<PAGE>

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    _________

                                   FORM 1O-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, 2003

  [_] 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    (IRS Employer Identification
                   organization)                                   No.)


          1730 Rhode Island Ave., N.W. Suite 415, Washington, DC 20036
                    (Address of principal executive offices)

                                 (202) 296-9594
                           (Issuer's telephone number)

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

      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: 9,359,303 shares of common
stock (including 75,302 shares held of record by our wholly-owned subsidiary),
as of May 12, 2003.

      Transitional Small Business Disclosure Format (Check one): Yes [_] No [X]

<PAGE>

                          PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

                                                 Mega Group, Inc. and Subsidiary

                                                      Consolidated Balance Sheet
                                                                     (Unaudited)

                                                                  March 31, 2003
--------------------------------------------------------------------------------
Assets

Current assets
   Cash                                                           $     2,594
   Marketable securities                                                2,792
   Accounts receivable                                                 30,000
   Loans receivable                                                    20,738
   Loan financing costs, net                                            7,900
--------------------------------------------------------------------------------
Total current assets                                                   64,024
--------------------------------------------------------------------------------

Property and equipment
   Office furniture and equipment                                      25,663
   Less:  Accumulated depreciation and amortization                   (17,299)
--------------------------------------------------------------------------------
Net property and equipment                                              8,364
--------------------------------------------------------------------------------



Total assets                                                      $    72,388
================================================================================

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

                                        1

<PAGE>

<TABLE>
<CAPTION>
                                                                                  Mega Group, Inc. and Subsidiary

                                                                                       Consolidated Balance Sheet
                                                                                                      (Unaudited)

                                                                                                    March 31, 2003
------------------------------------------------------------------------------------------------------------------
<S>                                                                                 <C>
Liabilities and Deficiency in Stockholders' Equity

Current liabilities
   Current portion of long-term debt                                                               $   1,099,149
   Accounts payable and accrued expenses                                                                 730,915
   Accrued wages                                                                                         512,171
   Accrued interest                                                                                      254,186
   Due to stockholder                                                                                    128,252
-----------------------------------------------------------------------------------------------------------------
Total current liabilities                                                                              2,724,673
-----------------------------------------------------------------------------------------------------------------

Commitments and contingencies

Deficiency in stockholders' equity
   Preferred stock, cumulative 8%, $1 par value per share, 400,000 shares
       authorized, 10,000 shares issued and outstanding                                                   10,000
   Common stock, $.016 par value per share, 25,000,000 shares authorized,
       9,359,303 shares issued and outstanding                                                           149,749
   Additional paid-in capital                                                                          3,544,718
   Accumulated deficit                                                                                (6,357,055)
   Accumulated other comprehensive income                                                                    303
-----------------------------------------------------------------------------------------------------------------

Total deficiency in stockholders' equity                                                              (2,652,285)
-----------------------------------------------------------------------------------------------------------------

Total liabilities and deficiency in stockholders' equity                                           $      72,388
================================================================================================================
</TABLE>

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

                                        2

<PAGE>

                                                 Mega Group, Inc. and Subsidiary

                                           Consolidated Statements of Operations
                                                                     (Unaudited)

<TABLE>
<CAPTION>
                                                                                     Three          Three
                                                                                    Months         Months
                                                                                     Ended          Ended
                                                                                   March 31,      March 31,
                                                                                     2002           2003
--------------------------------------------------------------------------------------------------------------
<S>                                                                              <C>            <C>
Revenue                                                                          $          -   $          -
--------------------------------------------------------------------------------------------------------------

Operating expenses
   Compensation and benefits                                                           37,500         75,000
   Other selling, general and administrative expenses                                  17,139         82,093
   Depreciation and amortization                                                          692         41,979
--------------------------------------------------------------------------------------------------------------

Total operating expenses                                                               55,331        199,072
--------------------------------------------------------------------------------------------------------------

Loss from operations                                                                  (55,331)      (199,072)
--------------------------------------------------------------------------------------------------------------

Other income (expense)
   Interest income                                                                        219             45
   Interest expense                                                                   (29,662)       (39,908)
--------------------------------------------------------------------------------------------------------------
Total                                                                                 (29,443)       (39,863)
--------------------------------------------------------------------------------------------------------------

Net loss                                                                         $    (84,774)  $   (238,935)
==============================================================================================================

Basic and diluted net loss per common share:

   Basic and diluted net loss per common share                                   $      (0.01)  $      (0.03)
--------------------------------------------------------------------------------------------------------------

   Basic and diluted weighted average common shares
      used to compute net loss per common share                                     8,056,912      9,359,303
==============================================================================================================
</TABLE>

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

                                        3

<PAGE>

                                                 Mega Group, Inc. and Subsidiary

                                   Consolidated Statements of Comprehensive Loss
                                                                     (Unaudited)

<TABLE>
<CAPTION>
                                                                               Three          Three
                                                                              Months         Months
                                                                               Ended          Ended
                                                                             March 31,      March 31,
                                                                                2002           2002
-------------------------------------------------------------------------------------------------------
<S>                                                                         <C>            <C>
Net loss                                                                    $  (84,774)    $ (238,935)
-------------------------------------------------------------------------------------------------------

Decrease in unrealized loss on marketable securities, net of tax                    50          1,767
-------------------------------------------------------------------------------------------------------

Other comprehensive income                                                          50          1,767
-------------------------------------------------------------------------------------------------------

Comprehensive loss                                                          $  (84,724)    $ (237,168)
=======================================================================================================
</TABLE>

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

                                        4

<PAGE>

                                                 Mega Group, Inc. and Subsidiary
                                           Consolidated Statements of Cash Flows
                                                                     (Unaudited)

<TABLE>
<CAPTION>
                                                                                     Three Months       Three Months
                                                                                    Ended March 31,    Ended March 31,
                                                                                         2002                2003
----------------------------------------------------------------------------------------------------------------------
<S>                                                                                  <C>                <C>
Cash flows from operating activities
   Net loss                                                                          $    (84,774)      $   (238,935)
   Adjustments to reconcile net loss to net cash used by
       operating activities
       Depreciation and amortization                                                          692             41,979
       Interest paid by shareholder on Company's behalf                                         -                986
       Increase (decrease) in
         Bank overdraft                                                                       897                  -
         Accounts payable and accrued expenses                                              6,586             (1,326)
         Accrued wages                                                                     37,500             58,437
         Accrued interest                                                                  23,005             35,504
----------------------------------------------------------------------------------------------------------------------
Net cash used by operating activities                                                     (16,094)          (103,355)
----------------------------------------------------------------------------------------------------------------------

Cash flows from investing activities
   Purchase of marketable securities                                                         (323)                 -
   Purchase of property and equipment                                                           -               (523)
   Loans made to affiliates, net                                                             (930)              (834)
----------------------------------------------------------------------------------------------------------------------
Net cash used by investing activities                                                      (1,253)            (1,357)
----------------------------------------------------------------------------------------------------------------------

Cash flows from financing activities
   Principal payments on debt                                                             (17,272)           (11,284)
   Debt proceeds                                                                            6,404            114,559
   Advances from stockholder                                                               11,115                  -
----------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities                                                     247            103,275
----------------------------------------------------------------------------------------------------------------------

Net decrease in cash                                                                      (17,100)            (1,437)

Cash - beginning of period                                                                 17,100              4,031
----------------------------------------------------------------------------------------------------------------------

Cash - end of period                                                                 $          -       $      2,594
======================================================================================================================

Supplemental cash flow information
   Actual cash payments for:
       Interest                                                                      $      6,657       $        986
======================================================================================================================
</TABLE>

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

                                        5

<PAGE>

                                                 Mega Group, Inc. and Subsidiary

                               Consolidated Statements of Cash Flows (continued)
                                                                     (Unaudited)

<TABLE>
<CAPTION>
                                                             Three          Three
                                                             Months         Months
                                                          Ended March    Ended March
                                                            31, 2002       31, 2003
------------------------------------------------------------------------------------
<S>                                                       <C>            <C>
Noncash investing and financing activities
  Payment made by shareholder on notes payable on
    behalf of the Company                                 $         -    $    10,300
------------------------------------------------------------------------------------

  Loan financing costs accrued not yet paid               $         -    $    47,500
-------------------------------------------------------------------------------------
</TABLE>

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

                                        6

<PAGE>

                                                 Mega Group, Inc. and Subsidiary

                                      Notes to Consolidated Financial Statements

1.  Nature of        The consolidated financial statements include the accounts
    Business         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
                     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          The consolidated financial statements have been prepared by
    Financial        the Company without audit and are subject to year-end
    Presentation     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,
                     2003 are not necessarily indicative of results to be
                     achieved for the full fiscal year.

                                        7

<PAGE>

                                                 Mega Group, Inc. and Subsidiary

                                      Notes to Consolidated Financial Statements

3.  Notes            In April 2003, the Company obtained an additional loan from
    Payable          Matah for $60,000 and the due date on all of the existing
                     loans was extended until July 15, 2003.

                     These loans are subject to the same terms and conditions as
                     the original Loan and Security Agreement dated July 15,
                     2002, as amended, as disclosed in the Company's 2002 annual
                     financial statements.

4.  Financial        As of March 31, 2003, the Company has a deficiency in
    Condition        stockholders' equity of approximately $2,652,000 and a
                     working capital deficiency of approximately $2,661,000. 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 its acquisition of
                     SBICOA, its president, Steven Gregory, agreed to indemnify
                     the Company, SBICOA, and its 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 its business, including all
                     litigation claims then being asserted against the Company
                     (other than the Adler claim). 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.

                                        8

<PAGE>

                                                 Mega Group, Inc. and Subsidiary

                                      Notes to Consolidated Financial Statements

4.  Financial       The intent of the Company's management is to direct it
    Condition       into new business lines providing  financial services to
    (continued)     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.

                    On May 2, 2002, the Company entered into a non-binding
                    letter of intent with an underwriter to engage in a
                    firm-commitment registered public offering of 1,500,000
                    units, each unit consisting of one share of its common stock
                    and a warrant to purchase one additional share of its common
                    stock, representing 35% of its equity fully diluted, at an
                    offering price currently estimated at $6.00 per unit. The
                    letter of intent is subject to various conditions and to the
                    execution of formal written underwriting documents.

                    Management believes it will be successful in obtaining
                    additional equity and debt financing, but no assurances can
                    be given in this regard.

5.  Related Party   Due to stockholder: The Company owes its president $128,252
    Transactions    at March 31, 2003. 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.

                                        9

<PAGE>

                                                 Mega Group, Inc. and Subsidiary

                                      Notes to Consolidated Financial Statements

6.  Stock           In accounting for stock options to employees, the Company
    Options         follows the intrinsic value method prescribed by Accounting
                    Principles Board Opinion No. 25, Accounting for Stock Issued
                    to Employees, as opposed to the fair value method prescribed
                    by Statement of Financial Accounting Standards No. 123,
                    Accounting for Stock-Based Compensation. The following table
                    illustrates the effect on net income and earnings per share
                    if the Company had applied the fair value recognition
                    provisions of FASB Statement No. 123:

<TABLE>
<CAPTION>
                                                                          Three Months Ended March
                                                                                     31,
                                                                            2002            2003
                                                                         --------------------------
                    <S>                                                  <C>             <C>
                    Net loss, as reported                                $ (84,774)      $ (238,935)
                    Deduct:  Total stock-based employee compensation
                         expense determined under fair value based
                         method for all awards, net of related tax
                         effects                                                 -                -
                    -------------------------------------------------------------------------------

                    Pro-forma net loss                                   $ (84,774)      $ (238,935)
                    -------------------------------------------------------------------------------

                    Earnings per share:
                         Basic and dilutive - as reported                $   (0.01)      $    (0.03)
                    -------------------------------------------------------------------------------

                         Basic and dilutive - pro forma                  $   (0.01)      $    (0.03)
                    -------------------------------------------------------------------------------
</TABLE>

                    This disclosure is in accordance with Statement of
                    Financial Accounting Standards No. 148, Accounting
                    for Stock-Based Compensation - Transition and
                    Disclosure.

                                       10

<PAGE>

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

Results of Operations

     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 past two
years we have been in transition. We discontinued our insurance agency business
and acquired the Small Business Investment Company of America, Inc. ("SBICOA").
Our planned 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.

                                       11

<PAGE>

Business Strategic Planning and Financial Consulting Services

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

     Since October 11, 2000, through SBICOA, we have sustained our operations
substantially through private borrowings. On July 15, 2002, we entered into a
loan and security agreement with Matah Holdings, L.L.C. ("Matah"), a
nonaffiliated lender. The agreement provided us with a working capital facility
under which we had the right to borrow up to $500,000 and as of December 31,
2002 we had borrowed $300,000. In January 2003, the Company obtained an
additional loan from Matah for $100,000 and was granted an extension on the
existing loans to July 15, 2003. The agreement also called for 50,000 shares of
the Company's common stock to be issued to Matah as additional consideration for
the $100,000 loan. The Company has accrued $47,500 of loan financing costs
related to these shares based on their fair market value at the date of the
agreement. The shares were not issued as of March 31, 2003. In April 2003, the
Company obtained an additional loan from Matah for $60,000. These loans are
subject to the same terms and conditions as the original Loan and Security
Agreement dated July 15, 2002, as amended, as disclosed in the Company's 2002
annual financial statements. The borrowings 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.

     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.

     As of March 31, 2003, we had a deficiency in stockholders' equity of
approximately $2,652,000 and a working capital deficiency of approximately
$2,661,000. In addition, we are in default on certain notes payable and other
obligations and are involved in significant litigation involving past business
dealings. On October 11, 2000, as a condition of its acquisition of SBICOA, its
president, Steven Gregory, agreed to indemnify the Company, SBICOA, and its
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 its business,
including all litigation claims then being asserted against the Company (other
than the Herman Adler v. Mega Group, et al., claim described in the "Legal
Proceedings" disclosure in our 10-KSB filed March 7, 2003). 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 its
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.

                                       12

<PAGE>

     The intent of our management is to direct Mega Group into new business
lines providing financial services to currently underserved ethnic minorities
through alliances with churches and other organizations serving those groups. We
intend 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 we can raise
additional equity and financing and achieve profitable operations from new
business activities will determine if we can continue as a going concern.

     On May 2, 2002, we entered into a non-binding letter of intent with an
underwriter to engage in a firm-commitment registered public offering of
1,500,000 units, each unit consisting of one share of its common stock and a
warrant to purchase one additional share of its common stock, representing 35%
of its equity fully diluted, at an offering price currently estimated at $6.00
per unit. The letter of intent is subject to various conditions and to the
execution of formal written underwriting documents.

     Management believes it will be successful in obtaining additional equity
and debt financing, but no assurances can be given in this regard.

Results of Operations

     Three Months Ended March 31, 2003

     During the three months ended March 31, 2003, our cash position increased
from zero at March 31, 2002 to $2,594 at March 31, 2003. During the same three
month period ended March 31, 2003, we realized a net loss of $238,935 after
revenue of zero and ongoing expenses in the total amount of $199,072 and
interest expense in the amount of $39,908. During the three months ended March
31, 2002, we realized a net loss of $84,774 after revenues of $0, ongoing
operating expenses in the total amount of $55,331 and interest expense of
$29,662.

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, particularly during the period in which this interim 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.

                                       13

<PAGE>

                           PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

     We are a respondent in a civil action, for confirmation of an arbitration
award captioned Herman Adler v. Mega Group, Inc., et al., which commenced on
November 15, 1999, in the Supreme Court for the County of Albany, New York. The
petitioner, now deceased, was the former owner of an insurance agency which we
purchased in 1985. He claimed that the Company failed to honor the payment terms
of the agency purchase agreement. On December 15, 1999, an arbitrator rendered,
and on March 7, 2000 the arbitrator modified, an award in favor of the
petitioner and against the Company in the amount of $157,381. On January 8,
2001, the Supreme Court confirmed the arbitration award and entered judgment
against the Company for $168,808 including costs and interest. Judgment was also
entered as against various individuals who had guaranteed the Company's
obligation to petitioner. The judgment creditor restrained the Company from
making any sale, assignment, transfer, or interference with any property in
which the Company has an interest until the judgment is satisfied or vacated.
The awarded amount is included in the current portion of long-term debt and
related costs and interest are included in accounts payable and accrued expenses
on the accompanying March 31, 2003 Balance Sheet.

     We are the defendant in a civil action for money damages, for breach of a
computer financing agreement, captioned First State Bank v. Mega Group, Inc., in
the Supreme Court for the County of Saratoga, New York. On December 14, 2000,
the Supreme Court entered judgment against the Company in the amount of $48,000.
The judgment creditor restrained the Company from making any sale, assignment,
transfer, or interference with any property in which the Company has an interest
until the judgment is satisfied or vacated. The judgment amount is included in
the current portion of long-term debt on the accompanying March 31, 2003 Balance
Sheet.

     We are a defendant in a civil action for money damages captioned Verizon
Yellow Pages v. Mega Group, Inc., which commenced on January 31, 2003, and is
pending in the Supreme Court for the County of Albany, New York. The plaintiff
seeks to recover $20,000 for past due advertisement charges, attorneys fees,
costs and interest. We vigorously dispute the charges, and a motion for summary
judgment has been asserted by the plaintiff.

     We commenced an action on March 13, 2003, against our former counsel,
attorney Stephen Pechenik, and his law firm, Pechenik & Curro, PC, which is
pending in the Supreme Court for the County of Saratoga, New York. In our
complaint, we allege professional malpractice in relation to the entry of
judgment in a matter captioned Halton v. Mega which was litigated in the Supreme
Court for the County of Saratoga, New York, and for certain material
misrepresentations which were made by our former counsel at the time of the sale
of certain of our assets to Mega Personal Lines. The defendants' answer is
anticipated in May 2003, at which time discovery will commence

     We are one of several defendants in a civil action for money damages
captioned Mega Personal Lines, Inc. v Mega Group, Inc., et al., which was
commenced on March 27, 2003. In this action commenced by Mega Personal Lines
("MPL"), as against Mega Group, Inc., Stephen Pechenik and Pechenik & Curro, PC,
MPL seeks to recover based upon material misrepresentations which were made at
the time of the sale of certain Mega Group assets to MPL. The same allegations
of negligent misrepresentation have been made against both Mega Group and its
former counsel. We anticipate filing

                                       14

<PAGE>

an answer which (1) denies any wrongdoing, (2) asserts a counterclaim for unjust
enrichment and (3) cross-claims against co-defendants Steve Pechenik and
Pechenik & Curro, PC for indemnification.

         We are a defendant in other pending lawsuits which, in the view of
management, are not material to the financial statements.

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.

    4.7(2)--Promissory Note, in the Original Unpaid Principal Amount of $60,000,
of Mega Group, Inc. and Small Business Investment Corporation of America, Inc.,
Makers, to Matah Holdings, L.L.C., Payee, dated April 15, 2003.

      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.

      Form 8-K filed on April 4, 2003, Item 5. Other Events.

                                       15

<PAGE>

                                   SIGNATURES

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

Date: May 14, 2003                                    MEGA GROUP, INC.

                                                  By: /s/ JOHN H. BROWN
                                                      --------------------------
                                                      John H. Brown
                                                      Chief Executive Officer


Date: May 14, 2003                                By: /s/ MERRITT C. BROWN
                                                      --------------------------
                                                      Merritt C. Brown
                                                      Chief Financial Officer

                                       16

<PAGE>

                      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: May 14, 2003                                    MEGA GROUP, INC.

                                                  By: /s/ JOHN H. BROWN
                                                      --------------------------
                                                      John H. Brown
                                                      Chief Executive Officer

                                        17

<PAGE>

                      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: May 14, 2003                               By: /s/ MERRITT C. BROWN
                                                     ---------------------------
                                                     Merritt C. Brown
                                                     Chief Financial Officer

                                       18