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UNITED STATES


SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549





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FORM 10-QSB





(Mark One)





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




For the quarterly period ended March 31, 2002





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




For the transition period from  to





Commission file number 000-17510





MEGA GROUP, INC.


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





NEW YORK

14-1653446(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)





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(202) 296-9594


(Issuers telephone number)





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N/A


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





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Check whether the issuer (1) filed all reports
required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requires for the past 90
days.    Yes  ̈ No  x





State the number of shares outstanding of each of the issuers classes of common equity, as of the latest
practicable date: 9,433,605 shares of common stock (including 74,802 shares held of record by our wholly-owned subsidiary), as of December 20, 2002.





Transitional Small Business Disclosure Format (Check one):    Yes  ̈ No  x





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PART I    FINANCIAL INFORMATION





ITEM 1.    FINANCIAL STATEMENTS.





MEGA GROUP, INC. AND SUBSIDIARY





CONSOLIDATED BALANCE SHEET





March 31, 2002ASSETSCURRENT ASSETSMarketable securities

$
1,917Loans receivableaffiliates


46,064TOTAL CURRENT ASSETS


47,981PROPERTY AND EQUIPMENTComputer equipment


10,683Office furniture and equipment


13,695TOTAL


24,378Less:    Accumulated depreciation and amortization


(14,494
)NET PROPERTY AND EQUIPMENT


9,884TOTAL ASSETS

$
57,865








The accompanying Notes to Financial
Statements are an integral part of these financial statements.




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MEGA GROUP, INC. AND SUBSIDIARY





CONSOLIDATED BALANCE SHEET





March 31, 2002LIABILITIES AND DEFICIENCY IN STOCKHOLDERS EQUITYCURRENT LIABILITIESCurrent portion of long-term debt

$
715,843Bank Overdraft


897Accounts payable and accrued expenses


668,015Accrued wages


328,674Accrued interest


137,335Loans payablestockholder


82,091Loans payableaffiliates


2,939TOTAL CURRENT LIABILITIES


1,935,794LONG-TERM DEBT, NET OF CURRENT PORTION


39,054TOTAL LIABILITIES


1,974,848COMMITMENTS AND CONTINGENCIES


DEFICIENCY IN STOCKHOLDERS EQUITYPreferred stock, cumulative 8%, $1 par value per share, 400,000 shares authorized, 10,000 shares issued and
outstanding


10,000Common stock, $0.016 par value per share, 25,000,000 shares authorized, 8,056,912 shares issued an
outstanding


128,911Additional paid-in capital


3,463,013Accumulated deficit


(5,517,655
)Accumulated other comprehensive income (loss)


(1,252
)TOTAL DEFICIENCY IN STOCKHOLDERS EQUITY


(1,916,983
)TOTAL LIABILITIES AND DEFICIENCY IN STOCKHOLDERS EQUITY

$
57,865











The accompanying Notes to Financial Statements are an integral part of these financial statements.







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MEGA GROUP, INC. AND SUBSIDIARY





CONSOLIDATED STATEMENTS OF OPERATIONS





Three Months EndedMarch 31, 2001


Three Months Ended March 31, 2002REVENUE

$
2,458


$
OPERATING EXPENSESCompensation and benefits


36,067



37,500Other selling, general and administrative expenses


44,811



17,139Depreciation and amortization


1,000



692TOTAL OPERATING EXPENSES


81,878



55,331LOSS FROM OPERATIONS


(79,420
)


(55,331
)OTHER INCOME (EXPENSE)Interest income


242



219Interest expense


(25,688
)


(29,662
)TOTAL


(25,446
)


(29,443
)LOSS BEFORE BENEFIT FOR INCOME TAXES


(104,866
)


(84,774
)BENEFIT FOR INCOME TAXES


5,800



NET LOSS

$
(99,066
)

$
(84,774
)BASIC NET LOSS PER COMMON SHARE:Basic net loss per common share

$
(.01
)

$
(.01
)Weighted average common shares outstanding


8,056,912



8,056,912











The accompanying Notes to Financial Statements are an integral part of these financial statements.




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MEGA GROUP, INC. AND SUBSIDIARY





CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)








Three Months EndedMarch 31, 2001


Three Months Ended March 31, 2002NET LOSS

$
(99,066
)

$
(84,774
)DECREASE IN UNREALIZED LOSS ON MARKETABLE SECURITIES, NET OF TAX






50UNREALIZED GAIN ON MARKETABLE SECURITIES


15,000



TAX PROVISION


(6,000
)


OTHER COMPREHENSIVE INCOME(LOSS)


9,000



50COMPREHENSIVE INCOME (LOSS)

$
(90,066
)

$
(84,724
)











The accompanying Notes to Financial Statements are an integral part of these financial statements.




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MEGA GROUP, INC. AND SUBSIDIARY





CONSOLIDATED STATEMENT OF CASH FLOWS


Three Months Ended March 31, 2001


Three Months Ended March 31, 2002CASH FLOWS FROM OPERATING ACTIVITIESNet Loss

$
(99,066
)

$
(84,774
)ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH USED BY OPERATING ACTIVITIESDepreciation and amortization


1,000



692Benefit for Income Taxes


(6,000
)


Court Judgment Increasing long term debt


5,817



Seizure of Cash in Litigation


9,345



(INCREASE) DECREASE INAccrued interest


(242
)


INCREASE (DECREASE) INBank Overdraft






897Accounts Payable and accrued expenses


29,080



6,586Accrued wages






37,500Accrued interest


22,822



23,005NET CASH USED BY OPERATING ACTIVITIES


(37,244
)


(16,094
)CASH FLOWS FROM INVESTING ACTIVITIESPurchases of marketable securities






(323
)Loans made to affiliates, net


(3,111
)


(930
)NET CASH (USED) BY INVESTING ACTIVITIES


(3,111
)


(1,253
)CASH FLOWS FROM FINANCING ACTIVITIESDebt proceeds






6,404Principal payments on debt


(8,532
)


(17,272
)Loans from stockholder






11,115Loans to affiliate


23,008



Preferred Dividends


(200
)


NET CASH PROVIDED BY FINANCING ACTIVITIES


14,276



247NET DECREASE IN CASH


(26,079
)


(17,100
)CASHBEGINNING OF PERIOD


26,383



17,100CASHEND OF PERIOD

$
304



SUPPLEMENTAL CASH FLOW INFORMATIONActual Cash Payment for:Income Tax

$
200


$
Interest

$
2,866


$
6,657





The accompanying Notes to Financial Statements are an integral part of
these financial statements.




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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS





1.    NATURE OF BUSINESS





The consolidated financial statements include the accounts of 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 inter-company 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 faith-based 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 consolidated financial statements have been prepared by the Company without audit and are subject to year-end adjustment. Certain information and footnote disclosures normally included in
consolidated financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission. These consolidated interim
statements should be read in conjunction with the most recent audited consolidated financial statements filed by the Company on Form 10-KSB with the Securities and Exchange Commission. The consolidated financial statements reflect all adjustments
(which include only normal recurring adjustments) which, in the opinion of management are necessary to present fairly the Companys financial position, results of operations and cash flows.





Results of operations for the three months ended March 31, 2002 are not necessarily indicative of results to be achieved for the full fiscal year.





3.    RECENT ACCOUNTING PRONOUNCEMENTS





In 2002, the Financial Accounting Standards Board issued the following:





SFAS No. 145, Recission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections, effective in fiscal years beginning after May 15, 2002.





SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities, effective for exit of disposal
activities initiated after December 31, 2002.





SFAS No. 147, Acquisitions of Certain Financial
Institutions, effective October 1, 2002.





Management has determined that these statements would have no
significant impact on its consolidated financial statements.




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4.    FINANCIAL CONDITION





As of March 31, 2002, the Company has a deficiency in stockholders equity and a working capital deficiency. In addition, the Company
is in default on certain notes payable and other obligations and is involved in significant litigation involving past business dealings. On October 11, 2000, as a condition of Mega Group, Inc.s acquisition of SBICOA, the president, Steven
Gregory, agreed to indemnify the Company and respective directors, shareholders, affiliates, and certain other associated persons (collectively, the Indemnitee Group) and to hold the Indemnitee Group harmless from and against all claims or
liabilities relating to the Companys business, including all litigation claims then being asserted against the Company. Mr. Gregorys agreement is subject to certain conditions, among them that (i) it is effective until not later than
October 11, 2004, (ii) it is contingent on the successful completion of a securities offering by the Company, and (iii) his obligation shall be satisfied only by his delivery to the Company of such number of the Companys common shares owned by
him, valued for this purpose at $2.50 per share, as shall be equal to the amount of any claim settled or finally determined. Mr. Gregory has granted the Indemnitee Group a security interest in his shares to secure his obligation.





The intent of Mega Group, Inc.s acquisition of SBICOA is to direct the Company 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 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 achieve profitable operations from new business activities will determine if the Company can continue as a going
concern.





5.    LEGAL MATTERS





There have been no significant developments to litigation matters since filing of fiscal year 2001 Form 10-KSB.





6.     RELATED PARTY TRANSACTIONS





Loan payablestockholder:     The Company owes its president $82,091 at March 31, 2002. The obligation is the result of payments made by the president on the Companys behalf. Such payments
covered certain debt requirements as well as operating expenses. Expenditures on the Companys behalf for the three-month period ended March 31, 2002 totaled $11,115.




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





SOME OF THE STATEMENTS CONTAINED OR INCORPORATED BY REFERENCE IN THIS REPORT ARE FORWARD-LOOKING
STATEMENTS WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933 AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934. STATEMENTS ABOUT OUR EXPECTATIONS, BELIEFS, PLANS, OBJECTIVES, ASSUMPTIONS, OR FUTURE EVENTS OR PERFORMANCE ARE
NOT HISTORICAL FACTS AND MAY BE FORWARD-LOOKING. FORWARD-LOOKING STATEMENTS ARE OFTEN, BUT NOT ALWAYS, MADE THROUGH THE USE OF WORDS OR PHRASES LIKE ANTICIPATE, ESTIMATE, PLANS, PROJECTS,
CONTINUING, ONGOING, EXPECTS, MANAGEMENT BELIEVES, WE BELIEVE, WE INTEND, AND SIMILAR WORDS OR PHRASES. ACCORDINGLY, THESE STATEMENTS INVOLVE ESTIMATES, ASSUMPTIONS, AND
UNCERTAINTIES. ANY FORWARD-LOOKING STATEMENTS ARE QUALIFIED IN THEIR ENTIRETY BY REFERENCE TO THE FACTORS, INCLUDING RISK FACTORS, DISCUSSED IN THIS REPORT OR INCORPORATED BY REFERENCE. BECAUSE THE FACTORS DISCUSSED IN THIS REPORT OR INCORPORATED BY
REFERENCE COULD CAUSE ACTUAL RESULTS OR OUTCOMES TO DIFFER MATERIALLY FROM THOSE EXPRESSED IN FORWARD-LOOKING STATEMENTS, YOU SHOULD NOT OVER-RELY ON FORWARD-LOOKING STATEMENTS. FURTHER, EACH FORWARD-LOOKING STATEMENT SPEAKS ONLY AS OF THE DATE ON
WHICH IT IS MADE, AND WE UNDERTAKE NO OBLIGATION TO UPDATE ANY FORWARD-LOOKING STATEMENT TO REFLECT LATER EVENTS OR CIRCUMSTANCES AS THEY OCCUR.





We believe that our financial condition and results of operations included in this report are not indicative of our future prospects. During the three months ended March 31, 2002 and the year ended
December 31, 2001, we had been in transition. During these periods, we discontinued our insurance agency business, acquired the Small Business Investment Company of America, Inc. and commenced the implementation of a new business plan and operation.
Our business plan is to offer diversified financial services to ethnic communities and faith-based entities in the United States. Our operations will initially include:





Business and Community Development Lending





We propose to
operate as a specialized financial institution, known as a Community and Individual Investment Corporation (CIIC), under an initiative of the U.S. Department of Housing and Urban Development (HUD). CIICs are for-profit,
resident-owned, non-bank banks that, in the words of HUD, serve an important function by making business and housing loans in low- and moderate-income communities. CIICs may use HUD funds to provide community development and
business loans, business start-up or expansion loans, and rental housing rehabilitation loans. `





We propose to
acquire, or become licensed to operate as, a Small Business Investment Company (SBIC) or a New Markets Venture Capital Company (NMVCC), under initiatives of the U.S. Small Business Administration (SBA). SBICs and
NMVCCs provide SBA-guaranteed debt financing or equity capital to small-business concerns and developmental venture capital financing to concerns in low-income areas.





We propose to support community-based financing, through other financial institutions, by making direct investments, providing loan guarantees and other credit
enhancements, and purchasing loans. We intend to provide technical assistance to lenders and borrowers and to assist banks in complying with the requirements of the Community Reinvestment Act.





Investment Referral Services





We expect to
package, service, and advise closed-end investment companies and other savings and investment programs that will permit community- and faith-based equity participation in these efforts.





Business Strategic Planning and Financial Consulting Services





Finally, we propose to provide fee-based financial consulting services to local governments throughout the United States.





Our business plan referred to above calls for a capitalization of at least $30,000,000. Accordingly, we are now undercapitalized. We intend to satisfy any liquidity needs during the foreseeable future
by engaging in one or more public or non-public equity financings. The nature of our business and proposed business does not require any significant product research and development, purchase or sale of plant and equipment, or changes in the number
of employees. In the event that we are unable to raise significant funds, we may be unable to make required payments as they become due and may be unable to fully execute our business plan.





Since October 11, 2000, through SBICOA, we have sustained our operations substantially through private borrowings. On July 15, 2002, together
with SBICOA, we entered into a loan and security agreement with Matah Holdings, L.L.C., a nonaffiliated lender. The agreement provided us with a working capital facility under which we had the right to borrow up to $500,000, of which $300,000 is
currently in use. The borrowings are evidenced by promissory notes due, together with interest at 12% per annum, on January 14, 2003 and are personally guaranteed by our chairman of the board of directors, chief executive officer, and principal
shareholder, John H. Brown, and by our secretary-treasurer, director, and principal shareholder, Joyce L. Brown.





Results of Operations





Three Months Ended March 31, 2002





During the three months ended March 31, 2002, our cash position decreased from $304 at March 31, 2001 to zero at March 31, 2002. During
the same three month period ended March 31, 2002, we realized a net loss of $84,774 after revenue of zero and ongoing expenses in the total amount of $55,331, interest expense in the amount of $29,662 and interest income of $219.





ITEM 3.    CONTROLS AND PROCEDURES.





Within the 90 days prior to the filing date of this quarterly report, our principal executive officer and principal financial officer evaluated the effectiveness of the design and operation of our
disclosure controls and procedures. They have advised us that, based on that evaluation, they concluded that our disclosure controls and procedures are effective to ensure that material information relating to us, and our consolidated subsidiary, is
made known to us by others within those entities, particularly during the period in which this annual report is being prepared. There have been no significant changes in our internal controls or in other factors that could significantly affect our
internal controls since the date of their evaluation. Our principal executive officer and principal financial officer identified no significant deficiencies and material weaknesses requiring corrective action.




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PART II





OTHER INFORMATION





ITEM 1.    LEGAL
PROCEEDINGS.





There were no material developments in any litigation to which we were a party. Please refer to
our 10-KSB filed November 04, 2002 for current litigation matters.





ITEM 2.    CHANGES IN SECURITIES.





None.





ITEM 3.    DEFAULTS UPON SENIOR SECURITIES.





None.





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





None.





ITEM 5.    OTHER INFORMATION.





None.





ITEM 6.    EXHIBITS AND REPORTS ON FORM 8-K.





(a)    EXHIBITS.





99.1- Certification of the Chief Executive Officer and Chief
Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.





(b)    REPORTS ON FORM 8-K.





We did not file any reports on Form 8-K during
the period covered by this report.







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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.





MEGA GROUP, INC.Date: December 27, 2002



By:

/s/    JOHN H.
BROWNJohn H. BrownChief Executive Officer





Date: December 27, 2002



By:

/s/    Merritt C. BrownMerritt C. BrownChief Financial Officer







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CHIEF EXECUTIVE OFFICER CERTIFICATION





I, John H. Brown, certify that:





1.    I have reviewed this quarterly report on Form 10-QSB of Mega Group, Inc;





2.    Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made,
in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;





3.    Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial
condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;





4.    The registrants other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the
registrant and we have:





a.)    Designed such disclosure controls and
procedures to ensure that material information relating to the registrant, including its consolidated subsidiary, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;





b.)    Evaluated the effectiveness of the registrants disclosure
controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the Evaluation Date); and





c.)    Presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;





5.    The registrants other certifying officers and I have disclosed, based on our most
recent evaluation, to the registrants auditors and the audit committee of registrants board of directors (or persons performing the equivalent function):





a.)    All significant deficiencies in the design or operation of internal controls which could adversely affect the registrants
ability to record, process, summarize and report financial data and have identified for the registrants auditors any material weaknesses in internal controls; and





b.)    Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrants internal controls; and





6.    The registrants other certifying
officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant deficiencies and material weaknesses.





Date: December 27, 2002





By:

/s/    JOHN H.
BROWNJohn H. Brown Chief Executive
Officer of Mega Group, Inc.




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CHIEF FINANCIAL OFFICER CERTIFICATION





I, Merritt C. Brown, certify that:





1.    I have reviewed this quarterly report on Form 10-QSB of Mega Group, Inc;





2.    Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made,
in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;





3.    Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial
condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;





4.    The registrants other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the
registrant and we have:





a.)    Designed such disclosure controls and
procedures to ensure that material information relating to the registrant, including its consolidated subsidiary, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;





b.)    Evaluated the effectiveness of the registrants disclosure
controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the Evaluation Date); and





c.)    Presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;





5.    The registrants other certifying officers and I have disclosed, based on our most
recent evaluation, to the registrants auditors and the audit committee of registrants board of directors (or persons performing the equivalent function):





a.)    All significant deficiencies in the design or operation of internal controls which could adversely affect the registrants
ability to record, process, summarize and report financial data and have identified for the registrants auditors any material weaknesses in internal controls; and





b.)    Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrants internal controls; and





6.    The registrants other certifying
officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant deficiencies and material weaknesses.





Date: December 27, 2002





By:

/s/    MERRITT C.
BROWNMerritt C. Brown Chief
Financial Officer of Mega Group, Inc.