UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549


FORM
10-KSB


(Mark
One)




xANNUAL REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


For the
Fiscal Year Ended: July 31, 2009


Or


 ̈TRANSITION REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


For the
transition period from ____________ to _____________




MEGOLA,
INC.




(EXACT
NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)




Nevada
            
            88-0492605(STATE
      OR OTHER JURISDICTION
            
            (IRS
      EMPLOYEROF
            
            INDENTIFICATION
      NO. )INCORPORATION
      OR ORGANIZATION)





SEC File
Number: 000-49815





704
      Mara Street, Suite 111Point Edward, ON
            
            N7V 1X4(Address
      of Principal
            
            (Zip
      Code)Executive
      Offices)




Registrant's
telephone number, including area code: Tel: (519) 336-0628












(Address
of Principal Executive Offices) (Zip Code)




Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.




Yes  ̈ No x





Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).





Yes  ̈ No x




APPLICABLE
ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE
YEARS: Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes  ̈ No  ̈




APPLICABLE
ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of
the issuer's classes of common stock, as of the latest practicable date:
33,187,419 at July 31, 2009.





TABLE
OF CONTENTS





PART
      IItem
      1.
                Description
      of Business
                4Item
      2.
                Description
      of Property
                10Item
      3.
                Legal
      Proceedings
                10Item
      4.
                Submission
      of Matters to a Vote of Security Holders
                10PART
      IIItem
      5.
                Market
      for Common Equity and Related Stockholder Matters and Small Business
      Issuer Purchases of Equity Securities
                11Item
      6.
                Selected
      Consolidated Financial Data
                13Item
      7.
                Management’s
      Discussion and Analysis or Plan of Operations
                13Item
      7A
                Quantitative
      and Qualitative Disclosures About Market Risk
                15Item
      8
                Financial
      Statements and Supplementary Data
                16Item
      9.
                Changes
      In and Disagreements with Accountants on Accounting and Financial
      Disclosure
                37Item
      9A(T).
                Controls
      and Procedures
                37Item
      9B.
                Other
      Information
                38PART
      IIIItem
      10.
                Directors,
      Executive Officers, Promoters, Control Persons and Corporate Governance;
      Compliance With Section 16(a) of the Exchange Act
                38Item
      11.
                Executive
      Compensation
                40Item
      12.
                Security
      Ownership of Certain Beneficial Owners and Management and Related
      Stockholder Matters
                41Item
      13.
                Certain
      Relationships and Related Transactions, and Director
      Independence
                42Item
      14.
                Principal
      Accounting Fees and Services
                42PART
      IVItem
      15.
                Exhibits
                43Signatures
                44


2





The
statements contained in this Report that are not historical facts are
“forward-looking statements” within the meaning of the Private Securities
Litigation Reform Act of 1995 with respect to our financial condition, results
of operations and business, which can be identified by the use of
forward-looking terminology, such as “estimates,” “projects,” “plans,”
“believes,” “expects,” “anticipates,” “intends,” or the negative thereof or
other variations thereon, or by discussions of strategy that involve risks and
uncertainties.  Management wishes to caution the reader of the
forward-looking statements that such statements, which are contained in this
Report, reflect our current beliefs with respect to future events and involve
known and unknown risks, uncertainties and other factors, including, but not
limited to, economic, competitive, regulatory, technological, key employee, and
general business factors affecting our operations, markets, growth, services,
products, licenses and other factors discussed in our other filings with the
Securities and Exchange Commission, and that these statements are only estimates
or predictions.  No assurances can be given regarding the achievement
of future results, as actual results may differ materially as a result of risks
facing us, and actual events may differ from the assumptions underlying the
statements that have been made regarding anticipated events.  Factors
that may cause our actual results, performance or achievements, or industry
results, to differ materially from those contemplated by such forward-looking
statements include, without limitation:





 ̈
            The
      availability of additional funds to successfully pursue our business
      plan;


 ̈
            The
      cooperation of industry service partners that have signed agreements with
      us; ̈
            Our
      ability to market our services to current and new customers and generate
      customer demand for our products and services in the geographical areas in
      which we operate;


 ̈
            The
      ability to comply with provisions of our financing
    agreements;


 ̈
            The
      highly competitive nature of our
industry;


 ̈
            Our
      ability to retain key personnel; ̈
            Our
      ability to maintain adequate customer care and manage our churn
      rate;


 ̈
            Our
      ability to maintain, attract and integrate internal management, technical
      information and management information systems; ̈
            Our
      ability to manage rapid growth while maintaining adequate controls and
      procedures;


 ̈
            The
      availability and maintenance of suitable vendor relationships, in a timely
      manner, at reasonable cost;


 ̈
            General
      economic conditions.





These
forward-looking statements are subject to numerous assumptions, risks and
uncertainties that may cause our actual results to be materially different from
any future results expressed or implied by us in those statements.




These
risk factors should be considered in connection with any subsequent written or
oral forward-looking statements that we or persons acting on our behalf may
issue. All written and oral forward looking statements made in connection with
this Report that are attributable to us or persons acting on our behalf are
expressly qualified in their entirety by these cautionary
statements.  Given these uncertainties, we caution investors not to
unduly rely on our forward-looking statements. We do not undertake any
obligation to review or confirm analysts’ expectations or estimates or to
release publicly any revisions to any forward-looking statements to reflect
events or circumstances after the date of this document or to reflect the
occurrence of unanticipated events. Further, the information about our
intentions contained in this document is a statement of our intention as of the
date of this document and is based upon, among other things, the existing
regulatory environment, industry conditions, market conditions and prices, the
economy in general and our assumptions as of such date. We may change our
intentions, at any time and without notice, based upon any changes in such
factors, in our assumptions or otherwise.


3




PART
I




Item
1. BUSINESS DEVELOPMENT





Megola,
Inc. was incorporated in Ontario, Canada on August 28, 2000 as Corporation No.
1375595. It was renamed Megola, Inc. on December 21, 2001. Megola was formed to
sell physical water treatment devices to residential, commercial, industrial and
agricultural end-users in the United States, Canada and other international
locations under a license granted by the German manufacturer, Megola GmbH.
Initial operations and sales began in October 2000.





On
November 26, 2003, Megola was acquired by SuperiorClean, Inc. in a transaction
accounted for as a reverse acquisition. Megola’s stockholders were issued
13,389,591 SuperiorClean shares in exchange for 100% of the outstanding common
and preferred stock of Megola, plus $250,000 in cash and $200,000 in notes
payable. Two major stockholders of SuperiorClean and two other persons then
signed consulting contracts for 1,250,000 common shares. Prior to the merger,
SuperiorClean had no assets or operations. SuperiorClean’s name was later
changed to Megola, Inc.





Our
ScaleGuard Systems products are sold under a license granted by the German
manufacturer, Megola GmbH. Under the terms of our agreement with Megola GmbH, we
are the exclusive distributor of ScaleGuard devices in North America, Mexico,
and Asia excluding India. We may not sell competing devices without the
permission of Megola GmbH. Prices we pay are established by Megola GmbH and may
be changed from time to time at the discretion of Megola GmbH. The agreement has
no termination date, but may be terminated for cause as defined in the
agreement. As of June 30, 2006 we have now independently acquired certain
additional patents used in our products directly from the owners of Megola
GmbH.





For
fiscal year ended July 31, 2009 2% of our revenues were generated from sales of
ScaleGuard products under our agreement with Megola GmbH (Germany).





Business





Our
principal executive offices are located at 704 Mara Street, Suite 111, Point
Edward, Ontario N7V 1X4. Our telephone number is (519) 336-0628.





Our
principal product is our ScaleGuard Systems. Megola’s ScaleGuard technology cost
effectively conditions hard water while also eliminating the historical build-up
of scale caused by hard water in residential, commercial and industrial
applications.





ScaleGuard
units are a one-time capital cost as there are no ongoing chemical additives
required and since the units have no moving parts they are essentially
maintenance free. Cost savings on chemical treatments and the associated labor
make ScaleGuard cost effective. ScaleGuard units use electromagnetic technology
to condition and soften water, both preventing the ongoing build-up of scale and
eliminating historical scale build-up in water delivery systems and machinery.
Rather than attempting to prevent - by removing or adding chemicals - the
natural tendency of hard water to form scale, ScaleGuard treatment actually
assists and encourages scale formation by electronic means. The coils that are
wrapped on the exterior of the water pipe introduce variable, high frequency
magnetic impulses that alter the properties of the water in such a manner that
the scale remains suspended in the water rather than forming on surfaces within
the water system. These suspended crystals of scale will also carry away -
slowly but surely - any scale that already exists in the system.





Due to
excessive scale build-up pipes, showers, bathtubs, water heaters, spas, boilers,
nozzles, valves, heat exchange compressors and other equipment need to be
prematurely replaced. Scale can also reduce water flow and pressure and
negatively impact the ability of heating elements. The advantage of ScaleGuard
is that it can be installed on any pipe material in any home or building and
does not require chemical agents and their associated costs and
dangers.





We also
sell air purification, microbiological control and waste water treatment
products.





Air
issues: Airborne germs that result in asthma, flu and colds





Water
(Microbiological) Issues:


Unsanitary
water may be dangerous due to bacteria, viruses, pathogens such as e-coli,
giardia, cryptosporidium.


4





At July
31, 2009 we had an accumulated deficit of $5,873,775. We had a net loss of
$258,175 in fiscal year 2009. Our independent auditors have indicated that there
is substantial doubt about our ability to continue as a going concern over the
next twelve months.





During
the year ending July 31, 2009 our revenues increased from $36,399 for 2008 to
$116,968 for the year ended July 31, 2009.




PRINCIPAL
PRODUCTS AND SERVICES





Our
principal product is our ScaleGuard Systems. Megola’s ScaleGuard technology cost
effectively conditions hard water while also eliminating the historical build-up
of scale caused by hard water in residential, commercial and industrial
applications. ScaleGuard units use a revolutionary electromagnetic technology to
condition the soften water, both preventing the ongoing build-up of scale and
eliminating historical scale build-up in water delivery systems and
machinery.


Megola,
Inc. is a leading solution provider in physical water treatment, microbiological
control, wastewater treatment and air purification. Our environmentally
friendly, technologically advanced product lines have us positioned at the
forefront of environmental air and water treatment. Our experience in these
fields allows us to provide tailor-made solutions to our clients using the
technology available to us. For more information on Megola products, please go
to www.megola.com.





THE
SCALEGUARD SYSTEM





Description
of ScaleGuard:





Traditionally,
hard water problems - the underlying cause of scale - have been solved with
ion-exchange (salt) water softeners or chemical treatments. These solutions are
often environmentally unfriendly, time-consuming and expensive.





Megola’s
scientists have invented a deceptively simple-looking box containing a
computer-programmable chip that delivers low-voltage, high-frequency magnetic
impulses that can alter the scale-forming properties of water. The company’s
revolutionary solution prevents new scale formation, while eliminating previous
scale build-up.





ScaleGuard is a non-invasive,
physical water treatment device. That is, it does not make any direct contact
with the water, and it neither adds chemicals to nor removes chemicals from the
water.





Due to
the high technological nature of our systems and limited knowledge of the
technical functions by our consumers, Megola, at times, installs systems on
trial basis with prospective industrial customers in an effort to collect data
and prove ScaleGuard’s reliability and success. Megola is confident these trial
installation situations will convert to sales, while increasing product
exposure.





We no
longer offer residential trials. We encourage our dealers to install systems for
their personal use. For commercial and industrial installations we may install
as part of a pilot project with a predetermined time schedule. See following
example:





A
Southwestern Ontario refinery (Suncor) was having a scaling issue with a four
bank tube and shell exchanger. This exchanger was undersized when designed and
needed cleaning every 8-10 weeks as after 10 weeks there was no heat
exchange taking place at all. Megola offered a trial of its ScaleGuard
electronic conditioner for 3 months. The exchanger was cleaned as per its
regular maintenance and the ScaleGuard system
was installed. The operators said they would know within 4 weeks if the
ScaleGuard system
was keeping the exchanger from fouling as the performance of the exchanger
to cool the product was well documented. After 4 weeks there was no loss of
cooling. Normally after an 8 week period this exchanger would lose almost all of
its ability to cool. However with the ScaleGuard system
installed in this exchanger never needed descaling and had only lost one
degree of cooling over the next 21 months (90 weeks). It was approximated that
the refinery saved $60,000 in costs during the time that
the ScaleGuard was in
use. The client purchased the systems.





We have
no retail suggested price, as our dealers offer their own rebates, incentives,
and volume discounts. It is our intention never to undercut our own
dealers.





We are
currently developing a revised business plan to deploy our ScaleGuard devices
through our distribution network throughout the world. We believe that the
increasing data that we have been collecting, and continue to collect on our
systems, and the increasing market exposure we have been getting through our
satisfied customers, can be used as sales tools for our
distributors.


5


ScaleGuard
Models:





We
currently have eight models of ScaleGuard devices, all of which have been used
in trials and sold to customers that have hard water or scale problems. Over the
years, Megola has sold these units all over the world, ranging from residential
applications to large industrial applications. The principal differences between
the eight models, other than cost, are that they are designed to work with
different water flows and pipe sizes.





The final
cost of the individual units may vary, as they may be designed for certain
customers to perform differently based on their specific needs. Also, depending
on the geographic region, some distributors may sell the ScaleGuard products for
more than Megola’s suggested retail price.





ScaleGuard
Models:


TFK


SG


SG100


SG200


SG300


SG400


SG500


SG1000





Manufacturing:





The
ScaleGuard devices were designed and custom manufactured in Germany under the
direction of Megola GmbH. The technology of the product is owned by Megola GmbH
and is protected under intellectual/ software property rights. The units are
pre-assembled in Germany and are then shipped to China where the final assembly
is completed and packaged.





Notable
Installations of our ScaleGuard Systems:





Our
systems have been in operation with various customers with some in operation for
over 6 years. Some of our more notable installations include:




LanXess
              Nova
      Chemicals
              The
      Great Hall of the People (the national assembly of China)
              Mengniu
      Dairy Group
              Runan
      Mu Gong Shan Group
              Zhoushan
      Gang Ming Foodstuff Industries
              Zhong
      Mei Coal Mining Company
              Zhujiang
      Brewery
              Country
      Fresh Dairy
            Tim
      Horton’s
              Kentucky
      Fried Chicken
              Zurn
      Industries
              Royal
      Plastics
              TRW
      Automotive
              Parmalat
              FritoLay
              Honeywell
              DuPont
      Canada
              Colgate
      University





For
fiscal year ended July 31, 2009 2% of our revenues were generated from sales of
ScaleGuard products under our agreement with Megola GmbH (Germany).




AIR
PURFICIATION





AirGuardian
System





The
AirGuardian 1000 is a uniquely engineered, integrated UVC & UVV system
designed to dramatically reduce/control airborne allergens and toxic compounds,
such as mold, fungus, formaldehyde, xylene gases and tobacco smoke along with
infectious agents, such as bacteria, influenza, hemolytic streptococci and many
others. This product is duct-mounted on the central Heating, Ventilation, Air
Conditioning (HVAC) system and, to enhance system effectiveness, is designed to
run continuously with the HVAC system fan in the "on' position. This product is
certified by the American Institute of Toxicology to produce only safe levels of
UVV (ozone) and is available with a UVC only bulb. There are 3 different
AirGuardian models.


(manufactured
in China)


6





AirGuardian
Power Filter





The
AirGuardian Power Filter uses an active electromagnetic field to magnetize both
airborne particles and the fibers of the disposable filter pad. This creates a
virtual "force field" within the ductwork, capturing many of the smallest, most
dangerous to breathe submicron particles. This 1" filter is a very cost
effective and easy to maintain electronic air cleaner and is an essential
component of any air purification system. Under normal operating conditions,
each disposable filter pad remains at peak operating efficiency for about four
months before needing to be replaced.


(manufactured
in USA)





We did
not have any sales for AirGuardian for fiscal year 2009.





Portable
Ozone Systems





Equipment
Master - Sports equipment Deodorizing unit


Room
Blaster - Room Deodorizing unit


Air Care
- Room Air Treatment unit


(all
units manufactured in China)





We did
not have any sales for Ozone Systems for fiscal year 2009.




Microbiological Control and
Waste Water Treatment





Ozone
Treatment Systems





Megola,
Inc. is a North American distributor of ozone treatment systems manufactured by
Dalian Bingshan H203 Solutions Co., Ltd. Utilizing the powerful biocidal
properties of ozone, these systems are an alternative to chemical treatments for
microbiological control.





Applications
include:




 ̈
            Cooling
      towers ̈
            HVAC
      systems ̈
            Drinking
      water (agriculture) ̈
            Surface
      disinfection water




Bioguard
UltraViolet (UV) Water Treatment Systems





Ultraviolet
treatment is the disinfection process of passing water by a special light
source. Immersed in the water in a protective transparent sleeve, the special
light source emits UV waves that can inactivate harmful
microorganisms.





Applications
include:




 ̈
            Disinfection
      of fresh, process, wash, and cooling water ̈
            Disinfection
      and biodegradability improvement of wastewater ̈
            Drinking
      water - POE and POU systems ̈
            Swimming
      pools and ponds ̈
            Medical
      and pharmaceutical industries ̈
            Quality
      control measures ̈
            Vending
      machines (manufactured in China)





We did
not have any sales for Micro-Bio and Waste Water Treatment Systems for fiscal
year 2009.





IonClear
- Copper Ionization Systems





The
IonClear System is an electronic, non-chemical means to disinfect and treat
dirty water. The system is used for killing bacteria, viruses, pathogens &
other coli forms together with the treatment of algae, typically found and/or
associated with the following:




 ̈
            Swimming
      Pools ̈
            Hydrotherapy,
      heated pool & spas ̈
            Ornamental
      water gardens, fountains & ponds ̈
            Water
      storage tanks ̈
            Water
      cooling towers, water cooled heat exchangers, &
      evaporators(manufactured in
China)


7





HARTINDO
LINE OF ANTI-FIRE PRODUCTS




HARTINDO
AF11E




1:1
direct drop-in replacement for both Halon 1301 and 1211




Belonging
to the Halocarbon group of vaporizing liquid fire extinguishing chemicals AF11E
is similar in action to Halon but without any of the environmental or toxicity
problems associated with Halons.




Of all
the Halocarbon alternatives to Halon, AF11E has the lowest overallenvironmental
impact.




In common
with other Halocarbons Hartindo AF11E is:


• Multi
Purpose, effective on A, B, and C class fires


• a Clean
Agent, leaving no residue


• Non
Electrically conductive




Unique
qualities of Hartindo AF11E




•
            Only
      replacement to Halon that can be used as both a total flooding gas as well
      as a streaming agent for use in Portable fire
    extinguishers.




•
            The
      world’s first,and so far only
      proven,1:1
      direct drop-in replacement for HALON
1301.




HARTINDO
AF21




a
      water-based, non-toxic, non-corrosive, fire
  inhibitor




Hartindo
AF21 is a colorless water based solution that is:


•
Non-toxic


•
Non-corrosive


•
Biodegradable


•
Environment friendly





Features:


•
Prevents the spread of fire


•
Eliminates afterglow


• Treated
materials classified Class 0 non-flammable


• Ease of
application (spraying, padding, dipping, brushing or fogging)


• Does
not affect the look, feel, smell or color of the treated items


• Offers
permanent protection from fire once applied





Uses:Suitable for use on
all water absorbent as well as many synthetic fiber materials
including:


•
Curtains


• Carpets
and rugs


•
Upholstery fabrics


•
Mattresses


• Porous
wall coverings / Partitions


• Exposed
wood surfaces prior to all decorative surface treatments


•
Corks


• Dried
flowers


• Soft
toys


•
Polypropylene backed carpets


• 100%
polyester


• Paper /
Cardboard





Standards
and Approvals:


Hartindo
AF21 meets all international standards including British Standards (BTTG WIRA
& LPC tested to Civil Aviation Authority CAA, UK); US Regulations (tested to
Federal Aviation Administration - FAA, USA); SISIR (Singapore); SIRIM (Malaysia)
and BPPT (Indonesia).


8





Testing/Certifications;




 ̈
            ASTM
      E84 (CLASS A) – surface burning characteristics of building
      materials ̈
            ASTM
      E84 (with Bluwood) (CLASS A) – various types of wood products – Douglas
      Fir, Southern Yellow Pine (SYP), SPF, plywood, etc... ̈
            16
      CFR 1633 – open flame mattress flammability test ̈
            ASTM
      D 3201 – Hygroscopicity Test(compared to Dricon (pressure-treated
      wood)) ̈
            NFPA
      701- vertical burn test; flame propagation of textiles ̈
            NFPA
      2112 – flame resistance for protection of industrial personnel against
      flash fires




HARTINDO
AF31




a
multi-purpose, water-based, non-toxic, non-corrosive and environmentally
friendly fire extinguishing and inhibiting agent





Hartindo
AF31 is


• an
"Environment Friendly" non Ozone Depleting Substance.


• Water
based, biodegradable and non toxic.


• Clean,
requires no specialized clean up procedures.


•
Effective in portable form on all classes of fire (Class A, B, C, D and
F/K)


• Easy to
use with it's fast knockdown.


• Able to
render objects non-flammable, preventing re-ignition.


• Able to
be delivered by conventional water or foam dispersal systems.


•
Suitable for use in all water or foam tenders without modification.


• Able to
provide rapid extinction of fire with no reignition creating a safe escape route
for rescue.


• Most
effective media for creating fire breaks when fighting forest fire.


•
Suitable for training purposes




Hartindo
AF31 eliminates all worries and dangers when fighting reactive fires such as
metal, coal, car tire dumps and deep pan oil fires.




Testing/Certifications;





 ̈
            ASTM
      E84 (CLASS A) – Surface burning characteristics of building materials (to
      show inhibition of reignition on Class A fires and potential as a fire
      inhibitor ̈
            Aquatic
      toxicity ̈
            Standard
      toxicity (mammalian) – oral, dermal, eye irritation (prerequisites for
      NFPA approvals)




Titan 21 Fire
Blanket




100%
cotton blanket that protects from flash fires as well as direct fire
attack




The Titan
21 Fire Blanket can protect people from fire and can also be used to blanket,
and extinguish, the fire source. It is ideal for houses, offices, hospitals,
hotels, buses, ships, nightclubs, etc. Unlike synthetic fire blankets, that are
designed to only withstand flash fire, the 100% cotton Titan 21 Fire Blanket
protects from flash fires as well as DIRECT FIRE attack over
1000°C.




Testing/Certifications;




 ̈
            NFPA
      701 – flame propagation of textiles ̈
            NFPA
      2112 – flame resistant garments for protection of industrial personnel
      against flash fire ̈
            International
      Standard BS 476 Part 6 & Part 7: Class 0 (LPC BRE UK, SIRIM Malaysia
      and BOMBA Malaysia)




DECTAN


a
water-based, environmentally friendly rust converter and priming
agent




DECTAN is
a complex mixture of a Vinyl Acrylic Copolymer and Tannic Acid. When used to
treat corroded steel and iron surfaces, it neutralizes the corrosion process by
converting the rust into a blueblack metallo-organic complex which passivates
the surfaces. It has been tested and certified as fit for use for the carriage
of grain and can also be used in sensitive foodstuff areas.


9





DECTAN
can also be applied to non-finished wooden structures as a priming agent and may
be coated when cured with any conventional paint using brush, roller or
spray.




DECTAN
resists spillage to a wide range of corrosive chemicals including strong acids,
alkalis, aliphatic solvents, alcohols, glycols, petrol, crude oil and diesel
oil. It is designed for application by spray and brush and dries to the touch in
as little as 10 minutes to two hours depending on temperature, humidity and air
movement.




Testing/Certifications;




 ̈
            ASTM
      B117 – continuous salt-spray test




For
fiscal year ended July 31, 2009 98% of our revenues were generated from sales of
Hartindo Fire Products.





Employees





We
currently have 5 full-time employees and 1 part-time employee.





Item
2. DESCRIPTION OF PROPERTY





Our
principal executive offices are located at 704 Mara Street, Suite 111, Point
Edward, Ontario N7V 1X4. We lease this 2,600 square foot facility at a rental of
$3,867 per month for a five-year term ending August 1, 2013. This facility
consists of an office and administration area. To the extent that we require
additional space in the near future, we believe that we will be able to secure
additional leased facilities at commercially reasonable rates.





Our
telephone number at the above location is 519-336-0628.





We do not
intend to renovate, improve, or develop properties. We have no policy with
respect to investments in real estate or interests in real estate and no policy
with respect to investments in real estate mortgages. Further, we have no policy
with respect to investments in securities of or interests in persons primarily
engaged in real estate activities.





Item
3. LEGAL PROCEEDINGS





We are
not currently involved in any legal proceedings nor do we have knowledge of any
threatened litigation.




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





None


10





PART
II





Item
5. Market for Common Equity and Related Stockholder Matters and Small Business
Issuer Purchases of Equity Securities





Market
for Securities





Our
common stock currently trades on The Pink Sheets under the symbol
MGOA.   The high and low closing price for each quarterly period of
our last two fiscal years is listed below:




High
                      
                      
                      LowFiscal 20081st  Quarter
                      
                      $
                      0.05
                      
                      
                      $
                      0.032nd
      Quarter
                      
                      
                      0.07
                      
                      
                      
                      0.033rd
      Quarter
                      
                      
                      0.07
                      
                      
                      
                      0.044th
      Quarter
                      
                      
                      0.05
                      
                      
                      
                      0.03Fiscal 20091st  Quarter
                      
                      $
                      0.05
                      
                      
                      $
                      0.022nd
      Quarter
                      
                      
                      0.05
                      
                      
                      
                      0.023rd
      Quarter
                      
                      
                      0.05
                      
                      
                      
                      0.014th
      Quarter
                      
                      
                      0.05
                      
                      
                      
                      0.02





*
            The
      quotations reflect inter-dealer prices, without mark-up, mark-down or
      commission and may not represent actual
  transactions.





Unregistered
sales of common stock





Not
applicable





Reclassification





Certain
amounts presented at July 31, 2008 have been reclassified to conform to
presentation at July 31, 2009.





Penny Stock
Considerations





Our
shares will be "penny stocks" as that term is generally defined in the
Securities Exchange Act of 1934 to mean equity securities with a price of less
than $5.00. Our shares thus will be subject to rules that impose sales practice
and disclosure requirements on broker-dealers who engage in certain transactions
involving a penny stock.





Under the
penny stock regulations, a broker-dealer selling a penny stock to anyone other
than an established customer or accredited investor must make a special
suitability determination regarding the purchaser and must receive the
purchaser's written consent to the transaction prior to the sale, unless the
broker-dealer is otherwise exempt. Generally, an individual with a net worth in
excess of $1,000,000 or annual income exceeding $100,000 individually or
$300,000 together with his or her spouse is considered an accredited investor.
In addition, under the penny stock regulations the broker-dealer is required
to:





*
            Deliver,
      prior to any transaction involving a penny stock, a disclosure schedule
      prepared by the Securities and Exchange Commissions relating to the penny
      stock market, unless the broker-dealer or the transaction is otherwise
      exempt;*
            Disclose
      commissions payable to the broker-dealer and our registered
      representatives and current bid and offer quotations for the
      securities;*
            Send
      monthly statements disclosing recent price information pertaining to the
      penny stock held in a customer's account, the account's value and
      information regarding the limited market in penny stocks;
    and*
            Make
      a special written determination that the penny stock is a suitable
      investment for the purchaser and receive the purchaser's written agreement
      to the transaction, prior to conducting any penny stock transaction in the
      customer's account.





Because
of these regulations, broker-dealers may encounter difficulties in their attempt
to sell shares of our common stock, which may affect the ability of selling
stockholders or other holders to sell their shares in the secondary market and
have the effect of reducing the level of trading activity in the secondary
market. These additional sales practice and disclosure requirements could impede
the sale of our securities, if our securities become publicly traded. In
addition, the liquidity for our securities may be decreased, with a
corresponding decrease in the price of our securities. Our shares in all
probability will be subject to such penny stock rules and our stockholders will,
in all likelihood, find it difficult to sell their securities.


11





Holders


As of
July 31, 2009, we had 109 holders of record of our common stock.





Dividends





We have
not declared any cash dividends on our common stock since our inception and do
not anticipate paying such dividends in the foreseeable future. We plan to
retain any future earnings for use in our business. Any decisions as to future
payments of dividends will depend on our earnings and financial position and
such other facts, as the board of directors deems relevant.





Reports
to Stockholders





We have
become subject to the information and reporting requirements of the Securities
Exchange Act of 1934 and will file periodic reports, proxy statements and other
information with the Securities and Exchange Commission. We intend to
voluntarily send an annual report with audited consolidated financial statements
to our security holders.





Where You
Can Find Additional Information





For
further information about us and the shares of common stock registered
hereunder, please refer to the registration statement and the exhibits and
schedules thereto. The registration statement and exhibits may be inspected,
without charge, and copies may be obtained at prescribed rates, at the SEC's
Public Reference Room at 100F. St., N.E., Washington, D.C. 20549. The public may
obtain information on the operation of the Public Reference Room by calling the
SEC at 1-800-SEC-0330. The registration statement and other information filed
with the SEC are also available at a web site maintained by the SEC at http://www.sec.gov.


12




Item
6.  Selected Consolidated Financial Data





Not
required.





Item
7. Management's Discussion and Analysis or Plan of Operation.





Management’s
Discussion and Analysis of Financial Condition and Results of
Operations





This
Annual Report contains forward-looking statements about Megola, Inc.'s (the
Company” or “Megola”) business, financial condition and prospects that reflect
management's assumptions and beliefs based on information currently available.
We can give no assurance that the expectations indicated by such forward-looking
statements will be realized. If any of our management's assumptions should prove
incorrect, or if any of the risks and uncertainties underlying such expectations
should materialize, Megola's actual results may differ materially from those
indicated by the forward-looking statements.





The key
factors that are not within our control and that may have a direct bearing on
operating results include, but are not limited to, acceptance of our services,
our ability to expand our customer base, management’s ability to raise capital
in the future, the retention of key employees and changes in the regulation of
our industry.





There may
be other risks and circumstances that management may be unable to predict. When
used in this Annual Report, words such as, "believes," "expects," "intends,"
"plans," "anticipates," "estimates" and similar expressions are intended to
identify forward-looking statements, as defined in Section 21E of the Securities
Exchange Act of 1934, although there may be certain forward-looking statements
not accompanied by such expressions.





The safe
harbors of forward-looking statements provided by Section 21E of the Exchange
Act are unavailable to issuers of penny stock. As we issued securities at a
price below $5.00 per share, our shares are considered penny stock and such safe
harbors set forth under the Reform Act are unavailable to us.





Special
Information Regarding Forward Looking Statements





Some of
the statements in this report are “forward-looking statements.” These
forward-looking statements involve certain known and unknown risks,
uncertainties and other factors which may cause our actual results, performance
or achievements to be materially different from any future results, performance
or achievements expressed or implied by these forward-looking statements. These
factors include, among others, the factors set forth above under “Risk Factors.”
The words “believe,” “expect,” “anticipate,” “intend,” “plan,” and similar
expressions identify forward-looking statements. We caution you not to place
undue reliance on these forward-looking statements. We undertake no obligation
to update and revise any forward-looking statements or to publicly announce the
result of any revisions to any of the forward-looking statements in this
document to reflect any future or developments. However, the Private Securities
Litigation Reform Act of 1995 is not available to us as a penny stock issuer and
thus we may not rely on the statutory safe harbor from liability for
forward-looking statements.





Overview





Megola,
Inc. is committed to solving environmental problems without the use of harsh
chemicals that, in the long run, can have deleterious effects on company budgets
and our environment. Megola, Inc. is the exclusive worldwide distributor for
Megola GmbH, a German company that designs and manufactures the ScaleGuard
series of physical water treatment equipment. Megola, Inc. has created a
distribution network throughout the world.





Since the
introduction of the ScaleGuard line of physical water treatment products, Megola
has identified the need for a more comprehensive approach to
environmentally-friendly water treatment. Now, five years later, Megola has
obtained rights to market and distribute technologically advanced products for
the industrial, commercial, residential and agricultural
markets.


13





Current
Results of Operations and Financial Status





Results
of Operations:





Our
revenues are difficult to forecast and may vary significantly from quarter to
quarter and year to year. In addition, our expense levels for each quarter are,
to a significant extent, fixed in advance based upon our expectation as to the
net revenues to be generated during that quarter. We therefore are generally
unable to adjust spending in a timely manner to compensate for any unexpected
shortfall in net revenues. Further, as a result of these factors, any delay in
product introductions, whether due to internal delays or delays caused by third
party difficulties, or any significant shortfall in demand in relation to our
expectations, would have an almost immediate adverse impact on our operating
results and on ability to maintain profitability in a quarter.





Comparison
of the year ended July 31, 2009 with the year ended July 31, 2008.





During
the year ending July 31, 2009 our revenues increased from $36,399 for 2008 to
$116,968 for the year ended July 31, 2009, an increase of 221.34% over the prior
year. Our revenues for the year ended July 31, 2009 vs. year ended July 31, 2008
increased due to a royalty payment based on a North American Distribution
Agreement.





Cost of
sales consists of direct manufacturing costs and applied overhead expenses for
our cost of raw materials to manufacture the ScaleGuard, Hartindo and other
systems. Cost of sales decreased to $23,216 and, as a percentage of revenues,
decreased to 19.84% in the year ended July 31, 2009, as compared to $32,592 and
89.54% of revenue for the year ended July 31, 2008. The overall decrease in the
cost of sales during 2009 is due to decrease costs of raw material acquisition
and product manufacturing. In note 3(k) we indicated a reduction to inventory
during the year-end July 31, 2007. Even though these items have been slow to
move, they are still salable and there is little concern with obsolescence.
Future product sales of these slow moving items will have no corresponding cost
of sales due to the reduction entered above. During the year ended July 31,
2009, $400,000 (2008-$nil) of our revenues were generated from royalties based
on a North American Distribution Agreement. When royalty payments are received,
we do not incur any cost of sales.





General
and administrative (operating) expenses increased 39.33% to $723,502 during 2009
from $519,259 in 2008. The overall increase in general and administrative
(operating) expenses is due to stock warrants and consulting fees that aided in
our product expansion and sales.





Interest
expense increased 27.91% in 2009 to $23,960 from $18,732 in 2008, because of the
Company's increased interest on stockholder loans during the year.  As
of Q3, all stockholder interest owing, along with all outstanding stockholder
debt was converted into Preferred “B” stock. (see note 8)





Accumulated
other comprehensive loss increased 19,537.26% in 2009 to $92.327 from $475,
which is directly attributable to the foreign currency translation
adjustment.




Net
Income (Loss)





For the
reasons outlined above, we realized a net loss of $258,175 for the year ended
July 31, 2009 as compared to a net loss of $536,875 for the year ended July 31,
2008, a decrease of 51.91%.


2009
                  
                  
                  2008REVENUESales
                  
                  $
                  116,968
                  
                  
                  $
                  36,399Royalty
                  
                  
                  400,000
                  
                  
                  
                  -Total
      Revenue
                  
                  
                  516,968
                  
                  
                  
                  36,399COST
      OF SALES
                  
                  
                  23,216
                  
                  
                  
                  32,592SELLING
      and GENERAL ADMINISTRATIVE
                  
                  
                  723,502
                  
                  
                  
                  519,259DEPRECIATION
      and AMORTIZATION
                  
                  
                  4,465
                  
                  
                  
                  2,691INTEREST
                  
                  
                  23,960
                  
                  
                  
                  18,732Total
      Expenses
                  
                  
                  751,927
                  
                  
                  
                  540,682NET
      LOSS
                  
                  $
                  (258,175
                  )
                  
                  $
                  (536,875
                  )


14





ROYALTY
INCOME:





One of
the company's manufacturers also sells certain Megola products directly
throughout Asia. By agreement, Megola is entitled to a royalty payment for each
of these units. Megola recognizes royalty revenue upon fulfillment of its
contractual obligations and upon sale by the manufacturer of royalty-bearing
products.





On
January 19, 2009 the Company entered into a Distributorship, Sales Agency and
Royalty Agreement with Vulcan Technologies LLC.  Vulcan is granted
exclusive distribution and sales rights for the Hartindo line of anti-fire
products in Canada and Mexico as well as co-exclusive rights similarly in the
United States for the Railroad Industry for a ten year term.  Megola
receives payments as follows.  A payment of $400,000 within five days of
the execution of the Agreement (funds have been received) and an additional
$350,000 due 90 days following the date of this Agreement, provided that, under
various existing contracts, Megola has purchased no less than 100,000 gallons of
Hartindo AF21 in its fully diluted form.


Vulcan
will also pay a commission payment of 25% of Vulcan’s profits on products sold
by any party in the Railroad Industry.  They also commit to generating no
less than $3 million on or before the second anniversary of the Agreement. 
They also commit to a 15% increase in gross sales for each year
thereafter.





Liquidity
and Capital Resources




The
consolidated financial statements as of and for the year ending July 31, 2009
have been prepared assuming we continue as a going concern.




At July
31, 2009, we had an accumulated deficit of $5,873,775.




Cash and
cash equivalents at July 31, 2009 were $nil and $nil at July 31, 2008. Our
inventory increased for the same period from $51,429 to $241,023 or
368.65%;




Megola is
also pursuing other financial resources to augment its cash requirements for
retirement of debt, expansion of operations and acquisition of suitable
companies and products.





Our
success and ongoing financial viability is contingent upon its selling of our
products and the related generation of cash flows. We evaluate our liquidity and
capital needs on a continuous basis and based on our requirements and capital
market conditions may, from time to time, raise working capital through
additional debt or equity financing. There is no assurance that such financing
will be available in the future to meet our additional capital needs, or that
any such terms or conditions of any such financing would be favorable to us.
Both our current growth and expanded business involve significant financial risk
and require significant capital investment.





One
customer accounted for 70% of sales in 2009. One customer accounted for 61% of
sales in 2008. One vendor accounted for 99% of cost of goods sold in 2009. One
vendor accounted for 100% of cost of goods sold in 2008.





Our
ability to continue as a going concern is dependent on our ability to raise
funds to implement our planned development; however we may not be able to raise
sufficient funds to do so. Our independent auditors have indicated that here is
substantial doubt about our ability to continue as a going concern over the next
twelve months. Our poor financial condition could inhibit our ability to achieve
our business plan. Because we are currently operating at a substantial loss, an
investor cannot determine if we will ever become profitable.





In order
to become profitable, we will still need to secure additional debt or equity
funding. We hope to be able to raise additional funds from an offering of our
stock in the future. However, this offering may not occur, or if it occurs, may
not raise the required funding. There are no preliminary or definitive
agreements or understandings with any party for such financing. We cannot
predict when, if ever, that will happen.




Item
7A.  Quantitative and Qualitative Disclosures About Market
Risk





Not
required.


15




Item
8.  Financial Statements and Supplementary Data.





REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM





To The
Shareholders and Board of Directors of Megola, Inc.





We
have audited the accompanying consolidated balance sheets of Megola, Inc. (the
“Company”) as of July 31, 2009 and the related consolidated statements of
operations, changes in consolidated Shareholders’ equity and cash flows for the
year ended July 31, 2009. These consolidated financial statements are the
responsibility of the Company’s management.  Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.





We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States).  Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provided a reasonable basis for our opinion.





In
our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Megola, Inc. as of
July 31, 2009, and the results of its operations and its cash flows for the
years ended July 31, 2009, in conformity with accounting principles generally
accepted in the United States.





The
accompanying financial statements referred to above have been prepared assuming
that the Company will continue as a going concern.  As discussed in
note 2 to the consolidated financial statements, the continuance of the Company
is dependent on its future profitability and the ongoing support of its
stockholders, affiliates and creditors.  Management’s plans as to
these matters are also described in Note 2.  The financial statements
do not include any adjustments that might result from the outcome of this
uncertainty.




Jewett,
      Schwartz, Wolfe & Associates/s/Jewett, Schwartz, Wolfe &
      AssociatesHollywood,
      FloridaNovember
      25, 2009


16





REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM





To the
Shareholders of Megola, Inc.




We have
audited the consolidated balance sheets of Megola, Inc. (the “Company”) as at
July 31, 2008 and 2007 and the related consolidated statements of operations and
comprehensive loss, changes in stockholders’ equity and cash flows for the years
then ended. These consolidated financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.





We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall consolidated financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.





The
Company is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audit included consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Company’s internal control
over financial reporting. Accordingly, we express no such opinion.





In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of the Company as of July 31,
2008 and 2007 and the consolidated results of its operations and its cash flows
for the years then ended in accordance with generally accepted accounting
principles in the United States of America.





The
accompanying consolidated financial statements have been prepared assuming that
the Company will continue as a going concern. As discussed in note 2 to the
consolidated financial statements, the continuance of the Company is dependent
on its future profitability and the ongoing support of its stockholders,
affiliates and creditors. This raises substantial doubt about its ability to
continue as a going concern. The consolidated financial statements do not
include any adjustments that might result from the outcome of this
uncertainty.





Since the
accompanying consolidated financial statements have not been prepared in
accordance with generally accepted accounting principles and standards in
Canada, they may not satisfy the reporting requirements of Canadian statutes and
regulations.





“SCHWARTZ
      LEVITSKY FELDMAN LLP”Toronto,
      Ontario, CanadaMay
      1, 2009
              Chartered
      AccountantsLicensed
      Public Accountants


17





MEGOLA,
INC.


CONSOLIDATED
BALANCE SHEETS


(Amounts
expressed in US dollars)





July 31,
                                
                                
                                July 31,2009
                                
                                
                                2008(Audited)
                                
                                
                                (Audited)ASSETSCash
                                
                                $
                                -
                                
                                
                                $
                                -Inventory
                                
                                
                                241,023
                                
                                
                                
                                51,429Prepaid
      expenses
                                
                                
                                41,482
                                
                                
                                
                                113Total
      Current Assets
                                
                                
                                282,504
                                
                                
                                
                                51,542Long-term
      receivable - (note 16)
                                
                                
                                128,754
                                
                                
                                
                                116,872Intangible
      asset (note 4)
                                
                                
                                1,350,000
                                
                                
                                
                                1,350,000Property
      and equipment, net of accumulated depreciation of $38,461
      (2008-$30,381)(note 5)
                                
                                
                                12,424
                                
                                
                                
                                5,558TOTAL
      ASSETS
                                
                                $
                                1,773,682
                                
                                
                                $
                                1,523,972LIABILITIESBank
      overdraft
                                
                                $
                                74,737
                                
                                
                                $
                                1,291Accrued
      expenses - (note 7)
                                
                                
                                76,393
                                
                                
                                
                                99,356Accounts
      payable
                                
                                
                                45,822
                                
                                
                                
                                57,577Accrued
      interest
                                
                                
                                25,821
                                
                                
                                
                                25,821Advances
      from stockholders
                                
                                
                                -
                                
                                
                                
                                386,284Total
      Current Liabilities
                                
                                
                                222,773
                                
                                
                                
                                570,329Note
      payable (note 6)
                                
                                
                                -
                                
                                
                                
                                585,670Total
      Liabilities
                                
                                
                                222,773
                                
                                
                                
                                1,155,999Commitments
      and Contingencies
                                
                                
                                -
                                
                                
                                
                                -STOCKHOLDERS'
      EQUITYCapital
      stock: (note 8)Common,
      $0.001 par value; 200,000,000 shares authorized,33,187,419
      and 78,486,029 issued and outstanding in 2009 and 2008
      respectively
                                
                                
                                33,187
                                
                                
                                
                                78,486Preferred
      "A", $0.001 par value; 3,500,000 shares authorized,1,911,940
      and $nil issued and outstanding in 2009 and 2008
    respectively
                                
                                
                                1,912
                                
                                
                                
                                -Preferred
      "B", $0.001 par value; 1,500,000 shares authorized,137,885
      and $nil issued and outstanding in 2009 and 2008
    respectively
                                
                                
                                138
                                
                                
                                
                                -Additional
      paid in capital (note 8)
                                
                                
                                7,481,774
                                
                                
                                
                                5,904,612Deficit
                                
                                
                                (5,873,775
                                )
                                
                                
                                (5,615,600
                                )Accumulated
      other comprehensive loss:Foreign
      currency translation adjustment
                                
                                
                                (92,327
                                )
                                
                                
                                475Total
      Stockholders' Equity
                                
                                
                                1,550,909
                                
                                
                                
                                367,973TOTAL
      LIABILITIES AND STOCKHOLDERS' EQUITY
                                
                                
                                1,773,682
                                
                                
                                
                                1,523,972





See
accompanying notes to audited consolidated financial statements


18


MEGOLA,
INC.


CONSOLIDATED
STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS


(Amounts
expressed in US dollars)





Year Ended
                
                
                Year EndedJuly 31,
                
                
                July 31,2009
                
                
                2008Income
      - sales
                
                $
                116,968
                
                
                $
                36,399Cost
      of sales
                
                
                23,216
                
                
                
                32,592GROSS
      PROFIT (LOSS)
                
                
                93,752
                
                
                
                3,807Income
      - royalties (note 12)
                
                
                400,000
                
                
                
                -493,752
                
                
                
                3,807General
      and administrative
                
                
                723,502
                
                
                
                519,259Depreciation
                
                
                4,465
                
                
                
                2,691Interest
                
                
                23,960
                
                
                
                18,732TOTAL
      EXPENSES
                
                
                751,927
                
                
                
                540,682NET
      LOSS
                
                
                (258,175
                )
                
                
                (536,875
                )Foreign
      currency translation adjustment
                
                
                (92,802
                )
                
                
                3,377COMPREHENSIVE
      LOSS
                
                $
                (350,977
                )
                
                $
                (533,498
                )Weighted
      average common shares outstanding
                
                
                74,867,404
                
                
                
                77,253,152Loss
      per share - basic and diluted
                
                
                (0.003
                )
                
                
                (0.007
                )





See
accompanying notes to audited consolidated financial statements


19





MEGOLA,
INC.


CONSOLIDATED
STATEMENTS OF CASH FLOWS


(Amounts
expressed in US dollars)





YEAR ENDEDJuly 31, 2009
                
                
                July 31, 2008CASH
      FLOWS FROM OPERATING ACTIVITIESNet
      loss for the period
                
                
                (258,175
                )
                
                
                (536,875
                )Adjustments
      to reconcile net loss to net cash used in operating activities (note
      11)
                
                
                (98,803
                )
                
                
                63,281(356,978
                )
                
                
                (473,594
                )CASH
      FLOWS FROM FINANCING ACTIVITESIncrease
      in bank indebtedness
                
                
                73,446
                
                
                
                1,291Advances
      from stockholders
                
                
                336,112
                
                
                
                88,843Increase
      in notes payable
                
                
                -
                
                
                
                344,850Principal
      payments on notes payable
                
                
                (134,051
                )
                
                
                -Cash
      flows from financing activities
                
                
                275,507
                
                
                
                434,984CASH
      FLOWS FROM INVESTING ACTIVITESPurchase
      of property and equipment
                
                
                (11,331
                )
                
                
                -Cash
      flows from investing activities
                
                
                (11,331
                )
                
                
                -EFFECT
      OF EXCHANGE RATE CHANGES ON CASH
                
                
                92,802
                
                
                
                5,950NET
      INCREASE (DECREASE) IN CASH FOR THE YEAR
                
                
                0
                
                
                
                (32,660
                )NET
      CASH, beginning of year
                
                
                0
                
                
                
                32,660NET
      CASH, end of year
                
                
                -
                
                
                
                -SUPPLEMENTAL
      CASH FLOW INFORMATIONInterest
      paidIncome
      taxes paidNONCASH
      INVESTING AND FINANCING ACTIVITIES:Conversion
      of debt into preferred stock
                
                
                1,378,850Issuance
      of stock for services rendered
                
                
                75,000





See
accompanying notes to audited interim consolidated financial
statements


20





Megola,
Inc.


CONSOLIDATED
INTERIM STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY) - audited


(Amounts
expressed in US dollars)





Common
      Stock
                                                          
                                                          
                                                          Preferred
      Stock Series "A"
                                                          
                                                          
                                                          Preferred
      Stock Series "B"Shares
                                                          
                                                          
                                                          Amount
                                                          
                                                          
                                                          Shares
                                                          
                                                          
                                                          Amount
                                                          
                                                          
                                                          Shares
                                                          
                                                          
                                                          AmountBalances,
      July 31, 2007
                                                          
                                                          
                                                          48,486,029
                                                          
                                                          
                                                          $
                                                          48,486
                                                          
                                                          
                                                          
                                                          -
                                                          
                                                          
                                                          $
                                                          -
                                                          
                                                          
                                                          
                                                          -
                                                          
                                                          
                                                          $
                                                          -Stock
      for Distribution Rights
                                                          
                                                          
                                                          30,000,000
                                                          
                                                          
                                                          
                                                          30,000
                                                          
                                                          
                                                          
                                                          -
                                                          
                                                          
                                                          
                                                          -
                                                          
                                                          
                                                          
                                                          -
                                                          
                                                          
                                                          
                                                          -Net
      Loss
                                                          
                                                          
                                                          -
                                                          
                                                          
                                                          
                                                          -
                                                          
                                                          
                                                          
                                                          -
                                                          
                                                          
                                                          
                                                          -
                                                          
                                                          
                                                          
                                                          -
                                                          
                                                          
                                                          
                                                          -Foreign
      CurrencyTranslation
      Adjustment
                                                          
                                                          
                                                          -
                                                          
                                                          
                                                          
                                                          -
                                                          
                                                          
                                                          
                                                          -
                                                          
                                                          
                                                          
                                                          -
                                                          
                                                          
                                                          
                                                          -
                                                          
                                                          
                                                          
                                                          -Balances,
      July 31, 2008
                                                          
                                                          
                                                          78,486,029
                                                          
                                                          
                                                          $
                                                          78,486
                                                          
                                                          
                                                          
                                                          -
                                                          
                                                          
                                                          $
                                                          -
                                                          
                                                          
                                                          
                                                          -
                                                          
                                                          
                                                          $
                                                          -Stock
      for services
                                                          
                                                          
                                                          2,500,000
                                                          
                                                          
                                                          
                                                          2,500
                                                          
                                                          
                                                          
                                                          -
                                                          
                                                          
                                                          
                                                          -
                                                          
                                                          
                                                          
                                                          -
                                                          
                                                          
                                                          
                                                          -Common
      converted to Preferred "A"
                                                          
                                                          
                                                          (47,798,610
                                                          )
                                                          
                                                          
                                                          (47,799
                                                          )
                                                          
                                                          
                                                          1,911,940
                                                          
                                                          
                                                          
                                                          1,912Debt
      converted to Preferred "B"
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          -
                                                          
                                                          
                                                          
                                                          -
                                                          
                                                          
                                                          
                                                          137,885
                                                          
                                                          
                                                          
                                                          138Stock
      WarrantsNet
      Loss
                                                          
                                                          
                                                          -
                                                          
                                                          
                                                          
                                                          -
                                                          
                                                          
                                                          
                                                          -
                                                          
                                                          
                                                          
                                                          -
                                                          
                                                          
                                                          
                                                          -
                                                          
                                                          
                                                          
                                                          -Foreign
      CurrencyTranslation
      Adjustment
                                                          
                                                          
                                                          -
                                                          
                                                          
                                                          
                                                          -
                                                          
                                                          
                                                          
                                                          -
                                                          
                                                          
                                                          
                                                          -
                                                          
                                                          
                                                          
                                                          -
                                                          
                                                          
                                                          
                                                          -Balances,
      July 31, 2009
                                                          
                                                          
                                                          33,187,419
                                                          
                                                          
                                                          $
                                                          33,187
                                                          
                                                          
                                                          
                                                          1,911,940
                                                          
                                                          
                                                          $
                                                          1,912
                                                          
                                                          
                                                          
                                                          137,885
                                                          
                                                          
                                                          $
                                                          138Accumulated
      Other
                                                          
                                                          
                                                          AdditionalComprehensive
                                                          
                                                          
                                                          Paid
      In
                                                          
                                                          
                                                          AccumulatedIncome
      (Loss)
                                                          
                                                          
                                                          Capital
                                                          
                                                          
                                                          Deficit
                                                          
                                                          
                                                          TotalsBalances,
      July 31, 2007
                                                          
                                                          
                                                          (2,902
                                                          )
                                                          
                                                          $
                                                          5,934,612
                                                          
                                                          
                                                          $
                                                          (5,078,725
                                                          )
                                                          
                                                          
                                                          901,471Stock
      for Distribution Rights
                                                          
                                                          
                                                          -
                                                          
                                                          
                                                          
                                                          (30,000
                                                          )
                                                          
                                                          
                                                          -
                                                          
                                                          
                                                          
                                                          -Net
      Loss
                                                          
                                                          
                                                          -
                                                          
                                                          
                                                          
                                                          -
                                                          
                                                          
                                                          
                                                          (536,875
                                                          )
                                                          
                                                          
                                                          (536,875
                                                          )Foreign
      CurrencyTranslation
      Adjustment
                                                          
                                                          
                                                          3,377
                                                          
                                                          
                                                          
                                                          -
                                                          
                                                          
                                                          
                                                          -
                                                          
                                                          
                                                          
                                                          3,377Balances,
      July 31, 2008
                                                          
                                                          
                                                          475
                                                          
                                                          
                                                          $
                                                          5,904,612
                                                          
                                                          
                                                          $
                                                          (5,615,600
                                                          )
                                                          
                                                          $
                                                          367,973Stock
      for services
                                                          
                                                          
                                                          -
                                                          
                                                          
                                                          
                                                          72,500
                                                          
                                                          
                                                          
                                                          -
                                                          
                                                          
                                                          
                                                          75,000Common
      converted to Preferred "A"
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          45,887
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          -Debt
      converted to Preferred "B"
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          1,378,712
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          1,378,850Stock
      Warrants
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          80,063
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          80,063Net
      Loss
                                                          
                                                          
                                                          -
                                                          
                                                          
                                                          
                                                          -
                                                          
                                                          
                                                          
                                                          (258,175
                                                          )
                                                          
                                                          
                                                          (258,175
                                                          )Foreign
      CurrencyTranslation
      Adjustment
                                                          
                                                          
                                                          (92,802
                                                          )
                                                          
                                                          
                                                          -
                                                          
                                                          
                                                          
                                                          -
                                                          
                                                          
                                                          
                                                          (92,802
                                                          )Balances,
      July 31, 2009
                                                          
                                                          
                                                          (92,327
                                                          )
                                                          
                                                          $
                                                          7,481,774
                                                          
                                                          
                                                          $
                                                          (5,873,775
                                                          )
                                                          
                                                          $
                                                          1,550,909





See
accompanying notes to audited interim consolidated financial
statements


21





MEGOLA,
INC.


Notes
to Consolidated Financial Statements for the Years ended July 31, 2009 and
2008


(Amounts
expressed in US dollars)





1.
            NATURE
      OF BUSINESS


Megola,
Inc. ("Megola" or "the Company") was incorporated in Ontario, Canada on
August 28, 2000. Megola was formed to sell physical water treatment devices
to a wide range of end-users in the United States, Canada and internationally
under a license granted by Megola GmbH in Germany.


The
Company presently distributes the following product lines: physical
water treatment; water filtration; air purification; microbiological
control; waste water treatment and fire safety.





2.
            GOING
      CONCERN


These
consolidated financial statements have been prepared on a going concern basis
which contemplates the realization of assets and the payment of liabilities in
the ordinary course of business. As shown in the accompanying consolidated
financial statements, Megola incurred recurring net losses of $258,175 and
$536,875 in the 2009 and 2008 fiscal years respectively, has negative cash
flows from operations and a deficit of $5,873,775 as at July 31, 2009. These
conditions create an uncertainty as to Megola's ability to continue as a going
concern. At present, the Company does not have sufficient resources to fund its
current working capital requirements. The Company's financing plans include
obtaining additional capital through various debt and/or equity financing
arrangements to service its current working capital requirements; any additional
or unforeseen obligations and to fund the implementation of future
opportunities. Should the Company be unable to continue as a going concern, it
may be unable to realize the carrying value of its assets and to meet its
liabilities as they become due. These consolidated financial statements do not
include any adjustments for this uncertainty.


Management
has undertaken the following initiatives that it believes will be instrumental
in leading to better management of cash flows and more profitable
operations:


•
 Outsourcing of much of the manufacturing activities has been established
along with appropriate analysis ensuring cost competitiveness to minimize
capital outlay and provide for rapid potential growth in production
levels


•
 Establishment of policies and procedures for production processes to
ensure timely delivery of product to distribution groups and
customers


•
 Established relationships with Distribution groups that can provide the
necessary expertise in commercialization of the Company’s entire product line to
ensure maximum market penetration


• Signing
of Definitive Sales and Agency Agreements, pertaining to the distribution
rights, that have purchase/sale order requirements expected to generate
substantial sales in the next five years


•
 Requirement for cash deposit with sales orders to minimize drain on
working capital





3.
            SUMMARY
      OF SIGNIFICANT ACCOUNTING POLICIES


(a) Basis
of presentation


These
consolidated financial statements are presented in U.S. dollars and have
been prepared by management in accordance with accounting principles
generally accepted in the United States of America ("US GAAP") and the
rules of the Securities Exchange Commission ("SEC").





(b)
Principles of consolidation


The
Company's consolidated financial statements include the accounts of Megola and
its wholly owned subsidiary. All significant intercompany balances and
transactions have been eliminated on consolidation.





(c) Use
of estimates


The
preparation of the consolidated financial statements in conformity with US GAAP
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and the disclosure of contingent assets
and liabilities at the date of the financial statements, and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from these estimates. Significant estimates are comprised of
depreciation, accrued expenses, impairment of intangible asset, and
recoverability of deferred tax asset. These consolidated financial statements
have, in management’s opinion, been properly prepared within reasonable
limits of materiality and within the framework of the accounting policies
summarized in these consolidated financial statements.


22





MEGOLA,
INC.


NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS


FOR
THE YEARS ENDED JULY 31, 2009 and 2008


(AMOUNTS
EXPRESSED IN U.S. DOLLARS)





3.
            SUMMARY
      OF SIGNIFICANT ACCOUNTING POLICIES
(continued)





(d)
Foreign currency translation


Megola
determined that its functional currency is the Canadian Dollar as substantially
all of its operations are in Canada. Megola’s reporting currency is U.S.
dollars. Transactions and balances originally denominated in U.S. dollars are
presented at their original amounts. Transactions and balances in other
currencies are converted into U.S. dollars in accordance with SFAS No. 52,
Foreign Currency Translation, and are included in determining net income or
loss. For foreign operations with the local currency as the functional currency,
assets and liabilities are translated from the local currencies into U.S.
dollars at the exchange rate prevailing at the balance sheet date. Revenues and
expenses are translated at weighted average exchange rates for the period to
approximate translation at the exchange rates prevailing at the dates those
elements are recognized in the consolidated financial statements. Translation
adjustments resulting from the process of translating the local currency
consolidated financial statements into U.S. dollars are included in determining
comprehensive loss. As of July 31, 2009, the exchange rate for the Canadian
Dollar was $1.00 U.S. for $1.08 Canadian (2008 - $1.00 U.S. for $1.02). The
annual average exchange rate for the 2009 fiscal year was $1.00 U.S. for $1.18
(2008 - $1.00 U.S. for $1.00). The Canadian economy weakened considerably in
relation to the U.S. during the fiscal year of 2009, and as a result currency
fluctuations have affected Megola's operations. In the future, inflation rates
and the devaluation or valuation of the Canadian Dollar in relation to the U.S.
dollar may have significant effects on Megola's consolidated financial
statements. During the year-ended July 31, 2009 the company incurred an
aggregated foreign currency translation loss of $92,327.





(e) Cash
equivalents


For the
purposes of the Consolidated Statement of Cash Flows, the Company considers
all highly liquid investments purchased with an original maturity of 90
days or less to be cash equivalents.





(f)
Revenue recognition


Revenue
is recognized when it is realized or realizable and earned. Megola considers
revenue realized or realizable and earned when persuasive evidence of an
arrangement exists, services have been provided, and collectability is
reasonably assured. In the case of exclusive agreements with distributors,
finished goods are shipped directly FOB manufacturer/point of assembly. Megola
offers no independent warranty and refers any warranty claims to the
manufacturer for products it sells. Therefore, Megola recognizes revenue under
these agreements when the goods are shipped. Megola recognizes royalty revenue
as the Company is informed that such payments are due.





(g)
Shipping and Handling


Megola
provides all customers the option of having product delivered or making their
own shipping arrangements. All shipping and handling costs are disclosed in the
pricing estimate. Megola contacts its primary shipping facility for shipping
costs at the time orders are received and provides to customer in the pricing
estimate.





(h)
Intangible assets


Intangible
assets include distribution rights acquired from an independent party.
Intangible assets with an indefinite life are not amortized.
Indefinite-lived intangible assets are tested for impairment annually and will
be tested for impairment between annual tests if an event occurs or
circumstances change that would indicate that the carrying amount may be
impaired. An impairment loss is recognized when the carrying amount of an
asset exceeds the estimated undiscounted cash flows used in determining the
fair value of the asset. At year end the management has performed an impairment
analysis and determined that an impairment allowance is not required. The amount
of the impairment loss to be recorded is calculated by the excess of the
asset’s carrying value over its fair value. Fair value is generally determined
using a discounted cash flow analysis.


23


MEGOLA,
INC.


NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS


FOR
THE YEARS ENDED JULY 31, 2009 and 2008


(AMOUNTS
EXPRESSED IN U.S. DOLLARS)





3.
            SUMMARY
      OF SIGNIFICANT ACCOUNTING POLICIES
(continued)





(i)
Financial Instruments




Fair
Value


The
Company’s financial instruments consist of long-term receivable, bank
overdraft, accrued expenses, accounts payable and accrued interest. The fair
value of bank overdraft, accrued expenses, accounts payable and accrued interest
approximates their carrying amount given short period to receipt or payment
of cash. The fair value of long-term receivable is disclosed in note 17. It is
management’s opinion that the Company is not exposed to any significant
interest rate or credit risks arising from these financial
instruments.





Foreign
Currency Risk


The
company is exposed to currency risks due to potential variation of the
currencies in which it operates.


Principal
currencies include the United States dollar and Canadian Dollar. The company
monitors the foreign currency exposure regularly to minimize the foreign
currency risk exposure.





Liquidity
Risk
 The
company is exposed to liquidity risk as its continued operations are dependant
upon obtaining additional capital to satisfy its liabilities as they come
due.





(j)
Allowance for doubtful accounts


Megola
does not require collateral from its customers with respect to accounts
receivable but performs periodic credit evaluations of such customers’ financial
conditions. Megola determines any required allowance by considering a number of
factors including lengths of time accounts receivable are past due and Megola’s
previous loss history. Megola provides reserves for accounts receivable when
they become uncollectible, and payments subsequently received on such
receivables are credited to the allowance for doubtful accounts. Megola requires
payment in full for most orders, which minimizes collection requirements.
Certain customers are able to provide us with a deposit of 50% up front with the
balance due on shipping. Our standard procedures related to any delayed payments
are to follow up within 10 days with a friendly reminder phone call and a letter
in 30 days. After 60 days, we will have a letter drafted by our lawyer go out
demanding payment in full along with any outstanding interest charges. Failure
to make payment in the next 15 days will result in the account being forwarded
to a collection agency for recovery. Receivables will be classified as doubtful
after 120 days and written off as Bad Debt. Interest charges will start to
accumulate on the 30th day
following the Invoice for any unpaid balances at a rate of 18% per annum
calculated daily.


As of
July 31, 2009 and 2008, Megola had $nil and $nil respectively as an allowance
for doubtful accounts.







(k)
Inventory


Inventory
is valued at the lower of cost (determined on a first -in, first-out method) and
net realizable value. Megola records provisions to write down its inventory for
estimated obsolescence or unmarketable inventory equal to the difference between
cost of the inventory and its estimated net realizable value based on
assumptions about future market demand and market conditions. If future demand
or market conditions are less favorable than currently expected, additional
inventory provisions may be required. During the fiscal years ended July 31,
2009 and 2008 impairment expense was $nil and $nil, respectively related to
inventory impairments. In the year ending July 31, 2007, included in the
impairment expense is $245,032 for slow moving products. These products are in
good condition and are still expected to be sold.





(l)
Property and equipment


Property
and equipment are stated on the basis of historical cost less
accumulated depreciation. Depreciation is provided using the straight-line
method over the estimated useful lives of the assets, which range from 3 to
7 years. Depreciation expense for the years ended July 31, 2009 and 2008 was
$4,465 and $2,691, respectively. Depreciation of property and equipment acquired
and disposed of during the year is recorded at one half of the indicated
rates.


24


MEGOLA,
INC.
 NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED JULY 31, 2009 and 2008
 (AMOUNTS
EXPRESSED IN U.S. DOLLARS)
 
 3.
              SUMMARY
      OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
 
 (m)
Impairment of long-lived assets
 
 Long-lived assets other than intangible assets require the recognition of
an impairment loss whenever it is indicated that an asset may be impaired and
the future cash flows from that asset are less than the asset’s carrying
value.
  (n)
Comprehensive income (loss)
 
 The
Company has adopted SFAS No. 130 Reporting Comprehensive Income. This
standard requires companies to disclose comprehensive income (loss) in
their consolidated financial statements. In addition to items included in
net income, comprehensive income (loss) includes items currently charged or
credited directly to stockholders’ deficiency, such as foreign
currency translation adjustments.
 
 (o)
Concentration of credit risk
 
 SFAS No.
105, "Disclosure of Information about Financial Instruments with
Off-Balance Sheet Risk and Financial Instruments with Concentration of
Credit Risk", requires disclosure of any significant off-balance sheet risk
and credit risk concentration. The Company does not have significant
off-balance sheet risk or credit concentration.
 
 (p)
Income taxes
 
 Megola
accounts for income taxes under Statement of Financial Accounting Standards
No. 109, "Accounting for Income Taxes.". Under Statement 109, deferred tax
assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying
amounts of existing assets and liabilities and their respective tax basis.
Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. Under
Statement 109, the effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date. There was no current or deferred income tax expense
or benefits for the period ending July 31, 2009 and 2008.
 
 (q) Net
earnings (loss) per common share
 
 Basic
loss per share is calculated by dividing the loss for the year by the weighted
average number of common shares outstanding during the year. Diluted loss
per share is computed using the treasury stock method. Under this method,
the diluted weighted average number of shares is calculated assuming the
proceeds that arise from the exercise of stock options and other dilutive
instruments are used to repurchase the Company’s shares at their weighted
average market price for the period.
 
 (r)
Share-based compensation
 
 The
Company has adopted the requirements of FASB Statement of
Financial Accounting Standards No. 123(R), “Share-Based Payments", and
Staff Accounting Bulletin No. 107, or SAB 107, "Share-Based Payments".
These pronouncements require that the fair value method of accounting be
applied to all share-based compensation payments to both employees and
non-employees respectively.
 
 The fair
value method of accounting is used to account for share based payments granted
to directors, officers, employees and others whereby the fair value of
share based payments granted is recorded as an expense in the consolidated
financial statements. The expense is based on the estimated fair value at
the time of the grant and recognized over any vesting
period.
  25
 
 MEGOLA,
INC.
 NOTES
TO THE CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED JULY 31, 2009 and 2008
 (AMOUNTS
EXPRESSED IN U.S. DOLLARS)
 
 3.
              SUMMARY
      OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
 
 The fair
value of share based payments granted to employees and non-employees is
determined using the Black-Scholes option pricing model.
 
 (s)
Recent accounting pronouncements
 
 Accounting Standards Codification
and the Hierarchy of Generally Accepted Accounting
Principles
 
 In June
2009, the Financial Accounting Standards Board issued Statement “FASB” issued
Statement No. 168, “The FASB Accounting Standards Codification and the Hierarchy
of Generally Accepted Accounting Principles” (“SFAS No. 168”).  SFAS No.
168 will become the single source of authoritative nongovernmental U.S.
generally accepted accounting principles (“GAAP”), superseding existing FASB,
American Institute of Certified Public Accountants (“AICPA”), Emerging Issues
Task Force (“EITF”), and related accounting literature.  SFAS No. 168
reorganizes the thousands of GAAP pronouncements into roughly 90 accounting
topics and displays them using a consistent structure.  Also included is
relevant Securities and Exchange Commission guidance organized using the same
topical structure in separate sections.  SFAS No. 168 will be effective for
financial statements issued for reporting periods that end after September 15,
2009.  This statement will have an impact on the Company’s financial
statements since all future references to authoritative accounting literature
will be references in accordance with SFAS No. 168.
  Subsequent
Events
  In May
2009, the FASB issued SFAS No. 165, “Subsequent Events”. This Statement
establishes general standards of accounting for and disclosures of events that
occur after the balance sheet date but before financial statements are issued or
are available to be issued.  It requires the disclosure of the date through
which an entity has evaluated subsequent events and the basis for that date and
is effective for interim and annual periods ending after June 15, 2009. 
The adoption of SFAS No. 165 is not expected to have a material impact on the
Company’s financial statements.
 
 Determining
Fair Value When the Volume and Level of Activity for the Asset or Liability Have
Significantly Decreased and Identifying Transactions That Are Not
Orderly
 
 In April
2009, the FASB issued FSP FAS No. 157-4, “Determining Fair Value When the Volume
and Level of Activity for the Asset or Liability Have Significantly Decreased
and Identifying Transactions That Are Not Orderly". This FSP provides additional
guidance for estimating fair value in accordance with FASB Statement No. 157,
Fair Value Measurements, when the volume and level of activity for the asset or
liability have significantly decreased. This FSP also includes guidance on
identifying circumstances that indicate a transaction is not orderly. FSP FAS
No. 157-4 is effective for interim and annual reporting periods ending after
June 15, 2009, and shall be applied prospectively.  The implementation of
FSP FAS No. 157-4 did not have a material on the Company’s financial position
and results of operations.
 
 Recognition
and Presentation of Other-Than-Temporary Impairments
 
 In April
2009, the FASB issued FSP FAS No. 115-2 and FAS No. 124-2, “Recognition and
Presentation of Other-Than-Temporary Impairments ". The objective of an
other-than-temporary impairment analysis under existing U.S. generally accepted
accounting principles (GAAP) is to determine whether the holder of an investment
in a debt or equity security for which changes in fair value are not regularly
recognized in earnings (such as securities classified as held-to-maturity or
available-for-sale) should recognize a loss in earnings when the investment is
impaired. An investment is impaired if the fair value of the investment is less
than its amortized cost basis. FSP FAS No. 115-2 and FAS No. 124-2 is effective
for interim and annual reporting periods ending after June 15, 2009, with early
adoption permitted for periods ending after March 15, 2009. Earlier adoption for
periods ending before March 15, 2009, is not permitted.  The implementation
of FSP FAS No. 115-2 and FAS No. 124-2 did not have a material impact on the
Company’s financial position and results of operations.
  26
 
 MEGOLA,
INC.
 NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
 FOR THE YEARS ENDED JULY 31, 2009 and
2008
 (AMOUNTS
EXPRESSED IN U.S. DOLLARS)
 
 (r)
Recent accounting pronouncements (con’t)
  Interim
Disclosures about Fair Value of Financial Instruments
  In April
2009, the FASB issued FSP FAS No. 107-1 and APB No. 28-1, “Interim Disclosures
about Fair Value of Financial Instruments". This FSP amends SFAS No. 107, Disclosures about Fair Value of
Financial Instruments,to require disclosures about fair value of
financialinstruments for interim
reporting periods of publicly traded companies as well as in annualfinancial statements.
This FSP also amends APB Opinion No. 28, Interim Financial Reporting,to require those disclosures in summarized financial information at
interim reporting periods. FSP FAS No. 107-1 is effective for interim reporting
periods ending after June 15, 2009, with early adoption permitted for periods
ending after March 15, 2009.  The implementation of FSP FAS No. 107-1 did
not have a material impact on the Company’s financial position and results of
operations
  Interim
Disclosure about Fair Value of Financial Instruments
  In April
2009, the FASB issued FASB Staff Position “FSP” No. SFAS 107-1 and APB 28-1,
“Interim Disclosures about Fair Value of Financial Instruments”.  This FSP
amends SFAS No. 107 to require disclosures about fair values of financial
instruments for interim reporting periods as well as in annual financial
statements.  The FSP also amends Accounting Principles Board Opinions “APB
Opinion” No. 28 to require those disclosures in summarized financial information
at interim reporting periods.  This FSP becomes effective for interim
reporting periods ending after June 15, 2009, with early adoption permitted for
periods ending after March 15, 2009.  The adoption of this FSP is not
expected to have a material impact on our consolidated financial
statements.
 
 Amendments
to the Impairment Guidance of EITF Issue No. 99-20
 
 In
January 2009, the FASB issued FSP Emerging Issues Task Force ("EITF") Issue No.
99-20-1, “Amendments to the Impairment Guidance of EITF Issue No. 99-20". This
FSP amends the impairment guidance in EITF Issue No. 99-20, “Recognition of
Interest Income and Impairment on Purchased Beneficial Interests and Beneficial
Interests That Continue to Be Held by a Transferor in Securitized Financial
Assets,” to achieve more consistent determination of whether an
other-than-temporary impairment has occurred. The FSP also retains and
emphasizes the objective of an otherthan- temporary impairment assessment and
the related disclosure requirements in FASB Statement No. 115, Accounting for Certain Investments
in Debt and Equity Securities,and other related guidance. This Issue is
effective for interim and annual reporting periods ending after December 15,
2008, and shall be applied prospectively. Retrospective application to a prior
interim or annual reporting period is not permitted. The adoption of FSP EITF
99-20-1 did not have a material effect on the Company’s consolidated financial
statements
 
 Accounting
for Own-Share Lending Arrangements in Contemplation of Convertible Debt Issuance
or Other Financing
 
 In June
2009, the FASB issued FSP Emerging Issues Task Force ("EITF") Issue No. 09-1,
“Accounting for Own-Share Lending Arrangements in Contemplation of Convertible
Debt Issuance or Other Financing”. This Issue is effective for fiscal years
beginning on or after December 15, 2009, and interim periods within those fiscal
years for arrangements outstanding as of the beginning of those fiscal years.
Share lending arrangements that have been terminated as a result of counterparty
default prior to the effective date of this Issue but for which the entity has
not reached a final settlement as of the effective date are within the scope of
this Issue. This Issue requires retrospective application for all arrangements
outstanding as of the beginning of fiscal years beginning on or after December
15, 2009. This Issue is effective for arrangements entered into on or after the
beginning of the first reporting period that begins on or after June 15, 2009.
Early adoption is not permitted. The Company is currently assessing the impact
of FSP EITF 09-1 on its financial position and results of
operations.
  27
 
 MEGOLA,
INC.
 NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
 FOR THE YEARS ENDED JULY 31, 2009 and
2008
 (AMOUNTS
EXPRESSED IN U.S. DOLLARS)
 
 (r)
Recent accounting pronouncements (con’t)
  Determining
the Fair Value of a Financial Asset When the Market for That Asset is Not
Active
  In
October 2008, the FASB issued FSP FAS No. 157-3, “Determining the Fair Value of
a Financial Asset When the Market for That Asset is Not Active.”  This FSP
clarifies the application of SFAS No. 157, “Fair Value Measurements,” in a
market that is not active.  The FSP also provides examples for determining
the fair value of a financial asset when the market for that financial asset is
not active.  FSP FAS No. 157-3 was effective upon issuance, including prior
periods for which financial statements have not been issued.  The impact of
adoption was not material to the Company’s consolidated financial condition or
results of operations.
  The
Hierarchy of Generally Accepted Accounting Principles
 
 In May
2008, the FASB issued SFAS No. 162, "The Hierarchy of Generally Accepted
Accounting Principles.”  SFAS No. 162 identifies the sources of accounting
principles and the framework for selecting the principles used in the
preparation of financial statements.  SFAS No. 162 is effective 60 days
following the SEC's approval of the Public Company Accounting Oversight Board
amendments to AU Section 411, "The Meaning of Present Fairly in Conformity with
Generally Accepted Accounting Principles".  The implementation of this
standard will not have a material impact on the Company's consolidated financial
position and results of operations.
 
 Determination
of the Useful Life of Intangible Assets
 
 In April
2008, the FASB issued FSP FAS No. 142-3, “Determination of the Useful Life of
Intangible Assets”, which amends the factors that should be considered in
developing renewal or extension assumptions used to determine the useful life of
intangible assets under SFAS No. 142 “Goodwill and Other Intangible
Assets”.  The intent of this FSP is to improve the consistency between the
useful life of a recognized intangible asset under SFAS No. 142 and the period
of the expected cash flows used to measure the fair value of the asset under
SFAS No. 141 (revised 2007) “Business Combinations” and other U.S. generally
accepted accounting principles.    The implementation of FSP FAS No.
142-3 is not expected to have a material impact on its consolidated financial
statements.
 
 Disclosure
about Derivative Instruments and Hedging Activities
 
 In March
2008, the FASB issued SFAS No. 161, “Disclosure about Derivative
Instruments and Hedging Activities, an amendment of SFAS No.
133.” This statement requires that objectives for using derivative instruments
be disclosed in terms of underlying risk and accounting designation. The Company
was required to adopt SFAS No. 161 on January 1, 2009. The adoption of SFAS
No.161 on January 1, 2009 did not have a material effect on the Company’s
consolidated financial statements
 
 Fair
Value Option for Financial Assets and Financial Liabilities
  In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
Financial Assets and Financial Liabilities – Including an amendment of SFAS No.
115,” which becomes effective on February 1, 2008, permits companies to choose
to measure many financial instruments and certain other items at fair value and
report unrealized gains and losses in earnings. Such accounting is optional and
is generally to be applied instrument by instrument. The election of this
fair-value option did not have a material effect on its consolidated financial
condition, results of operations, cash flows or disclosures.
  28
 
 MEGOLA,
INC.
 NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
 FOR THE YEARS ENDED JULY 31, 2009 and
2008
 (AMOUNTS
EXPRESSED IN U.S. DOLLARS)
 
 (r)
Recent accounting pronouncements (con’t)
  Fair
Value Measurements
  In
September 2006, the FASB No. 157, “Fair Value Measurements” (“SFAS No. 157”).
SFAS No. 157 defines fair value, establishes a framework for measuring fair
value in accordance with generally accepted accounting principles and expands
disclosures about fair value investments. SFAS No. 157 was effective for
financial assets and liabilities on January 1, 2008. The statement deferred the
implementation of the provisions of SFAS No. 157 relating to certain
non-financial assets and liabilities until January 1, 2009. The adoption of SFAS
No.157 on January 1, 2009 for financial assets and liabilities did not have a
material effect on the Company’s consolidated financial statements.
 
 4.
              INTANGIBLE
      ASSET
 DISTRIBUTION
      RIGHTS
 
 In
January 2007, the Company acquired exclusive rights to establish a distribution
network for the Hartindo line of fire safety products (“Hartindo”) from
Pacific Channel Ltd. (“PCL”), an unrelated party. These rights were acquired for
$1,350,000 to be paid by the issuance of 30,000,000 common shares of the
Company and are considered to have an indefinite life.
 
 Per terms
of the distribution agreement, for each contract the company enters into, the
following applies:
 
 50% of
all up-front fees received by the Company and 50% of all other forms of
consideration received by the Company as a one-time payment for the grant of the
distribution license shall be paid to PCL and 50% shall be retained by
Megola
 
 All
payments are to be made quarterly within 30 days of the end each calendar
quarter.
 
 This
agreement, as amended subsequent to year-end, shall remain in full force and
effect so long as the Company and its Hartindo dealers, sub-agents and/or sales
representatives (the “Megola Group”) purchase Hartindo products in the aggregate
amounts specified below, namely:
 
 (a)
              If
      in the period up to January 2010, the Megola Group purchases, in the
      aggregate, a minimum of US $200,000 Hartindo Products, the distribution
      agreement shall be extended until January 31, 2011;
  and
 
 (b)
              If
      in the period up to January 31, 2011, the Megola Group purchases, in the
      aggregate, a minimum of US $300,000 Hartindo products, the distribution
      agreement shall be extended until January 31, 2012;
  and
 
 (c)
              If
      in the period up to January 31, 2012, the Megola Group purchases, in the
      aggregate, a minimum of US $400,000 Hartindo products, the distribution
      agreement shall be extended until January 31, 2013;
  and
 
 (d)
              If
      in the period up to January 31, 2013, the Megola Group purchases, in the
      aggregate, a minimum of US $500,000 Hartindo products, the distribution
      agreement shall be extended until January 31, 2014;
  and
 
 (e)
              If
      in the period up to January 31, 2014, the Megola Group purchases, in the
      aggregate, a minimum of US $750,000 Hartindo products, the distribution
      agreement shall be extended for 25 years from January 31, 2014, or for
      such longer period as the Company retains the Hartindo product marketing
      rights for Canada, without any further performance conditions to be
      met.
  29
 
 MEGOLA,
INC.
 NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
 FOR THE YEARS ENDED JULY 31, 2009 and
2008
 (AMOUNTS
EXPRESSED IN U.S. DOLLARS)
 
 4.
              INTANGIBLE
      ASSET (continued)
 DISTRIBUTION
      RIGHTS (continued)
 
 The
Company shall deliver to PCL on or before the end of February in each and every
year, a statement showing the aggregate Hartindo purchases made by the Megola
Group in the 12 month period ended January 31 in the prior year.
 
 Failure
to meet any of the above conditions shall give PCL the right to terminate the
distribution agreement by a written notice to the company with the agreement
remaining in force until all payments owing by one party to another have been
made.  In December 2008, the sales/performance quotas in the agreement with
PCL have been moved forward starting January 31, 2010.
 
 5.
              PROPERTY
      AND EQUIPMENT
 
 2009
                    
                    
                    2008Cost
                    
                    
                    Accumulated
                      Depreciation
                    
                    
                    Net
                    
                    
                    Net$
                    
                    
                    $
                    
                    
                    $
                    
                    
                    $Sports
      Ozone Machines
                    
                    
                    16,000
                    
                    
                    
                    13,126
                    
                    
                    
                    2,874
                    
                    
                    
                    5,142Office
      Furniture and Equipment
                    
                    
                    31,846
                    
                    
                    
                    22,296
                    
                    
                    
                    9,550
                    
                    
                    
                    416$
                    47,846
                    
                    
                    $
                    35,422
                    
                    
                    $
                    12,424
                    
                    
                    $
                    5,558
 
 Amortization
for the year amounted to $4,465 ($2,691 in 2008).
 
 6.
              NOTE
      PAYABLE
 
 Megola,
FireStop USA, LLC ("FSU"), an unrelated party, and Pacific Channel Ltd. ("PCL")
have agreed that FSU will loan $250,000 to Megola under a note payable and
security agreement. FSU specified that no interest on the loan will be due if
the loan is repaid in full within six months. Any amounts owing after six months
will be subject to interest at 15% per annum. As security for the loan, Megola
pledged a first priority interest in the U.S. manufacturing rights for the
Hartindo line of products.  No interest has been accrued or paid on the
loan for the year ended July 31, 2008.
 On March
1, 2008, FSU assigned the loan to PCL with modifications as follows: the
security pledge to FSU was voided; the due date was extended to December 31,
2009 per agreement; PCL reserved the right to further extend the due date and
interest-free period at their sole discretion.
 On October 22, 2007,Megola signed a note and security
agreement with PCL to obtain additional funding in the amount of $292,980.
Megola, upon receipt of the loan, will incur no interest should the loan be
repaid after specified time period. Any amounts still owing after the period,
unless such date is extended by PCL, will be subject to a 15% rate of interest.
 The due
date on the entire amounts loaned will be December 31, 2009.
 As
security for the loan, Megola has pledged to PCL the right to revoke Megola’s
Licensing Agreement to the Hartindo line of products. No interest has been
accrued or paid on the loan for the year ended July 31, 2008.
 During
the year, PCL assumed several vendor invoices on behalf of the company in the
amount of $42,690.  The amount is non-interest bearing and PCL waived their
right to demand payment before January 1, 2010.  PCL reserved the right to
further extend the due date and interest-free period at their sole
discretion.  The amount of imputed interest for the year ended July 31,
2008 is not material.
 
 On April
30, 2009, Megola satisfied this entire note by issuing Preferred B stock in
exchange for the debt.
  30
 
 MEGOLA,
INC.
 NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
 FOR THE YEARS ENDED JULY 31, 2009 and
2008
 (AMOUNTS
EXPRESSED IN U.S. DOLLARS)
 
 7.
              ACCRUED
      EXPENSES
 
 The
composition of accrued expenses is as follows:
 
 2009
                            
                            
                            2008Accrued
      Payroll Liabilities
                            
                            
                            50,393
                            
                            
                            
                            60,865Other
                            
                            
                            26,000
                            
                            
                            
                            38,491Total
      accrued liabilities
                            
                            $
                            76,393
                            
                            
                            $
                            99,356
 
 8.
              CAPITAL
      STOCK AND ADDITIONAL PAID IN
CAPITAL
 
 (a)
Common stock
 Common
stock ($.001 par value per share): 200,000,000 shares are authorized, with
33,187,419 shares issued and outstanding at July 31, 2009 and 78,486,029 at July
31, 2008.
 On August
14, 2008, Megola issued 1,000,000 restricted shares of its common stock, for
consulting fees, to Matthew Sacco, valued at $30,000.
 On August
14, 2008, Megola issued 1,500,000 restricted shares of its common stock, for
consulting fees, to Regal Capital Partners LLC (RCP), valued at
$45,000.
 On June
15, 2009, 47,798,610 common shares were tendered for conversion into the
company’s series “A” convertible Preferred Stock. (see note 8(e))
 The
shareholder of each common share is entitled to one vote.  Megola’s common
stock currently has no additional
 rights or
privileges.
 
 (b)
Additional paid in capital
 Additional
paid in capital increased $1,577,162 due to the company issuing common stock for
services (see note 8(a)), issuing Preferred “B” for debt (see note 8(d)), common
stock being converted to Preferred “A” (see note 8(e)), and stock warrants
attached to Preferred “A” offer.
 
 (c) The
Company has a Stock Incentive Plan for employees and consultants.  There
were no shares issued under the plan during the year ending July 31,
2009.
 
 (d)
Preferred “B”
 On April
30, 2009, Megola issued 1,378,850 shares of its Preferred B stock.  The
stock was issued in return for various existing loans, advances and future lease
payments on one of its existing building leases.
 On April
24 2009, Megola offered to exchange selected Debt for shares of a newly created
Series B Convertible Preferred Stock, priced at $10.00 per share. The holders of
Series B Convertible Preferred Stock shall have the right to convert the Series
B Convertible Preferred Stock into Debt at a later time subject to certain
conditions.  No conversion of Series B Convertible Preferred Stock to Debt
can occur until after a holding period of twelve (12) months from date of
conversion.  Thereafter, at your option, you may convert the Series B
Convertible Preferred Stock into common stock.  For purposes of conversion,
the value of each share of Series B Convertible Preferred Stock will be deemed
to be $10.00.  The number of shares of common shares to be received upon a
conversion will be based on a value of $0.10 per share or the value of the
market bid price at the time of conversion, whichever is less.
That value will be based on the average closing bid price of the common stock
for each of the ten (10) consecutive trading days immediately prior to the date
of conversion.
  (e)
Preferred “A”
 On April
24, 2009, the company offered all common shareholders of record the opportunity
to tender their shares in exchange for the company’s Series A Convertible
Preferred stock.  As of the offer expiration date, June 15, 2009,
47,798,610 common shares had been tendered.  One share of Series A
Convertible Preferred Stock was received for each 25 shares of common
tendered.  There is a mandatory holding period for the Series A Convertible
that expires May 29, 2010, before shareholders can then convert back to common
shares.  The stated value of the Series A Convertible is $5. per share or
$.20 per common share.  On May 29, 2010 Preferred A shareholders may
convert their shares back to common at $.20 per common share or market,
whichever is less.  Each
Preferred Series A still represents 25 shares of common.  The holders of
Series A Convertible Preferred Stock have 100 votes for each full share Series A
Convertible Preferred Stock.
  31
 
 MEGOLA,
INC.
 NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
 FOR THE YEARS ENDED JULY 31, 2009 and
2008
 (AMOUNTS
EXPRESSED IN U.S. DOLLARS)
 
 8.
              PAID
      IN CAPITAL AND ADDITIONAL PAID IN CAPITAL
  (continued)
 
 Each
Series A Preferred also has a warrant attached which allows the owner to
purchase 10 common shares at $.45 per share.  The warrant applies only to
shareholders that have not yet converted their Preferred A shares back to common
on the date they exercise their warrants.  These warrants expire on May 29,
2011.
 
 9.
              SEGMENT
      REPORTING
 
 The
Company sells products in North America and Asia and has two reportable
geographic segments and three reportable product segments summarized as
follows:
 
 North America
                    
                    
                    Asia
                    
                    
                    TotalYear
      ended July 31, 2009Sales
      and Royalties
                    
                    $
                    516,968
                    
                    
                    $
                    -
                    
                    
                    $
                    516,968Net
      loss
                    
                    $
                    (258,174
                    )
                    
                    $
                    -
                    
                    
                    $
                    (258,174
                    )Depreciation
                    
                    $
                    4,465
                    
                    
                    $
                    -
                    
                    
                    $
                    4,465Interest
      Expense
                    
                    $
                    23,960
                    
                    
                    $
                    -
                    
                    
                    $
                    23,960Total
      Assets
                    
                    $
                    1,773,682
                    
                    
                    $
                    -
                    
                    
                    $
                    1,773,682Year
      ended July 31, 2008Sales
      and Royalties
                    
                    $
                    36,399
                    
                    
                    $
                    
                    
                    
                    $
                    36,399Net
      loss
                    
                    $
                    (536,875
                    )
                    
                    $
                    
                    
                    
                    $
                    (536,875
                    )Depreciation
                    
                    $
                    2,691
                    
                    
                    $
                    -
                    
                    
                    $
                    2,691Interest
      Expense
                    
                    $
                    18,732
                    
                    
                    $
                    -
                    
                    
                    $
                    18,732Total
      Assets
                    
                    $
                    1,523,972
                    
                    
                    $
                    
                    
                    
                    $
                    1,523,972
 
 Breakdown of sales and
royalties by product line
 
 Air Purification
                  
                  
                  Physical
                    Water
                    Treatment
                  
                  
                  Fire Safety
                  
                  
                  TotalYear
      Ended July 31, 2009
                  
                  $
                  -
                  
                  
                  $
                  2,826
                  
                  
                  $
                  514,142
                  
                  
                  $
                  516,968Year
      Ended July 31, 2008
                  
                  $
                  1,525
                  
                  
                  $
                  12,620
                  
                  
                  $
                  22,254
                  
                  
                  $
                  36,399
 
 There
were no sales for water filtration, microbiological control and waste water
treatment.
  32
 
 MEGOLA,
INC.
 NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
 FOR THE YEARS ENDED JULY 31, 2009 and
2008
 (AMOUNTS
EXPRESSED IN U.S. DOLLARS)
 
 10.
              COMMITMENTS
 
 (i) The
Company leased warehouse space and additional office space in Point Edward,
Ontario, and Canada that commenced September of 2008.  Required minimum
lease payments are as follows:
 
 OfficeYear
      Ended
                    July
      31, 2010
                    
                    $
                    37,602Year
      Ended
                    July
      31, 2011
                    
                    $
                    37,602Year
      Ended
                    July
      31, 2012
                    
                    $
                    37,602Year
      Ended
                    July
      31, 2013
                    
                    $
                    37,602Year
      Ended
                    July
      31, 2014
                    
                    $
                    3,133Total
                    
                    
                    $
                    153,541WarehouseYear
      Ended
                    July
      31, 2010
                    
                    $
                    15,314Year
      Ended
                    July
      31, 2011
                    
                    $
                    15,314Year
      Ended
                    July
      31, 2012
                    
                    $
                    15,314Year
      Ended
                    July
      31, 2013
                    
                    $
                    15,314Year
      Ended
                    July
      31, 2014
                    
                    $
                    1,276Total
                    
                    
                    $
                    62,532
 
 (ii) The
Company has also leased 4 vehicles that commenced in August of 2008. 
Required minimum lease payments are as follows:
 
 Year
      Ended
                    July
      31, 2010
                    
                    $
                    35,060Year
      Ended
                    July
      31, 2011
                    
                    $
                    35,060Year
      Ended
                    July
      31, 2012
                    
                    $
                    5,843Total
                    
                    
                    $
                    75,963
 
 (iii)An
additional vehicle was leased in April of 2009. Required minimum lease payments
are as follows:
 
 Year
      Ended
                    July
      31, 2010
                    
                    $
                    8,213Year
      Ended
                    July
      31, 2011
                    
                    $
                    8,213Year
      Ended
                    July
      31, 2012
                    
                    $
                    6,160Total
                    
                    
                    $
                    22,586
  33
 
 MEGOLA,
INC.
 NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
 FOR THE YEARS ENDED JULY 31, 2009 and
2008
 (AMOUNTS
EXPRESSED IN U.S. DOLLARS)
 
 11.
              CASH
      FLOW INFORMATION
 
 (i)
ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH USED IN OPERATING
ACTIVITIES
 
 2009
                      
                      
                      2008$
                      
                      
                      $Depreciation
                      
                      
                      4,465
                      
                      
                      
                      2,691Shares
      issued for rent
                      
                      
                      48,802
                      
                      
                      
                      -Shares
      issued for consulting services
                      
                      
                      75,000
                      
                      
                      
                      -(Increase)
      decrease in long-term receivable
                      
                      
                      (11,881
                      )
                      
                      
                      5,604(Increase)
      decrease in inventory
                      
                      
                      (189,594
                      )
                      
                      
                      6,792(Increase)
      decrease in prepaid expenses
                      
                      
                      (41,369
                      )
                      
                      
                      9,542Increase
      (decrease) in accounts payable
                      
                      
                      16,737
                      
                      
                      
                      1,148Increase
      (decrease) in accrued expenses
                      
                      
                      (22,963
                      )
                      
                      
                      37,504Increase
      (decrease) in distributor deposit
                      
                      
                      22,000
                      
                      
                      
                      -(98,803
                      )
                      
                      
                      63,281
 
 (ii)
SUPPLEMENTAL CASH FLOW INFORMATION
 
 Non
      Cash Transactions:Preferred
      “B” Shares issued for long term debt
                    
                    $
                    1,378,850
                    
                    
                    $Preferred
      “B” Shares issued for future rents
                    
                    $
                    41,482
                    
                    
                    $Stock
      issued for distribution rights
                    
                    $
                    -
                    
                    
                    $
                    1,350,000Interest
      paid
                    
                    $
                    -
                    
                    
                    $
                    -Income
      taxes paid
                    
                    $
                    -
                    
                    
                    $
                    -
 
 12.
              ROYALTY
      INCOME
 
 One of
the Company's manufacturers also sells certain Megola products directly
throughout Asia. By agreement, Megola is entitled to a royalty payment for each
of these units. Megola recognizes royalty revenue upon fulfillment of its
contractual obligations and upon sale by the manufacturer of royalty-bearing
products. There was no royalty income received during the fiscal year due to the
manufacturer moving its facilities to a new location in Southeast Asia, thereby
not producing or selling any additional units.
 
 On
January 19, 2009 the Company entered into a Distributorship, Sales Agency and
Royalty Agreement with Vulcan Technologies LLC.  Vulcan is granted
exclusive distribution and sales rights for the Hartindo line of anti-fire
products in Canada and Mexico as well as co-exclusive rights similarly in the
United States for the Railroad Industry for a ten year term.  Megola
receives payments as follows.  A payment of $400,000 within five days of
the execution of the Agreement (funds have been received) and an additional
$350,000 due 90 days following the date of this
 Agreement
provided that, under various existing contracts, Megola has purchased no less
than 100,000 gallons of Hartindo AF21 in its fully diluted form.
 Vulcan
will also pay a commission payment of 25% of Vulcan’s profits on products sold
by any party in the Railroad Industry.  They also commit to generating no
less than $3 million on or before the second anniversary of the Agreement. 
They also commit to a 15% increase in gross sales for each year
thereafter.
 
 13.
              RESEARCH
      AND DEVELOPMENT
 
 In 2008,
Megola had $38,831 in research and development related expenditures. Much work
had been completed in furthering the potential marketability of the Hartindo
product line. In 2009, expenses were significantlyreduced
to $12,527 due to securing the services of our distribution groups. Each of our
distribution groups has focused their research and development efforts around
their prospective sales prospects and opportunities.
  34
 
 MEGOLA,
INC.
 NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS
 FOR THE YEARS ENDED JULY 31, 2009 and
2008
 (AMOUNTS
EXPRESSED IN U.S. DOLLARS)
 
 14.
              ECONOMIC
      DEPENDENCE
 
 During
2009, one customer accounted for 70% of sales respectively (2008 – one customer
accounted for 61%) and one vendor accounted for 99% of purchases (2008 -
100%).
 
 15.
              INCOME
      TAXES
  Deferred
income taxes arise from timing differences resulting from income and expense
items reported for financial accounting and tax purposes in different periods. A
deferred tax asset valuation allowance is recorded when it is more likely than
not that deferred tax assets will not be realized. The Company's deferred tax
assets, in the amount of $2,055,821 ($1,230,100 in 2008) consist entirely of
benefit from net operating loss (NOL) carry forwards.
 
 The
Company’s deferred tax assets are offset by a valuation allowance due to the
uncertainty of the realization of the net operating loss carry forwards. Net
operating loss carry forwards in the amount of $4,375,471 ($3,465,072 in 2008)
may be further limited by a change in ownership and other provisions of the tax
laws.
 
 Income
taxes at the combined federal and state rates are as follows:
 2009
                                      
                                      
                                      2008InIncome tax benefit at the combined rate
      resulting from net operating loss carry
    forward
                                      
                                      
                                      (35.5
                                      )%
                                      
                                      
                                      (35.5
                                      )%Deferred
      income tax valuation allowance
                                      
                                      
                                      35.5
                                      %
                                      
                                      
                                      35.5
                                      %Actual
      tax rate
                                      
                                      
                                      0
                                      %
                                      
                                      
                                      0
                                      %
 16.
              EARINING
      PER SHARE
 
 Basic
earnings per share is computed by dividing net income available to common
shareholders by the weighted average number of common shares outstanding during
the period. Diluted earnings per share reflects the potential dilution that
could occur if stock options and other commitments to issue common stock were
exercised or equity awards vest resulting in the issuance of common stock or
conversion of notes into shares of the Company’s common stock that could
increase the number of shares outstanding and lower the earnings per share of
the Company’s common stock.  This calculation is not done for periods in a
loss position as this would be antidilutive.  As of July 31, 2009, there
were no stock options or stock awards that would have been included in the
computation of diluted earnings per share that could potentially dilute basic
earnings per share in the future.  The information related to basic and
diluted earnings per share is as follows:
  35
 
 Ended July 31,2009
                    
                    
                    2008Numerator:Continuing
      operations:Income
      from continuing operations
                    
                    $
                    (281,175
                    )
                    
                    $
                    (536,875
                    )Effect
      of dilutive convertible debt
                    
                    
                    —
                    
                    
                    
                    —Total
                    
                    $
                    (281,175
                    )
                    
                    $
                    (536,875
                    )Discontinued
      operationsLoss
      from discontinued operations
                    
                    
                    —
                    
                    
                    
                    —Net
      income (loss)
                    
                    $
                    (281,175
                    )
                    
                    $
                    (536,875
                    )Denominator:Weighted
      average number of shares outstanding – basic and diluted
                    
                    
                    74,867,404
                    
                    
                    
                    77,253,152EPS:Basic:Continuing
      operations
                    
                    $
                    (.003
                    )
                    
                    $
                    .007Discontinued
      operations
                    
                    
                    0.00
                    
                    
                    
                    0.00Net
      income/(loss)
                    
                    $
                    (281,175
                    )
                    
                    $
                    (536,875
                    )DilutedContinuing
      operations
                    
                    $
                    (.003
                    )
                    
                    $
                    .007Discontinued
      operations
                    
                    
                    0.00
                    
                    
                    
                    0.00Net
      income/(loss)
                    
                    $
                    (281,175
                    )
                    
                    $
                    (536,875
                    )
 
 17.
              LONG
      TERM RECEIVABLE
 
 The
accounts receivable balance represents an amount owing by a supplier and will be
offset against the Company’s future purchases of inventory. Since the amount
will not be collected in the next 12 months, the balance has been classified as
long-term accounts receivable. The fair value of the long-term receivable has
been estimated by discounting future cash flows using an estimated rate of 6%.
The fair value of long-term receivable is $121,466.
 
 18.
              COMPARATIVE
      FIGURES
 
 Certain
amounts in the prior years’ consolidated financial statements have been
reclassified to conform to the current year presentation.
  36
 
 Item
9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
  None—Not
Applicable
  Item
9A(T). Controls and Procedures.
 
 Evaluation of Disclosure
Controls and Procedures
 
 We
carried out an evaluation of the effectiveness of the design and operation of
our disclosure controls and procedures (as defined in Exchange Act Rules
13a-15(e) and 15d-15(e)) at July 31, 2009. This evaluation was carried out under
the supervision and with the participation of our Chief Executive Officer and
Chief Financial Officer. Based upon that evaluation, our Chief Executive Officer
and Chief Financial Officer concluded that, at July 31, 2009, our disclosure
controls and procedures are effective.
 
 Disclosure
controls and procedures are controls and other procedures that are designed to
ensure that information required to be disclosed in our reports filed or
submitted under the Exchange Act are recorded, processed, summarized and
reported, within the time periods specified in the SEC’s rules and forms.
Disclosure controls and procedures include, without limitation, controls and
procedures designed to ensure that information required to be disclosed in our
reports filed under the Exchange Act is accumulated and communicated to
management, including our Chief Executive Officer and Chief Financial Officer,
to allow timely decisions regarding required disclosure.
 
 The
Company has established disclosure controls and procedures to ensure that
information disclosed in this annual report on Form 10-K was properly recorded,
processed, summarized and reported to the Company’s Board of Directors. A
control system, no matter how well conceived or operated, can provide only
reasonable, not absolute, assurance that the objectives of the control system
are met.
 
 Internal Control Over
Financial Reporting
 
 Under the
supervision and with the participation of our management, including our Chief
Executive Officer and Chief Financial Officer, we conducted an evaluation of the
effectiveness of our internal control over financial reporting based on the
framework stated by the Committee of Sponsoring Organizations of the Treadway
Commission.
 
 The
Company’s Chief Executive Officer and Chief Financial Officer has evaluated
the effectiveness of the Company’s disclosure controls and procedures (as
defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of July 31,
2009 and for the fiscal year ending July 31, 2009 covered by this Annual
Report on Form 10-K. Based upon such evaluation, the Chief Executive Officer and
Chief Financial Officer has concluded that, as of July 31, 2009 and for the
fiscal year ending July 31, 2009, the Company’s disclosure controls and
procedures were not effective as required under Rules 13a-15(e) and 15d-15(e)
under the Exchange Act. This conclusion by the Company’s Chief Executive
Officer and Chief Financial Officer does not relate to reporting
periods after July 31, 2009.
 
 There is
a material weakness in our internal control over financial reporting as of July
31, 2009 and for the fiscal year ending July 31, 2009 covered by the Annual
Report filed on Form 10-K. A material weakness is a deficiency, or a combination
of control deficiencies, in internal control over financial reporting such that
there is a reasonable possibility that a material misstatement of the Company’s
annual or interim financial statements will not be prevented or detected on a
timely basis.
 
 The
Company is in the process of evaluating its material weaknesses and has already
begun remediation procedures to address these weaknesses.  In an effort to
remediate the identified material weaknesses and enhance its internal controls,
the Company has initiated, or plans to initiate, the following series of
measures:
 
 ·
              Recently
      hired a CFO
 
 ·
              identify
      a communication process such that transactions entered into by executive
      management are communicated in a timely and effective manner to avoid
      unnecessary financial reporting delays and
  adjustments;
 
 ·
              establish
      comprehensive formal general accounting policies and procedures and
      require employees, or consultants in areas such as accounting, reporting
      and administration, to facilitate sign off of such policies and procedures
      with executive management as documentation of their understanding of and
      compliance with Company policies;
and
 
 ·
              finalize
      formal policies governing accounting transaction and financial reporting
      processes which were started as part of this
  endeavor.
  37
 
 The
Company continued to have the material weaknesses outlined above throughout
2008; however due to increased personnel in 2009, the Company believes that it
will be able to implement the above remedial measures by July 31, 2010. 
Additionally, the Company plans to test its updated internal control over
financial reporting by July 31, 2010.
 
 This
annual report does not include an attestation report of the Company s registered
public accounting firm regarding internal control over financial reporting.
Management s report was not subject to attestation by our registered public
accounting firm pursuant to temporary rules of the SEC that permit us to provide
only management’s report in this Annual Report on Form 10-KSB.
 
 Changes in Internal Control
Over Financial Reporting
 
 No change in the Company s internal
control over financial reporting occurred during the year ended July 31, 2009,
that materially affected, or is reasonably likely to materially affect, the
Company’s internal control over financial reporting.
 
 Item
9B.  Other Information
 
 None.
 
 PART
III - OTHER INFORMATION
 
 Item
10. Directors, Executive Officers, Promoters, Control Persons and Corporate
Governance; Compliance with Section 16(a) of the Exchange Act
 
 Each of
our directors’ serves for a term of one year or until the successor is elected
at our annual shareholders' meeting and is qualified, subject to removal by our
shareholders. Each officer serves, at the pleasure of our board of directors,
for a term of one year and until the successor is elected at the annual meeting
of the board of directors and is qualified.
 
 The
names, ages and positions of the Company's directors and executive officers are
as follows:
 
 Name
                
                Age
                
                PositionJoel
      Gardner
                
                42
                
                Chief
      Executive Officer/President/DirectorCraig
      Wagenschutz
                
                51
                
                Chief
      Financial OfficerDaniel
      Gardner
                
                38
                
                TreasurerSufan
      Siauw
                
                41
                
                DirectorWillard
      Brown
                
                52
                
                Director
 
 Joel
Gardner joined Megola as president, CEO and Director in August 2000. From
November 13, 1998 to July 2000, he was vice president of Aqua-Cristall Limited.
From September 1990 to August 1998, he played professional hockey. In 1990 he
received a BA, education major, minor in geology from Colgate University,
NY.
 
 Craig
Wagenschutz joined Megola as CFO in January 2009.  He is responsible for
the development and implementation of company financial systems and processes as
well as business plans and strategies, revenue models and budgeting. Mr.
Wagenschutz will also work directly with the company's SEC Auditing firm to
ensure financial compliancy of quarterly and year-end filings. A graduate of
Adrian College with a BA in accounting, Mr. Wagenschutz became a licensed CPA in
1984 and founded Wagenschutz & Associates CPA Firm in 1988. He is a current
member of the Michigan Association of CPAs and the American Institute of
CPAs.
 
 Daniel
Gardner joined Megola in January 2005 in the role of General Manager and was
appointed Treasurer in September 2006.  He is responsible for daily
business operations as well as working to implement business plans, marketing
strategies, and product development. He is also a key figure in the area of
investor relations on the public side of the company.
 
 Willard
"Buzz'' Brown joined Megola as director in October 2000.  He brings over 20
years of business management knowledge to Megola. Currently, he is President and
Owner of J&C Ice Technologies, Inc., a distributor for Zamboni in the
mid-Atlantic region. In addition, Buzz also owns and operates Island Style
Construction Company in Nantucket, a custom home-building construction
company.   Mr. Brown is a graduate of St. Lawrence
University.
  38
 
 Sufan
Siauw is currently the Chief Technology Officer of Dalian Bingshan H2O3
Environmental Solutions Co. Ltd., a Chinese ozone water treatment system
manufacturer that is part of the Bingshan Group, one of China's largest
diversified conglomerates, consisting of 46 different companies.
 
 Family
Relationships
  Joel
Gardner, CEO/President and Daniel Gardner, Treasurer, are brothers.
 
 Legal
Proceedings
 
 No
officer, director, or persons nominated for such positions, promoter or
significant employee has been involved in the last five years in any of the
following:
  ·
              Any
      bankruptcy petition filed by or against any business of which such person
      was a general partner or executive officer either at the time of the
      bankruptcy or within two years prior to that
  time;
 
 ·
              Any
      conviction in a criminal proceeding or being subject to a pending criminal
      proceeding (excluding traffic violations and other minor
      offenses);
 
 ·
              Being
      subject to any order, judgment, or decree, not subsequently reversed,
      suspended or vacated, of any court of competent jurisdiction, permanently
      or temporarily enjoining, barring, suspending or otherwise limiting his
      involvement in any type of business, securities or banking activities;
      and
 
 ·
              Being
      found by a court of competent jurisdiction (in a civil action), the
      Commission or the Commodity Futures Trading Commission to have violated a
      federal or state securities or commodities law, and the judgment has not
      been reversed, suspended, or
vacated.
 
 Code
of Ethics
 
 We do not
currently have a Code of Ethics applicable to our principal executive, financial
or accounting officer.
 
 Compliance
with Section 16(a) of the Exchange Act
 
 Section
16(a) of the Securities Exchange Act of 1934, as amended, requires our directors
and executive officers, and persons who beneficially own more than 10% of a
registered class of our equity securities, to file reports of beneficial
ownership and changes in beneficial ownership of our securities with the SEC on
Forms 3 (Initial Statement of Beneficial Ownership), 4 (Statement of Changes of
Beneficial Ownership of Securities) and 5 (Annual Statement of Beneficial
Ownership of Securities). Directors, executive officers and beneficial owners of
more than 10% of our Common Stock are required by SEC regulations to furnish us
with copies of all Section 16(a) forms that they file. Based solely on review of
the copies of such forms furnished to us, or written representations that no
reports were required, we believe that for the fiscal year ended July 31 2009
beneficial owners complied with Section 16(a) filing requirements applicable to
them.
  39
 
 Item
11. Executive Compensation
 The
following table sets forth the compensation paid to our executive officers
during fiscal year ended July 31, 2008 and 2009 (collectively, the “Named
Executive Officers”):
  Summary Compensation
Table
 
 Non-Equity
                              
                              
                              Non-QualifiedName
      and
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              Incentive
                              
                              
                              Deferred
                              
                              
                              AllPrincipal
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              Stock
                              
                              
                              Option
                              
                              
                              Plan
                              
                              
                              Compensation
                              
                              
                              OtherPosition
                              
                              Year
                              
                              Salary
                              
                              
                              Bonus
                              
                              
                              Awards
                              
                              
                              Awards
                              
                              
                              Compensation
                              
                              
                              Earnings
                              
                              
                              Compensation
                              
                              
                              Total($)
                              
                              
                              ($)
                              
                              
                              ($)
                              
                              
                              ($)
                              
                              
                              ($)
                              
                              
                              ($)
                              
                              
                              ($)
                              
                              
                              ($)Joel
      Gardner
                              
                              2008
                              
                              
                              1
                              
                              
                              
                              0
                              
                              
                              
                              0
                              
                              
                              
                              0
                              
                              
                              
                              0
                              
                              
                              
                              0
                              
                              
                              
                              0
                              
                              
                              
                              1President/CEO
                              
                              2009
                              
                              
                              1
                              
                              
                              
                              0
                              
                              
                              
                              0
                              
                              
                              
                              0
                              
                              
                              
                              0
                              
                              
                              
                              0
                              
                              
                              
                              0
                              
                              
                              
                              1
 
 Compensation
Agreements
  We have
the no compensation agreements with our executive officers.
  Summary Equity Awards
Table
  The
following table sets forth certain information for our executive officers
concerning unexercised options, stock that has not vested, and equity incentive
plan awards as of July 31, 2009.
 
 OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-ENDName
                    
                    Number of
                      Securities
                      Underlying
                      Unexercised
                      Options
                      (#)
                      Exercisable
                    
                    
                    Number of
                      Securities
                      Underlying
                      Unexercised
                      Options
                      (#)
                      Unexercisable
                    
                    
                    Equity
                      Incentive
                      Plan
                      Awards:
                      Number of
                      Securities
                      Underlying
                      Unexercised
                      Unearned
                      Options (#)
                    
                    
                    Option
                      Exercise
                      Price
                      ($)
                    
                    
                    Option
                      Expiration
                      Date
                    
                    
                    Number
                      of
                      Shares
                      or Units
                      of Stock
                      That
                      Have
                      Not
                      Vested
                      (#)
                    
                    
                    Market
                      Value of
                      Shares or
                      Units of
                      Stock That
                      Have Not
                      Vested
                      ($)
                    
                    
                    Equity
                      Incentive
                      Plan
                      Awards:
                      Number
                      Of
                      Unearned
                      Shares,
                      Units or
                      Other Rights
                      That Have
                      Not Vested
                      (#)
                    
                    
                    Equity Incentive
                      Plan Awards:
                      Market or Payout
                      Value of
                      Unearned
                      Shares, Units or
                      Other Rights
                      That Have Not
                      Vested
                      ($)Joel
      Gardner
                    
                    
                    0
                    
                    
                    
                    0
                    
                    
                    
                    0
                    
                    
                    
                    0
                    
                    
                    
                    0
                    
                    
                    
                    0
                    
                    
                    
                    0
                    
                    
                    
                    0
                    
                    
                    
                    0
 
 Director Compensation
Table
 
 Change inPensionValue andNon-Equity
                    
                    
                    Non-QualifiedFees Earned
                    
                    
                    
                    
                    
                    
                    
                    
                    Incentive
                    
                    
                    Deferredor Paid
                    
                    
                    Stock
                    
                    
                    Option
                    
                    
                    Plan
                    
                    
                    Compensation
                    
                    
                    All OtherName
                    
                    in Cash
                    
                    
                    Awards
                    
                    
                    Awards
                    
                    
                    Compensation
                    
                    
                    Earnings
                    
                    
                    Compensation
                    
                    
                    Total($)
                    
                    
                    ($)
                    
                    
                    ($)
                    
                    
                    ($)
                    
                    
                    ($)
                    
                    
                    ($)
                    
                    
                    ($)Sufan
      Siauw
                    
                    $
                    0
                    
                    
                    
                    0
                    
                    
                    
                    0
                    
                    
                    
                    0
                    
                    
                    
                    0
                    
                    
                    
                    0
                    
                    
                    
                    0Joel
      Gardner
                    
                    $
                    0
                    
                    
                    
                    0
                    
                    
                    
                    0
                    
                    
                    
                    0
                    
                    
                    
                    0
                    
                    
                    
                    0
                    
                    
                    
                    0Willard
      Brown
                    
                    $
                    0
                    
                    
                    
                    0
                    
                    
                    
                    0
                    
                    
                    
                    0
                    
                    
                    
                    0
                    
                    
                    
                    0
                    
                    
                    
                    0
  40
 
 Advisory
Board
 
 Megola
Inc. has formed an Advisory Board that consist of individuals that it believes
to be an important group of people that will play an integral role in assisting
Megola in the overall growth of the company. The Company will turn, from time to
time, to its Advisory Board for direction and advice on certain business matters
of the company. Nothing has been compensated to these individuals but maybe
figured into the future.
 
 Item
12.  Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters.
 
 As of the
date of this Annual Report, the following table sets forth certain information
with respect to the beneficial ownership of our common stock by each stockholder
known by us to be the beneficial owner of more than 5% of our common stock and
by each of our current directors and executive officers. Each person has sole
voting and investment power with respect to the shares of common stock, except
as otherwise indicated. Beneficial ownership consists of a direct interest in
the shares of common stock, except as otherwise indicated. As of the date of
this Annual Report, there are 51,189,000 shares of common stock issued and
outstanding.
 
 The
following tables set forth the ownership, as of the date of this prospectus, of
our common stock by each person known by us to be the beneficial owner of more
than 5% of our outstanding common stock, our directors, and our executive
officers and directors as a group. To the best of our knowledge, the persons
named have sole voting and investment power with respect to such shares, except
as otherwise noted. There are not any pending or anticipated arrangements that
may cause a change in control.
  The
information presented below regarding beneficial ownership of our voting
securities has been presented in accordance with the rules of the Securities and
Exchange Commission and is not necessarily indicative of ownership for any other
purpose. Under these rules, a person is deemed to be a "beneficial owner" of a
security if that person has or shares the power to vote or direct the voting of
the security or the power to dispose or direct the disposition of the security.
A person is deemed to own beneficially any security as to which such person has
the right to acquire sole or shared voting or investment power within 60 days
through the conversion or exercise of any convertible security, warrant, option
or other right. More than one person may be deemed to be a beneficial owner of
the same securities. The percentage of beneficial ownership by any person as of
a particular date is calculated by dividing the number of shares beneficially
owned by such person, which includes the number of shares as to which such
person has the right to acquire voting or investment power within 60 days, by
the sum of the number of shares outstanding as of such date plus the number of
shares as to which such person has the right to acquire voting or investment
power within 60 days. Consequently, the denominator used for calculating such
percentage may be different for each beneficial owner. Except as otherwise
indicated below and under applicable community property laws, we believe that
the beneficial owners of our common stock listed below have sole voting and
investment power with respect to the shares shown. The business address of the
shareholders is 704 Mara Street, Suite 111, Point Edward, ON N7V
1X4.
 
 Holder
of Preferred Series A
 
 Amount and
                          Nature ofName of Beneficial Owner
                        
                        Beneficial
                          Ownership
                        
                        
                        Percentageof Class(A)Joel
      Gardner and affiliates
                        
                        
                        770,534
                        
                        
                        
                        40.3
                        %Craig
      Wagenschutz and affiliates
                        
                        
                        55,842
                        
                        
                        
                        3
                        %Willard
      Brown
                        
                        
                        26,000
                        
                        
                        
                        1.4
                        %Dan
      Gardner and affiliates
                        
                        
                        3,240
                        
                        
                        
                        0.2
                        %All
      officers and directors as a group [4 persons]
                        
                        
                        855,616
                        
                        
                        
                        44.9
                        %
 
 The above
is based on 1,911,940 shares of Preferred Series A Stock issued and outstanding
as of July 31, 2009. Beneficial ownership is determined in accordance with the
rules of the Securities and Exchange Commission and generally includes voting or
investment power with respect to securities. Except as otherwise indicated, we
believe that the beneficial owners of the Preferred Series A Stock listed above,
based on information furnished by such owners, have sole investment and voting
power with respect to such shares, subject to community property laws where
applicable.
  41
 
 Holder
of Preferred Series B
 
 Amount and
                        Nature ofName of Beneficial Owner
                      
                      Beneficial
                        Ownership
                      
                      
                      Percentage
                        of Class(B)Joel
      Gardner and affiliates
                      
                      
                      70,318
                      
                      
                      
                      51
                      %
 
 The above
is based on 137,885 shares of Preferred Series B Stock issued and outstanding as
of July 31, 2009. Beneficial ownership is determined in accordance with the
rules of the Securities and Exchange Commission.  Preferred Series B Stock
does not include voting power with respect to securities.
 
 Item
13. Certain Relationships and Related Transactions, and Director
Independence
 
 Director
Independence
 
 We are
not subject to the listing requirements of any national securities exchange or
national securities association and, as a result, we are not at this time
required to have our board comprised of a majority of “independent directors.”
Currently, we have only one director and we believe that such directors
currently does not meet the definition of "independent" as promulgated by the
rules and regulations of Nasdaq.
  Item
14.  Principal Accountant Fees and Services.
 
 The
aggregate fees billed by our principal accountant for each of the last two
fiscal years for Audit Fees, Audit-Related Fees, Tax Fees and All Other Fees are
as follows:
 
 Fiscal Year Ended July 31,2009
                    
                    
                    2008Audit
      Fees
                    
                    $
                    26,000
                    
                    
                    $
                    40,088Audit-Related
      Fees
                    
                    $
                    6,000
                    
                    
                    $
                    6,500Tax
      Fees
                    
                    $
                    -
                    
                    
                    $
                    -All
      Other Fees
                    
                    $
                    -
                    
                    
                    $
                    -
  42
 
 PART
IV - Item 15. Exhibits
 
 Form:
Press Release
Date May 1, 2009
 
 The
following exhibits are filed with this Annual Report on Form 10-K:
 
 Exhibit No.
                  
                  Description of Exhibit31.1
                  
                  CEO
      Certification pursuant to Section 302 of the Sarbanes-Oxley Act of
      200231.2
                  
                  CFO
      Certification pursuant to Section 302 of the Sarbanes-Oxley Act of
      200232.1
                  
                  CEO
      Certification pursuant to Section 906 of the Sarbanes-Oxley Act of
      200232.2
                  
                  CFO
      Certification pursuant to Section 906 of the Sarbanes-Oxley Act of
      2002
  43
  SIGNATURES
 
 Pursuant
to the requirements of the Securities and Exchange Act of 1934, the registrant
has duly caused this Report to be signed on its behalf by the undersigned
hereunto duly authorized.
 
 MEGOLA,
      INC.(Registrant)By:
      /s/ Joel GardnerJoel
      GardnerPresident,
      CEO
 
 Date:
Dated: November 26, 2009
 
 Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed by the following persons on behalf of the registrant and in the
capacities and on the dates indicated:
 
 Signature
                    
                    Title
                    
                    Date/s/
      Joel Gardner
                    
                    
                    
                    November 26, 2009Joel
      Gardner
                    
                    Chief
      Executive Officer, and Director
                      (Principal
      Executive Officer and Principal Accounting Officer)/s/
      Craig Wagenschutz
                    
                    
                    
                    November
      26, 2009Craig
      Wagenschutz
                    
                    Chief
      Financial Officer/s/
      Daniel Gardner
                    
                    
                    
                    November 26, 2009Daniel
      Gardner
                    
                    Treasurer
      and Director/s/
      Sufan Siauw
                    
                    
                    
                    November
      26, 2009Sufan
      Siauw
                    
                    Director/s/
      Willard Brown
                    
                    
                    
                    November
      26, 2009Willard
      Brown
                    
                    Director
  44