<PAGE>
================================================================================

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-Q

[X]      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2001.

                                       Or

[ ]      TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _______________ TO
         _______________, 200_.

                         Commission File Number: 0-31687

                                ---------------

                               MAXXIS GROUP, INC.
             (Exact name of registrant as specified in its charter)

                  GEORGIA                                     22-78241
        (State or other jurisdiction                      (I.R.S. Employer
      of incorporation or organization)                  Identification No.)

1901 MONTREAL ROAD, SUITE 108, TUCKER, GEORGIA                  30084
   (Address of principal executive offices)                  (Zip Code)

       Registrant's telephone number, including area code: (770) 696-6343

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

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

                 Class                    Outstanding at February 19, 2002

        Common Stock, no par value                  1,810,743

================================================================================


<PAGE>

                               MAXXIS GROUP, INC.

                               INDEX TO FORM 10-Q

<TABLE>
<CAPTION>
                                                                                                     PAGE
                                                                                                     ----
<S>            <C>              <C>                                                                  <C>
PART I                          FINANCIAL INFORMATION

               Item 1.          Financial Statements...............................................    3

                                Condensed Consolidated Balance Sheets as of
                                September 30, 2001 (Unaudited) and June 30, 2001...................    3

                                Condensed Consolidated Income Statements for the
                                Three Months ended September 30, 2000 and 2001 (Unaudited).........    4

                                Condensed Consolidated Statements of Cash Flows for the
                                Three Months ended September 30, 2000 and 2001 (Unaudited).........    5

                                Notes to Condensed Consolidated Financial
                                Statements (Unaudited).............................................    6

               Item 2.          Management's Discussion and Analysis of Financial
                                Condition and Results of Operations................................    8

               Item 3.          Quantitative and Qualitative Disclosure About
                                 Market Risks......................................................   13

PART II                         OTHER INFORMATION

               Item 1.          Legal Proceedings..................................................   13

               Item 4.          Submission of Matters to a Vote of Security Holders................   13

               Item 6.          Exhibits and Reports on Form 8-K...................................   14

SIGNATURES
</TABLE>


                                       2
<PAGE>

                         PART I -- FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

                       MAXXIS GROUP, INC. AND SUBSIDIARIES
                      CONDENSED CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                               SEPTEMBER 30, 2001   JUNE 30, 2001
                                                                               ------------------   -------------
                                                                                   (UNAUDITED)         (AUDITED)
<S>                                                                            <C>                  <C>
                                ASSETS

Current assets:
   Cash and equivalents ....................................................      $    126,000       $    148,000
   Accounts receivable, net of allowance for doubtful
     accounts of $484,000 and $484,000, respectively .......................           399,000            341,000
   Inventories, net ........................................................         1,330,000          1,402,000
   Prepaid expenses and other current assets ...............................           251,000            276,000
                                                                                  ------------       ------------
     Total current assets ..................................................         2,106,000          2,167,000

Property and equipment, net ................................................         4,650,000          4,742,000
Capitalized software development costs, net ................................           204,000            396,000
Other assets ...............................................................           123,000            123,000
                                                                                  ------------       ------------
         Total assets ......................................................      $  7,083,000       $  7,428,000
                                                                                  ============       ============

                            LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
   Accounts payable ........................................................      $  1,196,000       $  1,001,000
   Commissions payable .....................................................            24,000            114,000
   Accrued compensation ....................................................            49,000             14,000
   Taxes payable ...........................................................           246,000            316,000
   Current maturities of long-term capital lease obligations ...............         1,233,000          1,233,000
   Accrued liabilities .....................................................           108,000            100,000
   Deferred revenue ........................................................           316,000            362,000
                                                                                  ------------       ------------
     Total current liabilities .............................................         3,172,000          3,140,000

Long-term liabilities:
   Contracts ...............................................................           264,000            110,000
   Long-term lease obligations .............................................         1,608,000          1,870,000
                                                                                  ------------       ------------
     Total long-term liabilities ...........................................         1,872,000          1,980,000
                                                                                  ------------       ------------

Shareholders' deficit:
   Preferred Stock, no par value; 10,000,000 shares authorized;
     1,000,000 shares designated as Series A Convertible Preferred
     Stock of which 992,022 shares are issued and outstanding ..............         4,976,000          4,976,000
   Common Stock, no par value; 20,000,000 shares authorized;
     1,810,743 and 1,814,743 shares issued and outstanding, respectively ...         1,796,000          1,818,000
   Subscription receivable .................................................           397,000            143,000
   Accumulated deficit .....................................................        (5,130,000)        (4,629,000)
                                                                                  ------------       ------------
     Total shareholders' equity ............................................         2,039,000          2,308,000
                                                                                  ------------       ------------
         Total liabilities and shareholders' equity ........................      $  7,083,000       $  7,428,000
                                                                                  ============       ============
</TABLE>

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


                                       3
<PAGE>

                      MAXXIS GROUP, INC. AND SUBSIDIARIES
                         CONSOLIDATED INCOME STATEMENTS
                               THREE MONTHS ENDED
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                   SEPTEMBER 30, 2000   SEPTEMBER 30, 2001
                                                   ------------------   ------------------
<S>                                                <C>                  <C>
Revenues:
  Telecommunication services ................         $ 1,057,000          $   965,000
  Nutritional products ......................           1,259,000              462,000
  Marketing services ........................           1,022,000              648,000
                                                      -----------          -----------
     Total revenues .........................           3,338,000            2,075,000
                                                      -----------          -----------

Cost of services:
  Telecommunication services ................           1,032,000              561,000
  Nutritional services ......................             362,000               97,000
  Marketing services ........................             137,000              198,000
                                                      -----------          -----------
     Total cost of services .................           1,531,000              856,000
                                                      -----------          -----------

     Gross Margin ...........................           1,807,000            1,219,000
                                                      -----------          -----------

Operating expenses:
  Selling and marketing .....................             881,000              660,000
  General and Administrative ................           1,132,000              966,000
                                                      -----------          -----------
  Total operating expenses ..................           2,013,000            1,626,000
                                                      -----------          -----------
    Operating Income ........................            (206,000)            (407,000)

Interest Income (Expense), net ..............             (46,000)             (94,000)
                                                      -----------          -----------

LOSS BEFORE INCOME TAXES ....................            (252,000)            (501,000)

PROVISION FOR INCOME TAXES                                     --                   --
                                                      -----------          -----------

NET LOSS ....................................            (252,000)            (501,000)
                                                      ===========          ===========

NET LOSS PER SHARE ..........................         $     (0.16)         $     (0.28)
                                                      ===========          ===========

BASIC AND DILUTED WEIGHTED AVERAGE NUMBER
  OF SHARES OUTSTANDING .....................           1,546,919            1,810,743
                                                      ===========          ===========
</TABLE>

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


                                       4
<PAGE>

                       MAXXIS GROUP, INC. AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                                      THREE MONTHS ENDED
                                                                                         SEPTEMBER 30,
                                                                               ----------------------------------
                                                                                   2000                  2001
                                                                               ------------          ------------
<S>                                                                            <C>                   <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net income (loss) .................................................         $   (252,000)         $   (501,000)
   Adjustments to reconcile net income (loss) to net cash provided
       by operating activities:
     Depreciation and amortization ...................................              176,000               284,000
     Provision for Doubtful receivables ..............................                   --                18,000
     Changes in assets and liabilities:
       Communications receivable .....................................                   --                    --
       Accounts receivable ...........................................              (15,000)              (58,000)
       Inventories ...................................................             (725,000)               72,000
       Prepaid expenses ..............................................               66,000                25,000
       Other assets ..................................................               37,000                    --
       Accounts payable ..............................................             (383,000)              407,000
       Commissions payable ...........................................              (88,000)              (90,000)
       Taxes payable .................................................              (94,000)              (70,000)
       Accrued compensation and accrued liabilities ..................           (1,695,000)               43,000)
       Deferred revenue ..............................................             (174,000)              (46,000)
                                                                               ------------          ------------
         Total adjustments ...........................................           (2,895,000)              585,000
                                                                               ------------          ------------
              Net cash provided (used) in operating activities .......           (3,147,000)               84,000
                                                                               ------------          ------------

CASH FLOWS FROM INVESTING ACTIVITIES:
   Capital expenditures ..............................................                   --               (92,000)
   Software development costs ........................................              (49,000)             (192,000)
                                                                               ------------          ------------
              Net cash used in investing activities ..................              (49,000)             (284,000)
                                                                               ------------          ------------

CASH FLOWS FROM FINANCING ACTIVITIES:
   Proceeds from sale of common stock ................................              493,000                    --
   Repurchase of common stock ........................................                   --               (22,000)
   Proceeds from sale of customer base ...............................                   --               154,000
   Proceeds from subscriptions for preferred stock ...................                   --               254,000
   Proceeds from (payments on) line of credit ........................              (65,000)                   --
   Payments on capital lease obligations .............................             (239,000)             (208,000)
                                                                               ------------          ------------
              Net cash provided by financing activities ..............              189,000               178,000
                                                                               ------------          ------------

NET INCREASE (DECREASE) IN CASH EQUIVALENTS ..........................           (3,007,000)              (22,000)
CASH AND CASH EQUIVALENTS, beginning of the period ...................            4,867,000               148,000
                                                                               ------------          ------------
CASH AND CASH EQUIVALENTS, end of the period .........................            1,860,000               126,000
                                                                               ------------          ------------

SUPPLEMENTAL CASH FLOW DISCLOSURES OF
  NONCASH INVESTING AND FINANCING ACTIVITIES:
   Cash paid for interest ............................................                   --          $     57,000
</TABLE>

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


                                       5
<PAGE>

                               MAXXIS GROUP, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

1.       ORGANIZATION AND PRESENTATION

         We were incorporated on January 24, 1997 and are headquartered in
         Tucker, Georgia. Our principal business operations are carried out
         through our wholly owned subsidiaries, Maxxis 2000, Inc. and Maxxis
         Communications, Inc., each of which began operations in March 1997, and
         Maxxis Nutritionals, Inc., which began operations in November 1997. We
         were founded for the purpose of providing long-distance services,
         private label nutritional products, and other services and consumable
         products through a multilevel marketing system of independent
         associates, or "IAs". Our IAs market communications and Internet
         services and nutritional and health enhancement products.

         Our ability to grow and expand may require us to implement and expand
         our operational and financial systems, recruit additional IAs, and
         train and manage both current and new IAs. Growth may place a
         significant strain on our operational resources and systems, and
         failure to effectively manage any such growth might have a material
         adverse effect on our business, financial condition, and results of
         operations.

2.       UNAUDITED INTERIM FINANCIAL STATEMENTS

         In the opinion of our management, the unaudited financial statements
         contain all the normal and recurring adjustments necessary to present
         fairly our financial position as of September 30, 2001 and the results
         of our operations and our cash flows for the three-month periods ended
         September 30, 2001 and 2000 in conformity with generally accepted
         accounting principles. The results of operations are not necessarily
         indicative of the results to be expected for the full fiscal year.

3.       INVENTORIES

         Inventories consist of the following:

<TABLE>
<CAPTION>
                                         SEPTEMBER 30,         JUNE 30,
                                             2001                2001
                                         -------------        -----------
         <S>                             <C>                  <C>
         Prepaid phone cards ....         $   103,000         $   104,000
         Sales aids .............             689,000             741,000
         Nutritional products ...             538,000             557,000
                                          -----------         -----------
                                          $ 1,330,000         $ 1,402,000
                                          ===========         ===========
</TABLE>

4.       CAPITAL LEASE OBLIGATIONS

         On September 29, 1998, we entered into certain leases for telephone
         switching equipment, which are classified as capital lease obligations.
         These leases expire within five years and have purchase options at the
         end of the original lease term. Assets under capital leases are
         included in property and equipment in the September 30, 2001
         consolidated balance sheet at a gross book value of approximately
         $4,650,000.


                                       6
<PAGE>

5.       SEGMENT REPORTING

         We are a multi-level network marketing company that currently sells
         communications and nutrition products through our network of IAs.

         The Communications segment of our business provides and distributes
         1-Plus long distance services, prepaid phone cards, internet service
         and provides the hosting of web pages for Maxxis 2000 distributors. Our
         Nutrition division distributes private label nutritional and health
         enhancement products to our IAs. Our Marketing Services segment
         provides sales aids, product fulfillment, and promotional materials and
         provides other support services such as conducting our annual marketing
         summit meeting and other training meetings.

         The Corporate Group segment of our business provides our
         administrative, financial and legal support services.

         Segment information for the three month periods ended September 30,
         2000 and 2001 are as follows:

<TABLE>
<CAPTION>
                                           COMMUNICATIONS   NUTRITIONAL      MARKETING     CORPORATE
                                              SERVICES        PRODUCTS       SERVICES        GROUP            TOTAL
                                           --------------   -----------     ----------     ---------        ----------
         <S>                               <C>              <C>             <C>            <C>              <C>
         September 30, 2000
            Net revenues ...............     $1,057,000      $1,259,000     $1,022,000      $       --      $3,338,000
            Operating income (loss)  ...       (506,000)        849,000       (235,000)       (314,000)       (206,000)

         September 30, 2001
            Net revenues ...............     $  965,000      $  462,000     $  648,000      $       --      $2,075,000
            Operating income (loss)  ...        198,000         201,000       (281,000)       (525,000)       (407,000)
</TABLE>


                                       7
<PAGE>

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

OVERVIEW

         We market communications and Internet services and nutritional and
health enhancement products in the United States through our multi-level network
marketing system of "independent associates," or "IAs." We operate through our
subsidiaries: Maxxis 2000; Maxxis Communications; and Maxxis Nutritionals.

         Maxxis 2000 is a network marketing company that currently markets
1-Plus long distance service, travel cards, prepaid phone cards, 800 service and
international telecommunications services, Internet access and Web-page
development and hosting services, and nutritional and health enhancement
products. We believe that a multi-level network marketing system allows us to
obtain customers for our products in a cost effective manner and enhances
customer retention because of the relationships between our IAs and their
customers. The telecommunications customer base developed by our IAs provides a
potential customer base for our nutritional and health enhancement products,
Internet-related services and for future products.

         We initially built a customer base without committing capital or
management resources to construct our own communications network and
transmission facilities. In February 1997, Maxxis Communications contracted with
Colorado River Communications, Corp. ("CRC") to obtain switching and network
services and to allow CRC's communications services to be sold by our IAs. In
September 1998, we entered into a long-term lease commitment for the exclusive
use of telecommunications switching equipment (the "Maxxis Switch") along with
certain ancillary computer hardware and software required to operate the Maxxis
Switch. In January 1999, we notified CRC of our intent to terminate our 1-Plus
agreement and begin a process of migrating our customers to the Maxxis
communications network. At that time, we entered into an agreement with
WorldCom, Inc. to provide us with the necessary private lines, circuits and
other network services to be able to originate and terminate telephone calls
through the Maxxis Switch. In March 1999, we entered an agreement with IXC
Communications Services, Inc. to provide switched services for carrying the
portion of the Maxxis traffic that does not go through the Maxxis Switch. During
the period of April through July 1999, we migrated our long distance customers
from CRC's network to the Maxxis Switch, where we are currently responsible for
the provision of telecommunications services and customer support to our long
distance customers.

         In November 1997, we began marketing several private label dietary
supplements to our customers and IAs. Recently, we began marketing additional
nutritional and health enhancement products that are manufactured by various
suppliers. In September 1998, we began providing Internet access and Web-page
development and hosting services. Internet access is provided by Maxxis
Communications through its agreement with InteReach Internet Services, LLC, and
Web-page development and hosting services are provided by Maxxis Communications.

         We conduct marketing activities exclusively through our network of IAs.
We believe that IAs are generally attracted to our multi-level network marketing
system because of the potential for supplemental income and because our IAs are
not required to purchase any inventory, have no monthly sales quotas or account
collection issues, have minimal required paperwork and have a flexible work
schedule. We encourage IAs to market services and products to persons with whom
the IAs have an ongoing relationship, such as family members, friends, business
associates and neighbors. We also sponsor meetings which current IAs are
encouraged to bring in others for an introduction to our marketing system. Our
multi-level network marketing system and our reliance upon IAs are intended to
reduce marketing costs, customer acquisition costs and customer attrition. We
believe that our multi-level network marketing system will continue to build a
base of potential customers for additional services and products.

         We derive revenues from communications services, nutritional products
and marketing services. Communications services revenues are comprised of: sales
of prepaid phone cards to our IAs; commissions, fees and revenues generated from
our long distance customers; and subscription fees from our Internet
subscribers. Because of the administrative procedures that must be complied with
in order to establish 1-Plus customers and to collect the usage and access fees
from the local exchange carriers, there is generally a delay of up to three to
four


                                       8
<PAGE>

months from the time a prospective customer indicates a desire to become a
1-Plus customer and the time that we begin to receive commissions from such
customer's usage. In the future, we believe that revenues generated on the sales
of 1-Plus long distance services will constitute a decreasing percentage of our
total revenues.

         Nutritional products revenues include sales of private-label
nutritional products, health enhancement products, a weight management program
and a skin care system. Marketing services revenues include application fees
from IAs and purchases of sales aids by IAs, including distributor kits which
consist of forms, promotional brochures, audio and video tapes, marketing
materials and presentation materials. Marketing services revenues also include
training fees paid by senior associates and "managing directors" or "MDs." To
become an independent associate, individuals (other than individuals in North
Dakota) must complete an application and purchase a distributor kit. Independent
associates also pay an annual non-refundable fee, which we amortize into
revenues over the renewal period, in order to maintain their status as an
independent associate. MDs must attend continuing education training schools
each year which also are subject to a fee. The training fees are recognized at
the time the training is received. We do not receive any fees from independent
associates for the training provided by MDs or national training directors.

         Cost of services consists of communications services cost, nutritional
products cost and marketing services cost. Communications services cost consists
primarily of the cost of purchasing activated prepaid phone cards, the Maxxis
Switch and network services. Nutritional products cost consists of the cost of
purchasing private label nutritional products. Marketing services cost includes
the costs of purchasing IA distributor kits, sales aids and promotional
materials and training costs. Operating expenses consist of selling and
marketing expenses and general and administrative expenses. Selling and
marketing expenses include commissions paid to IAs based on: (i) usage of long
distance services by customers; (ii) sales of products to new IAs sponsored into
Maxxis; and (iii) sales of additional products and services to customers.
General and administrative expenses include costs for IA support services,
information systems services and administrative personnel to support our
operations and growth.


                                       9
<PAGE>

Results of Operations

         The following table sets forth the percentage of total net revenues
attributable to each category for the periods shown.

<TABLE>
<CAPTION>
                                                  THREE MONTHS ENDED
                                                     SEPTEMBER 30,
                                                  ------------------
                                                   2000         2001
                                                  -----         ----
         <S>                                      <C>           <C>
         Net revenues:
            Communications services ......          32%          47%
            Nutritional products .........          38           22
            Marketing services ...........          30           31
                                                   ---          ---
              Total net revenues .........         100%         100%
                                                   ===          ===

         Cost of services:
            Communications services ......          31%          26%
            Nutritional products .........          11            5
            Marketing services ...........           4           10
                                                   ---          ---
              Total cost of services .....          46%          41%
                                                   ===          ===

         Operating expenses:
            Selling and marketing ........          26           32
            General and administrative ...          34           46
                                                   ---          ---
              Total operating expenses ...          60%          78%
                                                   ===          ===
</TABLE>

    THREE MONTHS ENDED SEPTEMBER 30, 2001 COMPARED TO THREE MONTHS ENDED
    SEPTEMBER 30, 2000

         Net Revenues. Total net revenues are derived from sales of
communications services, nutritional products and marketing services. Total net
revenues decreased $1.3 million, or 38%, to $2.1 million for three months ended
September 30, 2001 from $3.4 million for the same period in 2000. The decrease
in total net revenues was primarily due to lower sales promotions related to our
communications, nutritional products and marketing services as well as worse
general economic conditions for the customers of our IAs.

         Communications services revenues consist of sales of prepaid phone
cards to IAs and commissions, fees and revenues generated from long distance
customers and fees generated from Internet services and web hosting activities.
Communications services revenues decreased $92,000, or 9%, to $965,000 for three
months ended September 30, 2001 from $1,057,000 for the same period in 2000.
This decrease was primarily due to increased competition in the communications
services industry, which caused us to lose customers.

         Nutritional products revenues consist of sales of private label
nutritional products. Nutritional products revenues decreased $797,000, or 37%,
to $462,000 for three months ended September 30, 2001 from $1.3 million for the
same period in 2000. This decrease was primarily due to the elimination of sales
promotions related to nutritional products for the three months ending September
30, 2001 compared to the number of sales promotions we offered for the three
months ending September 30, 2000.

         Marketing services revenues consist of application fees paid by
independent associates, purchases of sales aids by independent associates, and
registration fees related to annual summit marketing. Marketing services
revenues decreased $374,000, or 37%, to $648,000 for three months ended
September 30, 2001 from $1.0 million for the same period in 2000. This decrease
was due to a decrease in the number of new independent associates for the three
months ending September 30, 2001 compared to the three months ending September
30, 2000.

         Cost of Goods and Services. Cost of goods and services includes
communications services cost, nutritional products cost and marketing services
cost. Total cost of goods and services for the three months ending September 30,
2001 was $856,000, or 41% of total net revenues, as compared to $1.5 million, or
46% of


                                       10
<PAGE>

total net revenues, for the same period in 2000. The decrease in costs of goods
and services as a percentage of total net revenues was due to cost control
measures in connection with our telecommunications switch and better prices on
the purchase of our nutritional products inventory.

         Communications services cost consisted primarily of the cost of
purchasing activated prepaid phone cards from WorldCom and other outside vendors
as well as the costs of operating the Maxxis Switch. Communications services
cost was $561,000, or 26% of total net revenues for the three months ending
September 30, 2001, as compared to $1.0 million, or 31% of total net revenues,
for the same period in 2000. This decrease in cost of communications services
was due primarily to better cost control measures and decreased sales volume for
the three months ending September 30, 2001. Nutritional products cost was
$97,000, or 5% of total net revenues for the three months ending September 30,
2001, as compared to $362,000, or 11% of total revenues for the comparable 2000
period. This decrease in the cost of nutritional products as a percentage of
total net revenues was due to better prices from our suppliers. Marketing
services cost was $198,000, or 10% of total net revenues for the three months
ending September 30, 2001, as compared to $137,000, or 4% of total net revenues,
for the same period in 2000. The increase in marketing services cost as a
percentage of total net revenues was due primarily to costs associated with the
introduction of new marketing products that we began to offer for sale to our
independent associates in the three months ending September 30, 2001.

         Gross Margin. Gross margin decreased to $1.2 million for the three
months ending September 30, 2001 from $1.8 million for the same period in 2000.
As a percentage of total net revenues, gross margin was 59% for the three months
ending September 30, 2001 as compared to 54% for the three months ending
September 30, 2000.

         Operating Expenses. Selling and marketing expenses consist of
commissions paid to independent associates based on (i) sales of products to new
independent associates sponsored into Maxxis, (ii) usage of long distance
services by customers, and (iii) sales of additional products and services to
customers. For the three months ending September 30, 2001, selling and marketing
expenses were $660,000, or 32% of total net revenues, as compared with $881,000,
or 26% of total net revenues, for the same period in 2000. This decrease was due
to the decrease in the number of IAs as well as lower commissions resulting from
lower sales revenue. General and administrative expenses were $966,000, or 46%
of total net revenues for the three months ending September 30, 2001, as
compared to $1,132,000, or 34% of total net revenues, for the same period in
2000. Total operating expenses as a percentage of net revenue increased to 78%
of net revenues for the three months ending September 30, 2001 from 60% of net
revenues for the three months ending September 30, 2000 due to the large portion
of general and administrative expenses that are fixed in nature relative to the
decreased total net revenues for the three months ending September 30, 2001.

         Interest Expense. For the three months ending September 30, 2001,
interest expense was $94,000, of which $91,000 related to the lease of the
Maxxis Switch. Interest expense of $206,000 for the three months ending
September 30, 2000 was largely comprised of $160,000 of interest costs related
to the lease of the Maxxis Switch which were included in general and
administrative expenses.

         Net Income/Loss. Net loss for the three months ending September 30,
2001 was $501,000 as compared to a net loss of $252,000 for the three months
ending September 30, 2000.

LIQUIDITY AND CAPITAL RESOURCES

         During the three months ended September 30, 2001, net cash provided by
operating activities was $84,000 as compared to cash used by operating
activities of $3.1 million for the three months ended September 30, 2000.
Operating activities for the three months ended September 30, 2001 included
$501,000 of net loss and $585,000 million of changes in assets and liabilities
consisting primarily of a $407,000 increase in accounts payable and accrued
liabilities and a $72,000 decrease in inventories.

         Cash used in investing activities was $284,000 for the three months
ended September 30, 2001 as compared to $49,000 for the same period in 2000.
Investing activities for the three months ended September 30, 2001 consisted
primarily of software development costs and capital expenditures.


                                       11
<PAGE>

         Cash provided by financing activities was $178,000 for the three months
ended September 30, 2001, as compared to $189,000 for the same period in 2000.

         As of September 30, 2001, we had cash of $126,000 and a working capital
deficit $1.1 million as compared to cash of $48,000 and a working capital
deficit of $1.0 million as of June 30, 2001.

         On September 29, 1998, we entered into a long-term lease commitment for
the exclusive use of the Maxxis Switch, along with certain ancillary computer
hardware and software required to operate the Maxxis Network. In connection with
the lease of the Maxxis Switch, Maxxis made an initial payment of $501,000.
Monthly payments of $118,000 began in January 1999 and will continue until 2004.

         We anticipate that cash generated from operations, together with
proceeds from our ongoing equity offering, will be sufficient to meet our
capital requirements for the next 12 months. However, if we do not receive
sufficient funds from our operations and equity offering to fund our operations,
we may need to raise additional capital. In addition, any increases in our
growth rate, shortfalls in anticipated revenues, increases in expenses or
significant acquisitions could have a material adverse effect on our liquidity
and capital resources and could require us to raise additional capital. We may
also need to raise additional funds in order to take advantage of unanticipated
opportunities, such as acquisitions of complementary businesses or the
development of new products, or otherwise respond to unanticipated competitive
pressures. Sources of additional capital may include venture capital financing,
cash flow from operations, lines of credit and private equity and debt
financings. Our cash and financing needs for fiscal 2002 and beyond will be
dependent on our level of IA and customer growth and the related capital
expenditures, advertising costs and working capital needs necessary to support
such growth. We believe that major capital expenditures may be necessary over
the next few years to develop additional product lines to sell through our IAs
and to develop and/or acquire information, accounting and/or inventory control
systems to monitor and analyze our growing multi level network marketing system.
We have not identified financing sources to fund such cash needs in fiscal 2002
and beyond. There can be no assurance that we will be able to raise any such
capital on terms acceptable to us or at all.


                                       12
<PAGE>

DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS

         This report contains statements which constitute 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 (the
"Exchange Act"). These statements appear in a number of places in this Report
and include all statements which are not historical facts and which relate to
the intent, belief or the current expectations of Maxxis, its directors or its
officers with respect to, among other things: (i) Maxxis' financing plans,
including our ability to obtain financing in the future; (ii) trends affecting
our financial condition or results of operations, including those related to
Year 2000 issues; (iii) our growth and operating strategy; (iv) our anticipated
capital needs and anticipated capital expenditures; and (v) projected outcomes
and effects on us of potential litigation and investigations concerning us. When
used in this Report, the words "expects," "intends," "believes," "anticipates,"
"estimates," "may," "could," "should," "would," "will," "plans" and similar
expressions and variations thereof are intended to identify forward-looking
statements. Investors are cautioned that any such forward-looking statements are
not guarantees of future performance and involve risks and uncertainties, and
that actual results may differ materially from those projected in
forward-looking statements as a result of: (i) factors affecting the
availability, terms and cost of capital; risks associated with meeting lease
obligations and obtaining necessary regulatory approvals in connection with the
Maxxis Switch; competitive factors and pricing pressures; general economic
conditions; the failure of the market demand for our products and services to be
commensurate with management's expectations or past experience; the impact of
present or future laws and regulations on the our business; changes in operating
expenses or the failure of operating expenses to be consistent with management's
expectations; and the difficulty of accurately predicting the outcome and effect
of certain matters, such as matters involving potential litigation and
investigations; (ii) various factors discussed herein; and (iii) those factors
discussed in detail in our filings with the Securities and Exchange Commission
(the "Commission"), including the "Risk Factors" section of the Post-Effective
Amendment No. 1 to our Registration Statement on Form S-1 (Registration number
(333-38623), as declared effective by the Commission on January 5, 1999.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISKS

         Not applicable.

                           PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

         We are not a party to, nor is any of its property subject to, any
material legal proceedings. We may be subject from time to time to legal
proceedings that arise out of our business operations.


                                       13
<PAGE>

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

        (A)      EXHIBITS

<TABLE>
<CAPTION>
Exhibit
Number            Exhibit Description
-------           -------------------
<S>               <C>
3.1               Amended and Restated Articles of Incorporation of Maxxis, as amended to date.*
3.2               Amended and Restated Bylaws of Maxxis., as amended to date.*
4.1               See Exhibits 3.1 and 3.2 for provisions of the Amended and Restated Articles of Incorporation and
                  Amended and Restated Bylaws defining the rights of holders of our Common Stock.*
</TABLE>

---------------

(*)      Incorporated by reference to the exhibits to our Registration Statement
         on Form S-1 (No. 333-38623) as declared effective by the Securities and
         Exchange Commission on January 5, 1999.

        (B)      REPORTS ON FORM 8-K.

                 None.


                                       14
<PAGE>

                                   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.


                             MAXXIS GROUP, INC.



March 1, 2001                /s/ Ivey J. Stokes
                             ---------------------------------------------------
                             Ivey J. Stokes
                             Chairman, President and Chief Executive Officer
                             (Principal executive officer)



March 1, 2001                /s/ DeChane Cameron
                             ---------------------------------------------------
                             DeChane Cameron
                             Chief Financial Officer
                             (Principal financial and accounting officer)


                                       15