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UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

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FORM 10-Q

Quarterly Report Pursuant to Section 13 or 15(d) of
the Securities and Exchange Act of 1934

For the quarterly period ended: 10/31/02

Commission file number: 1-14091

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SHERWOOD BRANDS, INC.(Exact name of Registrant as specified in its charter)

|North Carolina(State or other jurisdictions of
incorporation or organization) |  | 56-1349259(I.R.S. Employer
Identification No.)
|----------------------------------------------------------------------------- |  | ----------------------------------------------

1803 Research Blvd. Suite 201, Rockville MD 20850(Address of principal executive offices)

Registrant's
telephone number, including area code:301-309-6161

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

The
number of shares outstanding of issuer's Class A Common Stock, $.01 par value per share, as of December 13, 2002 was 2,778,375. The number of shares outstanding of
issuer's Class B Common Stock, $.01 par value per share, as December 13, 2002 was 1,000,000. The Class B Common Stock is not publicly traded.

Transitional
Small Business Disclosure Format (check one):
 Yes o    No ý

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SHERWOOD BRANDS, INC.        INDEX

|                                                                                                                     |  |                       |  |                                                                                                |  | Page
|-------------------------------------------------------------------------------------------------------------------- |  | --------------------- |  | ---------------------------------------------------------------------------------------------- |  | ----
|PART I                                                                                                               |  | FINANCIAL INFORMATION |  |                                                                                               
|                                                                                                                     |  | Item 1.               |  | FINANCIAL STATEMENTS                                                                           |  |     
|                                                                                                                     |  |                       |  | Consolidated Balance SheetsOctober 31, 2002 (unaudited) and July 31, 2001                     |  | 1   
|                                                                                                                     |  |                       |  | Consolidated Statements of OperationsThree months ended October 30, 2002 and 2001 (unaudited) |  | 2   
|                                                                                                                     |  |                       |  | Consolidated Statements of Cash FlowsThree months ended October 31, 2002 and 2001 (unaudited) |  | 3   
|                                                                                                                     |  |                       |  | Notes to Consolidated Financial Statements                                                     |  | 4   
|                                                                                                                     |  | Item 2.               |  | MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS          |  | 7   
|                                                                                                                     |  | Item 3.               |  | Quantitative and Qualitative Disclosures about Market Risk                                     |  | 10  
|PART II                                                                                                              |  | OTHER INFORMATION     |  |                                                                                               
|                                                                                                                     |  | Item 1.               |  | Legal Proceedings                                                                              |  | 12  
|                                                                                                                     |  | Item 6.               |  | Exhibits and Reports on form 8-K                                                               |  | 12  
|SIGNATURES                                                                                                           |  | 13                   
|CERTIFICATE PURSUANT TO 18 U.S.C.,SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT of 2002 |  | 14                   

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SHERWOOD BRANDS, INC. AND SUBSIDIARIES        CONSOLIDATED BALANCE SHEETS        UNAUDITED

|                                                |                                                                                                                            | October 31, 2002 |            | July 31, 2002 |  
|----------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------- | ---------------- | ---------- | ------------- | -
|
|Assets                                          |                                                                                                                           
|Current assets                                  |                                                                                                                            |                  |            |               |  
|                                                | Cash and cash equivalents                                                                                                  |                  | $          | 726,823       |  
|                                                | Accounts receivable, less allowance of $186,000 and $126,000                                                               |                  |            | 14,861,588    |  
|                                                | Inventory                                                                                                                  |                  |            | 17,815,555    |  
|                                                | Income taxes receivable                                                                                                    |                  |            | 1,103,089     |  
|                                                | Other current assets                                                                                                       |                  |            | 503,006       |  
|                                                | Deferred taxes on income                                                                                                   |                  |            | 512,000       |  
|                                                |                                                                                                                            |                  |            |               |  
|Total Current Assets                            |                                                                                                                            |                  | 35,522,061 |               |  
|Net property and equipment                      |                                                                                                                            |                  | 7,479,527  |               |  
|Goodwill                                        |                                                                                                                            |                  | 2,001,330  |               |  
|Other assets                                    |                                                                                                                            |                  | 323,166    |               |  
|                                                |                                                                                                                            |                  |            |               |  
|TOTAL ASSETS                                    |                                                                                                                            | $                | 45,326,084 |               | $
|                                                |                                                                                                                            |                  |            |               |  
|Liabilities and Stockholders' Equity            |                                                                                                                           
|Current liabilities                             |                                                                                                                            |                  |            |               |  
|                                                | Line of credit                                                                                                             |                  | $          | 17,318,031    |  
|                                                | Current portion of long-term debt                                                                                          |                  |            | 297,722       |  
|                                                | Current portion of capital lease obligation                                                                                |                  |            | 15,718        |  
|                                                | Accounts payable                                                                                                           |                  |            | 8,678,109     |  
|                                                | Accrued expenses                                                                                                           |                  |            | 2,350,476     |  
|                                                |                                                                                                                            |                  |            |               |  
|Total current liabilities                       |                                                                                                                            |                  | 28,660,056 |               |  
|Deferred taxes on income                        |                                                                                                                            |                  | 331,000    |               |  
|Long-term debt                                  |                                                                                                                            |                  | 1,803,661  |               |  
|Obligations under capital lease                 |                                                                                                                            |                  | 435,078    |               |  
|                                                |                                                                                                                            |                  |            |               |  
|TOTAL LIABILITIES                               |                                                                                                                            |                  | 31,229,795 |               |  
|                                                |                                                                                                                            |                  |            |               |  
|Stockholders' equity                            |                                                                                                                            |                  |            |               |  
|                                                | Preferred stock, $.01 par value, 5,000,000 shares authorized; no shares issued or outstanding                              |                  |            |              |  
|                                                | Common stock, Class A, $.01 par value, 30,000,000 shares authorized, 2,986,809 and 2,700,000 shares issued and outstanding |                  |            | 29,869        |  
|                                                | Common stock, Class B, $.01 par value, 5,000,000 shares authorized, 1,000,000 shares issued and outstanding                |                  |            | 10,000        |  
|Additional paid-in-capital                      |                                                                                                                            |                  | 9,816,856  |               |  
|Retained earnings                               |                                                                                                                            |                  | 4,270,703  |               |  
|Accumulated other comprehensive income / (loss) |                                                                                                                            |                  | (31,139    | )             |  
|                                                |                                                                                                                            |                  |            |               |  
|TOTAL STOCKHOLDERS' EQUITY                      |                                                                                                                            |                  | 14,096,289 |               |  
|                                                |                                                                                                                            |                  |            |               |  
|TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY      |                                                                                                                            | $                | 45,326,084 |               | $
|                                                |                                                                                                                            |                  |            |               |  

See
Accompanying summary of accounting policies and notes to consolidated financial statements

1

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SHERWOOD BRANDS, INC. AND SUBSIDIARIES        CONSOLIDATED STATEMENTS OF OPERATIONS        UNAUDITED

|                                             |                        | THREE MONTHS ENDED OCTOBER 31, |           
|-------------------------------------------- | ---------------------- | ------------------------------ | ----------
|
|Net sales                                    |                        | $                              | 18,462,212
|Cost of sales                                |                        |                                | 12,955,743
|                                             |                        |                                |           
|Gross profit                                 |                        |                                | 5,506,469 
|                                             |                        |                                |           
|Selling, general and administrative expenses |                        |                                | 2,563,700 
|Salaries and related expenses                |                        |                                | 1,175,008 
|Pre production Costs                         |                        |                                | 503,936   
|                                             |                        |                                |           
|Total operating expenses                     |                        |                                | 4,242,644 
|                                             |                        |                                |           
|Income from operations                       |                        |                                | 1,263,825 
|                                             |                        |                                |           
|Other income (expense)                       |                        |                                |           
|                                             | Interest income        |                                |           
|                                             | Interest expense       |                                |           
|                                             | Other (expense) income |                                |           
|                                             |                        |                                |           
|Total other (expense) income                 |                        |                                | (137,262  
|                                             |                        |                                |           
|Income before provision for taxes on income  |                        |                                | 1,126,563 
|Provision for taxes on income                |                        |                                | 417,614   
|                                             |                        |                                |           
|Net income                                   |                        | $                              | 708,949   
|                                             |                        |                                |           
|Net income per sharebasic                   |                        | $                              | 0.18      
|                                             |                        |                                |           
|                                             |                        |                                |           
|Weighted average shares outstandingbasic    |                        |                                | 3,986,809 
|                                             |                        |                                |           
|                                             |                        |                                |           

See
accompanying summary of accounting policies and notes to consolidated financial statements.

2

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SHERWOOD BRANDS, INC. AND SUBSIDIARIES        CONSOLIDATED STATEMENTS OF CASH FLOWS        UNAUDITED

|                                                  |                                                                              | Three months ended October 31, |           
|------------------------------------------------- | ---------------------------------------------------------------------------- | ------------------------------ | ----------
|
|Cash flows from operating activities              |                                                                              |                                |           
|                                                  | Net income                                                                   |                                | $         
|                                                  | Adjustments to reconcile net income to net
Cash used in operating activities |                                |           
|                                                  | Depreciation expense                                                         |                                |           
|                                                  | Provision for inventory obsolescence                                         |                                |           
|                                                  | Provision for doubtful accounts                                              |                                |           
|                                                  | (Increase) decrease in assets                                                |                                |           
|                                                  |                                                                              | Accounts receivable            |           
|                                                  |                                                                              | Income taxes receivable        |           
|                                                  |                                                                              | Inventory                      |           
|                                                  |                                                                              | Other current assets           |           
|                                                  |                                                                              | Other assets                   |           
|                                                  | Increase (decrease) in liabilities                                           |                                |           
|                                                  |                                                                              | Accounts payable               |           
|                                                  |                                                                              | Accrued expenses               |           
|                                                  |                                                                              | Income taxes payable           |           
|                                                  |                                                                              |                                |           
|Net cash used in operating activities             |                                                                              |                                | (9,030,289
|Cash flows from investing activities              |                                                                              |                                |           
|                                                  | Capital expenditures                                                         |                                |           
|                                                  |                                                                              |                                |           
|Net cash used in investing activities             |                                                                              |                                | (351,960  
|                                                  |                                                                              |                                |           
|Cash flows from financing activities              |                                                                              |                                |           
|                                                  | Net borrowings on line of credit                                             |                                |           
|                                                  | Proceeds from long-term debt                                                 |                                |           
|                                                  | Payments on long term debt                                                   |                                |           
|                                                  |                                                                              |                                |           
|Net cash provided by financing activities         |                                                                              |                                | 9,399,825 
|                                                  |                                                                              |                                |           
|Net increase in cash and cash equivalents         |                                                                              |                                | 17,576    
|Cash and cash equivalents, at beginning of period |                                                                              |                                | 709,247   
|                                                  |                                                                              |                                |           
|Cash and cash equivalents, at end of period       |                                                                              | $                              | 726,823   
|                                                  |                                                                              |                                |           

See
Accompanying summary of accounting policies and notes to consolidated financial statements

3

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SHERWOOD BRANDS, INC. AND SUBSIDIARIES        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS        (UNAUDITED)

1. BASIS OF PRESENTATION

The consolidated financial statements include the accounts of Sherwood Brands, Inc., and its direct and indirect wholly-owned subsidiaries, Sherwood
Brands, LLC, a Maryland limited liability company, Sherwood Brands of RI Inc., a Rhode Island corporation, Sherwood Brands Overseas, Inc., a Bahamas entity ("Overseas"), and Asher
Candy, Inc., a Wyoming corporation (collectively referred to herein as, "we", "our" "us" or, the "Company"). All material inter-company transactions and balances have been eliminated in
consolidation.

The
accompanying consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X. Certain information and footnote disclosures normally included in the consolidated financial
statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. These consolidated financial statements should be
read in conjunction with the consolidated financial statements, and the notes thereto, included in the Company's Annual Report and Form 10-K filed on October 29, 2002.

2. ORGANIZATION AND DESCRIPTION OF BUSINESS

Sherwood Brands, Inc. was incorporated in December 1982 in the state of North Carolina. Sherwood Brands, Inc. is engaged in the manufacture,
marketing and distribution of a diverse line of brand name
candies, cookies, chocolates and gifts. The Company manufactures jelly beans, lollipops, biscuits and soft and hard candies and assembles seasonal gift items including gift baskets for Christmas and
Easter. The Company's principal branded products are COWS(TM) butter toffee candies, DEMITASSE(R) biscuits, RUGER(R) wafers, SMILE POPS(R) lollipops, STRIP-O-POPS(R) lollipops
and ELANA(R) Belgian chocolates. The Company also markets, SOUR FRUIT BURST(TM) fruit-filled hard candies, as well as holiday specialty products, such as PIRATE'S GOLD COINS(R) milk chocolates for
Christmas and TOKENS OF LOVE(TM) milk chocolates for Valentine's Day. The Company's marketing strategy, including its packaging of products, is designed to maximize freshness, taste and visual appeal,
and emphasizes highly distinctive, premium quality products that are sold at prices that compare favorably to those of competitive products. The Company believes that all of its operations are part of
the confectionery industry and it currently reports as a single industry segment.

Sherwood
Overseas, Inc. was incorporated in July 1993 in the Bahamas to market and distribute the Sherwood lines of confectionery products internationally.

Sherwood
Brands of RI, Inc. was incorporated in September, 1998 in the state of Rhode Island. Sherwood Brands of RI, Inc. d/b/a E. Rosen Company manufactures hard candies
and jelly beans and assembles and markets gift items and baskets to chains such as Wal-Mart, Kmart and CVS.

Sherwood
Acquisition Corporation was incorporated in April, 2002 in the state of Wyoming. On May 1, 2002, Sherwood Acquisition merged with and into Asher Candy Acquisition
Corporation, a Wyoming corporation. Asher Candy Acquisition Corporation is a manufacturer of candy canes and other hard candies under the "Asher" name. The surviving corporation of the merger is Asher
Candy Acquisition Corporation, which changed its name to Asher Candy, Inc. We issued an aggregate of 270,559 shares of our Class A common stock valued at $1,675,000 to the shareholders
of Asher Candy Acquisition Corporation in consideration for the transaction, subject to escrows for indemnification and adjustments based on a final audit, as well as warrants exercisable for our
Class A common stock valued at $108,000.

4

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3. INTERIM FINANCIAL INFORMATION

The financial information as of October 31, 2002 and for the three months ended October 31, 2002 and 2001 is un-audited. In the opinion
of management, such information contains all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the results for such periods. Results for interim
periods are not necessarily indicative of results to be expected for an entire year.

4. ACQUISITION

On May 1, 2002, the Company acquired all of the outstanding common stock of Asher Candy Acquisition Corporation, a Wyoming corporation with operations
located in New Hyde Park, New
York. Asher Candy Acquisition Corporation is a manufacturer of candy canes and other hard candies under the "Asher" name. The purchase price was approximately $1,786,000 consisting of an aggregate of
270,559 shares of its Class A common stock at $6.20 per share or $1,675,000 to the shareholders of Asher Candy Acquisition Corporation in consideration for the transaction, subject to escrows
for indemnification and adjustments based on a final audit, as well as warrants exercisable for Sherwood Brands common stock having a value of $108,000. The Company valued the common shares at the
closing market price on April 30, 2002 and valued the warrants using the Black-Scholes options pricing method.

The
following proforma consolidated results of operations for quarter ended October 31,2001 assuming the Company acquired Asher on August 1, 2001

October 31, 2001Net sales

$
23,639,662Income before provision for income taxes


2,533,463Net Income


1,596,082Earnings per sharebasic

$
0.43Earnings per sharediluted

$
0.38


5. INVENTORY

Inventory consists of raw materials, packaging materials, components used in assembly, work- in- process and finished goods and is stated
at the lower of cost or market. Cost is determined by the FIFO (first-in, first-out) method.

Inventory
consists of the following:

OCTOBER 31
2002

JULY 31
2002(UNAUDITED)

(AUDITED)Raw materials and ingredients

$
1,171,090

$
868,319Components used in assembly


1,692,913


1,200,576Packaging materials


4,964,195


2,850,910Work-in-process


672,168


667,697Finished product


10,016,016


11,069,47018,516,382


16,656,972Less reserve for inventory allowance


(700,827
)

(700,827
)$
17,815,555

$
15,956,145


6. USE OF ESTIMATES

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements

5

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and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

7. INCOME TAXES

The income tax rate utilized on an interim basis is based on the Company's estimate of the effective income tax rate for the fiscal year ending July 31,
2003 which approximates 37%.

8. EARNINGS PER SHARE

Earnings per share is based on weighted average number of shares of common stock and dilutive common stock equivalents outstanding. Basic earnings per share
includes no dilution and is computed by dividing income available to common shareholders by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflects
the potential dilution of securities that could share in the earnings of an entity. The following table presents a reconciliation between the weighted average shares outstanding for basic and diluted
earnings per share for the three months ended October 31, 2002 and October 31, 2001

For the three months ended October 31, 2002

Income

Shares

Per Share AmountBasic Earnings per ShareIncome available to common shareholders

$
708,949

3,986,809

$
0.18Effect of dilutive stock options




403,741Dilutive earnings per share

$
708,949

4,390,550

$
0.16For the three months ended October 31, 2001

Income

Shares

Per Share AmountBasic Earnings per ShareIncome available to common shareholders

$
1,728,519

3,700,000

$
0.47Effect of dilutive stock options




507,770Dilutive earnings per share

$
1,728,519

4,207,770

$
0.41


9. CONTINGENCY

We are from time to time involved in litigation incidental to the conduct of its business. We are currently a plaintiff in several actions and currently in
particular to the landlord at its Rhode Island Facility. The landlord sought security for its claims relating to the lease agreement. The company deposited $180,000 with the registry of the court on
allegation relating to amounts sought for payment of real estate taxes, water and sewer, rent of other occupied space and repair expenses. On September 2002, the landlord claimed other breaches
of the Lease Agreement alleging an obligation of $932,000 under the lease and has demanded $750,000 to settle the disputes. We have continued claims against the landlord and continue to occupy space
at the leased premises. We have accrued amounts to cover current charges. Management does not believe that the outcome of these actions, individually or in the aggregate, would have a material adverse
effect on the financial statements of the Company.

10. LICENSING AGREEMENTS

During the Quarter ended October 31, 2002, the Company entered into five licensing agreements to incorporate products into Gift sets and manufacturing of
hard milk candies and wafers. The royalty rates for such licenses are from 2% to 10% of net sales and expire in range of 2-3 years.

The
products to be incorporated into the Company's gift set items is during the Christmas Holiday and Easter seasons and the hard milk candies and wafers are effective on the selling
season of January 2003. The Company paid $20,000 in advance fee to have the rights to incorporate products into its gift set items. These advance fees will be offset against any amounts due on
royalties. There was no other minimum license fees under these agreements. The company incurred $65,700 royalties related to the quarter ended October 31, 2002. The Company is currently
pursuing other licenses with similar terms and conditions.

6

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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Important Information Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933,
as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Those statements include statements regarding the intent, belief or current expectations of the Company and its
management. Such statements are subject to a variety of risks and uncertainties, many of which are beyond the Company's control, which could cause actual results to differ materially from those
contemplated in such forward-looking statements, including in particular the risks and uncertainties described under "Risk Factors" in the Company's Registration Statement on Form SB-2,
filed with the Commission on May 11, 1998. Existing and prospective investors are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date
hereof. We undertake no obligation to update or revise the information contained in this Quarterly Report on Form 10-Q, whether as a result of new information, future events or
circumstances or otherwise.

The
preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts
of certain assets and liabilities at the date of the financial statements. Significant estimates in the Company's financial statements include the accounts receivable and inventory reserves. The
Company continually evaluates these reserves based upon historical experience. Although actual results could differ from those disclosed, management feels that the estimates used to establish the
reserves are conservative in nature. Furthermore, management contends that it would be unlikely that the reserve level would be materially different from any other independently prudently established
reserve.

On
May 1, 2002, we acquired all of the outstanding common stock of Asher Candy Acquisition Corporation, a Wyoming corporation with operations located in New Hyde Park, New York.
Asher Candy Acquisition Corporation is a manufacturer of candy canes and other hard candies under the "Asher" name. We issued an aggregate of 270,559 shares of our Class A common stock at $6.20
per share or $1,675,000 to the shareholders of Asher Candy Acquisition Corporation in consideration for the transaction, subject to escrows for indemnification and adjustments based on a final audit,
as well
as warrants exercisable for our Class A common stock having a value of $108,000. During the quarter ended October 31, 2002, we included the operating results of Asher Candy in our
consolidated results. Asher Candy generated $7.5 million during the quarter ended October 31, 2002.

During
the year ended July 31, 2002 and quarter ended October 31, 2002, we entered into eleven licensing agreements to incorporate our products into gift sets and to
manufacturing of candies and wafers. The royalty rates for these licenses range from 2% to 10% of net sales and expire in range of two to three years. The products to be incorporated into our gift set
items are primarily for the fourth quarter and Easter selling season. We also entered into a licensing agreement to produce everyday candies and wafers. We paid $141,000 in advance fees for the rights
under the licensing agreements. These advance fees will be offset against any amounts due on royalties. There was no other minimum license fees under these agreements. We incurred minimum royalties
during the year ended July 31, 2002 and $870 for the quarter ended October 31, 2002. We are currently pursuing other licenses with similar terms and conditions. We expect to generate
sales from the agreements beginning in the year ending July 31, 2003, but expect that the greatest impact will occur beginning in the year ending July 31, 2004.

On
May 31, 2002, we closed our Rhode Island manufacturing facility, which occupied five stories in an old building. All the production equipment, together with the electrical,
piping, steam and air-conditioning were disassembled and transferred to our expanded Chase City, VA facility. This 75,000 square feet facility, with an additional 25,000 square feet of new
constructed building, and the

7

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73,000 square foot facility at Keysville, VA (about 20 miles from Chase City, VA), will become a single manufacturing and distribution facility under one plant management for all products produced at
the Chase City facility. While the plant is operational we expect it to be fully operational by November 2002, the transition period resulted in decreased sales for seasonal merchandise for the
quarter ended October 31, 2002. Christmas, Easter gift sets and gift baskets are distributed at the Rhode Island and Massasusetts facilities. We source product primarily from the Pacific Rim.
We are continually looking to further reduce costs by more efficient sourcing.

Environmental Factors Affecting the Performance in the Quarter Ended October 31, 2002.

After September 11, 2001, the total consumer market experienced a major slow down. As a result, some of our major delayed their shipments, and kept
inventory at our facilities. We were forced to hold inventory for these customers for a period of up to twelve months. We expect that all of the held inventory will be shipped out by the beginning of
the second quarter of fiscal 2003 (ending January 31, 2003).

On
September 30, 2002, 29 west coast ports were shut down abruptly and remained closed as contract negotiations between dock-workers and shipping companies broke off
negotiations for new contracts. The shut down occurred during our peak inventory shipping period for orders for the holiday season. In mid-October 2002, the President of the United
States of America signed an order under the
Taft-Hartley Act to reopen the ports and put a moratorium on the strike for 60 days. The shut down had an effect on our first quarter of shipments to our customers. A large portion
of containers, which were to be received, remained either at ports or on shipping vessels on the water. In addition, empty containers were not brought back to ports in the Pacific Rim which we needed
to move some of our other products. In mid-October 2002, our inventory began to be released for shipment to our facility in New Bedford, MA. A slow down by the long
shore-men on shipping products is still prevalent. The first quarter revenue numbers were impacted by the shut down and resulted in a delay of sales into the second quarter of
approximately $6 million. However, we expect that all the orders delayed will be shipped in the second quarter with no adverse results to total net sales for fiscal year 2003.

Results of Operations

THREE MONTHS ENDED OCTOBER 31, 2002 AND 2001

Net sales for the three months ended October 31, 2002 and 2001 were $18,462,212 and $21,046,884 respectively, a decrease of 12.28%, or $2,584,672. On a
pro-forma basis, excluding the net sales of Asher, net sales declined $7,500,000 from $21,000,000 to $13,500,000. The decline in net sales was due to lower sales of gift items of
$3,100,000, $1,300,000 of Kastins, and $5,500,000 on gift sets. Big Lots, Dollar Tree and Sam's Club accounted for approximately 16%, 13% and 8%, respectively, of the sales ended for the three months
ended October 31, 2002. Sams Clubs, Big Lots and Wal-Mart accounted for approximately 45%, 13% and 6%, respectively, of the sales for the prior year's comparable period.

Gross
profit for the three months ended October 31, 2002 and October 31,2001 decreased 18.57% to $5,506,469 from $6,762,325, or to 30% from 32% as percent of sales. On a
pro-forma basis, excluding Asher, gross profit declined from $6,700,000 to $4,600,000. Gross profit declined due to lower margins on manufacturing of product lines at our Chase City
facility resulting from increased training and pre-production costs and increased raw material costs. The decline on lower sales of high margin gift sets for the Christmas season accounted
for $1,800,000 of the decrease.

Selling,
general and administrative expenses for the three months ended October 31, 2002 increased to $2,563,700 from $2,454,403 for the three months ended October 31,
2001, or to 13.9% from 11.7% as a percent of sales. The increase was due to additional travel costs for trips to China of $42,000, professional fees of $40,000 and insurance expenses of $29,000.

8

---

Pre-production
costs accounted for $503,936 or 2.73% as percent of sales for the three months ended October 31, 2002, as a result of the training and decreased
production levels of the manufacturing of product lines at the facility in Chase City, Virginia. No comparable cost or expense was incurred for the three months ended October 31, 2001. We
expect to incur additional training costs in the second quarter.

Salaries
and related expenses for the three months ended October 31, 2002 decreased to $1,175,008 from $1,369,931 for the three months ended October 31, 2001, or 6.4% from
6.5%, as a percent of sales. The decrease as a percent of sales was due to reduction of staff.

Operating
expenses for the three months ended October 31, 2002 increased to $4,242,644 from $3,824,334 for the three months ended October 31, 2001, or 23.0% from 18.2% as a
percent of sales. The increase as a percentage of sales was due to increased costs of $42,000 travel costs, $40,000 of professional fees, $29,000 of insurance costs and $503,936
non-recurring pre-production expenses, which was offset by decrease in salaries and related expenses.

Income
from operations for the three months ended October 31, 2002 was $1,263,825 compared to $2,937,991 for the prior year's comparable period. The decrease was due to $503,936
of non-recurring pre-production expenses and lower sales of gift items due to the west coast shore-man strike during the first quarter.

Interest
income for the three months ended October 31, 2002 increased to $2,259 from $987 for three months ended October 31, 2001.

Interest
expenses decreased to $141,057 from $147,877 due to lower interest rates on the working capital line and term facilities of 4.1% for quarter ended October 31, 2002
compared to 6.85% for the prior year's comparable period. Other income (expense) increased to $1,536 from expense of $39,523 due to realized gains on foreign exchange currency forward contracts.

The
income tax rate utilized for the three-month period ended October 31, 2002 is based on our estimate of the effective tax rate for the fiscal year ending July 31, 2003,
which approximates 37%.

LIQUIDITY AND CAPITAL RESOURCES

Our primary cash requirements have been to fund the purchase, manufacture and commercialization of our products. We finance our operation and manufacturing with
cash flow from operations and bank financing. Our working capital at October 31, 2002 and July 31, 2002 was $6,862,005 and $6,218,379, respectively.

Net
cash used in operating activities for the three months ended October 31, 2002 and 2001, was $9,030,289 and $5,956,146, respectively. The increase in cash used by operating
activities was due primarily to lower net income and increases in accounts receivable and accounts payable, which were offset by the increase in inventory, accrued expenses and decrease in income
taxes payable.

Net
cash used in investing activities for the three months ended October 31, 2002 and 2001, increased to $351,960 from $178,664, respectively, primarily due to increased capital
improvements for the relocation of our manufacturing operations into our Chase City, Virginia facility.

Net
cash provided by financing activities for the three months ended October 31, 2002 and 2001, was $9,399,825 and $6,526,322, respectively. This increase was primarily due to
increased reliance on borrowings under our line of credit to finance working capital needs for seasonal materials. The borrowings for the period ended October 31, 2002 was approximately
$9,114,000 as compared to $6,526,000 for the prior years comparable period. We have $15,886,000 of our $25,000,000 line of credit available to meet additional seasonal needs to purchase and
manufacture inventory.

During
the quarter ended October 31, 2002, we executed an maximum of $850,000 over-advance facility to our original banking facility. The over-advance
facility expires on October 31, 2002. The main

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reason for the over-advance facility was to address the needs of additional working capital for the purchase of inventory for our Christmas seasonal items. During the time of the
over-advance, we never went beyond the allowable availability.

We
negotiated financing of $350,000 debt financing for new equipment at our facility in Chase City through Lake Country Development Corporation in Mecklenburg County, Virginia. The loan
is payable in monthly installments of $4,784.08 for a term of 84 months and commenced on October 1, 2002 with interest at the rate of four percent (4.0%) per annum. As consideration for
receiving this financing, we have agreed that we will create 65 jobs within 24 months of the completion of the construction on our Chase City, Virginia facility.

Principal
payments for our long-term debt for the three months ended October 31, 2002, were $64,235. We believe that cash provided by operations will be sufficient to
finance our operations and fund debt service requirements.

Schedule of Contractual Obligations

|                             |  |   |           | Payments Due by Period
|---------------------------- |  | - | --------- | ----------------------
|
|Long-Term Debt               |  | $ | 2,101,383 |                       
|Capital Lease Obligation     |  |   | 450,796   |                       
|Licensing Agreements         |  |   | 141,000   |                       
|Operating Leases             |  |   | 1,828,897 |                       
|                             |  |   |           |                       
|Total Contractual Obligation |  | $ | 4,522,076 |                       
|                             |  |   |           |                       

Schedule of Commercial Commitments

|                             |  |   |            | Amount of Commitment expiration per period
|---------------------------- |  | - | ---------- | ------------------------------------------
|
|Line of Credit (*)           |  | $ | 25,000,000 |                                           
|                             |  |   |            |                                           
|Total Contractual Obligation |  | $ | 25,000,000 |                                           
|                             |  |   |            |                                           

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INFLATION

We do not believe that inflation has had a significant impact on our results of operations for the periods presented.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

As a result of its variable rate line of credit, we are exposed to the risk of rising interest rates. Our $25,000,000 line of credit had an interest rate ranging
from 4.2% to 3.8% for the three months ended October 31, 2002. Our long-term debt is at variable market tax exempt rates, which exposes us to fluctuations in the market. However,
since the rate is based on the tax exempt rate, it is below the market rate.

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We
utilizes derivative instruments, from time to time, foreign currency forward contracts and currency exchange rate market price risk exposures. Foreign currency contracts are entered
into for periods consistent with related underlying exposures and do not constitute positions independent of those exposures. We do not hold or issue derivative instruments for trading purposes and is
not a party to any instruments with leverage or prepayment features. In entering into these contracts, we have assumed risk, which might arise from possible inability of counter-parties to meet the
terms of their contracts. We do not expect any losses as a result of counter-party defaults.

Periodically
we enter into foreign exchange forward contracts to hedge transactions primarily related to firm commitments to purchase its contract manufactured products from foreign
manufactures under terms that provide for payment of goods in foreign currency approximately 60 to 90 days from invoice date. Purchases of COWS butter toffee candies and other candies from
manufacturers located in Argentina are paid in U.S. Dollars. Purchases of RUGER wafers, ELANA Belgian chocolate products and Zed Gum Specialty Gum products are purchased from manufacturers located in
Austria, Belgium and Ireland respectively, and are paid for in Euros.

We
follow the guidance in SFAS 133 and account for these contracts as cash flow hedges. Included in other comprehensive income is an unrealized loss of $31,139 related to these
derivative financial instruments. We expect to reclassify the $31,139 unrealized loss from other comprehensive income to a realized loss in the quarter ending January 31, 2003.

Significant Accounting Policies and Estimates

Our preparation of financial statements in conformity with accounting principals generally accepted within the United States requires management to make estimates
and assumptions in certain circumstances that effect amounts reported in the accompanying financial statements and related notes. In preparing these financial statement, management has made its best
estimates and judgments of certain amounts included in the financial statements, giving due consideration to materiality. We do not believe there is a great likelihood that materially different
amounts would be reported related to the accounting policies described below; however, application of these accounting policies involves the exercise of judgment and the use of assumptions as to
future uncertainties and, as a result, actual results could differ from these estimates.

We
provide an allowance for un-collectible accounts receivable based on experience. We consider the following factors in developing an estimate of our allowance for
non-payment and the overall economic environment. Although it is reasonably possible that management's estimate of un-collectible accounts could change in the near future,
management is not aware of any events that would result in a change to its estimates which would be material to our financial position or results from operations. For the quarter ended
October 31, 2002, we had an allowance for doubtful accounts of approximately $186,000.

We
provide an allowance for slow moving inventory based on experience and aging of products. We consider the following factors in developing an estimate of our allowance for
non-moving of inventory
and the overall economic environment. Although it is reasonably possible that management's estimate of slow moving inventory could change in the near future, management is not aware of any events that
would result in change to its estimates which would be material to our financial position or results from operations. For the quarter ended October 31, 2002, we had an allowance for slow moving
inventory of approximately $700,800.

Goodwill
represents the excess of consideration over the net assets acquired resulting from acquisitions of companies accounted for by the purchase method. We utilize the annual
evaluation as required by SFAS 142. At each Balance Sheet date, management evaluates the recoverability of the goodwill and reviews goodwill and other long-lived assets for
impairment. As of July 31, 2002 there was no impairment loss.

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Seasonality and Cylicality; Fluctuation in Quarterly Operating Results

We have experienced and expects to continue to experience variability in revenues and net income from quarter to quarter as a result of seasonality that may
accompany private or public sector budget cycles. Sales of our products have historically been higher in the first and second quarters as a result of patterns of capital spending by our customers.

We
also believe that the Confectionary industry is influenced by general economic conditions and particularly by the level of change. Increase levels of change can have a favorable
impact on our revenues. We also believe that the confectionary industry tends to experience periods of decline and recession during economic downturns. The confectionary industry could sustain periods
of decline in revenues in the future, and any decline may have a material adverse effect on the Company.

We
could in the future experience quarterly fluctuations in operating results due to the factors described above and other factors, including short-term nature of certain
client commitments; patterns of capital spending by customers; loss of a major client; seasonality that may accompany private or public budget cycles; pricing changes in response to various
competitive factors; market factors affecting availability of qualified personnel and general economic conditions.

PART II OTHER INFORMATION

Item 1. Legal Proceedings

We are from time to time involved in litigation incidental to the conduct of its business. We are currently a plaintiff in several actions and currently in
particular to the landlord at its Rhode Island Facility. The landlord sought security for its claims relating to the lease agreement. The company deposited $180,000 with the registry of the court on
allegation relating to amounts sought for payment of real estate taxes, water and sewer, rent of other occupied space and repair expenses. On September 2002, the landlord claimed other breaches
of the Lease Agreement alleging an obligation of $932,000 under the lease and has demanded $750,000 to settle the disputes. We have continued claims against the landlord and continue to occupy space
at the leased premises. We have accrued amounts to cover current charges. Management does not believe that the outcome of these actions, individually or in the Aggregate, would have a material adverse
effect on the financial statements of the Company.

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

None.

Item 5. Other Information

None.

Item 6. Exhibits and Reports on Form 8-K



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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.

|                        |  | SHERWOOD BRANDS, INC.                                       
|----------------------- |  | ------------------------------------------------------------
|Date: December 10, 2002 |  | /s/UZIEL FRYDMANPresident and Chief Executive Officer       
|Date: December 10, 2002 |  | /s/CHRISTOPHER J. WILLIChief Financial Officer and Secretary

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CERTIFICATE PURSUANT TO 18 U.S.C.  SECTION 1350  AS ADOPTED PURSUANT TO SECTION 906 OF  THE SARBANES-OXLEY ACT OF 2002

I,
Uziel Frydman, Chairman of the Board, President and Chief Executive Officer of Sherwood Brands, Inc. (Sherwood), certify that:



Date:
December 10, 2002

| |  |  | /s/UZIEL FRYDMANUziel Frydman
President and Chief Executive Officer
| |  |  | -------------------------------------------------------------------

I,
Christopher J. Willi, Chief Financial Officer of Sherwood Brands, Inc. (Sherwood), certify that:



Date:
December 10, 2002

| |  | By: | /s/CHRISTOPHER J. WILLIChristopher J. Willi
Chief Financial Officer, Secretary
| |  | --- | ------------------------------------------------------------------------------

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Exhibit Index

|Exhibit No. |  | Description                                                                                                                             
|----------- |  | ----------------------------------------------------------------------------------------------------------------------------------------
|10.25       |  | Revolving Fund Loan Agreement with Lake Country Development Corporation, dated August 13, 2002                                          
|10.26       |  | Second Amendment to Loan and Security Agreement between the Registrant and Wachovia Bank, National Association, dated September 4, 2002.
|99.1        |  | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                 
|99.2        |  | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                 

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