) using the well-known platform Salesforce.com, a platform we originally intended to use for all of our CRM needs, including sales, our route system, and customer service. As originally devised, our strategy would have involved replacing our existing route system software with this platform, but difficulties encountered in making the different software systems compatible have pushed this plan back and resulted in operating inefficiencies over the past two years. This in turn has negatively impacted our earnings during these periods. We are currently assessing the issues involved in this installation and are executing a plan to have the system operational in 2013. We are also not satisfied with the status of our Crystal Rock OfficeTM brand website for online ordering of office products, and believe that a website as robust and effective as we would like may not be fully developed until 2014.

We are working to control our expenses by scaling back our implementation of Salesforce.com and deferring some of our IT investment until revenues stabilize and increase. While we are optimistic about the effect of these revisions to our strategy, there is no assurance that we can manage these changes in an optimal way so as to increase revenues and net income, and improve our cash flow. We expect 2013 to be a challenging year, but believe that our approach, which is to defer some change until we have consolidated the changes we have made so far, is our best path to success as we pursue the opportunity to become a larger company with a more diverse product offering.

Other Factors – While changing weather is a constant in our market area, we experienced extreme weather events in 2011 and 2012 that affected sales in those years and beyond. In late August 2011, Tropical Storm Irene caused considerable, widespread damage in parts of our market area. Flooding and resulting road damage reduced our ability to service customers in Vermont and Northern New York. In addition, our costs increased to access our springs and ship products. The impact of Tropical Storm Irene was felt into the first quarter of 2012. Subsequently, parts of Connecticut and Massachusetts experienced a major snowstorm in late October 2011, shutting off power and reducing access in some parts of those states for more than a week, with resulting service interruptions and operating cost increases in those areas. The major portion of the financial effect from this early snowstorm was felt in the first quarter of 2012. More recently, in late October 2012, Hurricane Sandy caused significant destruction in the coastal Connecticut, New York City, and northern New Jersey portions of our market area. Again, our customer service was interrupted, and we incurred extra costs. Hurricane Sandy affected our business in the last few days of fiscal 2012 and into the first quarter of fiscal 2013. The effects of extreme weather like these storms is difficult to quantify because of other variables, but in general these disruptions were temporary and without permanent effects on our business.

In terms of local politics, environmental groups have argued that the use of plastic as a bottled water container is wasteful and deleterious, and in a handful of municipalities have banned government purchases. These factors generally affect single-serve water containers more than water sales in 3- and 5-gallon containers, but they do influence our marketplace.

For our fiscal year ended October 31, 2012, we determined our goodwill was impaired (a non-cash charge) in the amount of $19,967,000, which materially reduced our income from operations and net income to losses. At October 31, 2012, the valuation by which we measure goodwill impairment was significantly affected by our lower earnings trend. 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 $16,635,000 and net loss of $18,478,000. But for the impairment of goodwill, those line items would have shown income, not losses.

As of October 31, 2012, we continued to have adequate cash on hand and borrowing capacity while reducing debt. As discussed above, in 2011 and 2012, we used a significant amount of cash to fund an upgrade of our IT infrastructure to facilitate an expansion of our product offerings and run our business more efficiently. Subsequent to fiscal year 2012 we used a significant amount of cash for discretionary subordinated debt reduction.

The market area in which we operate has an uncertain economic environment. While we have created opportunities that we expect will result in increased sales, we anticipate cost pressures related to commodities affecting our business, most notably fuel and coffee, as we continue to build our brands.

Results of Operations

Fiscal Year Ended October 31, 2012 Compared to Fiscal Year Ended October 31, 2011

Sales

Sales for fiscal year 2012 were $71,122,000 compared to $71,610,000 for 2011, a decrease of $488,000 or 1%. Sales attributable to acquisitions in fiscal year 2012 were $105,000.

The comparative breakdown of sales is as follows:

Product Line	2012 (in 000’s $)		2011 (in 000’s $)		Difference (in 000’s $)			% Diff.
Water	$	29,015	$	28,993	$	22			-
Coffee		16,796		17,492		(696	)		(4	%)
Refreshment		11,718		11,753		(35	)		-
Equipment Rental		8,415		8,655		(240	)		(3	%)
Other		5,178		4,717		461			10	%
Total	$	71,122	$	71,610	$	(488	)		1	%

Water – Water sales volume increased 1% as a result of an increase in bottles sold. However, that was offset by a 1% decrease in price. The increase in volume was primarily due to more bottles being sold to outside distributors. Weather continues to have a negative impact on distribution as Tropical Storm Irene and Hurricane Sandy interrupted service in the first and fourth quarters of 2012, respectively. Acquisitions had no significant impact in the change of water sales in fiscal year 2012 compared to 2011.

Coffee – There was a 5% decrease in sales of single-serve coffee, to $11,276,000 from $11,883,000, despite an increase of 75% in our Cool Beans® pod sales. Cool Beans® made up 6% of the category in 2012. There was also a 2% decrease in sales of our traditional coffee products for office and food service brewers. In general, coffee sales declined as a result of strong competition in the marketplace, as well as a changing distribution landscape. Acquisitions did not materially affect this category in 2012 compared to 2011.

Refreshment – A decrease in soft drink and vending sales more than offset increased sales of coffee refreshment products as well as cups.

Equipment Rental – The decrease in equipment rental revenue in fiscal year 2012 compared to the prior year was a result of a 3% decrease in average units in the field while average rental price remained essentially the same. The decrease in placements was due to lower market demand primarily earlier in the year. Acquisitions had no impact in the change of rental revenue in fiscal year 2012 compared to 2011.

Other – The increase is attributable to sales of office products which increased 46% and stamp sales which increased 19%. Fees that are charged to offset energy costs for delivery and freight, raw materials, and bottling operations decreased 2% based on the market price of diesel fuel.

Gross Profit/Cost of Goods Sold

Gross profit decreased $593,000, or 2%, in fiscal year 2012 compared to 2011, to $36,645,000 from $37,238,000. Gross profit as a percentage of sales was 52% for both years. The decrease in gross profit margin was attributable to lower sales, particularly for coffee and rental, and changes in product sales mix, most notably toward higher office products sales, which yield a lower margin. In addition, gross profit in fiscal year 2012 was negatively impacted by a decrease in fuel adjustment charges that are charged to offset energy costs for delivery and freight, raw materials, and bottling operations.

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 (loss) from Operations/Operating Expenses

The loss from operations was $16,635,000 in 2012 compared to income from operations of $4,507,000 in 2011, a decrease of $21,142,000. The most significant component of this decrease was goodwill impairment of $19,967,000 in 2012. There was no such impairment in 2011. Total operating expenses increased to $53,280,000 for the year, from $32,731,000 the prior year, an increase of $20,549,000.

Selling, general and administrative (SG&A) expenses were $31,152,000 in fiscal year 2012 and $30,059,000 in 2011, an increase of $1,093,000, or 4%. Of total SG&A expenses:

Route sales costs increased 2%, or $334,000, to $13,899,000 in fiscal year 2012 from $13,565,000 in fiscal year 2011, primarily related to higher labor, fuel, and vehicle costs. Included as a component of route sales costs are total direct distribution related costs which increased $314,000, or 2%, to $13,193,000 in fiscal year 2012 from $12,879,000 in fiscal year 2011, primarily as a result of higher labor, fuel, and vehicle costs;

·	Selling costs increased 10%, or $462,000, to $5,054,000 in fiscal year 2012 from $4,592,000 in fiscal year 2011 as a result of higher labor costs associated with hiring and training a larger sales staff;

Administrative costs increased 2%, or $297,000, to $12,199,000 in fiscal year 2012 from $11,902,000 in fiscal year 2011, in part as a result of higher costs to enhance our IT infrastructure. Those costs were $1,600,000 in 2012, compared to $1,500,000 in 2011, and more than offset a lower provision for bad debts as well as lower consulting and legal fees.

Advertising expenses decreased to $1,251,000 in fiscal year 2012 from $1,555,000 in 2011, a decrease of $304,000, or 20%. The decrease in advertising costs is primarily related to a decrease in agency costs and internet and Yellow Pages advertising.

Amortization decreased $88,000, or 8%, to $980,000 in fiscal year 2012 from $1,068,000 in 2011. Amortization is attributable to intangible assets that were acquired as part of acquisitions in recent years.

There was a gain from the sale of miscellaneous assets in fiscal year 2012 of $71,000 compared to a loss on the sale of assets of $49,000 in fiscal year 2011. These were sales of miscellaneous assets no longer used in the course of business.

In fiscal year 2012, we incurred an impairment loss of $19,967,000. The impairment loss was a non-cash charge and was a result of the assessment of our goodwill as of October 31, 2012. Goodwill had been recorded for acquisitions from 1996 through 2009. We conducted an assessment of goodwill as of October 31, 2012 and 2011. The assessment of the carrying value of goodwill is a two step process. In step one, the fair value of the Company is determined, using a weighted average of three different approaches: quoted stock price (a market approach), value comparisons to publicly traded companies (see note 1) believed to have comparable reporting units (a market approach), and discounted net cash flow (an income approach). These approaches provide a reasonable estimation of the value of the Company and take into consideration the Company’s thinly traded stock and concentrated holdings, market comparable valuations, and expected results of operations. We used the following percentages for the weighted average of the three different approaches in both fiscal year 2012 and 2011:

__________________________

1 These were the companies used in the year marked:

Company Name	Exchange		Symbol		2012	2011
Coca-Cola Bottling Co., Consolidated		NYSE		COKE	X	X
Farmer Bros. Co.		NASDAQ		FARM	X	X
Green Mountain Coffee Roasters, Inc.		NASDAQ		GMCR	X	X
a-Monster Beverage Corp.		NASDAQ		HANS	X	X
Coca-Cola Enterprises, Inc.		NYSE		MNST	X	X
National Beverage Corp.		NASDAQ		FIZZ	X	X
Cott Corporation		Toronto		BCB	X	X
Coffee Holding Co., Inc.		NASDAQ		JVA	X	X
Dr. Pepper Snapple Group, Inc.		NYSE		DPS	X	X
Leading Brands, Inc.		NASDAQ		LBIX	X	X
Primo Water Corporation		NASDAQ		PRMW	X	X
a-Hansen Natural Corp. changed its name to Monster Beverage Corp. on January 5, 2012.


Quoted stock price	20%
Value comparisons to publicly traded companies	20%
Discounted net cash flow	60%

The resulting estimated fair value is then compared to the Company’s equity value. Our step one assessment as of October 31, 2012 indicated that goodwill on our books may be impaired when we determined the Company’s fair value was less than the Company’s equity as of the valuation date. The assessment as of October 31, 2011 concluded that the Company’s fair value exceeded the Company’s equity, and therefore goodwill was not impaired as of the valuation date.

When an impairment was indicated as of October 31, 2012, we used step two to determine the amount of the impairment. In that process we 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 using the estimated fair value as the price paid. We then recognized impairment in the amount by which the carrying value of goodwill exceeded the implied fair value of goodwill as determined in the allocation.

In establishing fair market valuations in both step one and step two of the goodwill impairment testing process, the Company assumed a nontaxable hypothetical transaction considering the feasibility of an acquisition structure and whether the assumed structure would result in the highest and best use and would provide maximum value to the seller, including consideration of related tax implications.

Impairment was primarily the result of a decline in estimate fair value resulting from the income approach which relies on a discounted cash flow analysis of the Company’s projected cash flows as well as an analysis of comparable “guideline” companies. These valuations are reflective of the competitive business environment that the Company operates in. In addition, as mentioned above, the Company has undertaken operating initiatives to increase its competitive advantage over the long term. These initiatives have increased operating expenses prior to generating anticipated sales which negatively impacted cash flow in the early years of the analysis.

Other Income and Expense, Income Taxes, and (Loss) Income before Income Taxes

Interest expense was $2,181,000 for fiscal year 2012 compared to $2,247,000 for fiscal year 2011, a decrease of $66,000. The decrease is primarily attributable to lower outstanding debt.

The loss before income taxes in fiscal year 2012 was $18,821,000 compared to income before income taxes of $2,255,000 in fiscal year 2011, a decrease of $21,076,000. Aside from the impairment charge, operating results declined from 2012 to 2011 as result of lower sales and gross profit and higher operating costs.

The tax benefit for fiscal year 2012 was $343,000 compared to tax expense of $770,000 for fiscal year 2011 and resulted in an effective tax rate of (2%) in 2012 and 34% in 2011. The tax benefit in 2012 is a result of the write-off of goodwill that resulted in the reversal of a deferred tax liability. The lower effective tax rate in 2012 is attributable to the exclusion of a portion of the impairment loss related to nondeductible goodwill from the determination of income taxes. Net of the impairment charge, there was an increase in the effective tax rate from 2011 to 2012 primarily as a result of a settlement of a state tax issue that was favorable to the Company in 2011 that did not recur in 2012. Our total effective tax rate is a combination of federal and state rates for the states in which we operate.

Net (Loss) Income

The net loss in fiscal year 2012 was $18,478,000 compared to net income of $1,486,000 in 2011, a decrease of $19,964,000. As noted above, the most significant component of the net loss in 2012 was goodwill impairment of $19,967,000. Aside from the impairment charge, earnings were lower as a result of lower sales and gross profit and higher operating costs. The net loss and income in the respective years was completely attributable to continuing operations.

Based on the weighted average number of shares of Common Stock outstanding of 21,384,000 (basic and diluted), loss per share in fiscal year 2012 was $.86 per share. This was a decrease of $.93 per share from fiscal year 2011, when the weighted average number of shares of Common Stock outstanding was 21,389,000 (basic and diluted) and we had net income of $.07 per share.

The fair value of our interest rate hedge swap agreements increased favorably $281,000 during fiscal year 2012 compared to a favorable increase of $374,000 in 2011. This resulted in unrealized gains of $170,000 and $231,000, net of reclassification adjustments and taxes, respectively, for the fiscal years ended October 31, 2012 and 2011. The increase during the year has been recognized as an adjustment to net (loss) income to arrive at comprehensive income as defined by the applicable accounting standards.

Liquidity and Capital Resources

As of October 31, 2012, we had working capital of $6,903,000 compared to $8,640,000 as of October 31, 2011, a decrease of $1,737,000. The decrease in working capital was attributable to a decrease in net cash provided by operations as well as an expected discretionary payment of $1,500,000 of subordinated debt classified as a current liability as of October 31, 2012. Net cash provided by operating activities was $4,110,000 in 2012 compared to $6,141,000 in 2011, a decrease of $2,031,000. The decrease reflects lower net income in 2012.

We use cash provided by operations to repay debt and fund capital expenditures. In fiscal year 2012, we used $2,714,000 for repayment of debt. This was $301,000 more than we paid in 2011 because of a $500,000 one-time repayment of senior debt in February 2012. In 2011 we had $199,000 of debt repayment related to acquisitions which did not reoccur in 2012. We used $730,000 more for capital expenditures in 2012 than in 2011. The increase was primarily due to upgrading cooler and brewer inventory. In addition, there was $336,000 more capital expenditures on computer system upgrades in 2012 and $1,600,000 in operating expenses to fund our continuing IT infrastructure upgrades. We used $504,000 of cash to complete acquisitions in 2012 compared to $475,000 in the prior year.

Our Credit Agreement with Bank of America has a total loan capacity of $20,500,000 and obligates the Company to a $15,500,000 term note and access to a $5,000,000 revolving line of credit. The revolving line of credit can be used for the purchase of fixed assets, to fund acquisitions, to collateralize letters of credit, and for operating capital and matures in April 2013. Since sufficient cash was generated from operations, we have not borrowed from the facility in the past two years, so there was no balance on the line of credit as of October 31, 2012 except for a collateralized a letter of credit in the amount of $1,504,000. Consequently, as of October 31, 2012, there was $3,496,000 available to borrow from the revolving line of credit. There was $9,465,000 outstanding on the term note as of October 31, 2012.

The Agreement amortizes the term debt over a five-year period with 59 equal monthly installments of $184,500, commencing May 5, 2010, and a final payment of $4,114,500 due at the end of five years. Also under the Agreement, the Company is obligated to calculate Consolidated Excess Cash Flow based on its financial results for each fiscal year to determine if additional principal is due on the term note. Based on the results of the calculation for fiscal year 2011, in accordance with the Agreement a $500,000 principal payment for the term loan was made on February 6, 2012. In December 2012, the Bank waived the Consolidated Excess Cash Flow requirement for fiscal year 2012.

The Company is subject to various restrictive covenants under the Agreement, and is prohibited from entering into other debt agreements without the bank’s consent. 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 less than 2.50 to 1. As of October 31, 2012, we were in compliance with all of the financial covenants of our credit facility. The Agreement prohibits us from paying dividends without prior consent of the lender. In 2012, the Agreement was amended to change the definition of Consolidated Adjusted Operating Cash Flow to add $965,000 to the calculation of Cash Flow for the reference periods under the Agreement that end April 30, 2012, July 31, 2012 and October 31, 2012. This revision is intended to reflect the expenditures for upgrades to the Company’s IT infrastructure, which are expected to provide a long-term benefit but do not qualify as capital expenditures under the Agreement.

Under the Agreement, interest is paid at a rate of one-month LIBOR plus a margin based on the achievement of a specified leverage ratio. As of October 31, 2012 the margin was 2.75% for the term note and 2.50% for the revolving line of credit. The Company is required to fix the interest rate on at least 75% of the outstanding balance of the term note and accomplishes this by entering into interest rate swap agreements. As of October 31, 2012, the Company had $1,991,250 of the term debt subject to variable interest rates. The one-month LIBOR was .21% resulting in total variable interest rates of 3.96% and 2.71%, for the term note and the revolving line of credit as of October 31, 2012.

In addition to the senior debt, as of October 31, 2012, the Company had subordinated debt owed to Henry, Peter and Jack Baker, all of whom are directors and significant shareholders, in the aggregate principal amount of $13,000,000 that is due October 5, 2015. Subsequent to the fiscal year-end in December 2012, with consent of Bank of America and the subordinated debt holders, we used $1,500,000 of cash to repay subordinated debt, reducing the balance outstanding to $11,500,000.

As of October 31, 2012, we had three interest rate swap agreements with Bank of America in effect. The intent of one swap, entered into on April 5, 2010, is to fix the interest rate on at least 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 4.76% (2.01% plus the applicable margin, 2.75%). An additional swap entered into on the same date offsets the swap that fixed the interest on a portion of the term loan and became ineffective when we entered into the Agreement.

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 15 to our Audited Consolidated Financial Statements.

The following table sets forth our contractual commitments as of October 31, 2012:

	Payment due by Period (3)
Contractual Obligations	Total		2013			2014-2015		2016-2017	After 2017
Debt (2)	$	22,566,000	$	2,315,000	$	20,251,000	$	-	$	-
Interest on Debt (1)		5,002,000		1,800,000		3,202,000		-		-
Operating Leases		15,815,000		4,593,000		6,269,000		3,516,000		1,437,000
Licensing Fees		962,000		351,000		611,000		-		-
Total	$	44,345,000	$	9,059,000	$	30,333,000	$	3,516,000	$	1,437,000

(1)	Interest based on 79% of outstanding senior debt at the hedged interest rate discussed above, 21% of outstanding senior debt at a variable rate of 2.96% and subordinated debt at a rate of 12%.

(2)	The 2013 amount does not include the $1,500,000 discretionary payment made in December 2012.

(3)

Customer deposits have been excluded from the table. Deposit balances vary from period to period with water sales but future increases and decreases in the balances are not accurately predictable. Deposits are excluded because, net of periodic additions and reductions, it is probable that a customer deposit balance will always be outstanding as long as the business operates.

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

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 capacity to borrow from our acquisition line of credit for capital expenditures and acquisitions. We also lease a significant amount of our vehicles and all of our buildings.

Adverse economic conditions in recent years have negatively impacted many businesses financial performance and restricted credit availability. In addition, we do not think that the economy in our region has fully recovered from the recession that started in 2008. The competitive landscape created by the economic environment has eroded our margin over that time. As mentioned above, we have used cash to build an information technology infrastructure to facilitate the expansion of our product offerings and run our business more efficiently and increased and trained our sales staff to gain an immediate competitive edge and prosper when the economy in our region improves. However, 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. In the past year we have experienced weather related events that have influenced quarterly performance. Although weather is always variable, we feel this year’s extremes, and their far reaching effects, are an aberration in the region.

Critical Accounting Policies

Our consolidated 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 consolidated 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 excess of the purchase price over the fair value of the assets and liabilities acquired has been recorded as goodwill. If goodwill is not impaired, it would remain as an asset on our balance sheet at the value assigned in the acquisitions. If it is impaired, we would be required to write down the asset to an amount that accurately reflects its estimated implied value. We completed a valuation of the Company performed as of October 31, 2012 and 2011. As of October 31, 2012 we determined that goodwill was impaired and as of October 31, 2011 goodwill was not impaired.

	Determined		Controlling
	Minority		Interest
	Value		Value (a)		Weighting			Contribution
Quoted Stock Price	$	21,400,000	$	23,540,000		20	%	$	4,708,000
Guideline Companies	$	16,981,000	$	21,750,100		20	%	$	4,350,020
Discounted Net Cash Flow	$	17,800,000	$	20,871,000		60	%	$	12,522,600
Concluded Fair Value								$	21,580,620
(a) Reflects application of the following control premiums: (1) 10% for the quoted stock price approach, (2) 10% for guideline approach, and (3) zero for the discounted net cash flow (DCF) approach. Guideline and DCF approaches also reflect addition of cash balance.

The concluded fair value was less than the Company’s equity value as of October 31, 2012 by 3%. If the equity value exceeds the fair value in step one then step two estimates the fair value of the Company’s assets and liabilities (including unrecognized intangible assets). This value is then allocated among the assets and liabilities as if they had been acquired in a business combination and the estimated fair value was the price paid.

We relied, in part, on certain assumptions in making the valuation conclusion. If some or all of these assumptions 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. These assumptions include, but are not limited to, the following:

§	We made certain assumptions in the calculation of discount rates, risk premiums, and capital structure weightings. However, changes in capital markets may significantly change these assumptions in the future.

We used our knowledge of the business, industry and economy to assemble financial projections including our plans to expand our product offerings. Unforeseen events that dramatically change such influential factors as the economy, environment, and weather may positively or negatively affect the accuracy of these projections.

§	Calculation of a control premium is a significant component in the assessment of goodwill. This is a common valuation technique that relies on assumptions based on equity markets, credit markets and the merger and acquisition environment and the availability of buyers.

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. The amount of impairment recognized was the difference the carrying value of goodwill exceeded the implied value of goodwill as determined in this allocation.

In addition to the assumptions we made in the valuation process during step one, we used important resources and made assumptions in step two in order to allocate fair value. These include but are not limited to:

§	We relied on our experience in the industry and knowledge of the business to assign value to tangible and intangible assets such as customer relationships, workforce, contracts (leases), royalties and fixed assets.

§	Our ability to interpret data from other companies and valuations as well as publicly available economic reports.

Consideration and use of several commonly used valuation models such as Cost, Market and Income Approaches as well as Discounted cash Flow Analysis, Relief-from-Royalty, Excess Earnings Method, and Avoided Loss of Income Method and weighted average models (weighted average cost of capital and weighted average return on assets) to obtain and verify valuations and allocate them accordingly.

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 deferred tax 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”) guidance 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. The guidance 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.

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 Item 2 of 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-26.

ITEM 9.

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

None.

ITEM 9A.

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, and that information we are required to disclose in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive and Chief Financial officers, as appropriate to allow timely decisions regarding required disclosure.

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, 2012. 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, 2012, the Company's internal control over financial reporting is effective based on those criteria.

This Annual Report on Form 10-K 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 rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this Annual Report on Form 10-K.

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, 2012 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,” “Corporate Governance” and “Committees of the Board of Directors” in our 2013 proxy statement to be filed with the SEC within 120 days after the end of our fiscal year ended October 31, 2012.

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 2013 proxy statement to be filed with the SEC within 120 days after the end of our fiscal year ended October 31, 2012.

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, 2012 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)
Plan Category	Number of Securities to be issued upon exercise of outstanding options, warrants and rights	Weighted-average exercise price of outstanding options, warrants and rights	Number of Securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)).
Equity compensation plans approved by security holders	269,500	$2.48	1,954,500
Equity compensation plans not approved by security holders	-0-	-	-0-
Total	269,500	$2.48	1,954,500

Additional information required by this Item is incorporated by reference to the section captioned “Security Ownership of Certain Beneficial Owners and Management” in our 2013 proxy statement to be filed with the SEC within 120 days after the end of our fiscal year ended October 31, 2012.

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 2013 proxy statement to be filed with the SEC within 120 days after the end of our fiscal year ended October 31, 2012.

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 2013 proxy statement to be filed with the SEC within 120 days after the end of our fiscal year ended October 31, 2012.

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, 2012 and 2011 F-2

Consolidated Statements of Operations for the years

ended October 31, 2012 and 2011 F-3

Consolidated Statements of Changes in Stockholders’ Equity

and Comprehensive Income for the years ended October

31, 2012 and 2011 F-4

Consolidated Statements of Cash Flows for the years ended

October 31, 2012 and 2011 F-5

Notes to the Consolidated Financial Statements F-6 - F-26

(2) Schedules

None

(3) Exhibits:

Exhibit No.	Description	Filed with this Form 10-K	Incorporated by Reference
Exhibit No.	Description	Filed with this Form 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	Amended and Restated By-Laws as adopted March 29, 2010		8-K	April 2, 2010	3.2
3.4	Certificate of Ownership and Merger of Crystal Rock Holdings, Inc. with and into Vermont Pure Holdings, Ltd.		8-K	April 30, 2010	3.1
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	February 28, 2003	A
10.2*	2004 Stock Incentive Plan		14A	March 1, 2004	B
10.3*	Employment Agreement dated May 2, 2007 with Peter K. Baker		8-K	May 2, 2007	10.1
10.4*	Employment Agreement dated May 2, 2007 with Bruce S. MacDonald		8-K	May 2, 2007	10.3
10.5*	Employment Agreement dated May 2, 2007 with John B. Baker		8-K	May 2, 2007	10.2
10.6	Lease of Buildings and Grounds in Watertown, Connecticut from the Baker’s Grandchildren Trust		S-4	September 6, 2000	10.22

10.7	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
10.8	Amended and Restated Credit Agreement dated April 5, 2010 with Bank of America.	8-K	April 9, 2010	10.1
10.9	Form of Amended and Restated Term Note dated April 5, 2010 to Bank of America.	8-K	April 9, 2010	10.2
10.10	Form of Amended and Restated Subordination and Pledge Agreement dated April 5, 2010 between Henry E. Baker and Bank of America.	8-K	April 9, 2010	10.3
10.11	Form of Amended and Restated Subordination and Pledge Agreement dated April 5, 2010 between John B. Baker and Peter K. Baker and Bank of America.	8-K	April 9, 2010	10.4
10.12	Form of Amended and Restated Promissory Note dated April 5, 2010 issued to Henry E. Baker, John B. Baker and Peter K. Baker	8-K	April 9, 2010	10.5
10.13	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
10.14	Form of Indemnification Agreement dated November 2, 2005 with each of John M. Lapides and Martin A. Dytrych and dated February 15, 2012 for Lori J. Schafer	10-K	January 30, 2006	10.22
10.15	Installation Agreement with American Capital Energy, Inc. dated August 29, 2007	10-K	January 29, 2008	10.29
10.16	Financial Assistance Agreement with Connecticut Innovations dated August 20, 2007	10-K	January 29, 2008	10.30
10.17*	Amendment No. 1 to Employment Agreement with Peter K. Baker dated September 10, 2009.	10-Q	September 14, 2009	10.1
10.18*	Amendment No. 1 to Employment Agreement with John B. Baker dated September 10, 2009.	10-Q	September 14, 2009	10.2
10.19	Settlement Agreement and General Release dated as of May 6, 2010 by and between Vermont Pure Holdings, et al. and Cozen et al.	10-Q	June 14, 2010	10.1
10.20	Letter of Waiver and Consent dated September 15, 2010 signed by Martin Dytrych, Henry Baker, Peter Baker, and John Baker.	8-K	October 1,2010	10.1
10.21	First Amendment to the Credit Agreement dated September 28, 2010 with Bank of America.	8-K	October 1,2010	10.2
10.22	Letter from Henry E., Peter K., and John B. Baker and Ross S. Rapaport, as trustee, to Bank America, as agreed to, to amend Subordination Agreements.	8-K	October 1,2010	10.3
10.23	Lease of Building and Land in Stamford, Connecticut from Henry E. Baker dated September 30, 2010.	8-K	October 1,2010	10.4
10.24*	Amendment No. 2 to Employment Agreement with Peter K. Baker dated October 19, 2011.	10-K	January 27, 2012	10.24

10.25*	Amendment No. 2 to Employment Agreement with John B. Baker dated October 19, 2011.		10-K	January 27, 2012	10.25
10.26	Second Amendment to the Credit Agreement with Bank of America dated May 14, 2012.		10-Q	June 14, 2012	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
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
101	Interactive Data Files regarding (a) our Consolidated Balance Sheets as of October 31, 2012 and October 31, 2011, (b) our Consolidated Statements of Income for the years ended October 31, 2012 and 2011, (c) Consolidated Statements of Changes in Stockholders’ Equity and Comprehensive Income for the years ended October 31, 2012 and 2011 (d) our Consolidated Statements of Cash Flows for the years ended October 31, 2012 and 2011, and (e) the Notes to such Consolidated Financial Statements.	X

* Management contract or compensatory plan.

SIGNATURES

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

	CRYSTAL ROCK HOLDINGS, INC.

Dated: January 29, 2013		By: /s/ Peter K. Baker
		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, 2013
/s/ Henry E. Baker Henry E. Baker	Director, Chairman Emeritus	January 29, 2013
/s/ John B. Baker John B. Baker	Executive Vice President and Director	January 29, 2013
/s/ Peter K. Baker Peter K. Baker	Chief Executive Officer and Director	January 29, 2013
/s/ Martin A. Dytrych Martin A. Dytrych	Director	January 29, 2013
/s/ John M. Lapides John M. Lapides	Director	January 29, 2013

/s/ Lori J. Schafer Lori J. Schafer	Director	January 29, 2013
/s/ Bruce S. MacDonald Bruce S. MacDonald	Chief Financial Officer, Chief Accounting Officer and Secretary	January 29, 2013

EXHIBITS TO CRYSTAL ROCK HOLDINGS, INC.

ANNUAL REPORT ON FORM 10-K

FOR THE FISCAL YEAR ENDED OCTOBER 31, 2012

Exhibits Filed Herewith

Exhibit
Number	Description

21.1	Subsidiary
23.1	Consent of Wolf & Company, P.C.
31.1	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

		PAGE

Report of the Independent Registered Public Accounting Firm		F-1

Financial Statements:

	Consolidated Balance Sheets, October 31, 2012 and 2011	F-2

	Consolidated Statements of Operations, Fiscal Years Ended October 31, 2012 and 2011	F-3

	Consolidated Statements of Changes in Stockholders’ Equity and Comprehensive Income (Loss), Fiscal Years Ended October 31, 2012 and 2011	F-4

	Consolidated Statements of Cash Flows, Fiscal Years Ended October 31, 2012 and 2011	F-5

	Notes to the Consolidated Financial Statements	F-6 - F-26

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors of

Crystal Rock Holdings, Inc.

Watertown, Connecticut

We have audited the accompanying consolidated balance sheets of Crystal Rock Holdings, Inc. and subsidiary as of October 31, 2012 and 2011, and the related consolidated statements of operations, changes in stockholders’ equity and comprehensive income (loss), and cash flows for the years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our 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 Crystal Rock Holdings, Inc. and subsidiary as of October 31, 2012 and 2011, and the results of their operations and their cash flows for the years then ended in conformity with U.S. generally accepted accounting principles.

/s/ Wolf & Company, P.C.

Boston, Massachusetts

January 29, 2013

F-1

CRYSTAL ROCK HOLDINGS, INC. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

	October 31,			October 31,
	2012			2011

ASSETS

CURRENT ASSETS:
Cash and cash equivalents	$	3,071,277		$	5,378,575
Accounts receivable, trade - net of reserve of $447,302 and
$543,528 for 2012 and 2011, respectively		7,950,067			7,801,811
Inventories		2,629,665			2,673,827
Current portion of deferred tax asset		421,679			570,142
Other current assets		1,387,288			1,134,658

TOTAL CURRENT ASSETS		15,459,976			17,559,013

PROPERTY AND EQUIPMENT - net		8,127,582			8,174,096

OTHER ASSETS:
Goodwill		12,156,790			32,123,294
Other intangible assets - net		2,312,433			2,788,408
Other assets		39,000			39,000

TOTAL OTHER ASSETS		14,508,223			34,950,702

TOTAL ASSETS	$	38,095,781		$	60,683,811

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
Current portion of long term debt	$	3,815,103		$	2,714,000
Accounts payable		1,709,506			2,598,627
Accrued expenses		2,254,994			2,800,751
Current portion of customer deposits		650,540			662,704
Current portion of unrealized loss on derivatives		127,180			142,558

TOTAL CURRENT LIABILITIES		8,557,323			8,918,640

Long term debt, less current portion		7,251,000			9,465,000
Deferred tax liability		4,506,148			4,408,593
Subordinated debt		11,500,000			13,000,000
Customer deposits		2,487,123			2,515,772
Long term portion of unrealized loss on derivatives		-			265,645

TOTAL LIABILITIES		34,301,594			38,573,650

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' EQUITY:
Common stock - $.001 par value, 50,000,000 authorized shares,
21,960,229 issued and 21,380,731 outstanding shares as of
October 31, 2012 and 21,960,229 issued and 21,388,681		21,960			21,960
outstanding as of October 31, 2011
Additional paid in capital		58,462,497			58,462,497
Treasury stock, at cost, 579,498 shares as of October 31, 2012
and 571,548 shares as of October 31, 2011		(878,560	)		(870,391	)
Accumulated deficit		(53,735,401	)		(35,257,887	)
Accumulated other comprehensive loss		(76,309	)		(246,018	)
TOTAL STOCKHOLDERS' EQUITY		3,794,187			22,110,161

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	38,095,781		$	60,683,811

See the accompanying notes to the consolidated financial statements.
F-2

CRYSTAL ROCK HOLDINGS, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF OPERATIONS


	Fiscal Year Ended October 31,
	2012			2011

NET SALES	$	71,121,778		$	71,609,774

COST OF GOODS SOLD		34,476,776			34,371,757

GROSS PROFIT		36,645,002			37,238,017

OPERATING EXPENSES:
Selling, general and administrative expenses		31,151,991			30,058,454
Advertising expenses		1,251,426			1,555,392
Amortization		980,427			1,067,891
(Gain) loss on disposal of property and equipment		(70,752	)		49,015
Impairment loss - goodwill		19,966,504			-

TOTAL OPERATING EXPENSES		53,279,596			32,730,752

(LOSS) INCOME FROM OPERATIONS		(16,634,594	)		4,507,265

OTHER EXPENSE:
Interest		2,181,032			2,246,905
Loss on derivatives		5,151			5,057

TOTAL OTHER EXPENSE		2,186,183			2,251,962

(LOSS) INCOME BEFORE INCOME TAXES		(18,820,777	)		2,255,303

INCOME TAX (BENEFIT) EXPENSE		(343,263	)		769,777

NET (LOSS) INCOME	$	(18,477,514	)	$	1,485,526

NET (LOSS) INCOME PER SHARE - BASIC	$	(0.86	)	$	0.07

NET (LOSS) INCOME PER SHARE - DILUTED	$	(0.86	)	$	0.07

WEIGHTED AVERAGE SHARES USED IN COMPUTATION - BASIC		21,384,406			21,388,681
WEIGHTED AVERAGE SHARES USED IN COMPUTATION - DILUTED		21,384,406			21,388,681

See the accompanying notes to the consolidated financial statements.
F-3

CRYSTAL ROCK HOLDINGS, INC. AND SUBSIDIARY

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

															Accumulated
	Common				Additional				Treasury						Other
	Shares		Stock		Paid in		Treasury		Stock			Accumulated			Comprehensive						Comprehensive
	Issued		Par Value		Capital		Shares		Amount			Deficit			Loss			Total			Income (Loss)
Balance, October 31, 2010		21,960,229	$	21,960	$	58,462,497		571,548	$	(870,391	)	$	(36,743,413	)	$	(477,301	)	$	20,393,352

Net income													1,485,526						1,485,526		$	1,485,526

Unrealized gain on derivatives, net of reclassification
adjustment, amortization, and taxes																231,283			231,283			231,283

Balance, October 31, 2011		21,960,229	$	21,960	$	58,462,497		571,548	$	(870,391	)	$	(35,257,887	)	$	(246,018	)	$	22,110,161		$	1,716,809

Shares repurchased								7,950		(8,169	)								(8,169	)

Net loss													(18,477,514	)					(18,477,514	)	$	(18,477,514	)

Unrealized gain on derivatives, net of reclassification
adjustment, amortization, and taxes																169,709			169,709			169,709

Balance, October 31, 2012		21,960,229	$	21,960	$	58,462,497		579,498	$	(878,560	)	$	(53,735,401	)	$	(76,309	)	$	3,794,187		$	(18,307,805	)

See the accompanying notes to the consolidated financial statements.

F-4

CRYSTAL ROCK HOLDINGS, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

	Fiscal Year Ended October 31,
	2012			2011

CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income	$	(18,477,514	)	$	1,485,526
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation		3,364,037			3,601,091
Provision for bad debts on accounts receivable		163,007			354,624
(Recovery) provision for bad debts on notes receivable		-			(3,797	)
Amortization		980,427			1,067,891
Impairment loss - goodwill		19,966,504			-
Non cash interest expense		48,001			48,952
Loss on derivatives		5,151			5,057
Deferred tax expense		246,018			597,068
(Gain) loss on disposal of property and equipment		(70,752	)		49,015

Changes in operating assets and liabilities:
Accounts receivable		(311,263	)		(708,391	)
Inventories		44,162			(220,327	)
Other current assets and liabilities		(369,095	)		(520,768	)
Accounts payable		(889,121	)		866,201
Accrued expenses		(545,757	)		(243,764	)
Customer deposits		(43,553	)		(236,894	)
NET CASH PROVIDED BY OPERATING ACTIVITIES		4,110,252			6,141,484

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment		(3,308,113	)		(2,577,939	)
Proceeds from sale of property and equipment		116,992			47,851
Cash used for acquisitions		(504,260	)		(475,000	)
Cash used for purchase of trademark		-			(237,500	)
NET CASH USED IN INVESTING ACTIVITIES		(3,695,381	)		(3,242,588	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on debt		(2,714,000	)		(2,412,700	)
Purchase of treasury stock		(8,169	)		-
NET CASH USED IN FINANCING ACTIVITIES		(2,722,169	)		(2,412,700	)

NET (DECREASE) INCREASE IN CASH		(2,307,298	)		486,196

CASH AND CASH EQUIVALENTS - Beginning of year		5,378,575			4,892,379

CASH AND CASH EQUIVALENTS - End of year	$	3,071,277		$	5,378,575

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION,
EXCLUDING NON-CASH FINANCING AND INVESTING ACTIVITIES:
Cash paid for interest	$	2,138,304		$	2,218,178

Cash (received) paid for taxes	$	(201,417	)	$	588,070

NON-CASH FINANCING AND INVESTING ACTIVITIES:

Reduction in notes payable for acquisition	$	-		$	1,300

Notes payable issued in acquisitions	$	101,103		$	150,000

See the accompanying notes to the consolidated financial statements.

F-5

CRYSTAL ROCK HOLDINGS, INC. AND SUBSIDIARY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1.	BUSINESS OF THE COMPANY AND BASIS OF PRESENTATION

Crystal Rock Holdings, Inc. and Subsidiary (collectively, the “Company”) is engaged in the production, marketing and distribution of bottled water and the distribution of coffee, ancillary products, various other refreshment products as well as office products. The Company operates exclusively as a home and office delivery business, using its own trucks to distribute throughout New England, New York, and New Jersey. In addition, it offers its products for sale over the internet and shipping through third parties.

The consolidated financial statements of the Company include the accounts of Crystal Rock Holdings, Inc. and its wholly-owned subsidiary, Crystal Rock LLC. All inter-company transactions and balances have been eliminated in consolidation.

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

2.	SIGNIFICANT ACCOUNTING POLICIES

Cash Equivalents – The Company considers all highly liquid temporary cash investments with a maturity of three months or less at date of purchase to be cash equivalents.

Accounts Receivable - Accounts receivable are carried at original invoice amount less an estimate made for doubtful accounts. Management establishes the allowance for doubtful accounts by regularly evaluating past due balances, collection history as well as general economic and credit conditions. Individual accounts receivable are written off when deemed uncollectible, with any future recoveries recorded as income when received.

Inventories – Inventories primarily consist of products that are purchased for resale and are stated at the lower of cost or market on a first in, first out basis.

Property and Equipment – Property and equipment are stated at cost net of accumulated depreciation. Depreciation is calculated on the straight-line method over the estimated useful lives of the assets, which range from three to ten years for machinery and equipment, and from seven to thirty years for buildings and improvements, and three to seven years for other fixed assets. Leasehold improvements are depreciated over the shorter of the estimated useful life of the leasehold improvement or the term of the lease.

F-6

Goodwill and Other Intangibles – Intangible assets with lives restricted by contractual, legal, or other means are amortized over their useful lives. The Company defines an asset’s useful life as the period over which the asset is expected to contribute to the future cash flows of the entity. Goodwill and other intangible assets not subject to amortization are tested for impairment annually or more frequently if events or changes in circumstances indicate that the asset might be impaired. The amount of impairment for goodwill and other intangible assets is measured as the excess of their carrying values over their implied fair values. The Company conducted an assessment of the carrying value of its goodwill as of October 31, 2012 and determined that goodwill was impaired. A similar assessment was conducted as of October 31, 2011 and concluded that goodwill was not impaired. Other than goodwill, intangible assets consist primarily of customer lists and covenants not to compete, with estimated lives ranging from 3 to 10 years.

Impairment for Long-Lived and Intangible Assets – The Company reviews long-lived assets and certain identifiable intangible assets for impairment whenever circumstances and situations change such that there is an indication that the carrying amounts may not be recovered. Recoverability is assessed based on estimated undiscounted future cash flows. As of October 31, 2012 and 2011, the Company believes that there has been no impairment of its long-lived and intangible assets.

Stock-Based Compensation – The Company has two stock-based compensation plans under which incentive and non-qualified stock options and restricted shares may be granted. There have been no grants under these plans since 2005. The Company measures the cost of employee services received in exchange for an award of equity instruments based on the grant date fair value of the award. That cost is recognized over the period during which an employee is required to provide services in exchange for the award, the requisite service period (usually the vesting period). The Company provides an estimate of forfeitures at initial grant date. This policy had no material impact on the Company’s 2012 and 2011 results of operations since no options were issued or vested during those years.

Net Income Per Share – Net income per share is based on the weighted average number of common shares outstanding during each period. Potential common shares are included in the computation of diluted per share amounts outstanding during each period that income is reported. In periods in which the Company reports a loss, potential common shares are not included in the diluted earnings per share calculation since the inclusion of those shares in the calculation would be anti-dilutive. The Company considers outstanding “in-the-money” stock options, if any, as potential common stock in its calculation of diluted earnings per share and uses the treasury stock method to calculate the applicable number of shares.

Advertising Expenses – The Company expenses advertising costs at the commencement of an advertising campaign.

Customer Deposits – Customers receiving home or office delivery of water pay the Company a deposit for the water bottle that is refunded when the bottle is returned. Based on historical experience, the Company uses an estimate of the deposits it expects to refund over the next twelve months to determine the current portion of the liability, and classifies the remainder of the deposit obligation as a long term liability.

F-7

Income Taxes – When calculating its tax expense and the value of tax related assets and liabilities the Company considers the tax impact of future events when determining the value of assets and liabilities in its financial statements and tax returns. Accordingly, a deferred tax asset or liability is calculated and reported based upon the tax effect of the differences between the financial statement and tax basis of assets and liabilities as measured by the enacted rates that will be in effect when these differences reverse. A valuation allowance is recorded if realization of the deferred tax assets is not likely.

In accordance with the guidance pertaining to the accounting for uncertainty in income taxes, the Company uses a more-likely-than-not 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.

Derivative Financial Instruments - The Company records all derivatives on the balance sheet at fair value. The Company utilizes interest rate swap agreements to hedge variable rate interest payments on its long-term debt. The interest rate swaps are recognized on the balance sheet at their fair value and are designated as cash flow hedges. Accordingly, the resulting changes in fair value of the Company’s interest rate swaps are recorded as a component of other comprehensive income (loss). The Company assesses, both at a hedge’s inception and on an ongoing basis, whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in cash flows of the related hedged items. Gains and losses that are related to the ineffective portion of a hedge or de-designated hedge are recorded in earnings.

Fair Value of Financial Instruments – The carrying amounts reported in the consolidated balance sheet for cash equivalents, trade receivables, and accounts payable approximate fair value based on the short-term maturity of these instruments. The carrying value of senior debt approximates its fair value since it provides for variable market interest rates. The Company uses a swap agreement to hedge the interest rates on its senior debt. The swap agreement is carried at its estimated settlement value. Subordinated debt is carried at its approximate market value based on periodic comparisons to similar instruments in the market place.

Fair Value Hierarchy - The Company groups its assets and liabilities, generally measured at fair value, in three levels based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine the fair value.

Level 1 – Valuation is based on quoted prices in active markets for identical assets or liabilities. Valuations are obtained from readily available pricing sources for market transactions involving identical assets or liabilities.

Level 2 – Valuation is based on observable inputs other than level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

F-8

Level 3 – Valuation is based on unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using unobservable inputs to pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation.

The level of fair value hierarchy in which the fair value measurement falls is determined by the lowest level input that is significant to the fair value measurement.

Transfers between levels are recognized at the end of a reporting period, if applicable.

Revenue Recognition – Revenue is recognized when products are delivered to customers. A certain amount of the Company’s revenue is derived from leasing water coolers and coffee brewers. These leases are generally for the first 12 months of service and are accounted for as operating leases. To open an account that includes the rental of equipment, a customer is required to sign a contract that recognizes the receipt of the equipment, outlines the Company’s ownership rights, the customer’s responsibilities concerning the equipment, and the rental charge for twelve months. In general, the customer does not renew the agreement after twelve months, and the rental continues on a month to month basis until the customer returns the equipment in good condition. The Company recognizes the income ratably over the life of the lease. After the initial lease term expires, rental revenue is recognized monthly as billed.

Shipping and Handling Costs – The Company distributes its home and office products directly to its customers on its own trucks. The delivery costs related to the Company’s route system, which are reported under selling, general, and administrative expenses, were approximately $13,193,000 and $12,879,000 for fiscal years 2012 and 2011, respectively.

3.	MERGERS AND ACQUISITIONS

The Company purchased assets of Valley Vending Service, Inc., New York; Girard Spring Water Co., Inc., Rhode Island; and Frontenac Crystal Springs Water, Inc., New York in fiscal year 2012. Similarly, it purchased assets from Hartford Stamp, LLC an office products distributor, Timberline Office Supply, Inc. a small engraving company, and Cool Beans, LLC a coffee distributor in fiscal year 2011. The purchase price paid for the acquisitions for the respective years is as follows:

Fiscal Year 2012	Valley Vending		Girard		Frontenac		Total
Month Acquired	November		August		September
Cash	$	5,760	$	148,500	$	350,000	$	504,260
Assumption of Liability		1,240		1,500		-		2,740
Issuance of debt		-		-		101,103		101,103
Purchase Price	$	7,000	$	150,000	$	451,103	$	608,103

F-9

Fiscal Year 2011	Hartford Stamp		Timberline		Cool Beans		Total
Month Acquired	November		January		February
Cash	$	450,000	$	25,000	$	237,500	$	712,500
Issuance of Debt		150,000		-		-		150,000
Purchase Price	$	600,000	$	25,000	$	237,500	$	862,500

Acquisition-related costs (included in selling, general and administrative expenses in the consolidated statements of operations) were $17,160 in fiscal year 2012 and $12,035 in fiscal year 2011.

The allocation of purchase price to the corresponding line item on the financial statements related to these acquisitions for the respective years is as follows:

	2012		2011
Property and Equipment, net	$	55,650	$	183,000
Other Intangible Assets, net		552,453		674,500
Inventories		-		5,000
Purchase Price	$	608,103	$	862,500

The following table summarizes the pro forma consolidated condensed results of operations (unaudited) of the Company for the fiscal years ended October 31, 2012 and 2011 as though all the acquisitions had been consummated at the beginning of fiscal year 2011.

	2012			2011
Net Sales	$	71,862,611		$	72,457,274
Net Income (Loss)	$	(18,350,215	)	$	1,630,189
Net Income (Loss) Per Share-Diluted	$	(.86	)	$	.08
Weighted Average Common Shares Outstanding-Diluted		21,384,406			21,388,681

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

4.	ACCOUNTS RECEIVABLE

The activity in the allowance for doubtful accounts for the years ended October 31, 2012 and 2011 is as follows:

	2012			2011
Balance, beginning of year	$	543,528		$	493,610
Provision		163,007			354,624
Write-offs		(259,233	)		(304,706	)
Balance, end of year	$	447,302		$	543,528

F-10

5.	INVENTORIES

Inventories at October 31 consisted of:

	2012		2011
Finished Goods	$	2,447,605	$	2,520,091
Raw Materials		182,060		153,736
Total Inventories	$	2,629,665	$	2,673,827

Finished goods inventory consists of products that the Company sells such as, but not limited to, coffee, cups, soft drinks, snack foods, and office products. Raw material inventory consists primarily of bottle caps. The amount of raw and bottled water on hand does not represent a material amount of inventory. The Company estimates that value as of October 31, 2012 and 2011 to be $31,000 and $56,000, respectively. This value includes the cost of allocated overhead. Bottles are accounted for as fixed assets.

6.	OTHER CURRENT ASSETS

At October 31, the balance of other current assets is itemized as follows:

	2012		2011
Notes Receivable - Current	$	12,700	$	14,900
Prepaid Insurance		273,705		263,119
Prepaid Software		39,884		-
Prepaid Property Taxes		168,975		192,615
Prepaid Fees		46,100		60,654
Prepaid Income Taxes		674,093		402,694
Security Deposits		66,374		61,473
Miscellaneous		105,457		139,203
Total Other Current Assets	$	1,387,288	$	1,134,658

7.	PROPERTY AND EQUIPMENT, NET

Property and equipment at October 31 consisted of:


	Useful Life	2012		2011

Leasehold improvements	Shorter of useful life of	$	1,826,022	$	1,566,079
	asset or lease term
Machinery and equipment	3 - 10 yrs.		21,769,004		20,512,418
Bottles, racks and vehicles	3 - 7 yrs.		4,441,132		4,772,078
Furniture, fixtures and office equipment	3 - 7 yrs.		2,854,729		2,308,301
Construction in progress			39,497		285,272
Property and equipment before accumulated depreciation			30,930,384		29,444,148
Less accumulated depreciation			22,802,802		21,270,052
Property and equipment, net of accumulated depreciation		$	8,127,582	$	8,174,096

F-11

Depreciation expense for the fiscal years ended October 31, 2012 and 2011 was $3,364,037 and $3,601,091, respectively.

8.	EQUIPMENT RENTAL

The carrying cost of the equipment rented to customers under contract, which is included in property and equipment in the consolidated balance sheets, is calculated as follows:

	2012		2011
Original Cost	$	3,346,912	$	2,635,944
Accumulated Depreciation		2,569,990		2,040,907
Carrying Cost	$	776,922	$	595,037

We expect to have revenue of $767,000 from the rental of equipment under contract at the end of the year over the next twelve months. After twelve months customer contracts convert to a month-to month basis.

9.	GOODWILL AND OTHER INTANGIBLE ASSETS

Components of other intangible assets at October 31 consisted of:

	2012						2011
	Gross Carrying Amount		Accumulated Amortization		Wgt. Avg. Amort. Years		Gross Carrying Amount		Accumulated Amortization		Wgt. Avg. Amort. Years
Amortized Intangible Assets:
Covenants Not to Compete	$	2,386,488	$	1,986,405		3.04	$	2,226,488	$	1,835,821		3.11
Customer Lists		7,821,186		6,339,881		2.41		7,428,733		5,522,370		2.63
Other Identifiable Intangibles		656,913		225,868		26.90		704,914		213,536		27.87
Total	$	10,864,587	$	8,552,154			$	10,360,135	$	7,571,727

Amortization expense for amortizable intangible assets for fiscal years 2012 and 2011, was $980,427 and $1,067,891, respectively.

Estimated amortization expense for the next five years is as follows:

Fiscal Year Ending October 31,
2013	$	1,007,000
2014		593,000
2015		261,000
2016		123,000
2017		68,000

F-12

An assessment of the carrying value of goodwill was conducted as of October 31, 2012 and 2011. In 2012, based on the analysis, it was determined that the carrying amount of goodwill exceeded the implied fair value of goodwill by $19,966,504 on the assessment date, resulting in a non-cash impairment loss of that amount for the year. In 2011 it was determined that goodwill was not impaired.

The assessment of the carrying value of goodwill is a two step process. In step one, the fair value of the Company is determined, using a weighted average of three different approaches – quoted stock price (a market approach), value comparisons to publicly traded companies believed to have comparable reporting units (a market approach), and discounted net cash flow (an income approach). This approach provided a reasonable estimation of the value of the Company and took into consideration the Company’s thinly traded stock and concentrated holdings, market comparable valuations, and expected results of operations. The Company compared the resulting estimated fair value to its carrying amount as of October 31, 2012 and determined that the carrying amount exceeded the fair value. Therefore, the Company proceeded to step two of the impairment testing process. In step two, the Company allocated the estimated fair value to all of its assets and liabilities (including unrecognized intangible assets) as if the Company had been acquired in a business combination and the estimated fair value was the price paid. It then recognized an impairment loss in the amount by which the carrying value of goodwill exceeded the implied value of goodwill as determined in this allocation. The Company is a single reporting unit as it does not have separate management of product lines and shares sales, purchasing and distribution resources among the lines. The same assessment was done at October 31, 2011 and concluded the fair value exceeded the carrying amount, thus the second step of the impairment test was not necessary. Other than the impairment charge, there were no other changes in goodwill in fiscal 2012 and there were no changes in goodwill in fiscal 2011.

Impairment was primarily the result of a decline in estimated fair value resulting from the income approach which relies on a discounted cash flow analysis of the Company’s projected cash flows as well as an analysis of comparable “guideline” companies. These valuations are reflective of the competitive business environment that the Company operates in. In addition, the Company has undertaken operating initiatives to increase its competitive advantage over the long term. These initiatives have increased operating expenses prior to generating anticipated sales which negatively impacted cash flow in the early years of the analysis. There was no event or other change in circumstance that would more likely than not reduce the fair value of the Company’s underlying net assets below their carrying amount prior to the annual impairment test.

F-13

10.	OTHER ASSETS

At October 31, 2012 and 2011 the entire balance of other assets was related to equity in ownership interests.

11.	ACCRUED EXPENSES

Accrued expenses as of October 31 are as follows:

	2012		2011
Payroll and Vacation	$	1,107,180	$	1,542,009
Interest		427,621		432,703
Health Insurance		205,294		428,103
Accounting and Legal		162,000		126,000
Termination Benefit		21,215		137,682
Miscellaneous		331,684		134,254
Total	$	2,254,994	$	2,800,751

12.

DEBT

Senior Debt

The Company has a Credit Agreement (the “Agreement”) with Bank of America to provide a senior financing facility consisting of term debt and a revolving line of credit. Under the Agreement, Bank of America is the Company’s sole senior lender.

The Agreement has a total loan capacity of $20,500,000 and obligates the Company to a $15,500,000 term note and access to a $5,000,000 revolving line of credit. The revolving line of credit can be used for the purchase of fixed assets, to fund acquisitions, to collateralize letters of credit, and for operating capital. There was no balance on the line of credit but it collateralized a letter of credit of $1,504,000 as of October 31, 2012. Consequently, as of October 31, 2012, there was $3,496,000 available to borrow from the revolving line of credit. The revolving line of credit matures on March 30, 2013.

The Agreement amortizes the term note over a five year period with 59 equal monthly installments of $184,500, commencing May 5, 2010, and a final payment of $4,114,500 due at the end of five years. There was $9,465,000 outstanding on the term note as of October 31, 2012. Also, the Company is subject to various restrictive covenants under the Agreement, and is prohibited from entering into other debt agreements without the bank’s consent. The Agreement also prohibits the Company from paying dividends without prior consent of the bank.

Under the Agreement, interest is paid at a rate of one-month LIBOR plus a margin of 2.75% for the term note and 2.50% for the revolving line of credit as long as the Company is in compliance with the terms of the Agreement. The Company is required to fix the interest rate on 75% of the outstanding balance of the term note and accomplishes this by entering into interest rate swap agreements. As of October 31, 2012, the Company had $1,991,000 of the term note subject to variable interest rates. The one-month LIBOR was .21% resulting in total variable interest rates of 2.96% and 2.71%, for the term note and the revolving line of credit as of October 31, 2012.

F-14

The Agreement requires the Company to 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 of less than 2.50 to 1. As of October 31, 2012, the Company was in compliance with these covenants and terms of the Agreement. On May 14, 2012, the Agreement was amended to change the definition of Consolidated Adjusted Operating Cash Flow to add $965,000 to the calculation of Cash Flow for the reference periods under the Agreement that end April 30, 2012, July 31, 2012 and October 31, 2012 and to allow for the use of up to $500,000 for the purchase of the Company’s stock.

Also under the Agreement, the Company is obligated to calculate Consolidated Excess Cash Flow based on its financial results for the fiscal year to determine if additional principal is due on the term note. Bank of America has waived this requirement for the fiscal year ending October 31, 2012.

Subordinated Debt

As part of the acquisition agreement in 2000 with the former shareholders of Crystal Rock Spring Water Company, the Company issued subordinated notes in the amount of $22,600,000. The notes have an effective date of October 5, 2000, were for an original term of seven years (subsequently extended to 2015 as part of the Agreement described above) and bear interest at 12% per year. Scheduled repayments are made quarterly and are interest only for the life of the note unless specified financial targets are met. In April 2004, the Company repaid $5,000,000 of the outstanding principal. In April, 2005, the Company repaid an additional $3,600,000 of this principal.

On May 7, 2009, with the mutual consent of the three subordinated debt holders and Bank of America, the Company paid $500,000 to John B. Baker as a payment of principal on his note. Similarly, on September 29, 2010, with the mutual consent of the three subordinated debt holders and Bank of America, the Company paid $500,000 to Peter K. Baker as a payment of principal on his note. As of October 31, 2012 and 2011, the Company had $13,000,000 of subordinated debt outstanding bearing an interest rate of 12% (see Note 24).

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

Note Payable

In 2012, the Company made an acquisition that resulted in the issuance of a note for $101,000 to the seller. The note is due on March 20, 2013. The Company issued another note related to an acquisition for $150,000 in 2011 which it paid in full prior to the end of fiscal year 2011.

F-15

Annual Maturities

Annual maturities of debt as of October 31, 2012 are summarized as follows:

	Term		Subordinated		Note Payable		Total
Fiscal year ending October 31,
2013	$	2,214,000	$	1,500,000	$	101,103	$	3,815,103
2014		2,214,000		-		-		2,214,000
2015		5,037,000		11,500,000		-		16,537,000
Total Debt	$	9,465,000	$	13,000,000	$	101,103	$	22,566,103

13.	ON-BALANCE SHEET DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

Derivative Financial Instruments

The Company has stand-alone derivative financial instruments in the form of interest rate swap agreements, which derive their value from underlying interest rates. These transactions involve both credit and market risk. The notional amount is an amount on which calculations, payments, and the value of the derivative are based. The notional amount does not represent direct credit exposure. Direct credit exposure is limited to the net difference between the calculated amount to be received and paid, if any. Such difference, which represents the fair value of the derivative instrument, is reflected on the Company’s consolidated balance sheet as an unrealized gain or loss on derivatives.

The Company is exposed to credit-related losses in the event of nonperformance by the counterparties to these agreements. The Company controls the credit risk of its financial contracts through credit approvals, limits and monitoring procedures, and currently has no reason to believe that any counterparties will fail to fulfill their obligations.

Risk Management Policies - Hedging Instruments

The Company uses long-term variable rate debt as a source of funds for use in the Company’s general business purposes. These debt obligations expose the Company to variability in interest payments due to changes in interest rates. If interest rates increase, interest expense increases. Conversely, if interest rates decrease, interest expense decreases. Management believes it is prudent to limit the variability of a portion of its interest payments and, therefore, generally hedges a portion of its variable-rate interest obligations. To meet this objective, management enters into interest rate swap agreements whereby the Company receives variable interest rate payments and makes fixed interest rate payments on a portion of its debt.

On October 5, 2007, the Company entered into an interest rate hedge swap agreement (old swap) in conjunction with an amendment to its credit facility with Bank of America. The intent of the instrument was to fix the interest rate on at least 75% of the outstanding balance on the term loan (the swapped amount) with Bank of America as required by the facility. The old swap fixed the interest rate for the swapped amount related to the previous facility at 4.87% and matures in January 2014.

F-16

In conjunction with its Agreement with Bank of America, on April 5, 2010, the Company entered into an interest rate swap agreement (offsetting swap) to offset the old swap for which it receives 1.40% of the scheduled balance of the old term loan. The offsetting swap effectively removed any exposure to change in the fair value of the old swap and set a fixed net payment schedule based on the scheduled balance of the old term loan until January 2014 when both swaps mature. In addition, the Company entered into a swap agreement (new swap) to fix the interest rate of at least 75% of the outstanding balance of the term note at 4.76% (2.01% plus the applicable margin, 2.75%). The term note matures in May 2015 and the new swap matures in April 2013.

As of October 31, 2012, the total notional amount committed to the new swap agreement was $7,474,000. On that date, the variable rate on the balance of the term note was 2.96%. This agreement provided for a monthly settlement in which the Company would make or receive payments at a variable rate determined by a specified index (one-month LIBOR) in exchange for making payments at a fixed rate of 4.76%.

At October 31, 2012 and 2011, the net unrealized loss relating to interest rate swaps was recorded in current and long term liabilities. The current portion is the valuation of the hedged instrument over the next twelve months while the balance of the unrealized loss makes up the long term portion. For the effective portion of the hedges, which is the new swap, changes in the fair value of interest rate swaps designated as hedging instruments to mitigate the variability of cash flows associated with long-term debt are reported in other comprehensive income or loss net of tax effects. The amounts relating to the old swap previously reflected in accumulated other comprehensive income are amortized to earnings over the remaining term of the undesignated cash flow hedge. Payments on the old swap, and receipt of income on the offsetting swap, are reported as gain or loss on derivatives and an adjustment to other comprehensive income or loss net of tax effects.

The table below details the adjustments to other comprehensive income, on a before-tax and net-of tax basis, for the fiscal years ended October 31, 2012 and 2011.

	Before-Tax			Tax Benefit			Net-of-Tax
Year Ended October 31, 2011
Loss on interest rate swap	$	(262,172	)	$	102,247		$	(159,925	)
Amortization of loss on derivative undesignated as cash flow hedge		236,124			(92,089	)		144,035
Reclassification adjustment for loss in income		405,201			(158,028	)		247,173
Net unrealized gain	$	379,153		$	(147,870	)	$	231,283
Year Ended October 31, 2012
Loss on interest rate swap	$	(150,695	)	$	58,282		$	(92,413	)
Amortization of loss on derivative undesignated as cash flow hedge		151,542			(60,617	)		90,925
Reclassification adjustment for loss in income		285,328			(114,131	)		171,197
Net unrealized gain	$	286,175		$	(116,466	)	$	169,709

F-17

The reclassification adjustments of $285,328 and $405,201 represent interest the Company paid in excess of the amount that would have been paid without the interest rate swap agreement during the years ended October 31, 2012 and 2011, respectively. These amounts were reclassified from accumulated other comprehensive loss and recorded in consolidated statements of operations as interest expense. No other material amounts were reclassified during the years ended October 31, 2012 and 2011.

In the year ended October 31, 2012 the fair value of the swaps changed from an unrealized loss on derivative liability at the beginning of the period of $408,203 to $127,180. Also, as of that date, the estimated net amount of the existing loss that is reported in accumulated other comprehensive loss that is expected to be reclassified into earnings within the next twelve months is $66,960.

Derivatives designated as hedging instruments include interest rate swaps classified as liabilities on the Company’s balance sheet with a fair value of $64,603 and $199,236 at October 31, 2012 and 2011, respectively. Derivatives not designated as hedging instruments include interest rate swaps classified as liabilities on the Company’s balance sheet with a fair value of $62,577 and $208,967 at October 31, 2012 and 2011, respectively. During 2010, the Company de-designated an interest rate swap as a cash flow hedge and is amortizing the loss at the time of de-designation out of accumulated other comprehensive loss and into loss on derivatives over the remaining term of the hedged debt. During 2012 and 2011, cash flow hedges are deemed 100% effective. The net loss on interest rate swaps not designated as cash flow hedges, classified as loss on derivatives on the Company’s consolidated statements of operations, amounted to $5,151 and $5,057 for the years endings October 31, 2012 and 2011, respectively.

14.	FAIR VALUES OF ASSETS AND LIABILITIES

Fair Value Hierarchy

The Company’s assets and liabilities measured at fair value on a recurring basis are as follows:

	Level 1		Level 2		Level 3
Liabilities:
October 31, 2012
Unrealized loss on derivatives	$	-	$	127,180	$	-

October 31, 2011
Unrealized loss on derivatives	$	-	$	408,203	$	-

In determining the fair value, the Company uses a model that calculates a present value of the payments as they amortize through the life of the loan (float) based on the variable rate and compares them to the calculated value of the payment based on the fixed rate (fixed) defined in the swap. In calculating the present value, in addition to the term, the model relies on other data – the “rate” and the “discount factor”.

F-18

§	In the “float” model, the rate reflects where the market expects LIBOR to be in for the respective period and is based on the Eurodollar futures market.

§	The discount factor is a function of the volatility of LIBOR.

Payments are calculated by applying the rate to the notional amount and adjusting for the term. Then the present value is calculated by using the discount factor.

The Company’s assets and liabilities measured at fair value on a nonrecurring basis are as follows:

	Level 1		Level 2		Level 3		Total gains (losses)
Assets:
October 31, 2012
Goodwill (a)	$	-	$	-	$	12,156,790	$	(19,966,504	)

(a) In accordance with FASB Accounting Standards Codification Subtopic 350-20, goodwill with a carrying amount of $32,123,294 was written down to its implied fair value of $12,156,790, resulting in an impairment charge of $19,966,504, which was included in earnings for the period.

There were no assets or liabilities measured at fair value on a nonrecurring basis in fiscal 2011.

15.	COMMITMENTS AND CONTINGENCIES

Operating Leases

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

Future minimum rental payments, including related party leases described below, over the terms of various lease contracts are approximately as follows:

Fiscal Year Ending October 31,
2013		4,593,000
2014		3,488,000
2015		2,781,000
2016		2,369,000
2017		1,147,000
Thereafter		1,437,000
Total	$	15,815,000

Rent expense was $3,889,000 and $3,675,000 for the fiscal years ended October 31, 2012 and 2011, respectively.

F-19

16.	STOCK BASED COMPENSATION

Stock Option and Incentive Plans

In April 1998, the Company’s shareholders approved the 1998 Incentive and Non Statutory Stock Option Plan (the “1998 Plan”). In April 2003, the Company’s shareholders approved an increase in the authorized number of shares to be issued under the 1998 Plan from 1,500,000 to 2,000,000. This plan provides for issuance of options to purchase up to 2,000,000 options to purchase the Company’s common stock under the administration of the compensation committee of the Board of Directors. The intent of this plan is to issue options to officers, employees, directors, and other individuals providing services to the Company. Of the total amount of shares authorized under this plan, 120,500 option shares are outstanding and 1,879,500 option shares are available for grant at October 31, 2012.

In April 2004, the Company’s shareholders approved the 2004 Stock Incentive Plan (the “2004 Plan”). This plan provides for issuances of awards of up to 250,000 of the Company’s common stock in the form of restricted or unrestricted shares, or incentive or non-statutory stock options for the purchase of the Company’s common stock. Of the total amount of shares authorized under this plan, 149,000 option shares are outstanding, 26,000 restricted shares have been granted, and 75,000 shares are available for grant at October 31, 2012.

All incentive and non-qualified stock option grants had an exercise price equal to the market value of the underlying common stock on the date of grant. The following table summarizes the activity related to stock options and outstanding stock option balances during the last two fiscal years:

	Outstanding Options (Shares)			Weighted Average Exercise Price
Balance at October 31, 2010		304,500		$	2.63
Expired		(20,000	)		3.47
Balance at October 31, 2011		284,500			2.57
Expired		(15,000	)		4.09
Balance at October 31, 2012		269,500			2.48

In 2012 and 2011, the 15,000 and 20,000 respective options that expired were originally issued from the 1998 Plan.

The total shares available for grant under all plans are 1,954,500 at October 31, 2012.

The following table summarizes information pertaining to outstanding stock options, all of which are exercisable, as of October 31, 2012:

F-20

Exercise Price Range		Outstanding Options (Shares)		Weighted Average Remaining Contractual Life		Weighted Average Exercise Price		Intrinsic Value
$	1.80 - $2.60		234,500		2.23	$	2.32	$	-
$	2.81 - $3.38		20,000		1.00		3.28		-
$	3.50 - $4.25		15,000		.06		4.07		-
			269,500		2.02	$	2.48	$	-

All of the outstanding options as of October 31, 2012 and 2011 were vested.

Outstanding options were granted with lives of 10 years and provide for vesting over a term of 5 years.

17.	REPURCHASE OF COMMON STOCK

In May 2012, the Company’s Board of Directors approved the purchase of up to $500,000 of the Company’s common stock. In fiscal year 2012 the Company purchased 7,950 shares for an aggregate purchase price of $8,169. The Company has used internally generated cash to fund these purchases. There were no shares purchased in fiscal year 2011.

18.	INCOME TAXES

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


	2012			2011
Current:
Federal	$	(573,358	)	$	189,581
State		75,280			129,026
Total current		(498,078	)		318,607

Deferred:
Federal		130,126			403,678
State		24,689			47,492
Total deferred		154,815			451,170
Total income tax (benefit) expense	$	(343,263	)	$	769,777

F-21

Deferred tax assets (liabilities) at October 31, 2012 and 2011, are as follows:


	2012			2011
Deferred tax assets:
Allowance for doubtful accounts	$	169,975		$	206,541
Accrued compensation		196,509			158,832
Accrued liabilities and reserves		4,323			62,694
Interest rate swaps		50,872			142,075
Capital loss carry forward		81,959			81,959
Subtotal		503,638			652,101
Valuation allowance		(81,959	)		(81,959	)
Total deferred tax assets		421,679			570,142

Deferred tax liabilities:
Depreciation		(2,634,394	)		(1,876,559	)
Amortization		(1,871,754	)		(2,532,034	)
Total deferred tax liabilities		(4,506,148	)		(4,408,593	)

Net deferred tax liability	$	(4,084,469	)	$	(3,838,451	)

The Company established a valuation allowance of $81,959 for both 2012 and 2011 related to the capital loss carry forward deferred tax asset.

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


	2012			2011
Income tax expense computed at the statutory rate	$	(6,399,064	)	$	766,803
State income taxes, net of federal benefit		65,980			116,502
Goodwill Impairment		5,973,924			-
Other differences		15,897			(113,528	)
Income tax (benefit) expense	$	(343,263	)	$	769,777

In fiscal year 2010, the Company recognized an increase to tax liability for uncertain tax positions of $137,000 related to a state income tax position taken in prior years and $11,000 of potential interest and penalty on another position taken. This reserve was reversed in fiscal year 2011 as a result of a favorable final ruling on appeal of the position.

The results of the examination did not have a material effect on the Company’s unrecognized tax benefits, financial condition or results of operations. The Company files income tax returns in the U.S. federal jurisdiction and various state and local jurisdictions. Generally, the Company is no longer subject to U.S. federal, state and local tax examinations by tax authorities for years before October 31, 2009.

A reconciliation of the beginning and ending amount of unrecognized tax benefits including interest and penalties is as follows:

F-22

Balance at October 31, 2010	$	177,000
Increases related to current year tax positions		-
Increases related to the prior year tax positions		9,000
Decreases related to prior year tax positions		-
Settlements		(145,000	)
Expiration of Statutes		-
Balance at October 31, 2011	$	41,000
Increases related to current year tax positions		-
Increases related to the prior year tax positions		-
Decreases related to prior year tax positions		-
Settlements		-
Expiration of Statutes		-
Balance at October 31, 2012	$	41,000

The Company recognizes interest and penalties related to the unrecognized tax benefits in tax expense. During the year ended October 31, 2011 the Company reduced its accrued interest and penalties by $29,000. The Company had approximately $41,000 of interest and penalties accrued at October 31, 2012 and 2011.

19.	NET INCOME PER SHARE AND WEIGHTED AVERAGE SHARES

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

	2012			2011
Net Income (Loss)	$	(18,477,514	)	$	1,485,526
Denominator:
Basic Weighted Average Shares Outstanding		21,384,406			21,388,681
Effect of Stock Options	-			-
Diluted Weighted Average Shares Outstanding		21,384,406			21,388,681

Basic Net Income (Loss) Per Share	$	(.86	)	$	.07

Diluted Net Income (Loss) Per Share	$	(.86	)	$	.07

There were 269,500 and 284,500 options outstanding for the years ended October 31, 2012 and 2011, respectively, that were not included in the dilution calculation because the options’ exercise price exceeded the market price of the underlying common shares.

20.	RETIREMENT PLAN

The Company has a defined contribution plan which meets the requirements of Section 401(k) of the Internal Revenue Code. All employees of the Company who are at least twenty-one years of age are eligible to participate in the plan. The plan allows employees to defer a portion of their salary on a pre-tax basis and the Company contributes 25% of amounts contributed by employees up to 6% of their salary. Company contributions to the plan amounted to $130,000, and $121,000, for the fiscal years ended October 31, 2012 and 2011, respectively.

F-23

21.	RELATED PARTY TRANSACTIONS

Directors and Officers

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. 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 balance on these notes as of October 31, 2012 is $13,000,000.

Henry Baker is employed by the Company as an at-will employee at the discretion of management. Mr. Baker’s sons, John Baker and Peter Baker, have employment contracts with the Company through December 31, 2013. They are also directors. The two contracts entitle the respective shareholders to annual compensation of $320,000 each and other bonuses and perquisites.

The Company leases a 67,000 square foot facility in Watertown, Connecticut and a 22,000 square foot facility in Stamford, Connecticut from a Baker family trust. The lease in Watertown expires in October 2016. On September 30, 2010 the Company finalized an amendment to its existing lease in Stamford which extended that lease to September 2020.

Future minimum rental payments under these leases are as follows:

Fiscal year ending October 31,	Stamford		Watertown		Total
2013	$	248,400	$	461,295	$	709,695
2014		248,400		461,295		709,695
2015		248,400		470,521		718,921
2016		*248,400		470,521		718,921
2017		*248,400		-		248,400
2018		*248,400		-		248,400
2019		*248,400		-		248,400
2020		*227,700		-		227,700
Totals	$	1,966,500	$	1,863,632	$	3,830,132
* Rent negotiable, assumes rate of first five years.

The Company’s Chairman of the Board, Ross S. Rapaport, who also acts as Trustee in various Baker family trusts is employed by McElroy, Deutsch, Mulvaney & Carpenter LLP (formerly Pepe & Hazard, LLP) a business law firm that the Company uses from time to time. During fiscal 2012 and 2011 the Company paid approximately $25,000 and $58,000, respectively, for services provided by McElroy, Deutsch, Mulvaney & Carpenter LLP.

F-24

22.	CONCENTRATION OF CREDIT RISK

The Company maintains its cash accounts at various financial institutions in non-interest bearing accounts. Effective December 31, 2010 the Dodd-Frank Act fully insures non-interest bearing transaction accounts through January 31, 2013. Effective after that date accounts will be covered to $250,000 by the basic limit on federal deposit insurance.

23.	RECENT ACCOUNTING PRONOUNCEMENTS

In July 2012, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2012-02, Testing Indefinite-Lived Intangible Assets for Impairment, which gives companies the option to perform a qualitative assessment to determine whether it is more likely than not that an indefinite-lived intangible asset is impaired. If a company determines that it is more likely than not that the fair value of such an asset exceeds its carrying amount, it would not need to calculate the fair value of the asset in that year. However, if a company concludes otherwise, it must calculate the fair value of the asset, compare that value with its carrying amount and record an impairment charge, if any. The amendments in the ASU are effective for annual and interim indefinite-lived intangible asset impairment tests performed for fiscal years beginning after September 15, 2012, which is fiscal 2013 for the Company. Early adoption is permitted. The Company is currently assessing its adoption plans.

In December 2011, the FASB issued an ASU 2011-11, Disclosures about Offsetting Assets and Liabilities (Topic 210), that provides amendments for disclosures about offsetting assets and liabilities. The amendments require an entity to disclose information about offsetting and related arrangements to enable users of its financial statements to understand the effect of those arrangements on its financial position. Entities are required to disclose both gross information and net information about both instruments and transactions eligible for offset in the statement of financial position and instruments and transactions subject to an agreement similar to a master netting arrangement. This scope would include derivatives, sale and repurchase agreements and reverse sale and repurchase agreements, and securities borrowing and securities lending arrangements. The amendments are effective for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods. Disclosures required by the amendments should be provided retrospectively for all comparative periods presented. For the Company, the amendment is effective for fiscal year 2014. The Company is currently evaluating the impact these amendments may have on its disclosures.

In September 2011, the FASB issued ASU 2011-08, Intangibles – Goodwill and Other (Topic 350), Testing Goodwill for Impairment. This ASU is intended to reduce the complexity and cost of performing an evaluation of impairment of goodwill. Under the new guidance, an entity will have the option of first assessing qualitative factors (events and circumstances) to determine whether it is more likely than not (meaning a likelihood of more than 50 percent) that the fair value of a reporting unit is less than its carrying amount. If, after considering all relevant events and circumstances, an entity determines it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then performing the two-step impairment test will be unnecessary. The amendment will be effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011, which will be fiscal 2013 for the Company. Early adoption is permitted. The Company is currently evaluating the impact this amendment may have on its disclosures.

F-25

In June 2011, the FASB issued ASU 2011-05, Comprehensive Income (Topic 220), Presentation of Comprehensive Income. This ASU amends the disclosure requirements for the presentation of comprehensive income. The amended guidance eliminates the option to present components of other comprehensive income (OCI) as part of the statement of changes in stockholder’s equity. Under the amended guidance, all changes in OCI are to be presented either in a single continuous statement of comprehensive income or in two separate but consecutive financial statements. The changes are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011, which will be fiscal 2013 for the Company. Early application is permitted. There will be no impact to the consolidated financial results as the amendment relates only to changes in financial statement presentation.

24.	SUBSEQUENT EVENTS

On December 7, 2012, the Company’s Audit Committee and Board of Directors approved a payment to the subordinated debt holders to reduce the outstanding balance of subordinated debt prior to December 31, 2012. Bank of America, the Company’s senior lender, consented to the payment under the terms of the Agreement with them. On December 21, 2012 the Company paid $1,500,000 to the subordinated debt holders. The Company has included this payment in current portion of long term debt as of October 31, 2012.

F-26

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Readability	8th grade Good

Crystal Rock (CRVP) Inactive 10-K2012 FY Annual report

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