For the quarterly period ended December 31, 2002 .

For the transition period from _______________ to _______________.

Commission file number 1-12580 .

(Exact name of small business issuer as specified in its charter)

(State or other jurisdiction (I.R.S. Employer

of incorporation or organization) Identification No.)

(Address of principal executive offices)

(Issuer's telephone number)

(Former name, former address, and former fiscal year, if changed since last report)

Check whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 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 checkmark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act)

Yes__; No X.

APPLICABLE ONLY TO CORPORATE ISSUERS

The accompanying notes are an integral part of these consolidated financial statements.

The accompanying notes are an integral part of these consolidated financial statements.

The accompanying notes are an integral part of these consolidated financial statements.

	12/31/02		12/31/01		12/31/02		12/31/01
Net Income (Loss) available to common stockholders used in basic EPS calculation	$ 81,170		$ 280,808		($ 5,358)		$ 98,984
Add: Dividends on Series C Preferred Stock	4,003		9,075		13,077		18,149
Accretion of original issue discount Attributable to Series C Preferred Stock	13,623		13,623		27,246		27,246
Net Income available to common stockholders used in diluted EPS calculation	$ 98,796		$ 303,506		$ 34,965		$ 144,379

Diluted weighted average shares outstanding for the three and six months ended December 31, 2002 exclude 164,417 and 415,157 potential common shares from stock options, warrants, and convertible preferred stock because the price of the potential common shares was greater than the average market price of the common stock for that period. Diluted weighted average shares outstanding for the three and six months ended December 31, 2001 exclude 159,167 potential common shares from stock options, warrants, and convertible preferred stock because the price of the potential common shares was greater than the average market price of the common stock for that period.

In August 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or Disposal of Long Lived Assets. SFAS No. 144 supercedes SFAS No. 121, Accounting for the Impairment of Long Lived Assets and for Long-Lived Assets to be Disposed Of. SFAS No. 144 addresses financial accounting and reporting for the impairment of long lived assets held for use and for long-lived assets that are to be disposed of by sale (including discontinued operations). SFAS No. 144 is effective for fiscal years beginning after December 15, 2001. The Company adopted SFAS No. 144 on July 1, 2002. The adoption of this statement did not have a material effect on the Company's financial position, results of operations or cash flows.

In April 2002, the Financial Accounting Standards Board ("FASB") issued SFAS No. 145, "Rescission of FASB Statements No. 4, 44 and 62, Amendment of FASB Statement No. 13 and Technical Corrections." For most companies, SFAS No. 145 will require gains and losses on extinguishments of debt to be classified as income or loss from continuing operations rather than as extraordinary items as previously required under SFAS No. 4. Extraordinary treatment will be required for certain extinguishments as provided in Accounting Principles Board Opinion No. 30. SFAS No. 145 also amends SFAS No. 13 for certain sales-leaseback and sublease accounting. The Company adopted the provisions of SFAS No. 145 on July 1, 2003. Management believes that the impact of this statement will not have a material effect on the Company's financial statements.

In June 2002, the FASB issued SFAS No. 146, Accounting for Cost Associated with Exit or Disposal Activities. This Statement addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force (EITF) Issue No. 94-3, Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring). SFAS No. 146 is effective for exit or disposal activities that are initiated after December 31, 2002, with early application encouraged.

The comprehensive income and loss is the same as net loss for each period presented.

On September 27, 2002, the Company closed on two loan facilities with Banknorth N.A. These facilities consisted of a 4.79 percent fixed rate per annum term loan in the amount of $3,000,000 for the repurchase of the Company's capital stock and a variable rate revolving line of credit in an amount up to $4,000,000 for working capital needs. The fixed rate term loan will be paid by monthly payments of principal and interest over a term of five years. The fixed rate, determined at the closing of the loan, was equal to the 2.5 year term Federal Home Loan Bank rate plus 2.0 percent200 basis points. The revolving line of credit in the amount of $4,000,000 shall be repaid on its second anniversary, at which time all principal outstanding plus accrued and unpaid interest shall be due. During the term of the revolving line of credit, the Company will make monthly payments of interest on the outstanding principal balance. The interest rate payable on borrowings under the revolving line of credit will be primarily at LIBOR (for 30, 60, and 90 day periods) plus 2.20 percent220 basis points (except that no more than three LIBOR based borrowings will be allowed at any one time). On December 31, 2002 the LIBOR 30, 60, and 90 day interest rates plus 2.20 percent220 basis points were equal at 3.58. Any borrowings the Company plans to repay in less than 30 days will be at the Wall Street Journal prime rate. At December 31, 2002 there were no outstanding borrowings on the Banknorth N.A. revolving line of credit.

In connection with the two loan facilities with Banknorth N.A., the Company amended the lease agreement with its lessor in the sale-leaseback transaction involving its factory headquarters in Shelburne, VT to incorporate the terms of lessor's refinancing of the building at a lower interest rate. Under the lease amendment, the lessor agreed to pass along interest savings by way of reduced rent payments under the lease agreement with the Company. In consideration for the lease amendment, the Company extended the period of exercise on the lessor's previously issued warrants until September 27, 2009. The Company has recorded the fair value of the warrant modification, or $84,000, as an other asset, which will be amortized to interest expense over the remaining lease term of approximately 15 years.

Under the terms of the Company's indebtedness, including its capital lease obligation, the Company is subject to certain affirmative and negative covenants. As of December 31, 2002, the Company was in compliance with these covenants.

On October 8, 2002, the Company announced the results of the August 21, 2002 Offer to Purchase up to 3 million shares of the Company's Common Stock at a purchase price of $3.50 per share ("Issuer Tender Offer"). The offer, which was oversubscribed, expired on October 4, 2002. A total of 3,424,604 shares of the Company's common stock were validly tendered and not withdrawn, including 2,899,619 shares deposited with Continental Stock Transfer & Trust Company, the depositary for the offer, and 524,985 shares deposited directly with the Company for Series C Convertible Preferred Stock tendered on an as converted basis. Upon Pursuant to the Company's offering documents and applicable securities laws, the maximum number of shares that the Company was authorized to purchase without extending the offer was 3,149,266 shares. The total cost to purchase these shares, including transaction costs of $123,000, was $11,146,000. Because the total number of tendered shares exceeded that the max imum, the Company accepted for payment the maximum number of authorized shares that were tendered in accordance with the priority and proration rules described in Section 1 of our Offer to Purchase dated August 21, 2002.

On October 16, 2002, Banknorth N.A. funded the $3,000,000 fixed rate term loan which was used, along with cash on hand, for the repurchase of 3,149,266 shares of the Company's Common Stock pursuant to the aforementioned August 21, 2002 offer to purchase up to 3 million shares of the Company's Common Stock at a purchase price of $3.50 per shareIssuer Tender Offer.

Operating segments represent components of the Company's business that are evaluated regularly by key management in assessing performance and resource allocation. The Company has determined that its reportable segments consist of the Gram delivery service, Retail Operations, and Corporate/ Wholesale (including licensing). The Gram delivery service is comprised of Bear-Gram delivery service, PajamaGram delivery service, and TastyGram delivery service. SendAMERICA, Inc. began doing business as the TastyGram delivery service in October 2002. The SendAMERICA segment will be referred to as the TastyGram segment for this and future reports.

The Bear-Gram delivery service involves sending personalized teddy bears directly to recipients for special occasions such as birthdays, anniversaries, weddings, and new births, as well as holidays such as Valentine's Day, Christmas, and Mother's Day. Bear-Gram orders are placed through the toll free number, on-line at vermontteddybear.com , or through the catalog.

The PajamaGram delivery service involves sending pajamas and related loungewear and spa products to recipients as gifts for similar special occasions and holidays. PajamaGram orders are also placed via a toll free number or online at pajamagram.com.

SendAMERICA, Inc., a wholly owned subsidiary, is a business segment begun in fiscal 2001 for the purposes of extending the Company's product offerings in the gift delivery service industry to include other American made gift products in addition to teddy bears. SendAMERICA orders were placed via a toll free number, online at sendamerica.com or through a catalog. In October 2002, the Company focused the activities of SendAMERICA exclusively on food related gift products, under the service mark "TastyGram", delivered to recipients for special occasions and holidays. TastyGram orders are placed via a toll free number or online at tastygram.com.

The Retail Operation segment involves two retail locations and family tours of its teddy bear factory and store at the factory location in Shelburne, located ten miles south of Burlington, Vermont and also has a newly opened retail store located on Route 100 in Waterbury, Vermont. In an effort to make a visit to the stores more entertaining and draw additional traffic, the Company has implemented the Make-A-Friend-For-Life bear assembly area at both stores, where visitors can participate in the creation of their own teddy bear.

The Wholesale/Corporate segment was begun during the Company's fiscal year 1998 when the Company began pro-actively developing opportunities in the corporate affinity market and certain wholesale markets.

The reporting segments follow the same accounting policies used for the Company's consolidated financial statements and as described in the summary of significant accounting policies. Management evaluates a segment's performance based upon gross margin and gross margin percentage.

(*) SendAMERICA, Inc. began doing business as the TastyGram delivery service in October, 2002.

The Company believes that there is no discernable basis to identify assets by segment. Revenues from individual customers, revenues between business segments, and revenues, operating profit and identifiable assets of foreign operations are not significant.

(10) Legal Proceedings

The Company is a party in a suit against 538 Madison Realty Company pending in the Supreme Court of the State of New York, County of New York, seeking a declaration that a lease with 538 Madison Realty Company is terminated. A description of the background and current status of this action appears in Part I, Item 2 of this report under the heading Commitments and Contingencies.

There are various other claims, lawsuits, and pending actions against the Company that are routine and incidental to the operations of its businesses. It is the opinion of management, after consultation with counsel, that the ultimate resolution of such claims, lawsuits and pending actions will not have a material adverse effect on the Company's consolidated financial position, results of operations or liquidity. There can be no assurance, however, that claims will not be made against the Company in the future. Such claims, if material, may adversely affect the Company's businesses and results of operations.

The following discussion and analysis provides information that the Company's management believes is relevant to an assessment and understanding of the Company's results of operations and financial condition. The discussion should be read in conjunction with the financial statements and footnotes that appear elsewhere in this report filed on Form 10-Q. This report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1993 and Section 21E of the Securities Exchange Act of 1934. The words "believe," "expect," "anticipate," "intend," "estimate," and other expressions that predict or indicate future events and trends, and that do not relate to historical matters, identify forward-looking statements. Such statements involve risks and uncertainties that could cause actual results to differ materially from those set forth in such forward-looking statements. The Company undertakes no obligation t o publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise, except as required by applicable laws and regulations.

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions about future events that affect the amounts reported in the financial statements and accompanying notes. Future events and their impact cannot be determined with absolute certainty. Therefore, the determination of estimates requires the exercise of judgement. Actual results inevitably will differ from those estimates, and such differences may be material to the financial statements.

We believe application of accounting policies, and the estimates inherently required therein, are reasonable. These accounting policies and estimates are constantly reevaluated, and adjustments are made when facts and circumstances dictate a change.

We have identified certain critical accounting policies, which are described below:

Inventory Valuation

The Company carries its inventory at the lower of cost or market on a first-in, first-out basis. The Company makes certain assumptions to adjust inventory based on historical experience and current information in order to assess that inventory is recorded properly at the lower of cost or market. If actual market conditions are less favorable than those projected by management, additional inventory adjustments may be required. These adjustments can have a significant impact on current and future operating results and financial position.

Providing for Litigation Contingencies

The Company is involved in litigation incidental to its business, the disposition of which is expected to have no material effect on the Company's financial position or results of operations. It is possible, however, that future results of operations for any particular quarterly or annual period could be materially affected by differences between the Company's assumptions related to these proceedings and actual results. The Company accrues its best estimate of the probable cost for the resolution of legal claims. Such estimates are developed in consultation with outside counsel handling these matters and are based upon a combination of litigation and settlement strategies. To the extent additional information arises, it is possible that the Company's best estimate of its probable liability in these matters may change.

The Company accrues a provision for returns and allowances. The Company makes certain assumptions to adjust this provision based on historical experience and current information in order to assess that the provision is estimated properly. If actual market conditions are less favorable than those projected by management, additional adjustments to the provision may be required. These adjustments can have a significant impact on current and future operating results and financial position.

The Company provides for income taxes at rates equal to our combined federal and state effective rates, however, certain estimates are made based on historical experience and various other assumptions that are believed to be reasonable under the circumstances. Subsequent revisions to the estimated net realizable value of deferred tax assets, deferred tax liabilities and other income tax liabilities could cause our provision for income taxes to vary significantly from period to period.

Net revenues for the three month period ended December 31, 2002 totaled $9,290,000, an increase of $887,000 from net revenues of $8,403,000 for the three month period ended December 31, 2001. By business segment, $1,281,000 in increased revenues were attributable to the test marketing of the Company's new PajamaGram gift delivery service segment during the three period ended December 31, 2002. Increased net revenues from retail store operations of $72,000 were a result of the opening of a second retail store location in Waterbury, Vermont which was not in operation during the three month period ended December 31, 2001. These increases were offset by decreases in Bear-Gram gift delivery service revenues, which include radio, Internet, and direct mail revenues of $333,000, decreases in the Corporate/Wholesale segment of $126,000 as the result of decreased sales in the corporate affinity market, and decreases in the TastyGram segment of $7,000 for the three month period ended December 31, 2001.

Gross margin increased by $549,000 to $5,675,000 for the three month period ended December 31, 2002, from $5,126,000 for the three month period ended December 31, 2001. As a percentage of net revenues, gross margin remained consistent at 61.1 percent for the three month period ended December 31, 2002, as compared to 61.0 percent for the three month period ended December 31, 2001. The gross margin percent increased in the Bear-Gram segment this period primarily due to decreased unit manufacturing costs. Gross margins in the Retail segment increased for this period as the stores realized increased sales of its Make-A-Friend-For-Life teddy bears that have a higher unit gross margin than other products sold in the retail store. The gross margin percent in the Corporate/Wholesale segment increased due sales of product with higher unit margins during this period. The gross margin for the TastyGram gift service segment during the three month period ended December 31, 2002 was lower than the three month period ended December 31, 2001, as this segment absorbed costs associated with packaging and product fulfillment in the transition to the TastyGram servicemark.. Gross margins resulting from test marketing of the PajamaGram gift service segment, which were less as a percentage of net revenues than the Company's overall gross margin percent, partially offset the increased gross margin percent in the Company's other segments.

Selling expenses increased to $4,114,000, or 44.3 percent of net revenues, for the three month period ended December 31, 2002, from $3,408,000, or 40.6 percent of net revenues, for the comparable period ending December 31, 2001. This $706,000 increase was primarily due to the addition of $663,000 in new advertising expenses, which include radio and Internet costs, related to the launch of the Company's new PajamaGram segment, a $114,000 increase in Bear-Gram advertising costs, which include radio, catalog, Internet and print costs, and increases in Retail segment expenses of $66,000 due to the opening of a retail location in Waterbury,VT which was not in operation during the three month period ended December 31, 2002. These increases were offset by decreased marketing and merchandising costs associated with the TastyGram segment of $100,000, decreases of $31,000 to call center and customer service costs, and decreases to Corporate/Wholesale expenses of $6, 000.

General and administrative expenses increased to $1,248,000 for the three month period ended December 31, 2002 primarily due to increased information technology support costs, increased health insurance costs, and increased order processing fees from higher net revenues, compared to $1,094,000 for the three month period ended December 31, 2001. As a percentage of net revenues, general and administrative expenses increased to 13.4 percent for the three month period ended December 31, 2002, from 13.0 percent for the comparable period ended December 31, 2001.

Interest expense increased to $143,000 for the three month period ended December 31, 2002, compared to $141,000 for the comparable period ending December 31, 2001. Interest income decreased to $20,000 as a result of lower cash balances and lower interest rates in the three month period ended December 31, 2002, compared to $45,000 for the three month period ended December 31, 2001.

The Company has recorded a tax provision of approximately $78,000 for the three month period ended December 31, 2002, at an effective income tax rate of approximately 40.0 percent. The Company recorded a tax provision of approximately $215,000 for the comparable period ended December 31, 2001, at an effective income tax rate of approximately 40.0 percent.

As a result of the foregoing factors and the Series A Preferred Stock dividends of $18,000, the Series C Preferred Stock dividends of $4,000 and the accretion of an original issue discount of $14,000, the net income available to Common Stockholders for the three month period ended December 31, 2002 was $81,000, compared to a net income available to Common Stockholders of $281,000 for the three month period ended December 31, 2001.

Net revenues for the six month period ended December 31, 2002 totaled $14,374,000, an increase of $1,060,000 from net revenues of $13,314,000 for the six month period ended December 31, 2001. By business segment, $1,364,000 in increased revenues were attributable to the test marketing of the Company's new PajamaGram gift delivery service segment during the six period ended December 31, 2002. Increased net revenues from retail store operations of $239,000 were a result of the opening of a second retail store location in Waterbury, Vermont which was not in operation during the six month period ended December 31, 2001. These increases were offset by decreases in Bear-Gram gift delivery service revenues, which include radio, Internet, and direct mail revenues of $350,000, decreases in the Corporate/Wholesale segment of $186,000 as the result of decreased sales in the corporate affinity market, and decreases in the TastyGram segment of $7,000 as compared to the six month period ended December 31, 2001.

Gross margin increased by $705,000 to $8,807,000 for the six month period ended December 31, 2002, from $8,102,000 for the six month period ended December 31, 2001. As a percentage of net revenues, gross margin increased to 61.3 percent for the six month period ended December 31, 2002, from 60.9 percent for the six month period ended December 31, 2001. The gross margin percent increased in the Bear-Gram segment this period primarily due to decreased unit manufacturing costs. Gross margins in the Retail segment increased for this period as the stores realized increased sales of its Make-A-Friend-For-Life teddy bears that have a higher unit gross margin than other products sold in the retail store. The gross margin percent in the Corporate/Wholesale segment increased due sales of product with higher unit margins during this period. The gross margin for the TastyGram gift service segment during the six month period ended December 31, 2002 was lower for the six month period ended December 31, 2001 as this segment absorbed costs associated with packaging and product fulfillment in the transition to the TastyGram servicemark . Gross margins resulting from test marketing of the PajamaGram gift service segment, which were less as a percentage of net revenues than the Company's overall gross margin percent, partially offset the Company's increased gross margin percent from other segments.

Selling expenses increased to $6,171,000, or 42.9 percent of net revenues, for the six month period ended December 31, 2002, from $5,543,000, or 41.6 percent of net revenues, for the comparable period ending December 31, 2001. This $628,000 increase was primarily due to the addition of $709,000 in new advertising expenses, which include radio and Internet costs, related to the launch of the Company's new PajamaGram segment, increases in Retail segment expenses of $127,000 due to the opening of a retail location in Waterbury,VT which was not in operation during the three month period ended December 31, 2002 and increases to Corporate/Wholesale expenses of $7,000. These increases were offset by decreased marketing and merchandising costs associated with the Company's wholly owned subsidiary SendAMERICA, Inc. of $123,000 which began doing business as the TastyGram gift delivery service in October 2002, decreases of $55,000 to call center and customer service costs, and a $37,000 decrease in Bear-Gram advertising costs, which include radio, catalog, Internet and print costs.

General and administrative expenses increased to $2,329,000 for the six month period ended December 31, 2002 primarily due to increased information technology support costs, increased health insurance costs, and increased order processing fees from higher net revenues and legal costs associated with the protection of trademarks, compared to $2,102,000 for the six month period ended December 31, 2001. As a percentage of net revenues, general and administrative expenses increased to 16.2 percent for the six month period ended December 31, 2002, from 15.8 percent for the comparable period ended December 31, 2001.

Interest expense decreased to $277,000 for the six month period ended December 31, 2002, compared to $283,000 for the comparable period ending December 31, 2001. Interest income decreased to $84,000 as a result of lower cash balances and lower interest rates in the six month period ended December 31, 2002, compared to $117,000 for the six month period ended December 31, 2001.

The Company has recorded a tax provision of approximately $47,000 for the six month period ended December 31, 2002, at an effective income tax rate of approximately 40.0 percent. The Company recorded a tax benefit of approximately $120,000 for the comparable period ended December 31, 2001, at an effective income tax rate of approximately 40.0 percent.

As a result of the foregoing factors and the Series A Preferred Stock dividends of $36,000, the Series C Preferred Stock dividends of $13,000 and the accretion of an original issue discount of $27,000, the net loss available to Common Stockholders for the six month period ended December 31, 2002 was $5,000, compared to a net income available to Common Stockholders of $99,000 for the six month period ended December 31, 2001.

The following is a summary of the Company's contractual commitments and other obligations as of December 31, 2002. The Company's Other Long-Term Obligations are comprised of employment contracts and certain consulting arrangements.

As of December 31, 2002, the Company's cash position decreased to $3,404,000, from $12,819,000 at June 30, 2002. Of the $3,404,000, $527,000 is classified as restricted cash; there was $587,000 of restricted cash at June 30, 2002. The largest component of the restricted cash is $458,000 restricted by a debt service reserve, which was required as part of the Company's loan agreement with Banknorth N.A., that is required to be maintained as part of the Company's sale-leaseback transaction. This $458,000 in restricted cash replaces the restricted cash with the Chittenden Bank (formerly Vermont National Bank). Cash decreases from the acquisition of treasury stock and an increase in inventory as the Company prepares for the Valentine's Day season were partially offset by borrowings from Banknorth N.A. and exercises of stock options in connection with the Issuer Tender Offer described in Note 8 to the Financial Statements.

On November 3, 1998, the Company closed on a private placement of $600,000 of its Series C Convertible Redeemable Preferred Stock ("Series C Preferred Stock") to an investor group lead by TSG Equity Partners (formerly The Shepherd Group LLC). Accompanying the Series C Preferred Stock were warrants to purchase 495,868 shares of the Company's Common Stock at an exercise price of $1.05 per share, which will expire seven years from the date of issuance. In connection with the issuance of the Series C Preferred Stock, a warrant to purchase 42,500 shares of the Company's Common Stock was issued at an exercise price of $1.05 to the Company's lessor in the sale-leaseback transaction. Because of the mandatory redemption provision, the Series C Preferred Stock net of the value of the warrants has been classified as long term debt in the accompanying balance sheet. The Company has valued the warrants using the Black-Scholes valuation model. The value of $272,449 was applied as a discount to the f ace value of the Series C Preferred Stock on the Company's balance sheet. The Company will accrete this discount, with charges to retained earnings over a five year period.

The following table shows the shares and dollar amounts of changes to the Series C Preferred Stock account:

Each of the shares of Series C Preferred Stock has a liquidation value of $10,000 per share, and is convertible into 9,523 shares of the Company's Common Stock. The Series C Preferred Stock requires redemption upon the tenth anniversary of its issuance, with the Company and the Series C Preferred stockholders having call and put rights, respectively, beginning on the fifth anniversary of issuance. The Series C Preferred stock carries voting rights on an as-converted basis, and, as a class, has the right to elect two members to the Company's Board of Directors. Both the Series C Preferred Stock and the accompanying warrants carry certain anti-dilution provisions. The Series C Preferred Stock has a cumulative preferred dividend of six percent per annum, payable quarterly. For the six months ended December 31, 2002 and December 31, 2001, $13,077 and $18,149 of dividends respectively had been paid in cash dividends.

On January 15, 2002, the Company executed a Warrant Repurchase Agreement with TSG Equity Partners to repurchase of the outstanding Warrants issued in connection with the Series C Preferred Stock for a total purchase price of $768,595, representing a net cash amount of $1.55 for each share issuable on the exercise of the Warrants, or $2.60 per share less the $1.05 exercise price of the Warrants. The transaction closed on January 15, 2002, and the warrants were terminated on that date. The transaction was recorded as an equity transaction in the quarter ended March 31, 2002. The original issue discount of $272,449 applied on issuance of the Warrants to the face value of the Series C Preferred Stock will continue to accrete through charges to retained earnings until October 2003.

On August 21, 2002, the Company commenced the Issuer Tender Offer. The offer was subject to certain conditions as were described in the offering documents filed with the Securities and Exchange Commission on August 21, 2002 and amended on September 9, 2002 and on September 23, 2002 and expired at 5 p.m. Eastern Time on October 4, 2002. The offer was not conditioned on any minimum number of shares being tendered and was subject to proration if more than 3 million shares were tendered. At the commencement of the offer, the Company expected the maximum aggregate cost, including all fees and expenses applicable to the offer, to be approximately $10,750,000 and anticipated that its cash on hand plus the proceeds of loans from Banknorth N.A. would be sufficient to pay these costs. On September 27, 2002 the Company closed on two loan facilities: a term loan in an amount of $3,000,000 which may be used for the repurchase of the Company capital stock and a revolving line of credit in an amount up to $4,000,000 for working capital needs.

On October 4, 2002, Series C Preferred Stockholders tendered 524,985 shares of Common stock on an as converted basis in response to the Company's August 21, 2002 Offer to Purchase up to 3 million shares of Common Stock.

On October 8, 2002, the Company announced the results of the Issuer Tender Offer. The offer, which was oversubscribed, expired on October 4, 2002. A total of 3,424,604 shares of the Company's common stock were validly tendered and not withdrawn, including 2,899,619 shares deposited with Continental Stock Transfer & Trust Company, the depositary for the offer, and 524,985 shares deposited directly with the Company for Series C Convertible Preferred Stock tendered on an as converted basis. Upon the Company's offering documents and applicable securities laws, the maximum number of shares that the Company was authorized to purchase without extending the offer was 3,149,266 shares. The total cost to purchase these shares, including transaction costs of $123,000, was $11,146,000. Because the total number of tendered shares exceeded the maximum the Company was authorized to purchase, the Company accepted for payment the maximum number of authorized shares that were tendered in accordance with the priority and proration rules described in Section 1 of our Offer to Purchase dated August 21, 2002.

On October 8, 2002, after proration, Series C Preferred Stockholders exercised the convertible rights associated with the Series C Preferred Stock and converted 50.7 shares of Series C Preferred Stock into 482,745 shares of the Company's Common Stock.

On October 16, 2002, Banknorth N.A. funded the $3,000,000 fixed rate term loan which was used, along with cash on hand, for the repurchase of 3,149,266 shares of the Company's Common Stock pursuant to the aforementioned August 21, 2002 offer to purchase up to 3 million shares of the Company's Common Stock at a purchase price of $3.50 per share.

The Company believes that its existing cash and cash equivalent balances, together with funds generated from operations and available borrowings under its loan commitments from Banknorth N.A., will be sufficient to finance the Company's operations for at least the next twelve months.

On October 24, 1996, the company entered into a ten-year lease for 2,600 square feet on Madison Avenue in New York City. On December 7, 1997, the Company's 538 Madison Avenue location was closed due to structural problems at neighboring 540 Madison Avenue. On December 16, the Company announced that it was permanently closing that retail location. The City of New York deemed the 538 Madison Avenue building uninhabitable from December 8, 1997 to April 9, 1998, and the Company has not made any rent payments on the lease since December, 1997. On December 24, 1998, the Company received a notice from its landlord of 538 Madison Avenue alleging that it was in default under the lease for failure to resume occupancy, and demand for back rent for the period July 8, 1998 to December 31, 1998 in the amount of $144,355. Further on January 4, 1999 the Company received a demand to resume rent payments beginning January 1999. The Company disputed the landlord's position and believed it was not obligat ed to resume occupancy or pay rent under the lease. As a result, on May 25, 1999, the Company commenced action in the Supreme Court of the State of New York, County of New York against 538 Madison Realty Company. The action sought breach of contract damages and a declaration that the contract at issue, the former lease between the parties, has been terminated. The landlord moved to dismiss the action based on purported documentary evidence, being the lease itself. That motion was denied by order entered April 12, 2000. After having unsuccessfully attempted to resolve the disputes and after engaging in document discovery, the Company moved for summary judgement on its claims and dismissal of the landlord's claims. That motion was granted by order dated July 25, 2001 and judgement was entered in favor of the Company and against the landlord in the amount of $211,146 on August 10, 2001. The landlord filed an appeal of that judgement and, as settlement discussions have been unsuccessful, has posted a bond to sta y enforcement of the judgement pending its appeal, which was argued on November 1, 2002. The Company has accrued management's estimated cost of $220,000 to settle this contingency, but no assurance can be given that this dispute can be settled for this amount. In the event that no settlement is reached and the judgement is ultimately reversed on appeal and the Company is not successful in its suit against 538 Madison Realty Company, the remaining amount owed under the lease over its remaining term at face value is $2,825,000.

There are various claims, lawsuits, and pending actions against the Company that are routine and incidental to the operations of its businesses. It is the opinion of management, after consultation with counsel, that the ultimate resolution of such claims, lawsuits and pending actions will not have a material adverse effect on the Company's consolidated financial position, results of operations or liquidity. There can be no assurance, however, that claims will not be made against the Company in the future. Such claims, if material, may adversely affect the Company's businesses and results of operations.

The Company's earnings and cash flows are subject to fluctuations due to changes in interest rates primarily from its investment of available cash balances in money market funds. Under its current policies, the company does not use interest rate derivative instruments to manage exposure to interest rate changes. A ten percent fluctuation in interest rates would not have a material impact on the Company's ability to meet its financial obligations.

(a) Disclosure controls and procedures. Within 90 days before filing this report, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures. Elisabeth B. Robert, Chief Executive Officer and Chief Financial Officer, and Mark J. Sleeper, Chief Accounting Officer, reviewed and participated in this evaluation. Based on this evaluation, Ms. Robert and Mr. Sleeper concluded that our disclosure controls and procedures are effective in promptly alerting them to material information required to be included in our periodic SEC reports. It should be noted that the design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote.

(b) Internal controls. Since the date of the evaluation described above, there have not been any significant changes in our internal accounting controls or in other factors that could significantly affect those controls.

There are various claims, lawsuits, and pending actions against the Company that are routine and incidental to the operations of its businesses. It is the opinion of management, after consultation with counsel, that the ultimate resolution of such claims, lawsuits and pending actions will not have a material adverse effect on the Company's consolidated financial position, results of operations or liquidity. There can be no assurance, however, that claims will not be made against the Company in the future. Such claims, if material, may adversely affect the Company's businesses and results of operations.

Not applicable.

Not applicable.

On December 10, 2002, the Company held an Annual Meeting of Shareholders, at which the following matters were voted upon:

(1) Election of seven individuals to the Company's Board of Directors for the ensuing year.

(2) Election of Directors by Series C Preferred Shareholders (Not applicable to Common Stockholders):

(3) Ratification of the selection of Deloitte & Touche L.L.P. as the Company's independent public accountants for the 2003 fiscal year.

Votes cast for: 2,408,855 Votes cast against: 9,828 Abstentions: 1,507

All matters were approved by the Company's Shareholders.

On December 10, 2002, the Board of Directors appointed Mark J. Sleeper as Chief Accounting Officer, in addition to his position as Secretary of the Corporation. Mr. Sleeper will signing the Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and the Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

On December 10, 2002 the Board of Directors revised the Audit Committee Charter and appointed new audit committee members to comply with new SEC regulations for audit committee member independence. The new audit committee is comprised of Jason Bacon as Chair, Maxine Brandenburg and Barbara Johnson. On January 8, 2003, the Audit Committee approved, in concept, the engagement of the Company's auditing firm, Deloitte & Touche, for tax services. Upon the Committee's recommendation, the Board The Committee authorized Elisabeth Robert to engage Deloitte & Touche for tax services. Ms. Robert is currently reviewing a proposal from Deloitte & Touche for these services.

Elisabeth B. Robert, the Company's Chief Executive Officer/Chief Financial Officer and Mark J. Sleeper, the Chief Accounting Officer, have furnished to the SEC the certification with respect to this Form 10-Q that is required by Section 906 of the Sarbanes-Oxley Act of 2002. See exhibit 99.1

99.1 Certifications pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 by Elisabeth B. Robert, President, Chief Executive Officer, Treasurer, and Chief Financial Officer and Mark J. Sleeper, Chief Accounting Officer (filed herein).

99.2 Revised Audit Committee Charter (filed herein).

There were no reports filed on Form 8-K for the quarter ended December 31, 2002.

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

Date: February 14, 2003 /s/ Elisabeth B. Robert ,

I, Elisabeth B. Robert, certify that:

1. I have reviewed this quarterly report on Form 10-Q of The Vermont Teddy Bear Company;

2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4. I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and I have:

a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities,

particularly during the period in which this quarterly report is being prepared;

b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and

c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5. I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function):

a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the

registrant's auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and

6. I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: February 14, 2003 /s/ Elisabeth B. Robert ,

Chief Financial Officer

I, Mark J. Sleeper, certify that:

1. I have reviewed this quarterly report on Form 10-Q of The Vermont Teddy Bear Company;

2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4. I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and I have:

a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities,

particularly during the period in which this quarterly report is being prepared;

b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and

c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5. I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function):

a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the

registrant's auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and

6. I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: February 14, 2003 /s/ Mark J. Sleeper ,