UNITED
STATES


SECURITIES AND EXCHANGE COMMISSION


Washington,
D.C. 20549


FORM
10-Q


(Mark
One)





xQUARTERLY REPORT PURSUANT TO SECTION
13 OR 15(d) OF THE SECURITIES


EXCHANGE
ACT OF 1934


For the
quarterly period ended: January 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





(Former
Name or Former Address, if Changed Since Last Report)







(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 o No o




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:
80,986,029 at January 31, 2009








Megola,
Inc.




Table of
Contents





PART
      I– FINANCIAL INFORMATIONItem
      1.    Unaudited Interim Consolidated Financial
      Statements
                      3Item
      2.    Management's Discussion and Plan of Operation
                      12Forward-Looking
      Statements
                      12Item
      3.    Controls and Procedures
                      15PART
      II - OTHER INFORMATION
                      16Item
      1.    Legal Proceedings
                      16Item
      2.    Changes in Securities
                      16Item
      3.    Defaults upon Senior Securities.
                      16Item
      4.    Submission of Matters to a Vote of Security
      Holders.
                      16Item
      5.    Other Information.
                      16Item
      6.    Exhibits and Reports on S-8
                      16




2





PART
I - FINANCIAL INFORMATION




Item 1. Megola, Inc. Interim Consolidated
Financial Statements – Unaudited


Six Months Ended January 31, 2009(Amounts expressed in US dollars)




MEGOLA,
INC.


CONSOLIDATED
BALANCE SHEETS


(Amounts
expressed in US dollars)





January
      31,
                                                        2009
                                                      
                                                      
                                                      July
      31,
                                                        2008(Unaudited)
                                                      
                                                      
                                                      (Audited)ASSETSCash
                                                      
                                                      
                                                      185,683
                                                      
                                                      
                                                      
                                                      -Inventory
      (note 4)
                                                      
                                                      
                                                      252,633
                                                      
                                                      
                                                      
                                                      51,429Prepaid expenses
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      113438,316
                                                      
                                                      
                                                      
                                                      51,542Intangible
      asset (note 7)
                                                      
                                                      
                                                      1,350,000
                                                      
                                                      
                                                      
                                                      1,350,000Loan
      receivable (note 11)
                                                      
                                                      
                                                      117,191
                                                      
                                                      
                                                      
                                                      116,872Property and equipment
                                                      
                                                      
                                                      13,200
                                                      
                                                      
                                                      
                                                      5,558$
                                                      1,918,707
                                                      
                                                      
                                                      $
                                                      1,523,972LIABILITIESBank
      overdraft
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      1,291Accounts
      payable
                                                      
                                                      
                                                      85,046
                                                      
                                                      
                                                      
                                                      57,577Accrued
      expenses
                                                      
                                                      
                                                      40,624
                                                      
                                                      
                                                      
                                                      99,356Accrued
      interest
                                                      
                                                      
                                                      31,037
                                                      
                                                      
                                                      
                                                      25,821Advances from stockholders (note
      8)
                                                      
                                                      
                                                      704,620
                                                      
                                                      
                                                      
                                                      386,284861,327
                                                      
                                                      
                                                      
                                                      570,329Note payable (note 12)
                                                      
                                                      
                                                      471,619
                                                      
                                                      
                                                      
                                                      585,6701,332,947
                                                      
                                                      
                                                      
                                                      1,155,999Going
      concern - (note 2)Subsequent
      events - (note 10)STOCKHOLDERS'
      EQUITYCapital
      stock (note 9)
                                                      
                                                      
                                                      80,986
                                                      
                                                      
                                                      
                                                      78,486Additional
      paid in capital (note 9)
                                                      
                                                      
                                                      5,977,112
                                                      
                                                      
                                                      
                                                      5,904,612Accumulated
      deficit
                                                      
                                                      
                                                      (5,557,067
                                                      )
                                                      
                                                      
                                                      (5,615,600
                                                      )Accumulated
      other comprehensive loss:Foreign currency translation
      adjustment
                                                      
                                                      
                                                      84,729
                                                      
                                                      
                                                      
                                                      475585,760
                                                      
                                                      
                                                      
                                                      367,9731,918,707
                                                      
                                                      
                                                      
                                                      1,523,972


See
accompanying notes to unaudited interim consolidated financial
statements


3





MEGOLA,
INC.


CONSOLIDATED
INTERIM STATEMENTS OF OPERATIONS (UNAUDITED)


(Amounts expressed in US
      dollars)
                                      
                                      FOR THE 3 MONTHS ENDED
                                      
                                      
                                      FOR THE 6 MONTHS ENDEDJanuary 31,
                                        2009
                                      
                                      
                                      January 31,
                                        2008
                                      
                                      
                                      January 31,
                                        2009
                                      
                                      
                                      January 31,
                                        2008Income
      - sales
                                      
                                      $
                                      2,845
                                      
                                      
                                      $
                                      8,372
                                      
                                      
                                      $
                                      14,256
                                      
                                      
                                      $
                                      12,691Cost of sales
                                      
                                      
                                      1,330
                                      
                                      
                                      
                                      330
                                      
                                      
                                      
                                      6,679
                                      
                                      
                                      
                                      1,404GROSS PROFIT (LOSS)
                                      
                                      
                                      1,515
                                      
                                      
                                      
                                      8,042
                                      
                                      
                                      
                                      7,577
                                      
                                      
                                      
                                      11,287Royalty income (note 3)
                                      
                                      
                                      400,000
                                      
                                      
                                      
                                      0
                                      
                                      
                                      
                                      400,000
                                      
                                      
                                      
                                      0401,515
                                      
                                      
                                      
                                      8,042
                                      
                                      
                                      
                                      407,577
                                      
                                      
                                      
                                      11,287General
      and administrative
                                      
                                      
                                      117,376
                                      
                                      
                                      
                                      187,768
                                      
                                      
                                      
                                      259,031
                                      
                                      
                                      
                                      277,366Depreciation
                                      
                                      
                                      1,144
                                      
                                      
                                      
                                      674
                                      
                                      
                                      
                                      2,137
                                      
                                      
                                      
                                      1,346Interest
                                      
                                      
                                      4,194
                                      
                                      
                                      
                                      224
                                      
                                      
                                      
                                      9,646
                                      
                                      
                                      
                                      1,842Consulting fees
                                      
                                      
                                      0
                                      
                                      
                                      
                                      0
                                      
                                      
                                      
                                      78,232
                                      
                                      
                                      
                                      0TOTAL EXPENSES
                                      
                                      
                                      122,714
                                      
                                      
                                      
                                      188,666
                                      
                                      
                                      
                                      349,044
                                      
                                      
                                      
                                      280,554NET
      INCOME (LOSS)
                                      
                                      
                                      278,801
                                      
                                      
                                      
                                      (180,624
                                      )
                                      
                                      
                                      58,533
                                      
                                      
                                      
                                      (269,267
                                      )Foreign
      currency translation adjustment
                                      
                                      
                                      (36,451
                                      )
                                      
                                      
                                      1,301
                                      
                                      
                                      
                                      84,435
                                      
                                      
                                      
                                      3,287COMPREHENSIVE INCOME (LOSS)
                                      
                                      
                                      242,350
                                      
                                      
                                      
                                      (179,323
                                      )
                                      
                                      
                                      142,968
                                      
                                      
                                      
                                      (265,980
                                      )Weighted
      average common shares outstanding
                                      
                                      
                                      80,986,029
                                      
                                      
                                      
                                      78,486,029
                                      
                                      
                                      
                                      80,374,529
                                      
                                      
                                      
                                      76,040,377Loss
      per share - basic and diluted
                                      
                                      $
                                      0.003
                                      
                                      
                                      $
                                      (0.002
                                      )
                                      
                                      $
                                      0.001
                                      
                                      
                                      $
                                      (0.004
                                      )Comprehensive loss per share - basic and
      diluted
                                      
                                      $
                                      0.003
                                      
                                      
                                      $
                                      (0.002
                                      )
                                      
                                      $
                                      0.002
                                      
                                      
                                      $
                                      (0.003
                                      )


See
accompanying notes to unaudited interim consolidated financial
statements


4





MEGOLA,
INC.


CONSOLIDATED
INTERIM STATEMENTS OF CASH FLOWS (UNAUDITED)


(Amounts expressed in US
      dollars)
                    
                    FOR THE SIX MONTHS ENDEDJanuary 31,
                      2009
                    
                    
                    January 31,
                      2008CASH
      FLOWS FROM OPERATING ACTIVITESNet
      income (loss) for the period
                    
                    
                    58,533
                    
                    
                    
                    (269,267
                    )Adjustments
      to reconcile net income (loss) to net cash used in operating
      activites
                    
                    
                    (61,775
                    )
                    
                    
                    22,042(3,242
                    )
                    
                    
                    (247,225
                    )CASH
      FLOWS FROM FINANCING ACTIVITESAdvances
      from stockholders
                    
                    
                    318,336
                    
                    
                    
                    (92,450
                    )Proceeds
      from issuance of investor loans
                    
                    
                    -
                    
                    
                    
                    297,990Principal
      payments on notes payable
                    
                    
                    (114,051
                    )
                    
                    
                    -204,285
                    
                    
                    
                    205,540CASH
      FLOWS FROM INVESTING ACTIVITIESPurchase
      of property and equipment
                    
                    
                    (9,793
                    )
                    
                    
                    -(9,793
                    )
                    
                    
                    -EFFECT
      OF EXCHANGE RATE CHANGES ON CASH
                    
                    
                    (4,276
                    )
                    
                    
                    (149
                    )NET
      INCREASE (DECREASE) IN CASH
                    
                    
                    186,974
                    
                    
                    
                    (41,834
                    )NET
      CASH, beginning of period
                    
                    
                    (1,291
                    )
                    
                    
                    32,660NET
      CASH, end of period
                    
                    
                    185,683
                    
                    
                    
                    (9,174
                    )SUPPLEMENTAL
      CASH FLOW INFORMATIONInterest
      paid
                    
                    
                    0
                    
                    
                    
                    0Income
      taxes paid
                    
                    
                    0
                    
                    
                    
                    0NONCASH
      INVESTING AND FINANCING ACTIVITIES:Conversion
      of debt into preferred stock
                    
                    
                    0
                    
                    
                    
                    0Issuance
      of stock for services rendered
                    
                    
                    75,000
                    
                    
                    
                    0


See
accompanying notes to unaudited interim consolidated financial
statements


5





Megola,
Inc.


CONSOLIDATED
INTERIM STATEMENTS OF STOCKHOLDERS' EQUITY - unaudited


(Amounts
expressed in US dollars)


January
31, 2009





AccumulatedOther
                
                
                AdditionalCommon Stock
                
                
                Comprehensive
                
                
                Paid In
                
                
                AccumulatedShares
                
                
                Amount
                
                
                Income (Loss)
                
                
                Capital
                
                
                Deficit
                
                
                TotalsBalances, July 31, 2007
                
                
                48,486,029
                
                
                $
                48,486
                
                
                $
                (2,902
                )
                
                
                5,934,612
                
                
                $
                (5,078,725
                )
                
                $
                901,471Stock
      for Distribution Rights
                
                
                30,000,000
                
                
                
                30,000
                
                
                
                -
                
                
                
                (30,000
                )
                
                
                -
                
                
                
                -Net
      Loss
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                (536,875
                )
                
                
                (536,875
                )Foreign
      Currency Translation Adjustment
                
                
                -
                
                
                
                -
                
                
                
                3,377
                
                
                
                -
                
                
                
                -
                
                
                
                3,377Balances,
      July 31, 2008
                
                
                78,486,029
                
                
                $
                78,486
                
                
                $
                475
                
                
                
                5,904,612
                
                
                $
                (5,615,600
                )
                
                $
                367,973Stock
      for Services
                
                
                2,500,000
                
                
                
                2,500
                
                
                
                -
                
                
                
                72,500
                
                
                
                -
                
                
                
                75,000Net
      Loss
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                58,533
                
                
                
                58,533Foreign
      Currency Translation Adjustment
                
                
                -
                
                
                
                -
                
                
                
                84,254
                
                
                
                -
                
                
                
                -
                
                
                
                84,254Balances,
      January 31, 2009
                
                
                80,986,029
                
                
                $
                80,986
                
                
                $
                84,729
                
                
                
                5,977,112
                
                
                $
                (5,557,067
                )
                
                $
                585,760




6




MEGOLA,
INC.


Notes
to Unaudited Interim Consolidated Financial Statements for the Six Months ended
January 31, 2009 (Amounts
expressed in US dollars)




1.
            NATURE
      OF BUSINESS





The
accompanying unaudited interim consolidated financial statements of Megola, Inc.
(the "Company" or “Megola”) have been prepared in accordance with accounting
principles generally accepted in the United States of America and the rules of
the Securities and Exchange Commission ("SEC"), and should be read in
conjunction with the audited consolidated financial statements and notes thereto
contained in Megola's Annual Report filed with the SEC on Form 10-KSB. In the
opinion of management, all adjustments, consisting of normal recurring
adjustments, necessary for a fair presentation of financial position and the
results of operations for the interim periods presented have been reflected
herein. The results of operations for interim periods are not necessarily
indicative of the results to be expected for the full year. Notes to the
unaudited interim consolidated financial statements which would substantially
duplicate the disclosure contained in the audited consolidated financial
statements for fiscal 2007 as reported in the 10-KSB have been
omitted.




2.
            GOING
      CONCERN





These
unaudited interim 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. At present, the Company does
not have sufficient resources to fund its current working capital requirements.
The Company has planned to obtain additional capital through various financing
arrangements to service its current working capital requirements, any additional
or unforeseen obligations or to implement any 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 unaudited interim consolidated financial statements do not include any
adjustments for this uncertainty.


Management’s
Discussion and Analysis of Financial Condition and Results of Operation,
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 our 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.
            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 period 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.


7





MEGOLA,
INC.


Notes
to Unaudited Interim Consolidated Financial Statements for the Six Months ended
January 31, 2009 (Amounts
expressed in US dollars)




4.
            INVENTORY





In the
fiscal year ended July 31, 2007, the Company recorded a provision of $245,032,
related to inventory impairment. Future product sales of these slow moving
items will have no corresponding cost of sales due to the provision described
above. These products are in good condition and are expected to be
sold.





5.
            LONG-TERM
      RECEIVABLE





The
long-term 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 loan 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
$118,609.





6.
            CASH
      FLOW INFORMATION





ADJUSTMENTS
TO RECONCILE NET LOSS TO NET CASH USED IN OPERATING ACTIVITIES





2008
                    
                    
                    2008Depreciation
                    
                    
                    1,144
                    
                    
                    
                    1,346Stock-based
      compensation for services rendered
                    
                    
                    72,500
                    
                    
                    
                    -(Increase)
      decrease in loan receivable
                    
                    
                    (319
                    )
                    
                    
                    226(Increase)
      decrease in inventory
                    
                    
                    (201,204
                    )
                    
                    
                    (8,595
                    )(Increase)
      decrease in prepaid expenses
                    
                    
                    113
                    
                    
                    
                    (725
                    )Increase
      (decrease) in accounts payable
                    
                    
                    33,926
                    
                    
                    
                    (12,783
                    )Increase
      (decrease) in accrued expenses and other
                    
                    
                    (32,624
                    )
                    
                    
                    (1,427
                    )Increase
      (decrease) in customer deposits
                    
                    
                    -
                    
                    
                    
                    44,000Increase
      (decrease) in accrued interest
                    
                    
                    5,215
                    
                    
                    
                    0(61,775
                    )
                    
                    
                    22,042




7.
            SEGMENT
      REPORTING





Megola
sells in the U.S. and Asia as well as in Canada and has two reportable
geographic segments, with summary information as follows:


North America
                    
                    
                    Asia
                    
                    
                    TotalSix
      months ended January 31, 2009Revenues
                    
                    $
                    414,256
                    
                    
                    $
                    -
                    
                    
                    $
                    12,691Net
      Income (Loss)
                    
                    $
                    58,533
                    
                    
                    
                    -
                    
                    
                    $
                    58,533Interest
      Expense
                    
                    $
                    9,646
                    
                    
                    $
                    -
                    
                    
                    $
                    9,646Total
      Assets
                    
                    
                    1,918,707
                    
                    
                    $
                    -
                    
                    
                    $
                    1,918,707





Six
      months ended January 31, 2008
                    
                    North America
                    
                    
                    Asia
                    
                    
                    TotalRevenues
                    
                    $
                    12,691
                    
                    
                    $
                    -
                    
                    
                    $
                    12,691Net
      Loss
                    
                    $
                    269,267
                    
                    
                    $
                    -
                    
                    
                    $
                    269,267Interest
      Expense
                    
                    $
                    
                    
                    
                    $
                    1,842
                    
                    
                    $
                    1,842Total
      Assets
                    
                    $
                    -
                    
                    
                    $
                    1,523,972
                    
                    
                    $
                    1,523,972




8




MEGOLA,
INC.


Notes
to Unaudited Interim Consolidated Financial Statements for the Six Months ended
January 31, 2009 (Amounts
expressed in US dollars)




8.
            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 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.





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 quota in the agreement with PCL
has been moved forward starting January 31, 2010.




9.
            ADVANCES
      FROM STOCKHOLDERS





Included
in the balance are advances in the amount of $445,511 unsecured, bearing
interest at 6% and are due on demand.


Also
included in the balance is an advance from a company related by common ownership
in the amount $59,109.  The loan bears interest at 7.75% per annum and
is due on demand.


Also
included in the balance are advances in the amount of $200,000 unsecured,
bearing interest at 6% and are due on demand.


9


MEGOLA,
INC.


Notes
to Unaudited Interim Consolidated Financial Statements for the Six Months ended
January 31, 2009 (Amounts expressed in US dollars)





10.
            CAPITAL
      STOCK AND ADDITIONAL PAID IN
CAPITAL


(a)Capital Stock


On August
15, 2007, Megola Issued 30,000,000 shares for Distribution Rights valued at
$1,350,000.


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.





(b)Additional paid in
capital


Additional
paid in capital decreased $30,000 due to Megola’s common stock being
reclassified for the acquisition of distribution rights at year ended July 31,
2007.  These rights were contracted for before year-end but the shares
were issued after year-end.





(c) The
Company has a Stock Incentive Plan for employees and
consultants.  There were no shares issued under the plan during the
quarter ending January 31, 2009.  In the year ending July 31, 2007,
the Company issued 10,270,000 restricted common stock for consulting fees valued
at $412,800.





11.
            LOAN
      RECEIVABLE





The loan
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 loan receivable. The fair value of the loan receivable
has been estimated by discounting future cash flows using an estimated rate of
6%.  The fair value of loan receivable is $110,558.





12.
            NOTE
      PAYBALE





Effective
July 25, 2007 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.





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 $249,060.
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.





During
the year-ended July 31, 2008, 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.


10





MEGOLA,
INC.


Notes
to Unaudited Interim Consolidated Financial Statements for the Six Months ended
January 31, 2009 (Amounts expressed in US dollars)





13.
            LEASE
      COMMITMENTS


(i) The
Company is committed under a lease for office premises which expires on January
31, 2011.
Minimum lease payments are due as follows:





Year
      Ended
                    July
      31, 2009
                    
                    $
                    20,709Year
      Ended
                    July
      31, 2010
                    
                    $
                    20,709Year
      Ended
                    July
      31, 2011
                    
                    $
                    10,354Total
                    
                    
                    $
                    51,772





(ii) 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, 2009
                      
                      $
                      33,030Year
      Ended
                      July
      31, 2010
                      
                      $
                      36,033Year
      Ended
                      July
      31, 2011
                      
                      $
                      36,033Year
      Ended
                      July
      31, 2012
                      
                      $
                      36,033Year
      Ended
                      July
      31, 2013
                      
                      $
                      36,033Year
      Ended
                      July
      31, 2014
                      
                      $
                      3,003Total
                      
                      
                      $
                      180,165WarehouseYear
      Ended
                      July
      31, 2009
                      
                      $
                      13,452Year
      Ended
                      July
      31, 2010
                      
                      $
                      14,675Year
      Ended
                      July
      31, 2011
                      
                      $
                      14,675Year
      Ended
                      July
      31, 2012
                      
                      $
                      14,675Year
      Ended
                      July
      31, 2013
                      
                      $
                      14,675Year
      Ended
                      July
      31, 2014
                      
                      $
                      1,223Total
                      
                      
                      $
                      73.375





(iii) The
Company has also leased 4 vehicles that commenced in August of
2008.  Required minimum lease payments are as follows:





Year
      Ended
                  July
      31, 2009
                  
                  $
                  27,997Year
      Ended
                  July
      31, 2010
                  
                  $
                  33,597Year
      Ended
                  July
      31, 2011
                  
                  $
                  33,597Year
      Ended
                  July
      31, 2012
                  
                  $
                  5,599Total
                  
                  
                  $
                  100,790





14.
            SUBSEQUENT
      EVENTS





(i)An
additional vehicle was leased in April of 2009. Required minimum lease payments
are as follows:





Year
      Ended
                  July
      31, 2009
                  
                  $
                  1,967Year
      Ended
                  July
      31, 2010
                  
                  $
                  7,870Year
      Ended
                  July
      31, 2011
                  
                  $
                  7,870Year
      Ended
                  July
      31, 2012
                  
                  $
                  5,903Total
                  
                  
                  $
                  23,610


11





MEGOLA,
INC.


Notes
to Unaudited Interim Consolidated Financial Statements for the Six Months ended
January 31, 2009 (Amounts expressed in US dollars)





14.
Subsequent Events (con’t)





(ii) On
April 20, 2009, Megola extended an offer to shareholders to exchange twenty five
(25) common shares of the Company's Common Stock for one (1) share of the
Company's newly created Series 'A' Convertible Preferred Stock, valued at $5.00
per share. Holders of Series A Convertible Preferred Stock shall have
one-hundred (100) votes for each full share Series A Convertible Preferred
Stock. No conversion of Series A Convertible Preferred Stock to Common Stock can
occuruntil after a
holding period of twelve (12) months from May 29, 2009. The Company also
announced that each Preferred Shareholder shall also be granted Warrants to
purchase up to ten (10) common shares of Megola, Inc. stock at a price of $0.45
for every one (1) Series A Convertible Preferred Stock held.




(iii)On April 23, 2009, Megola announced an offer to
the Company's Creditors to exchange any or all of the company's outstanding debt
for Megola Series B Convertible Preferred Stock. Creditors will receive one (1)
share of the Company's Series B Convertible Preferred Stock for every ten
dollars ($10) of debt exchanged. The purpose of this exchange offer is to
replace the company's long-term debt with long-term equity investment in Megola
through our Series B Convertible Preferred Stock.  The holders of
Series B Convertible Preferred Stock shall have no voting rights. No conversion
of Series B Convertible Preferred Stock to Common Stock can occur until after a
holding period of twelve (12) months from time of debt conversion. Thereafter,
Creditor has the option to convert the Series B Convertible Preferred Stock into
Common Stock.




(iv) On
April 30, 2009, $22,000 of customer deposits included in accounts payable has
been settled in stock.




(v)On May 1, 2009, Megola announced the signing
of a Distribution and Sales Agency Agreement with Innovative Composites Inc.
(ICI) for the Hartindo line of Anti-Fire Products. ICI will provide Megola with
purchase orders and/or contracts for Hartindo products sales of not less than
200,000 gallons or USD $2 Million on annual basis in the first 18 months. ICI
will also increase the total orders of Hartindo products by no less than 15%
annually thereafter for a period of 5 years. ICI will become an Agent for
commercialization of the Hartindo anti-fire product line on behalf of MEGOLA and
will manage the entire commercialization process. ICI will provide Megola with a
$100,000 (CAD) deposit upon execution of this Agreement which will be used to
secure Hartindo product. ICI acknowledges that MEGOLA has entered into
Agreements and Discussions with various Customers and Sales, Marketing and
Distribution groups prior to entering into this Agreement and those entities
shall be exempt from this agreement.




Item 2. Management's Discussion and Plan
of Operation


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


For the
Quarter Ended January 31, 2009




MANAGEMENT'S
DISCUSSION AND PLAN OF OPERATION FORWARD-LOOKING STATEMENTS





This
Quarterly 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 Quarterly 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.


12





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.





GOING
CONCERN





Megola's
net gain for the six months ended January 31, 2009 vs. six months ended January
31, 2008 was $58,533. The Company has an accumulated deficit of $5,557,067 as of
January 31, 2009. These conditions create an uncertainty as to Megola's ability
to continue as a going concern. Management is trying to raise additional capital
through various funding arrangements. It is not certain as to whether Megola
will raise this additional capital. The financial statements did not include any
adjustment that might be necessary if Megola is unable to continue as a going
concern.





GENERAL





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 commercial 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.





Megola
Inc. provides environmentally conscious solutions in the areas of physical water
treatment, air purification and fire protection.





Megola’s
ScaleGuard product units are a cost-effective and environmentally friendly
alternative to salt softeners and chemical water treatments.  ScaleGuard
utilizes electromagnetic technology rather than chemicals or other methods to
condition water, both preventing the ongoing build-up of scale and eliminating
historical scale build-up in water delivery systems and
machinery. ScaleGuard prolongs the life of equipment, appliances, hot water
tanks, and distribution systems in residential, commercial, agricultural and
industrial applications.





Megola’s
AirGuardian indoor air quality product units are uniquely engineered, integrated
ultraviolet light systems designed to dramatically reduce and 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 in an indoor environment.  The
duct-mounted units are ideal for improving indoor air quality in homes, cottages
and business areas while the portable units are effective in deodorizing
automobiles, change rooms and sporting equipment.





Megola’s
Hartindo anti-fire product line represents a one of a kind environmentally
friendly fire inhibitor and suppression technology.  These water-based,
non-toxic and non-corrosive products include AF21, an inhibitor that renders all
water absorbent and many synthetic materials non-flammable; AF31, a
suppression agent that stops fire and prevents fire spread and is able to
extinguish A, B, C, D and F/K class fires; AF11E, the world’s only proven 1:1
direct replacement for both Halon 1301 and 1211; and Dectan, a water-based rust
inhibitor and converter that exhibits the heat refraction properties of
AF21.





Megola
was dependent on one customer, Vulcan Technologies, LLC for sales accounting for
approximately 97% of our revenues in the first 6 months of fiscal year 2009.
Holly Oak Chemical, Inc. accounted for 80% of cost of goods for the first 6
months of fiscal year 2008. Sales of the ScaleGuard devices accounted for 1%,
and Hartindo products accounted for 99% of our total gross revenues in the first
6 months of fiscal year 2009.





Commencing
in our fiscal year 2006, we entered into an agreement with H2O3 Solutions, one
of the Company's manufacturers, to allow them to sell a residential and small
commercial ScaleGuard system directly throughout Asia. By agreement, Megola is
entitled to a royalty payment from the sales of these two products. There was no
royalty income received during the period due to the manufacturer moving its
facilities to a new location in Southeast Asia, thereby not producing or selling
any additional units.


13


RESULTS
OF OPERATIONS





Three
months ended January 31, 2009 vs. three months ended January 31,
2008.





Our
revenues for the three months ended January 31, 2009 vs. three months ended
January 31, 2008 increased 4,711.81% from $8,372 to $402,845 due to a royalty
payment based on a North American Distribution Agreement.





Our cost
of sales for the three months ended January 31, 2009 vs. three months ended
January 31, 2008 increased 303.03% from $330 to $1,330. The overall increase in
the cost of sales during this period is directly attributable to the increase in
revenues.





Our
general and administrative expenses for the three months ended January 31, 2009
vs. three months ended January 31, 2008 decreased 37.489% from $187,765 to
$117,376 because of a decrease in product testing and foreign currency
conversion rates.





Our
interest expense for the three months ended January 31, 2009 vs. three months
ended January 31, 2008 increased 1772.32% from $224 to $4,194 because of the
Company's increased interest owing towards stockholder loans and payroll
deductions.





Accordingly,
our net gain for the three months ended January 31, 2009 vs. three months ended
January 31, 2008 was $459,425.





Six
months ended January 31, 2009 vs. Six months ended January 31,
2008.





Our
revenues for the six months ended January 31, 2009 vs. six months ended January
31, 2008 increased 3,164.17% from $12,691 to $414,256 due to a royalty payment
based on a North American Distribution Agreement.





Our cost
of sales for the six months ended January 31, 2009 vs. six months ended January
31, 2008 increased 375.71% from $1,404 to $6,679. The overall increase in the
cost of sales during this period is directly attributable to the increase in
revenues.





Our
general and administrative expenses for the six months ended January 31, 2009
vs. six months ended January 31, 2008 decreased 6.61% from $277,366 to $259,031
because of the decrease in product testing.





Our
interest expense for the six months ended January 31, 2009 vs. six months ended
January 31, 2008 increased 423.67% from $1,842 to $9,646 because of the
company's increased interest owing towards stockholder loans and payroll
deductions.





Accordingly,
our net gain for the six months ended January 31, 2009 vs. six months ended
January 31, 2008 was $58,533.





LIQUIDITY
AND CAPITAL RESOURCES





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





At
January 31, 2009, we had an accumulated deficit of $5,557,067.





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.


14





Item 3.CONTROLS AND
PROCEDURES





Based on
our management's evaluation (with the participation of our chief executive
officer and chief financial officer), as of the end of the period covered by
this report, our principal executive officer and principal financial officer
have concluded that our disclosure controls and procedures (as defined in Rules
13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended,
(the "Exchange Act")) are designed to ensure that information required to be
disclosed by us in reports that we file or submit under the Exchange Act is
recorded, processed, summarized and reported within the time periods specified
in Securities and Exchange Commission rules and forms and are also designed to
ensure that information required to be disclosed in the reports that we file or
submit under the Exchange Act is accumulated and communicated to our management,
including our principal executive and principal financial officers, to allow
timely decisions regarding required disclosure. Based on the evaluation, which
disclosed deficiencies with respect to the Company's internal control procedures
over financial reporting, the Company's Chief Executive Officer and Chief
Financial Officer concluded that the Company's disclosure controls and
procedures are ineffective as of the end of the period covered by this report
due to limited resources and personnel. With additional funding the Company
intends to hire additional resources to assist with financial reporting
disclosures controls and procedures.





There
were no changes in the Company's internal control over financial reporting that
occurred during the Company's most recent fiscal quarter that have materially
affected, or are reasonably likely to materially affect, the Company's internal
control over financial reporting.


15





PART II -OTHER
INFORMATION





ITEM
1. LEGAL PROCEEDINGS





None





ITEM
2. CHANGES IN SECURITIES





None





ITEM
3. DEFAULTS UPON SENIOR SECURITIES.





None





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





None





ITEM
5. OTHER INFORMATION.





None





ITEM
6. EXHIBITS AND REPORTS ON S-8





Form:
8-K Filing Date October 5,
2008





Form:
8-K Filing Date November 28,
2008





Form:
8-K Filing Date January 23,
2009





Exhibit
Name and/or Identification of Exhibit Number





31
Certification


32
Certification





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, Principal FinancialOfficer
      and Principal Accounting
Officer


16