**UNITED      STATES **

**SECURITIES      AND EXCHANGE COMMISSION **

**Washington,      D.C. 20549 **

**FORM      1OQSB **

|   | x |   | **QUARTERLY                REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES                EXCHANGE** **ACT                OF 1934**  |
|--------|---|--------|---------------------------------------------------------------------------------------------------------------------------------------------------|

**For      the quarterly period ended September 30, 2006**

|   | o |   | **TRANSITION                REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT**  |
|--------|---|--------|------------------------------------------------------------------------------------------|

**For      the transition period from **
**                    **
**      to **
**                        **
** **

**Commission      file number: 00017510 **

**MEGA      GROUP, INC. **

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

| NEW                YORK                                                       |   | 141653446                                        |
|-------------------------------------------------------------------------------|--------|--------------------------------------------------|
| (State                or other jurisdiction of incorporation or organization) |   | (IRS                Employer Identification No.) |

**1730      Rhode Island Ave., N.W. Suite 415, Washington, DC 20036 **

**(Address      of principal executive offices) **

**(202)      2969594 **

**(Issuer’s      telephone number) **

**N/A      **

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

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**Table      of Contents**

**Mega      Group, Inc. and Subsidiary**

**Index**

| **Part                I.**  |   | **Financial                Information**                                                                                                      |   |   |
|-----------------------------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|
|                        |   |                                                                                                                                          |   |   |
| **Item                1.**  |   | Financial                Statements                                                                                                           |   |   |
|                        |   |                                                                                                                                          |   |   |
|                        |   | Consolidated                Balance Sheets September 30, 2006 (Unaudited) and December 31,                2005                                |   | **1**  |
|                        |   |                                                                                                                                          |   |   |
|                        |   | Consolidated                Statements of Operations (Unaudited) Three Months ended September                30, 2006                and 2005 |   | **2**  |
|                        |   |                                                                                                                                          |   |   |
|                        |   | Consolidated                Statements of Operations (Unaudited) Nine Months ended September                30, 2006                and 2005  |   | **3**  |
|                        |   |                                                                                                                                          |   |   |
|                        |   | Consolidated                Statements of Cash Flows (Unaudited) Nine Months ended September                30, 2006                and 2005  |   | **4**  |
|                        |   |                                                                                                                                          |   |   |
|                        |   | Notes                to Unaudited Consolidated Financial Statements                                                                           |   | **5**  |
|                        |   |                                                                                                                                          |   |   |
| **Item                2.**  |   | Management’s                Discussion and Analysis of Financial Condition and Results of                Operations                     |   | **8**  |
|                        |   |                                                                                                                                          |   |   |
| **Item                3.**  |   | Controls                and Procedures                                                                                                        |   | **8**  |
|                        |   |                                                                                                                                          |   |   |
| **Part                II.** |   | **Other                Information**                                                                                                          |   | **9**  |
|                        |   |                                                                                                                                          |   |   |
| **Signatures**              |   |                                                                                                                                          |   | **11** |

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**Mega      Group Inc. and Subsidiary**

**Consolidated      Balance Sheets**

**As      of September 30, 2006 and December 31, 2005**

|                                                                                                          |   | **September                30, 2006 (Unaudited)** |      |  **December                31, 2005** |   |
|---------------------------------------------------------------------------------------------------------------|--------|---------------------------------------------------|-----------|--------------------------------------------|--------|
| **Assets**                                                                                                    |   |                                              |      |                                  |   |
| Cash                and cash equivalents                                                                      |   | **$**                                             | **7,253** |                                       | **$**  | 136,634 |   |
| Other                assets                                                                                   |   |                                              | **2,285** |                                       |   | 2,285 |   |
| Total                current assets                                                                           |   |                                              | **9,538** |                                       |   | 138,919 |   |
| Equipment,                net of accumulated depreciation of $25,673 and $24,032,                respectively |   |                                              | **271**   |                                       |   | 1,632 |   |
| **Total                assets**                                                                               |   | $                                                 | **9,809** |                                       | **$**  | 140,551 |   |

| **Liabilities                and Stockholders’ Deficit**                                                                                          |   |   |          |    |   |
|---------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|---------------|--------------|--------|
| **Liabilities**                                                                                                                                         |   |   |          |    |   |
| Accounts                payable and accrued liabilities                                                                                                 |   | **$**  | **1,865,048** |         | **$**  | 1,615,797 |   |
| Accrued                interest                                                                                                                         |   |   | **576,560**   |         |   | 458,379 |   |
| Due                to shareholders and officers, including convertible notes payable                of                $56,602 and $59,002, respectively |   |   | **428,279**   |         |   | 465,779 |   |
| Notes                payable, including convertible notes of $55,000 and $105,000,                respectively                                          |   |   | **775,000**   |         |   | 850,000 |   |
| **Total                current liabilities**                                                                                                            |   |   | **3,644,887** |         |   | 3,389,955 |   |

| **Stockholders’                Deficit**                                                                                                               |   |   |           |    |   |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|----------------|--------------|--------|
| Preferred                stock, cumulative 8%, $1 par value per                share, 400,000 shares authorized, 10,000 shares issued and               |   |   |           |    |   |
| outstanding                with a liquidation preference of $1 per share.                                                                                    |   |   | **10,000**     |         |   | 10,000 |   |
| Common                stock, $0.016 par value per share, 25,000,000 shares authorized,                9,744,233                shares issued and outstanding |   |   | **155,907**    |         |   | 152,271 |   |
| Additional                paidin capital                                                                                                                     |   |   | **391,780**    |         |   | 320,416 |   |
| Accumulated                deficit                                                                                                                           |   |   | **(4,192,765** | **)**        |   | (3,732,091 | ) |
| Total                stockholders’ deficit                                                                                                             |   |   | **(3,635,078** | **)**        |   | (3,249,404 | ) |
| **Total                liabilities and stockholders’ deficit**                                                                                         |   | **$**  | **9,809**      |         | **$**  | 140,551 |   |

**The      accompanying notes are an integral part of      these consolidated balance sheets.**

----

**Mega      Group Inc. and Subsidiary**

**Consolidated      Statements of Operations**

**For      the Three Month Periods ended September 30, 2006 and 2005**

|                                                            |   | **2006                (Unaudited)** |          |  **2005                (Unaudited)** |   |
|-----------------------------------------------------------------|--------|-------------------------------------|---------------|-------------------------------------------|--------|
| **Revenue**                                                     |   | **$**                               | **-**         |                                      | $-     | - |   |
| **Operating                expenses**                           |   |                                |          |                                      |   |   |   |
| Compensation                and benefits                        |   |                                | **86,250**    |                                      |   | 86,250 |   |
| Other                selling, general and administrative        |   |                                | **24,069**    |                                      |   | 51,371 |   |
| Depreciation                                                    |   |                                | **547**       |                                      |   | 547 |   |
| **Total                operating expenses**                     |   |                                | **110,866**   |                                      |   | 138,168 |   |
| **Loss                from operations**                         |   |                                | **(110,866**  | **)**                                     |   | (138,168 | ) |
| **Other                expense**                                |   |                                |          |                                      |   |   |   |
| Interest                expense to stockholders and officers    |   |                                | **9,888**     |                                      |   | 12,234 |   |
| Interest                expense                                 |   |                                | **24,450**    |                                      |   | 27,025 |   |
| **Total                other expense**                          |   |                                | **34,338**    |                                      |   | 29,259 |   |
| **Loss                before provision for income taxes**       |   |                                | **(145,204**  | **)**                                     |   | (177,427 | ) |
| **Provision                for income taxes**                   |   |                                | **-**         |                                      |   | - |   |
| Net                loss                                         |   | **$**                               | **(145,204**  | **)**                                     | $      | (177,427 |   |
| **Basic                and diluted net loss per common share:** |   |                                |          |                                      |   |   |   |
| Basic                and diluted net loss per common share      |   | **$**                               | **(0.01**     | **)**                                     | $      | (0.02 | ) |
| Basic                and diluted weighted average common shares |   |                                | **9,744,233** |                                      |   | **9,516,959** |   |

**The      accompanying notes are an integral part of      these consolidated balance sheets.**

----

**Mega      Group, Inc. and Subsidiary**

**Consolidated      Statements of Operations**

**For      the Nine Month period ended September 30, 2004 and      2003**

|                                                            |   | **2006                (Unaudited)** |          |  **2005                (Unaudited)** |   |
|-----------------------------------------------------------------|--------|-------------------------------------|---------------|-------------------------------------------|--------|
| **Revenue**                                                     |   | **$**                               | **5,175**     |                                      | $      | - |   |
| **Operating                expenses**                           |   |                                |          |                                      |   |   |   |
| Compensation                and benefits                        |   |                                | **258,750**   |                                      |   | 258,750 |   |
| Other                selling, general and administrative        |   |                                | **90,325**    |                                      |   | 128,427 |   |
| Depreciation                                                    |   |                                | **1,641**     |                                      |   | 1,641 |   |
| **Total                operating expenses**                     |   |                                | **350,716**   |                                      |   | 388,818 |   |
| **Loss                from operations**                         |   |                                | **(345,541**  | **)**                                     |   | (388,818 | ) |
| **Other                expense**                                |   |                                |          |                                      |   |   |   |
| Interest                expense to stockholders and officers    |   |                                | **31,135**    |                                      |   | 35,494 |   |
| Interest                expense                                 |   |                                | **83,998**    |                                      |   | 81,075 |   |
| **Total                other expense**                          |   |                                | **115,133**   |                                      |   | 116,569 |   |
| **Loss                before provision for income taxes**       |   |                                | **(460,674**  | **)**                                     |   | (505,387 | ) |
| **Provision                for income taxes**                   |   |                                |          |                                      |   |   |   |
| Net                loss                                         |   | **$**                               | **(460,674**  | **)**                                     | $      | (505,387 | ) |
| **Basic                and diluted net loss per common share:** |   |                                | -             |                                      |   | - |   |
| Basic                and diluted net loss per common share      |   | **$**                               | **(0.05**     | **)**                                     | $      | (0.05 | ) |
| Basic                and diluted weighted average common shares |   |                                | **9,592,717** |                                      |   | 9,516,959 |   |

**The        accompanying notes are an integral part of these consolidated balance        sheets.**

----

**Mega      Group Inc. and Subsidiary**

**Consolidated      Statements of Cash Flows**

**For      the Nine Month Periods ended September 30, 2006 and 2005**

|                                                                                                                       |   | **2006****(Unaudited)** |         |  **2005****(Unaudited)** |   |
|----------------------------------------------------------------------------------------------------------------------------|--------|-------------------------|--------------|-------------------------------|--------|
| **Cash                flow from operating activities**                                                                     |   |                    |         |                     |   |
| Net                Loss                                                                                                    |   | **$**                   | **(460,674** | **)**                         | $      | (505,387 | ) |
| **Adjustment                to reconcile changes in net assets to net cash flow from operating                activities** |   |                    |         |                          |   |   |   |
| Depreciation                                                                                                               |   |                    | **1,641**    |                          |   | 1,641 |   |
| Accretion                of discount and other                                                                             |   |                    | -            |                          |   | 6,249 |   |
| **Effect                of changes in noncash working capital balances**                                                   |   |                    |         |                          |   |   |   |
| Accounts                payable and accrued liabilities                                                                    |   |                    | **249,251**  |                          |   | 352,844 |   |
| Accrued                interest                                                                                            |   |                    | **118,181**  |                          |   | 110,320 |   |
| Net                cash flow used in operating activities                                                                  |   |                    | **(91,601**  | **)**                         |   | (34,333 | ) |
| **Cash                flow from financing activities**                                                                     |   |                    |         |                          |   |   |   |
| Common                stock issued                                                                                         |   |                    | -            |                          |   | 1,333 |   |
| Debt                proceeds                                                                                               |   |                    | **9,720**    |                          |   | 80,000 |   |
| Payments                on debt to stockholders and officers                                                               |   |                    | **(47,500**  | **)**                         |   | (47,000 | ) |
| **Net                cash flow provided by financing activities**                                                          |   |                    | **(37,780**  | **)**                         |   | 34,333 |   |
| Change                in cash and cash equivalents                                                                         |   |                    | **(129,381** | **)**                         |   | - |   |
| **Cash                and cash equivalents, beginning of period**                                                          |   |                    | **136,634**  |                          |   | - |   |
| **Cash                and cash equivalents, end period**                                                                   |   | **$**                   | **7,253**    |                          | $      | - |   |
| **Cash                Paid for Interest**                                                                                  |   | $                       | -            |                          | $      | - |   |
| **Cash                Paid for Taxes**                                                                                     |   | $                       | -            |                          | $      | - |   |
|                                                                                                                       |   |                    |         |                          |   |   |   |
| **Non                cash transactions**                                                                                   |   |                    |         |                          |   |   |   |
| **Common                stock issued for repayment of debt**                                                               |   | **$**                   | **75,000**   |                          | **$**  |   |   |

**The        accompanying notes are an integral part of these consolidated balance        sheets.**

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**Mega        Group Inc. and Subsidiary**

**Notes        to Unaudited Consolidated Financial Statements**

**For        the Three and Nine Months Ended September 30,        2006**

| **1.** **Nature                of Business**             |   | The                consolidated financial statements include the accounts of the Mega                Group,                Inc., a New York corporation and its wholly owned subsidiary, Small                Business Investment Corporation of America, Inc. (SBICOA), an Oregon                corporation (collectively, the Company). All significant intercompany                transactions and accounts have been eliminated in the consolidated                financial statements. The Company’s current business plan is to provide                diversified financial services to ethnic communities and faithbased                entities in the United States and to operate as a specialized financial                institution providing loans and investments for businesses in low                and                moderate income communities.                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|---------------------------------------------------------------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                          |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| **2.** **Interim                Financial Presentation** |   | The                accompanying unaudited consolidated financial statements of the Company                have been prepared in accordance with accounting principles generally                accepted in the United States of America for interim financial information                and with the instructions to From 10QSB. Accordingly, they do not                include                all the information required for complete financial statements. In                the                opinion of management, all adjustments and reclassifications considered                necessary for a fair presentation have been included. All such adjustments                are of a normal recurring nature. Operating results for the three                and nine                month periods ended September 30, 2006 are not necessarily indicative                of                the results that may be expected for the year ending December 31,                2006 or                any other period. The enclosed unaudited consolidated financial statements                should be read in conjunction with the consolidated financial statements                and footnotes thereto incorporated by reference in the Company’s Annual                Report on Form 10KSB for the year ended December 31, 2005. |
|                                                          |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| **Net                Loss per Common Share**                  |   | Basic net              loss per              common share is calculated by dividing the net loss attributable to              common              stockholders by the weighted average number of common shares outstanding              during the year. Diluted earnings per share is calculated using the              weighted average number of common shares plus dilutive common stocks              equivalents outstanding during the period. Antidilutive common stock              equivalents are excluded. Common stock equivalents are stock              options.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|                                                          |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| **Stock                Option Accounting**                    |   | The Company              adopted              the fairvalue recognition provision of SFAS No. 123 (as revised in              2004              and referred to as “SFAS No. 123R”) Accounting for Stockbased              Compensation. SFAS 123R generally eliminates variable accounting and              requires companies to recognize in the income statement over the vesting              period of the options an estimate of expense based on the fair value              of              those options, typically as of the date of              grant.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |

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**Mega      Group Inc. and Subsidiary**

**Notes      to Unaudited Consolidated Financial Statements**

**For      the Three and Nine Months Ended September 30, 2006**

| **3.** **Financial                Condition** |   | As                of September 30, 2006, the Company has a deficiency in stockholders’                equity and a working capital deficit of approximately $3,635,000.                The                Company has not been successful to date in executing its business                plan and                there are no guarantees that it will be successful in implementing                it in                the future. The Company has not generated significant revenue from                its                business plan and has primarily relied upon contributions and loans                from                shareholders to fund operations. The Company will require significant                new                capital funding to implement the business plan and to satisfy the                Company’s cash requirements for the next twelve months. There are no                guarantees the Company’s shareholders will continue to fund operations or                that there is a viable market for the Company to raise the required                capital. The Company is in default on the majority of its debt and                is                significantly delinquent on amounts owed to vendors and employees.                The                Company will require capital funding in order to fund the capital                deficit.                The Company is delinquent in all required income tax filings for                the years                ending December 31, 2003, 2004, and 2005. The                intent of the Company’s management is to direct it into new business lines                providing financial services to currently underserved ethnic minorities                through alliances with churches and other organizations serving those                groups. The Company intends in the near term to obtain additional                equity                funding and to obtain additional debt financing to pursue these new                lines                of business and to provide the funds to satisfy its current obligations.                The extent to which the Company can raise additional equity and financing                and achieve profitable operations from new business activities will                determine if the Company can continue as a going concern. Management                believes it will be successful in obtaining additional equity and                debt                financing, but no assurances can be given in this                regard. |
|----------------------------------------------------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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**Mega      Group Inc. and Subsidiary**

**Notes      to Unaudited Consolidated Financial Statements**

**For      the Three and Nine Months Ended September 30, 2006**

| **4.** **Related                Party Transactions** |   | The                Company owes certain of our stockholders $428,279 and $465,779 as                of                September 30, 2006 and December 31, 2005, respectively of which $280,241                and $326,241 are notes payable and $139,538 was for expenses paid                by the                stockholder on the Company’s behalf. The Company is in default on all                notes payable. The Company originally owed a stockholder $139,538                (Stockholder Obligation) for expenses paid on the Company’s behalf. The                Stockholder Obligations has no specified terms for interest or repayment.                The Stockholder Obligation was discounted by $25,000 based on a 6%                discount rate during the year ending December 31, 2003 based on the                Company repaying the stockholder in the year ending December 31,                2006. The                Stockholder Obligation is being amortized into the liability through                interest expense. For each of the periods ending September 30, 2006                and                2005, the Stockholder Obligation accreted by $0 and $6,249,                respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|-----------------------------------------------------------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                      |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| **5****.                New Accounting Pronouncements**   |   | In                February 2006, the FASB issued SFAS No. 155, "Accounting for Certain                Hybrid Financial Instruments", an amendment of SFAS No. 133 and SFAS                No.                140. This statement permits fair value remeasurement for any hybrid                financial instrument that contains an embedded derivative that otherwise                would require bifurcation. It establishes a requirement to evaluate                interests in securitized financial assets to identify interests that                are                freestanding derivatives or that are hybrid financial instruments                that                contain an embedded derivative requiring bifurcation. In addition,                SFAS                155 clarifies which interestonly strips and principalonly strips                are not                subject to the requirements of Statement 133. It also clarifies that                concentrations of credit risk in the form of subordination are not                embedded derivatives. SFAS 155 amends Statement 140 to eliminate                the                prohibition on a qualifying special purpose entity from holding a                derivative financial instrument that pertains to a beneficial interest                other than another derivative financial instrument. This Statement                is                effective for all financial instruments acquired or issued after                the                beginning of an entity ́s first fiscal year that begins after September 15,                2006. The Company is evaluating the impact, if any, of the adoption                of                this Statement on its financial results. |
|                                                      |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|                                                      |   | In                March 2006, the FASB issued SFAS No. 156, "Accounting for Servicing                of                Financial Assets". This Statement amends SFAS No. 140, "Accounting                for                Transfers and Servicing of Financial Assets and Extinguishments of                Liabilities", and requires that all separately recognized servicing                assets                and servicing liabilities be initially measured at fair value, if                practicable and permits the entities to elect either fair value                measurement with changes in fair value reflected in earnings or the                amortization and impairment requirements of SFAS No. 140 for subsequent                measurement.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |

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**Mega        Group Inc. and Subsidiary**

**Notes        to Unaudited Consolidated Financial Statements**

**For        the Three and Nine Months Ended September 30, 2006**

| **5****.                New Accounting Pronouncements** |   | The                subsequent measurement of separately recognized servicing assets                and                servicing liabilities at fair value eliminates the necessity for                entities                that manage the risks inherent in servicing assets and servicing                liabilities with derivatives to qualify for hedge accounting treatment                and                eliminates the characterization of declines in fair value as impairments                or direct writedowns. This Statement is effective as of the beginning                of                an entity ́s first fiscal year that begins after September 15, 2006. The                Company is evaluating the impact, if any, of the adoption of this                Statement on its financial results.   |
|---------------------------------------------------------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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**ITEM      2. MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF      OPERATION**

**General      Nine Months Ended September 30, 2006 and 2005**

**Financial      Condition**

**ITEM      3. CONTROLS AND PROCEDURES**

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**PART      II. OTHER INFORMATION**

**ITEM      1. LEGAL PROCEEDINGS**

**ITEM      2. CHANGES IN SECURITIES**

**ITEM      3. DEFAULTS UPON SENIOR SECURITIES**

| Note                payable to a stockholder and officer, unsecured, convertible into                common                shares of stock of Mega group at a conversion price of $0.333 per                share,                bearing interest at 7.25% due February 2006. The Company is delinquent                in                payments and accordingly is in default on this note. |   | **$**  | **100,000**   |   |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|---------------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                           |   |   |          |   |
| Note                payable to a stockholder and officer, unsecured, bearing interest                at 15%,                due December 2003. The Company is delinquent in payments and accordingly                is in default on this note.                                                                                                                                                |   |   | **95,525**    |   |
|                                                                                                                                                                                                                                                                                                                                                                                           |   |   |          |   |
| Note                payable to a stockholder and officer, unsecured, bearing interest                at 5%,                due May 2004. The Company is in default on this note, and accordingly,                it                is classified as a current liability.                                                                                                                       |   |   | **2,500**     |   |
|                                                                                                                                                                                                                                                                                                                                                                                           |   |   |          |   |
| Note                payable to a stockholder and officer of the Company, unsecured,                convertible into common shares at a conversion price of $ 0.3333                per share                due on December 2003, bearing interest at 15%. The Company is delinquent                in payments and accordingly is in default on this note.                                    |   |   | **58,602**    |   |
|                                                                                                                                                                                                                                                                                                                                                                                           |   |   |          |   |
| Total                amount payable to officers                                                                                                                                                                                                                                                                                                                                                |   |   | **256,627**   |   |
|                                                                                                                                                                                                                                                                                                                                                                                           |   |   |          |   |
| Note                payable to a stockholder of the Company for redemption of the Company’s                common shares, unsecured, bearing interest at 6%, due June 15, 2000.                The                Company is delinquent in payments and accordingly is in default on                this                note.                                                            |   |   | **24,114**    |   |
|                                                                                                                                                                                                                                                                                                                                                                                           |   |   |          |   |
| Total                amount payable to stockholders and officers                                                                                                                                                                                                                                                                                                                               |   |   | **280,241**   |   |
|                                                                                                                                                                                                                                                                                                                                                                                           |   |   |          |   |
| Note                payable to an individual for a cash loan, unsecured, bearing interest                at                12%. The Company is delinquent in payments and accordingly is in                default                on this note.                                                                                                                                                |   |   | **100,000**   |   |
|                                                                                                                                                                                                                                                                                                                                                                                           |   |   |          |   |
| Note                payable, unsecured, bearing interest at 12.5%, due June 2003. The                Company                is delinquent in payments and accordingly is in default on this                note.                                                                                                                                                                               |   |   | **60,000**    |   |
|                                                                                                                                                                                                                                                                                                                                                                                           |   |   |          |   |
| Working                capital notes payable to Matah Holding, LLC, bearing interest at                12%, due                April 14, 2003. The Company is delinquent in payments and accordingly                is                in default on this note.                                                                                                                                 |   |   | **485,000**   |   |
|                                                                                                                                                                                                                                                                                                                                                                                           |   |   |          |   |
| Note                payable, unsecured, convertible into common shares of stock of Mega                Group                at a conversion price of $0.3333 per share, bearing interest at 10%,                due                Jan 2006. The Company is delinquent in payments and accordingly is                in                default on this note.                                   |   |   | **10,000**    |   |
|                                                                                                                                                                                                                                                                                                                                                                                           |   |   |          |   |
| Note                payable, unsecured, convertible into common shares of stock of Mega                Group                at a conversion price of $0.3333 per share, bearing interest at 10%,                due                Jan 2006. The Company is delinquent in payments and accordingly is                in                default on this note.                                   |   |   | **20,000**    |   |
|                                                                                                                                                                                                                                                                                                                                                                                           |   |   |          |   |
|                                                                                                                                                                                                                                                                                                                                                                                           |   |   |          |   |
| Note                payable, unsecured, bearing interest at 10% Due January 2006. The                Company                is delinquent in payments and accordingly is in default on this                note.                                                                                                                                                                               |   |   | **25,000**    |   |
|                                                                                                                                                                                                                                                                                                                                                                                           |   |   |          |   |
| Note                payable, unsecured, bearing interest at 10% Due January 2006. The                Company                is delinquent in payments and accordingly is in default on this                note.                                                                                                                                                                               |   |   | **25,000**    |   |
|                                                                                                                                                                                                                                                                                                                                                                                           |   |   |          |   |
| Note                payable, unsecured, bearing interest at 10% Due January 2006. The                Company                is delinquent in payments and accordingly is in default on this                note.                                                                                                                                                                               |   |   | **25,000**    |   |
|                                                                                                                                                                                                                                                                                                                                                                                           |   |   |          |   |
| Note                payable, unsecured, convertible into common shares of stock of Mega                group                at a conversion price of $0.3333 per share, bearing interest at 10%,                due                Jan 2006. The Company is delinquent in payments and accordingly is                in                default on this note.                                   |   |   | **25,000**    |   |
| **Total**                                                                                                                                                                                                                                                                                                                                                                                      |   | **$**  | **1,055,741** |   |

**ITEM      4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS**

**ITEM      5. OTHER INFORMATION**

**ITEM      6. EXHIBITS**

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**SIGNATURES      **

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

|                                   |                                       |                                            |
|----------------------------------------|--------------------------------------------|-------------------------------------------------|
| Date:                November 17, 2006 | MEGA                GROUP, INC.            |
|                              |                                  |                                       |
|                                   | By:                              | /s/ JOHN              H. BROWN   |
|                                   | **John              H. Brown**             |
|                                   | **Chief                Executive Officer** |

|                                      |                                       |                                          |
|-------------------------------------------|--------------------------------------------|-----------------------------------------------|
| Date: November              17, 2006 | By:                              | /s/ JOYCE              BROWN   |
|                                      | **Joyce              Brown**               |
|                                      | **Chief                Financial Officer** |

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