<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 DECEMBER 31, 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 March 14, 2002

      Common Stock, no par value                            1,788,016


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

<PAGE>


                               MAXXIS GROUP, INC.

                               INDEX TO FORM 10-Q

<TABLE>
<CAPTION>
                                                                                                       PAGE
                                                                                                       ----
<S>                <C>                                                                                 <C>
PART I             FINANCIAL INFORMATION
        Item 1.    Financial Statements..........................................................        3

                   Condensed Consolidated Balance Sheets as of
                   December 31, 2001 (Unaudited) and June 30, 2001...............................        3

                   Condensed Consolidated Income Statements for the
                   Three and Six Months ended December 31, 2000 and 2001 (Unaudited).............        4

                   Condensed Consolidated Statements of Cash Flows for the
                   Six Months ended December 31, 2000 and 2001 (Unaudited).......................        5

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

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

                   Quantitative and Qualitative Disclosure About
        Item 3.    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>
                                                                                       DECEMBER 31, 2001         JUNE 30, 2001
                                                                                     ----------------------   --------------------
                                                                                          (UNAUDITED)              (AUDITED)
                                      ASSETS
<S>                                                                                  <C>                      <C>
Current assets:
   Cash and equivalents............................................................  $          257,000       $        148,000
   Accounts receivable, net of allowance for doubtful
      accounts of $484,000 and $484,000, respectively..............................             332,000                341,000
   Inventories, net................................................................           1,301,000              1,402,000
   Prepaid expenses and other current assets.......................................             212,000                276,000
                                                                                            -----------           ------------
      Total current assets.........................................................           2,102,000              2,167,000

Property and equipment, net........................................................           4,700,000              4,742,000
Capitalized software development costs, net........................................             152,000                396,000
Other assets.......................................................................             204,000                123,000
                                                                                            -----------           ------------
           Total assets............................................................  $        7,158,000       $      7,428,000
                                                                                            ===========           ============


                                    LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
   Accounts payable................................................................  $          716,000       $      1,001,000
   Commissions payable.............................................................              46,000                114,000
   Accrued compensation............................................................             102,000                 14,000
   Sales tax payable...............................................................             255,000                316,000
   Current maturities of long-term capital lease obligations.......................           1,059,000              1,233,000
   Accrued expenses................................................................             108,000                100,000
   Deferred revenue................................................................             269,000                362,000
                                                                                            -----------           ------------
      Total current liabilities....................................................           2,555,000              3,140,000

Long-term liabilities:
   Contracts.......................................................................           1,343,000                110,000
   Long-term lease obligations.....................................................           1,619,000              1,870,000
                                                                                            -----------           ------------
      Total long-term liabilities..................................................           2,962,000              1,980,000
                                                                                            -----------           ------------

Shareholders' equity:
   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;
      1,788,016 and 1,814,743 shares issued and outstanding, respectively..........           1,671,000              1,818,000
   Subscription receivable.........................................................             397,000                143,000
   Accumulated deficit.............................................................          (5,403,000)            (4,629,000)
                                                                                            ------------          ------------
      Total shareholders' equity...................................................           1,641,000              2,308,000
                                                                                            -----------           ------------
           Total liabilities and shareholders' equity..............................  $        7,158,000       $      7,428,000
                                                                                            ===========           ============
</TABLE>


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


                                       3
<PAGE>


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


<TABLE>
<CAPTION>
                                           THREE MONTHS ENDED              SIX MONTHS ENDED
                                              DECEMBER 31                     DECEMBER 31
                                      ---------------------------     ---------------------------
                                          2000            2001            2000            2001
                                          ----            ----            ----            ----
<S>                                   <C>             <C>             <C>             <C>
Revenues:
  Communication services .........    $ 1,079,000     $   815,000     $ 2,136,000     $ 1,780,000
  Nutritional products ...........        534,000         471,000       1,793,000         933,000
  Marketing services .............        802,000         666,000       1,824,000       1,314,000
                                      -----------     -----------     -----------     -----------
     Total revenues ..............      2,415,000       1,952,000       5,753,000       4,027,000
                                      -----------     -----------     -----------     -----------

Cost of services:
  Communication services .........        355,000         980,000       1,099,000       1,462,000
  Communication depreciation expense      288,000          79,000         576,000         158,000
  Nutritional products ...........        204,000          67,000         566,000         164,000
  Marketing services .............        185,000         119,000         322,000         317,000
                                      -----------     -----------     -----------     -----------
     Total cost of services ......      1,032,000       1,245,000       2,563,000       2,101,000
                                      -----------     -----------     -----------     -----------

     Gross Margin ................      1,383,000         707,000       3,190,000       1,926,000
                                      -----------     -----------     -----------     -----------

Operating expenses:
  Selling and marketing ..........      1,560,000         404,000       2,411,000       1,064,000
  General and administrative .....      1,161,000         485,000       2,171,000       1,455,000
                                      -----------     -----------     -----------     -----------
  Total operating expenses .......      2,721,000         889,000       4,582,000       2,519,000
                                      -----------     -----------     -----------     -----------
     Operating loss ..............     (1,338,000)       (182,000)     (1,392,000)       (593,000)

Interest expense, net ............       (122,000)        (91,000)       (290,000)       (181,000)
                                      -----------     -----------     -----------     -----------

LOSS BEFORE INCOME TAXES .........     (1,460,000)       (273,000)     (1,682,000)       (774,000)
                                                                      -----------     -----------

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

NET LOSS .........................    $(1,460,000)    $  (273,000)    $(1,682,000)    $  (774,000)
                                      ===========     ===========     ===========     ===========

NET LOSS PER SHARE ...............    $     (0.80)    $     (0.15)    $     (1.04)    $     (0.43)
                                      ===========     ===========     ===========     ===========

BASIC AND DILUTED WEIGHTED AVERAGE
  NUMBER OF SHARES OUTSTANDING ...      1,823,743       1,799,379       1,622,262       1,801,379
                                      ===========     ===========     ===========     ===========
</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>
                                                                                              SIX MONTHS ENDED
                                                                                                DECEMBER 31,
                                                                                  ------------------------------------------
                                                                                        2000                    2001
                                                                                  -----------------       ------------------
<S>                                                                               <C>                     <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net income (loss)...........................................................   $     (1,682,000)       $      (774,000)
   Adjustments to reconcile net income (loss) to net cash provided
        by operating activities:
      Depreciation and amortization............................................            475,000                328,000
      Changes in assets and liabilities:
        Accounts receivable....................................................           (154,000)                 9,000
        Inventories............................................................           (378,000)               101,000
        Accrued compensation                                                               -                       88,000
        Prepaid expenses.......................................................           (254,000)                64,000
        Other assets...........................................................             37,000                (81,000)
        Accounts payable.......................................................           (606,000)              (285,000)
        Commissions payable....................................................            (88,000)               (68,000)
        Taxes payable..........................................................             (9,000)               (61,000)
        Accrued compensation and accrued liabilities...........................         (1,590,000)                 8,000
        Deferred revenue.......................................................           (201,000)               (93,000)
                                                                                        ----------              ---------
           Total adjustments...................................................         (2,768,000)                10,000
                                                                                        ----------              ---------
                Net cash provided (used) in operating activities...............         (4,450,000)              (764,000)
                                                                                        ----------              ---------

CASH FLOWS FROM INVESTING ACTIVITIES:
   Capital expenditures........................................................            -                      (42,000)

   Software development costs..................................................            (33,000)                -
                                                                                        ----------              ---------
                Net cash used in investing activities..........................            (33,000)               (42,000)
                                                                                        ----------              ---------

CASH FLOWS FROM FINANCING ACTIVITIES:
   Proceeds from sale of preferred stock.......................................            824,000                 -
   Repurchase of common stock..................................................            -                     (147,000)
   Proceeds from sale of customer base.........................................            -                    1,233,000
   Proceeds from subscriptions for preferred stock.............................            -                      254,000
   Net payments on line of credit..............................................           (65,000)                -
   Payments on capital lease obligations.......................................          (476,000)               (425,000)
                                                                                        ----------              ---------
                Net cash provided by financing activities......................           283,000                 915,000
                                                                                        ----------              ---------

NET INCREASE (DECREASE) IN CASH EQUIVALENTS....................................        (4,200,000)                109,000
CASH AND CASH EQUIVALENTS, beginning of the period.............................         4,867,000                 148,000
                                                                                        ----------              ---------
CASH AND CASH EQUIVALENTS, end of the period...................................   $       667,000         $       257,000
                                                                                        ==========              =========

SUPPLEMENTAL CASH FLOW DISCLOSURES OF
  NONCASH INVESTING AND FINANCING ACTIVITIES:
   Cash paid for interest......................................................   $       236,000         $       174,000
</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 December 31, 2001 and the results of
        our operations and our cash flows for the three-month periods ended
        December 31, 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>
                                                   DECEMBER 31,                JUNE 30,
                                                       2001                      2001
                                                --------------------      --------------------
        <S>                                     <C>                       <C>
        Prepaid phone cards..................   $         103,000         $         104,000
        Sales aids                                        722,000                   741,000
        Nutritional products.................             476,000                   557,000
                                                          -------                   -------
                                                $       1,301,000         $       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 December 31, 2001 consolidated balance
        sheet at a gross book value of approximately $2,678,000.


                                       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 December 31, 2000
        and 2001 are as follows:

<TABLE>
<CAPTION>
                                         COMMUNICATIONS      NUTRITIONAL          MARKETING
                                            SERVICES           PRODUCTS            SERVICES          CORPORATE          TOTAL
                                        ------------------ ------------------ ------------------- ----------------------------------
        <S>                             <C>                <C>                <C>                 <C>             <C>
        December 31, 2000
           Net revenues................ $     1,079,000    $       534,000    $       802,000     $         --    $     2,415,000
           Operating income (loss).....          31,000            268,000           (140,000)      (1,497,000)        (1,338,000)

        December 31, 2001
           Net revenues................ $       815,000    $       471,000    $       666,000     $         --    $     1,952,000
           Operating income (loss).....         120,000            287,000           (123,000)        (466,000)          (182,000)
</TABLE>

        Segment information for the six month periods ended December 31, 2000
        and 2001 are as follows:

<TABLE>
<CAPTION>
                                         COMMUNICATIONS      NUTRITIONAL          MARKETING
                                            SERVICES           PRODUCTS            SERVICES          CORPORATE          TOTAL
                                        ------------------ ------------------ ------------------- ----------------------------------
        <S>                             <C>                <C>                <C>                 <C>             <C>
        December 31, 2000
           Net revenues................ $     2,136,000    $     1,793,000    $     1,824,000     $         --    $     5,753,000
           Operating income (loss).....         344,000            866,000           (338,000)      (2,264,000)        (1,392,000)

        December 31, 2001
           Net revenues................ $     1,780,000    $       933,000    $     1,314,000     $         --    $     4,027,000
           Operating income (loss).....         318,000            488,000           (413,000)        (986,000)          (593,000)
</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
                                                                                DECEMBER 31,
                                                                        ------------------------------
                                                                          2000                2001
                                                                        ---------          -----------
        <S>                                                             <C>                <C>
        Net revenues:
           Communications services..................................        45%                42%
           Nutritional products.....................................        22                 24
           Marketing services.......................................        33                 34
                                                                           ---                ---
              Total net revenues....................................       100%               100%
                                                                           ===                ===

        Cost of services:
           Communications services..................................        27%                54%
           Nutritional products.....................................         8                  4
           Marketing services.......................................         8                  6
                                                                             -                  -
              Total cost of services................................        43%                64%
                                                                            ==                 ==

        Operating expenses:
           Selling and marketing....................................        65                 21
           General and administrative...............................        48                 25
                                                                           ---                ---
              Total operating expenses..............................       113%                46%
                                                                          ====                ===
</TABLE>

       THREE MONTHS ENDED DECEMBER 31, 2001 COMPARED TO THREE MONTHS ENDED
                               DECEMBER 31, 2000

        Net Revenues. Total net revenues are derived from sales of
communications services, nutritional products and marketing services. Total net
revenues decreased $463,000, or 19%, to $1,952,000 for three months ended
December 31, 2001 from $2,415,000 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 $264,000, or 24%, to $815,000 for the
three months ended December 31, 2001 from $1,079,000 for the same period in
2000. This decrease was primarily due to removing nonpaying customers from the
customer base and focusing on improving the company's infrastructure.

        Nutritional products revenues consist of sales of private label
nutritional products. Nutritional products revenues decreased $63,000, or 12%,
to $471,000 for the three months ended December 31, 2001 from $534,000 for the
same period in 2000. The company was focusing on improving the marketing plan
and infrastructure which resulted in a sales decrease. This decrease was
primarily due to the elimination of sales promotions related to nutritional
products for the three months ending December 31, 2001 compared to the number of
sales promotions we offered for the three months ending December 31, 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 $136,000, or 17%, to $666,000 for the three months ended
December 31, 2001 from $802,000 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 December 31, 2001 compared to the three months ending December 31,
2000. The company was focusing on improving the marketing plan and
infrastructure which resulted in a sales decrease of 17% when compared to the
same period last year.


                                       10
<PAGE>


        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 December 31,
2001 was $1,245,000, or 64% of total net revenues, as compared to $1,032,000, or
43% of total net revenues, for the same period in 2000. The slight increase in
costs of goods and services as a percentage of total net revenues was due to
decreasing sales for the period and increased costs in the communications
division from new products.

        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 $1,059,000, or 54% of total net revenues for the three months ending
December 31, 2001, as compared to $643,000, or 27% of total net revenues, for
the same period in 2000. This increase in cost of communications services was
due primarily to new products and decreased sales volume for the three months
ending December 31, 2001. Nutritional products cost was $67,000, or 4% of total
net revenues for the three months ending December 31, 2001, as compared to
$204,000, or 8% 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 $119,000,
or 6% of total net revenues for the three months ending December 31, 2001, as
compared to $185,000, or 8% of total net revenues, for the same period in 2000.
The decrease in marketing services cost as a percentage of total net revenues
was due primarily to lower costs associated with marketing which is directly
related to lower sales.

        Gross Margin. Gross margin decreased to $707,000 for the three months
ending December 31, 2001 from $1,383,000 for the same period in 2000. As a
percentage of total net revenues, gross margin was 36% for the three months
ending December 31, 2001 as compared to 57% for the three months ending December
31, 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 December 31, 2001, selling and marketing
expenses were $404,000, or 21% of total net revenues, as compared with
$1,560,000, or 65% of total net revenues, for the same period in 2000. This
decrease was due to the repurchase of business centers which lowered commission
expenses of selling and marketing. General and administrative expenses were
$485,000, or 25% of total net revenues for the three months ending December 31,
2001, as compared to $1,161,000, or 48% of total net revenues, for the same
period in 2000. Total operating expenses as a percentage of net revenue
decreased to 46% of net revenues for the three months ending December 31, 2001
from 113% of net revenues for the three months ending December 31, 2000 due to
the company being very aggressive in cutting overhead and improving the company
infrastructure.

        Interest Expense. For the three months ending December 31, 2001,
interest expense was $91,000, of which $81,000 related to the lease of the
Maxxis Switch. Interest expense of $122,000 for the three months ending December
31, 2000 was largely comprised of $114,000 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 December 31, 2001
was $273,000 as compared to a net loss of $1,460,000 for the three months ending
December 31, 2000.

LIQUIDITY AND CAPITAL RESOURCES

        During the six months ended December 31, 2001, net cash used in
operating activities was $764,000 as compared to cash used by operating
activities of $4,450,000 for the six months ended December 31, 2000. Operating
activities for the six months ended December 31, 2001 included $774,000 of net
loss and $10,000 of changes in assets and liabilities when netted against
depreciation and amortization.

        Cash used in investing activities was $42,000 for the six months ended
December 31, 2001 as compared to $33,000 for the same period in 2000. Investing
activities for the six months ended December 31, 2001 consisted primarily of
software development costs and capital expenditures.


                                       11
<PAGE>


        Cash provided by financing activities was $915,000 for the six months
ended December 31, 2001, as compared to $283,000 for the same period in 2000.
Cash received from financing activities consisted substantially of $1.2 million
received from asset purchase agreements accounted for by the company as
financing transactions, in which various individual parties advanced funds to us
in increments of at least $1,000 as part of a financing agreement whereby we
will pay an effective interest rate of approximately 14% for the funds received
during an initial 36 month period. The effective interest is payable monthly and
the various parties may individually demand repayment of the funds received by
Maxxis at any time. We may also terminate the arrangement with any party at any
time, however, should we terminate the arrangement, we will be required to pay
the party a 30% premium upon termination over the original amount received by
us.

        As of December 31, 2001, we had cash of $257,000 and a working capital
deficit $5,403,000 as compared to cash of $667,000 and a working capital deficit
of $4,629,000 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 will be insufficient
to meet our capital requirements in the immediate future. We expect to continue
to borrow funds under the financing arrangement described above, in order to
meet our capital requirements in the near future. However, if we do not receive
sufficient funds from our operations and financing activities, 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 to develop new products, or otherwise respond to
unanticipated competitive pressures. Sources of additional capital may include
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.*
10.1         Form of Asset Purchase Agreement for sale of rights to payments from long distance customers.
</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 21, 2002                   /s/ Ivey J. Stokes
                                 -----------------------------------------------
                                 Ivey J. Stokes
                                 Chairman, President and Chief Executive Officer
                                 (Principal executive officer)


March 21, 2002                   /s/ DeChane Cameron
                                 -----------------------------------------------
                                 DeChane Cameron
                                 Chief Financial Officer
                                 (Principal financial and accounting officer)


                                       15