<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 MARCH 31, 2002.

                                       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: 0-31867

                                   ----------

                               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 31, 2002

Common Stock, no par value                                  1,788,016


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


<PAGE>


                               MAXXIS GROUP, INC.

                               INDEX TO FORM 10-Q

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

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

                       Condensed Consolidated Balance Sheets as of
                       March 31, 2002 (Unaudited) and June 30, 2001 ..................           3

                       Condensed Consolidated Income Statements for the
                       Three and Nine Months ended March 31, 2001 and 2002 (Unaudited)           4

                       Condensed Consolidated Statements of Cash Flows for the
                       Nine Months ended March 31, 2001 and 2002 (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 .................................................          15

PART II                OTHER INFORMATION

               Item 1. Legal Proceedings .............................................          15

               Item 4. Submission of Matters to a Vote of Security Holders ...........          15

               Item 6. Exhibits and Reports on Form 8-K ..............................          15

SIGNATURES

</TABLE>


                                       2
<PAGE>


                         PART I -- FINANCIAL INFORMATION


ITEM 1.    FINANCIAL STATEMENTS

                       MAXXIS GROUP, INC. AND SUBSIDIARIES
                      CONDENSED CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>

                                                                                         MARCH 31, 2002       JUNE 30, 2001
                                                                                         --------------       -------------
                                                                                          (UNAUDITED)            (AUDITED)
<S>                                                                                      <C>                  <C>
                                ASSETS
Current assets:
   Cash and equivalents ........................................................          $   326,000           $   148,000
   Accounts receivable, net of allowance for doubtful
     accounts of $484,000 and $484,000, respectively ...........................              414,000               341,000
   Inventories, net ............................................................            1,293,000             1,402,000
   Prepaid expenses and other current assets ...................................              185,000               276,000
                                                                                          -----------           -----------
     Total current assets ......................................................            2,218,000             2,167,000

Property and equipment, net ....................................................            4,570,000             4,742,000
Capitalized software development costs, net ....................................              127,000               308,000
Other assets ...................................................................              204,000               211,000
                                                                                          -----------           -----------
         Total assets ..........................................................          $ 7,119,000           $ 7,428,000
                                                                                          ===========           ===========


                            LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
   Accounts payable ............................................................          $   247,000           $ 1,001,000
   Commissions payable .........................................................               38,000               114,000
   Accrued compensation ........................................................               36,000                14,000
   Sales tax payable ...........................................................              305,000               316,000
   Current maturities of long-term capital lease obligations ...................            1,009,000             1,233,000
   Accrued expenses ............................................................              119,000               100,000
   Deferred revenue ............................................................              253,000               362,000
                                                                                          -----------           -----------
     Total current liabilities .................................................            2,007,000             3,140,000

Long-term liabilities:
   Contracts ...................................................................            2,107,000               110,000
   Long-term lease obligations .................................................            1,577,000             1,870,000
                                                                                          -----------           -----------
     Total long-term liabilities ...............................................            3,684,000             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 ................................................................            1,815,000             1,818,000
   Subscription receivable .....................................................                   --               143,000
   Accumulated deficit .........................................................           (5,363,000)           (4,629,000)
                                                                                          -----------           -----------
     Total shareholders' equity ................................................            1,428,000             2,308,000
                                                                                          -----------           -----------
         Total liabilities and shareholders' equity ............................          $ 7,119,000           $ 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
                                   (UNAUDITED)

<TABLE>
<CAPTION>

                                                              THREE MONTHS ENDED                        NINE MONTHS ENDED
                                                                   MARCH 31                                   MARCH 31
                                                      --------------------------------           --------------------------------
                                                          2001                  2002                 2001                 2002
                                                      -----------           ----------           -----------           ----------
<S>                                                   <C>                   <C>                  <C>                   <C>
Revenues:
Communication services .....................          $ 1,263,000              920,000           $ 3,399,000            2,700,000
Nutritional products .......................              594,000              362,000             2,387,000            1,295,000
Marketing services .........................              877,000              648,000             2,701,000            1,962,000
                                                      -----------           ----------           -----------           ----------
     Total revenues ........................            2,734,000            1,930,000             8,487,000            5,957,000
                                                      -----------           ----------           -----------           ----------

Cost of goods and services:
Communication services .....................              998,000              984,000             2,097,000            2,446,000
Communication depreciation expense .........              288,000               79,000               864,000              237,000
Nutritional products .......................               58,000               46,000               624,000              210,000
Marketing services .........................               29,000               76,000               351,000              393,000
                                                      -----------           ----------           -----------           ----------
     Total cost of services ................            1,373,000            1,185,000             3,936,000            3,286,000
                                                      -----------           ----------           -----------           ----------

     Gross Margin ..........................            1,361,000              745,000             4,551,000            2,671,000
                                                      -----------           ----------           -----------           ----------

Operating expenses:
Selling and marketing ......................              829,000              286,000             3,268,000            1,350,000
General and administrative .................            1,360,000              325,000             3,533,000            1,780,000
                                                      -----------           ----------           -----------           ----------
Total operating expenses ...................            2,189,000              611,000             6,801,000            3,130,000
                                                      -----------           ----------           -----------           ----------
    Operating loss .........................             (828,000)             134,000            (2,250,000)            (459,000)

Interest expense, net ......................             (113,000)             (94,000)             (402,000)            (275,000)
                                                      -----------           ----------           -----------           ----------

INCOME (LOSS) BEFORE INCOME TAXES ..........             (941,000)              40,000            (2,652,000)            (734,000)
                                                      -----------           ----------           -----------           ----------

NET INCOME (LOSS) ..........................          $  (941,000)              40,000           $(2,652,000)            (734,000)
                                                      ===========           ==========           -----------           ----------

BASIC AND DILUTED NET INCOME (LOSS) PER
SHARE ......................................          $     (0.52)                 .02           $     (1.55)                (.40)
                                                      ===========           ==========           ===========           ==========
BASIC AND DILUTED WEIGHTED AVERAGE
  NUMBER OF SHARES OUTSTANDING .............            1,821,282            1,801,107             1,704,355            1,814,471
                                                      ===========           ==========           ===========           ==========

</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>

                                                                                                 NINE MONTHS ENDED
                                                                                                     MARCH 31,
                                                                                        ---------------------------------
                                                                                           2001                   2002
                                                                                        -----------           -----------
<S>                                                                                     <C>                   <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net income (loss) .........................................................          $(2,652,000)          $  (734,000)
   Adjustments to reconcile net income (loss) to net cash provided
       by operating activities:
     Depreciation and amortization ...........................................              844,000               520,000
     Changes in assets and liabilities:
       Accounts receivable ...................................................             (193,000)              (73,000)
       Inventories ...........................................................             (347,000)              109,000
       Prepaid expenses ......................................................             (255,000)               91,000
       Other assets ..........................................................              (79,000)                7,000
       Accounts payable ......................................................             (137,000)             (754,000)
       Commissions payable ...................................................             (125,000)              (76,000)
       Taxes payable .........................................................              (63,000)              (11,000)
       Accrued compensation and accrued liabilities ..........................           (1,447,000)               41,000
       Deferred revenue ......................................................             (460,000)             (109,000)
                                                                                        -----------           -----------
         Total adjustments ...................................................           (2,262,000)             (255,000)
                                                                                        -----------           -----------
              Net cash provided (used) in operating activities ...............           (4,914,000)             (989,000)
                                                                                        -----------           -----------

CASH FLOWS FROM INVESTING ACTIVITIES:
   Capital expenditures ......................................................              (52,000)             (172,000)
   Software development costs ................................................             (145,000)                   --
                                                                                        -----------           -----------
              Net cash used in investing activities ..........................             (197,000)             (172,000)
                                                                                        -----------           -----------

CASH FLOWS FROM FINANCING ACTIVITIES:
   Proceeds from sale of common stock ........................................            1,473,000                    --
   Repurchase of common stock ................................................                   --              (538,000)
   Repurchase of preferred stock .............................................             (163,000)                   --
   Proceeds from contracts ...................................................                   --             1,997,000
   Proceeds from subscription agreements .....................................                   --               397,000
   Net payments on line of credit ............................................              (65,000)                   --
   Payments on capital lease obligations .....................................             (726,000)             (517,000)
                                                                                        -----------           -----------
              Net cash provided by financing activities ......................              519,000             1,339,000
                                                                                        -----------           -----------

NET INCREASE (DECREASE) IN CASH EQUIVALENTS ..................................           (4,592,000)              178,000
CASH AND CASH EQUIVALENTS, beginning of the period ...........................            4,867,000               148,000
                                                                                        -----------           -----------
CASH AND CASH EQUIVALENTS, end of the period .................................          $   275,000           $   326,000
                                                                                        ===========           ===========

SUPPLEMENTAL CASH FLOW DISCLOSURES OF
  NONCASH INVESTING AND FINANCING ACTIVITIES:
   Cash paid for interest ....................................................          $   120,000           $   275,000

</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 communications
         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 March 31, 2002 and the results of
         our operations for the three and nine month periods ended March 31,
         2002 and 2001 and our cash flows for the nine month periods ended March
         31, 2002 and 2001 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>

                                                   MARCH 31,           JUNE 30,
                                                     2002                2001
                                                  ----------          ----------
<S>                                               <C>                 <C>
Phone cards ............................          $  103,000          $  104,000
Sales aids .............................             705,000             741,000
Nutritional products ...................             485,000             557,000
                                                  ----------          ----------
                                                  $1,293,000          $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.
         In connection with the lease of this equipment, we made an initial
         payment of $501,000. Monthly payments of $118,000 began in January 1999
         and continued through November 2001. In the first quarter of 2002, we
         completed our negotiation of more favorable financing terms with
         respect to the telephone switching equipment. Pursuant to the revised
         terms, we (a) began paying $50,000 monthly for three months beginning
         in March 2002, (b) will pay $75,000 monthly for three months beginning
         in June 2002, and (c) will make 29 payments of $103,000 beginning in
         September 2002 and continuing through January 1, 2005. Assets under
         capital leases are included in property and equipment in the March 31,
         2002 consolidated balance sheet at a gross book value of approximately
         $2.6 million.


                                       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 March 31, 2001
         and 2002 are as follows:

<TABLE>
<CAPTION>

                                         COMMUNICATIONS        NUTRITIONAL        MARKETING
                                            SERVICES             PRODUCTS         SERVICES           CORPORATE             TOTAL
                                         --------------        -----------       ----------        ------------         -----------
<S>                                      <C>                   <C>               <C>               <C>                  <C>
March 31, 2001
   Net revenues ................          $ 1,263,000           $594,000          $877,000          $      --           $ 2,734,000
   Operating income (loss)  ....             (798,000)           171,000           107,000           (308,000)             (828,000)

March 31, 2002
   Net revenues ................          $   920,000           $362,000          $648,000          $      --           $ 1,930,000
   Operating income (loss)  ....               (9,000)           214,000           291,000           (362,000)              134,000

</TABLE>


         Segment information for the nine month periods ended March 31, 2001 and
         2002 are as follows:

<TABLE>
<CAPTION>
                                     COMMUNICATIONS       NUTRITIONAL          MARKETING
                                        SERVICES            PRODUCTS           SERVICES             CORPORATE               TOTAL
                                     --------------       -----------         -----------          ------------         -----------
<S>                                  <C>                  <C>                 <C>                  <C>                  <C>
March 31, 2001
   Net revenues ............         $ 3,399,000          $ 2,387,000         $ 2,701,000          $        --          $ 8,487,000
   Operating income (loss)              (716,000)             965,000            (333,000)          (2,166,000)          (2,250,000)

March 31, 2002
   Net revenues ............         $ 2,700,000          $ 1,295,000         $ 1,962,000          $        --          $ 5,957,000
   Operating income (loss)               309,000              702,000            (122,000)          (1,348,000)            (459,000)

</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, 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.

         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.

         In January of 1999, we entered into an agreement with WorldCom 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. In September 2000, we terminated our
agreements with IXC and WorldCom and entered into an agreement with Broadwing
Communications Services, Inc. for our telecommunications services. Pursuant to
our agreement with Broadwing, we are obligated to purchase at least $50,000 of
communications services per month. If we do not purchase this minimum amount,
Broadwing may terminate their agreement with us or raise the rates and charges
we pay them under our agreement. Our agreement with Broadwing currently renews
on a month-to-month basis.

         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 phone cards to our IAs;, fees and revenues generated from our long distance
customers; and subscription fees from our Internet subscribers.

         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


                                       8

<PAGE>

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 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.


                                       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          NINE MONTHS ENDED
                                                                 MARCH 31,                  MARCH 31,
                                                           ------------------          -----------------
                                                           2001          2002          2001          2002
                                                           ----          ----          ----          ----
<S>                                                        <C>           <C>           <C>           <C>
Net revenues:
   Communications services ......................           46%           48%           40%           45%
   Nutritional products .........................           22            19            28            22
   Marketing services ...........................           32            33            32            33
                                                           ---           ---           ---           ---
     Total net revenues .........................          100%          100%          100%          100%
                                                           ===           ===           ===           ===

Cost of services:
   Communications services ......................           47%           55%           35%           45%
   Nutritional products .........................            2             2             7             3
   Marketing services ...........................            1             4             4             7
                                                           ---           ---           ---           ---
     Total cost of services .....................           50%           61%           46%           55%
                                                           ===           ===           ===           ===

Operating expenses:
   Selling and marketing ........................           30%           15%           38%           23%
   General and administrative ...................           50            17            42            30
                                                           ---           ---           ---           ---
     Total operating expenses ...................           80%           32%           80%           53%
                                                           ===           ===           ===           ===

</TABLE>

         THREE MONTHS ENDED MARCH 31, 2002 COMPARED TO THREE MONTHS ENDED MARCH
         31, 2001

         Net Revenues. Total net revenues are derived from sales of
communications services, nutritional products and marketing services. Total net
revenues decreased $804,000, or 29%, to $1,930,000 for the three months ended
March 31, 2002 from $2,734,000 for the same period in 2001. The decrease in
total net revenues was primarily due to worse general economic conditions for
the customers of our IAs.

         Communications services revenues consist of sales of phone cards to IAs
and fees and revenues generated from long distance customers and fees generated
from Internet services and web hosting activities. Communications services
revenues decreased $343,000, or 27%, to $920,000 for the three months ended
March 31, 2002 from $1,263,000 for the same period in 2001. This decrease was
primarily due to our establishment of a process to efficiently terminate
customer relationships with customers who were not remitting invoice payments on
a timely basis and competitive pressures which forced us to charge lower rates
to our customers.

         Nutritional products revenues consist of sales of private label
nutritional products. Nutritional products revenues decreased $232,000, or 39%,
to $362,000 for the three months ended March 31, 2002 from $594,000 for the same
period in 2001. This decrease was primarily due to the fact that we did not hold
any health awareness seminars for the for the three months ended March 31, 2002,
which resulted in a decrease in the demand for our products.

         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 $229,000, or 26%, to $648,000 for the three months ended
March 31, 2002 from $877,000 for the same period in 2001. This decrease was due
to a decrease in the number of new independent associates for the three months
ending March 31, 2002 compared to the three months ending March 31, 2001.

         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 March 31,
2002 was $1,185,000, or 61% of total net revenues, as compared to $1,373,000, or
50% of


                                       10

<PAGE>

total net revenues, for the same period in 2001. The increase in costs of goods
and services as a percentage of total net revenues was due to the lower prices
we received for our inventory of nutritional products and marketing services.

         Communications services cost consisted primarily of the costs of
operating the Maxxis Switch. Communications services cost was $1,063,000, or 55%
of total net revenues for the three months ending March 31, 2002, as compared to
$1,286,000, or 47% of total net revenues, for the same period in 2001. This
increase in communications services cost as a percentage of revenue was due
primarily to competitive pressures which forced us to charge lower rates to our
customers. Nutritional products cost was $46,000, or 2% of total net revenues
for the three months ending March 31, 2002, as compared to $58,000, or 2% of
total revenues for the comparable 2001 period. Marketing services cost was
$76,000, or 4% of total net revenues for the three months ending March 31, 2002,
as compared to $29,000, or 1% of total net revenues, for the same period in
2001.

         Gross Margin. Gross margin decreased to $745,000 for the three months
ending March 31, 2002 from $1,361,000 for the same period in 2001. As a
percentage of total net revenues, gross margin was 39% for the three months
ending March 31, 2002 as compared to 50% for the three months ending March 31,
2001.

         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 March 31, 2002, selling and marketing
expenses were $286,000, or 15% of total net revenues, as compared with $829,000,
or 30% of total net revenues, for the same period in 2001. This decrease was due
to the repurchase of a business center which lowered commission expenses of
selling and marketing. Due to a reduction in workforce initiative, general and
administrative expenses were $325,000, or 17% of total net revenues for the
three months ending March 31, 2002, as compared to $1,360,000, or 50% of total
net revenues, for the same period in 2001. Total operating expenses as a
percentage of net revenue decreased to 32% of net revenues for the three months
ending March 31, 2002 from 80% of net revenues for the three months ending March
31, 2001 due to our aggressive cost cutting and improved efficiency of
operations.

         Interest Expense. For the three months ending March 31, 2002, interest
expense was $94,000 as compared to $113,000 for the three months ending March
31, 2001. The decrease in interest expense was substantially related to better
financing terms we negotiated related to the Maxxis Switch and was partially
offset by an increase in interest expense resulting from interest related to our
contract liabilities.

         Net Income/Loss. Net income for the three months ending March 31, 2002
was $40,000 as compared to a net loss of $941,000 for the three months ending
March 31, 2001.

         NINE MONTHS ENDED MARCH 31, 2002 COMPARED TO NINE MONTHS ENDED MARCH
         31, 2001

         Revenues. Total net revenues decreased $2.5 million, or 30%, to $6.0
million for the nine months ended March 31, 2002 from $8.5 million for the same
period in 2001. The decrease in total net revenues was primarily due to worse
general economic conditions for the customers of our IAs.

         Communications services revenues decreased $700,000, or 21%, to $2.7
million for the nine months ended March 31, 2002 from $3.4 million for the same
period in 2001 primarily due to the establishment of a process to efficiently
terminate customer relationships with customers who were not remitting invoice
payments on a timely basis and competitive pressures which forced us to charge
lower rates to our customers.

         Nutritional products revenues decreased $1.1 million, or 46%, to $1.3
million for the nine months ended March 31, 2002 compared to $2.4 million for
the same period in 2001. This decrease was primarily due to the fact that we did
not hold any health awareness seminars for the for the nine months ended March
31, 2002, which resulted in a decrease in the demand for our products.


                                       11

<PAGE>

         Marketing services revenues decreased $700,000, or 27%, to $2.0
million for the nine months ended March 31, 2002 from $2.7 million for the same
period in 2001. This decrease was due to a decrease in the number of new
independent associates for the nine months ending March 31, 2002 compared to the
nine months ending March 31, 2001.

         Cost of Goods and Services. Total cost of goods and services for the
nine months ended March 31, 2002 was $3.3 million, or 55% of total net revenues,
compared to $3.9 million, or 46% of total net revenues, for the same period in
2001. The increase as a percentage of total net revenues for the nine months
ended March 31, 2002 resulted primarily because of competitive pressures on us
to lower the prices of our communications services and because a greater
percentage of our revenues were generated from communications services compared
to the same period in 2001.

         Communications services cost was $2.7 million, or 45% of total net
revenues, for the nine months ended March 31, 2002, as compared to $3.0 million,
or 35% of total net revenues, for the same period in 2001. The increase as a
percentage of total net revenues for the nine months ended March 31, 2002 is
primarily due to our lower total net revenues resulting from decreased long
distance rates as compared to the same period last year.

         Nutritional products cost was $210,000, or 3% of total net revenues,
for the nine months ended March 31, 2002, as compared to $600,000, or 7% of
total net revenues, for the same period in 2001. The lower nutritional products
cost as a percentage of total net revenues for the nine months ended March 31,
2002 resulted primarily because we were able to purchase our additional
nutritional products inventory requirements at lower costs as compared to the
same period last year.

         Marketing services cost was $393,000, or 7% of total net revenues, for
the nine months ended March 31, 2002 as compared to $351,000, or 4% of total net
revenues, for the same period in 2001. The increase in marketing services cost
as a percentage of total net revenues was primarily due to lower revenues.

         Gross Margin. Gross margin declined to $2.7 million for the nine months
ended March 31, 2002 from $4.6 million for the same period in 2001. Gross margin
as a percentage of total net revenues was 45% for the nine months ended March
31, 2002 and 54% for the same period in 2001.

         Operating Expenses. For the nine months ended March 31, 2002, selling
and marketing expenses were $1.4 million, or 23% of total net revenues, as
compared with $3.3 million, or 38% of total net revenues, for the same period in
2001. This decrease was due to the repurchase of a business center which lowered
commission expenses of selling and marketing.

         General and administrative expenses were $1.8 million, or 30% of total
net revenues, for the nine months ended March 31, 2002, as compared to $3.5
million, or 42% of total net revenues, for the same period in 2001. Due to a
reduction in workforce initiative, our general and administrative expenses
decreased as a percentage of total net revenues for the nine months ended March
31, 2002.

         Net Loss. The net loss before income taxes for the nine months ended
March 31, 2002 was $734,000 as compared to a net loss of $2,652,000 before
income taxes for the same period in 2001. Our net loss for this period is
largely due to our lower net revenues and certain costs which remain relatively
constant for this period.

LIQUIDITY AND CAPITAL RESOURCES

         During the nine months ended March 31, 2002, net cash used in operating
activities was $989,000 as compared to cash used by operating activities of
$4,914,000 for the nine months ended March 31, 2001. Operating activities for
the nine months ended March 31, 2002 included $734,000 of net loss and $255,000
of changes in assets and liabilities when netted against depreciation and
amortization.

         Cash used in investing activities was $172,000 for the nine months
ended March 31, 2002 as compared to $197,000 for the same period in 2001.
Investing activities for the nine months ended March 31, 2002 consisted
primarily of capital expenditures related to investments in accounting and
software upgrades.


                                       12

<PAGE>

         Cash provided by financing activities was $1,339,000 for the nine
months ended March 31, 2002, as compared to $519,000 for the same period in
2001. Cash received from financing activities consisted of (a) $1,997,000
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, and (b) $397,000 related to subscriptions for
our common stock, which was offset by (x) the repurchase of $538,000 of our
common stock, and (y) payments of $517,000 on capital lease obligations. The
effective interest pursuant to our financing transactions 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 March 31, 2002, we had cash and equivalents of $326,000 and a
working capital surplus of $211,000 as compared to cash and equivalents of
$148,000 and a working capital deficit of $973,000 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 continued
through November 2001. In the first quarter of 2002, we completed our
negotiation of more favorable financing terms with respect to the Maxxis
Switch. Pursuant to the revised terms, we (a) began paying $50,000 monthly for
three months beginning in March 2002, (b) will pay $75,000 monthly for three
months beginning in June 2002, and (c) will make 29 payments of $103,000
beginning in September 2002 and continuing through January 1, 2005.

         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 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 2003 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 2003 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.


                                       13

<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.


                                       14

<PAGE>


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.

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.


                                       15
<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.



May 15, 2002                      /s/ Alvin Curry
                                  ----------------------------------------------
                                  Alvin Curry
                                  President and Chief Executive Officer
                                  (Principal executive officer)


May 15,  2002                     /s/ DeChane Cameron
                                  ----------------------------------------------
                                  DeChane Cameron
                                  Chief Financial Officer
                                  (Principal financial and accounting officer)


                                       16