UNITED
STATES


SECURITIES AND EXCHANGE COMMISSION


Washington,
D.C. 20549


FORM
10-Q


(Mark
One)





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


EXCHANGE
ACT OF 1934


For the
quarterly period ended: January 31, 2010


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 x No  ̈




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: 704,080
at January 31, 2010.





Megola,
Inc.





Table of
Contents





PART
      I– FINANCIAL INFORMATIONItem
      1.    Unaudited Interim Consolidated Financial
      Statements
              3Item
      2.    Management's Discussion and Plan of
      Operation
              13Forward-Looking
      Statements
              13Item
      3.    Controls and Procedures
              15PART
      II - OTHER INFORMATION
              15Item
      1.    Legal Proceedings
              15Item
      2.    Changes in Securities
              15Item
      3.    Defaults upon Senior Securities.
              15Item
      4.    Submission of Matters to a Vote of Security
      Holders.
              15Item
      5.    Other Information.
              15Item
      6.    Exhibits and Reports on S-8
              15




2


PART
I - FINANCIAL INFORMATION




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


Six Months Ended January 31, 2010(Amounts expressed in US dollars)





January 31, 2010
                
                
                July 31, 2009(unaudited)
                
                
                (Audited)ASSETSCash
                
                $
                2,410
                
                
                $
                -Accounts
      receivable
                
                
                72,915
                
                
                
                -Inventory
                
                
                195,719
                
                
                
                241,023Prepaid
      expenses
                
                
                27,538
                
                
                
                41,482Total
      Current Assets
                
                
                298,582
                
                
                
                282,504Long-term
      receivable - (note 6)
                
                
                117,191
                
                
                
                128,754Intangible
      Asset (note 9)
                
                
                1,350,000
                
                
                
                1,350,000Property
      and equipment, net of accumulated depreciation of
    $59,354
                
                
                10,245
                
                
                
                12,424TOTAL
      ASSETS
                
                
                1,776,018
                
                
                
                1,773,682LIABILITIESBank
      overdraft
                
                $
                -
                
                
                $
                74,737Accrued
      expenses
                
                
                91,240
                
                
                
                76,393Accounts
      payable
                
                
                77,620
                
                
                
                45,822Accrued
      interest
                
                
                25,821
                
                
                
                25,821Advances
      from stockholders - (note 10)
                
                
                19,597
                
                
                
                -Total
      Liabilities
                
                
                214,278
                
                
                
                222,773Commitments
      and Contingencies
                
                
                -
                
                
                
                -STOCKHOLDERS'
      EQUITYCapital
      stock: (note 11)Common,
      $0.001 par value; 200,000,000 shares authorized, 704,080 issued and
      outstanding at January 31, 2010 and 663,749 July 31, 2009
                
                
                704
                
                
                
                664Preferred
      "A", $0.001 par value; 3,500,000 shares authorized, 1,959,340 and
      1,911,940 issued and outstanding at January 31, 2010 and July 31, 2009
      respectively
                
                
                1,959
                
                
                
                1,912Preferred
      "B", $0.001 par value; 1,500,000 shares authorized, 154,446 and 137,885
      issued and outstanding at January 31, 2010 and July 31, 2009
      respectively
                
                
                154
                
                
                
                138Additional
      paid in capital - (note 11)
                
                
                7,743,810
                
                
                
                7,514,297Deficit
                
                
                (6,075,178
                )
                
                
                (5,873,775
                )Accumulated
      other comprehensive income (loss):
                
                
                -
                
                
                
                -Foreign
      currency translation adjustment
                
                
                (109,709
                )
                
                
                (92,327
                )Total
      Stockholders' Equity
                
                
                1,561,740
                
                
                
                1,550,909TOTAL
      LIABILITIES AND STOCKHOLDERS' EQUITY
                
                $
                1,776,018
                
                
                $
                1,773,682


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,
                                                  2010
                                                
                                                
                                                January
      31,
                                                  2009
                                                
                                                
                                                January
      31,
                                                  2010
                                                
                                                
                                                January
      31,
                                                  2009Income
      - sales
                                                
                                                $
                                                176,784
                                                
                                                
                                                $
                                                2,845
                                                
                                                
                                                $
                                                315,271
                                                
                                                
                                                $
                                                14,256Cost
      of sales
                                                
                                                
                                                59,312
                                                
                                                
                                                
                                                1,330
                                                
                                                
                                                
                                                92,461
                                                
                                                
                                                
                                                6,679GROSS
      PROFIT (LOSS)
                                                
                                                
                                                117,472
                                                
                                                
                                                
                                                1,515
                                                
                                                
                                                
                                                222,810
                                                
                                                
                                                
                                                7,577Royalty
      income (note 4)
                                                
                                                
                                                0
                                                
                                                
                                                
                                                400,000
                                                
                                                
                                                
                                                0
                                                
                                                
                                                
                                                400,000117,472
                                                
                                                
                                                
                                                401,515
                                                
                                                
                                                
                                                222,810
                                                
                                                
                                                
                                                407,577General
      and administrative
                                                
                                                
                                                189,169
                                                
                                                
                                                
                                                117,376
                                                
                                                
                                                
                                                356,539
                                                
                                                
                                                
                                                259,031Depreciation
                                                
                                                
                                                1,031
                                                
                                                
                                                
                                                1,144
                                                
                                                
                                                
                                                2,256
                                                
                                                
                                                
                                                2,137Interest
                                                
                                                
                                                715
                                                
                                                
                                                
                                                4,194
                                                
                                                
                                                
                                                1,418
                                                
                                                
                                                
                                                9,646Consulting
      fees
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                64,000
                                                
                                                
                                                
                                                78,232TOTAL
      EXPENSES
                                                
                                                
                                                190,915
                                                
                                                
                                                
                                                122,714
                                                
                                                
                                                
                                                424,213
                                                
                                                
                                                
                                                349,044NET
      INCOME (LOSS)
                                                
                                                
                                                (73,443
                                                )
                                                
                                                
                                                278,801
                                                
                                                
                                                
                                                (201,403
                                                )
                                                
                                                
                                                58,533Foreign
      currency translation adjustment
                                                
                                                
                                                (5,115
                                                )
                                                
                                                
                                                (36,451
                                                )
                                                
                                                
                                                (17,382
                                                )
                                                
                                                
                                                84,435COMPREHENSIVE
      INCOME (LOSS)
                                                
                                                
                                                (78,558
                                                )
                                                
                                                
                                                242,350
                                                
                                                
                                                
                                                (218,785
                                                )
                                                
                                                
                                                142,968Weighted
      average common shares outstanding
                                                
                                                
                                                680,595
                                                
                                                
                                                
                                                680,595
                                                
                                                
                                                
                                                680,595
                                                
                                                
                                                
                                                680,595Loss
      per share - basic and diluted
                                                
                                                $
                                                (0.108
                                                )
                                                
                                                $
                                                0.410
                                                
                                                
                                                $
                                                (0.296
                                                )
                                                
                                                $
                                                0.086Comprehensive
      loss per share - basic and diluted
                                                
                                                $
                                                (0.115
                                                )
                                                
                                                $
                                                0.356
                                                
                                                
                                                $
                                                (0.321
                                                )
                                                
                                                $
                                                0.210


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,
                                    2010
                                  
                                  
                                  January
      31,
                                    2009CASH
      FLOWS FROM OPERATING ACTIVITESNet
      income (loss) for the period
                                  
                                  
                                  (201,403
                                  )
                                  
                                  
                                  58,533Adjustments
      to reconcile net income (loss) to net cash used in operating
      activites
                                  
                                  
                                  110,728
                                  
                                  
                                  
                                  (61,775
                                  )(90,675
                                  )
                                  
                                  
                                  (3,242
                                  )CASH
      FLOWS FROM FINANCING ACTIVITESAdvances
      from stockholders
                                  
                                  
                                  185,204
                                  
                                  
                                  
                                  318,336Principal
      payments on notes payable
                                  
                                  
                                  -
                                  
                                  
                                  
                                  (114,051
                                  )185,204
                                  
                                  
                                  
                                  204,285CASH
      FLOWS FROM INVESTING ACTIVITIESPurchase
      of property and equipment
                                  
                                  
                                  -
                                  
                                  
                                  
                                  (9,793
                                  )-
                                  
                                  
                                  
                                  (9,793
                                  )EFFECT
      OF EXCHANGE RATE CHANGES ON CASH
                                  
                                  
                                  (17,383
                                  )
                                  
                                  
                                  (4,276
                                  )NET
      INCREASE (DECREASE) IN CASH
                                  
                                  
                                  77,146
                                  
                                  
                                  
                                  186,974NET
      CASH, beginning of period
                                  
                                  
                                  (74,736
                                  )
                                  
                                  
                                  (1,291
                                  )NET
      CASH, end of period
                                  
                                  
                                  2,410
                                  
                                  
                                  
                                  185,683SUPPLEMENTAL
      CASH FLOW INFORMATIONInterest
      paid
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -Income
      taxes paid
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -NONCASH
      INVESTING AND FINANCING ACTIVITIES:Conversion
      of debt into preferred stock
                                  
                                  
                                  165,617
                                  
                                  
                                  
                                  -Issuance
      of stock for services rendered
                                  
                                  
                                  -
                                  
                                  
                                  
                                  75,000


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, 2010





Common
      Stock
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        Preferred
      Stock Series "A"
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        Preferred
      Stock Series "B"Shares
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        Amount
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        Shares
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        Amount
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        Shares
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        AmountBalances,
      July 31, 2008
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        1,569,721
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        $
                                                                                                                                                                                                        1,570
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        -
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        $
                                                                                                                                                                                                        -
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        -
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        $
                                                                                                                                                                                                        -Stock
      for services
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        50,000
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        50
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        -
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        -
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        -
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        -Common  converted
      to Preferred "A"
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        (955,972
                                                                                                                                                                                                        )
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        (956
                                                                                                                                                                                                        )
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        1,911,940
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        1,912Debt
      converted to Preferred "B"
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        -
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        -
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        137,885
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        138Stock
      WarrantsNet
      Loss
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        -
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        -
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        -
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        -
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        -
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        -Foreign
      CurrencyTranslation
      Adjustment
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        -
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        -
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        -
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        -
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        -
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        -Balances,
      July 31, 2009
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        663,749
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        $
                                                                                                                                                                                                        664
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        1,911,940
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        $
                                                                                                                                                                                                        1,912
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        137,885
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        $
                                                                                                                                                                                                        138Stock
      for services
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        64,000
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        64
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        -
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        -
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        -
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        -Common
      converted to Preferred "A"
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        (23,668
                                                                                                                                                                                                        )
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        (24
                                                                                                                                                                                                        )
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        47,400
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        47Debt
      converted to Preferred "B"
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        16,561
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        16Net
      Loss
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        -
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        -
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        -
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        -
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        -
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        -Foreign
      CurrencyTranslation
      Adjustment
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        -
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        -
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        -
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        -
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        -
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        -Balances,
      January 31, 2010
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        704,080
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        $
                                                                                                                                                                                                        704
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        1,959,340
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        $
                                                                                                                                                                                                        1,959
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        154,446
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        $
                                                                                                                                                                                                        154Accumulated Other
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        AdditionalComprehensive
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        Paid
      In
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        AccumulatedIncome
      (Loss)
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        Capital
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        Deficit
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        TotalsBalances,
      July 31, 2008
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        475
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        $
                                                                                                                                                                                                        5,981,528
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        $
                                                                                                                                                                                                        (5,615,600
                                                                                                                                                                                                        )
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        367,973Stock
      for services
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        -
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        74,950
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        -
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        75,000Common  converted
      to Preferred "A"
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        (956
                                                                                                                                                                                                        )
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        -Debt
      converted to Preferred "B"
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        1,378,712
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        1,378,850Stock
      Warrants
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        80,063
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        80,063Net
      Loss
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        -
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        -
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        (258,174
                                                                                                                                                                                                        )
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        (258,174
                                                                                                                                                                                                        )Foreign
      CurrencyTranslation
      Adjustment
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        (92,802
                                                                                                                                                                                                        )
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        -
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        -
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        (92,802
                                                                                                                                                                                                        )Balances,
      July 31, 2009
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        (92,327
                                                                                                                                                                                                        )
                                                                                                                                                                                                        
                                                                                                                                                                                                        $
                                                                                                                                                                                                        7,514,297
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        $
                                                                                                                                                                                                        (5,873,774
                                                                                                                                                                                                        )
                                                                                                                                                                                                        
                                                                                                                                                                                                        $
                                                                                                                                                                                                        1,550,910Stock
      for services
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        -
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        63,936
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        -
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        64,000Common  converted
      to Preferred "A"
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        (24
                                                                                                                                                                                                        )
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        (1
                                                                                                                                                                                                        )Debt
      converted to Preferred "B"
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        165,600
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        165,616Net
      Loss
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        -
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        -
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        (201,403
                                                                                                                                                                                                        )
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        (201,403
                                                                                                                                                                                                        )Foreign
      CurrencyTranslation
      Adjustment
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        (17,382
                                                                                                                                                                                                        )
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        -
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        -
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        (17,382
                                                                                                                                                                                                        )Balances,
      January 31, 2010
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        (109,709
                                                                                                                                                                                                        )
                                                                                                                                                                                                        
                                                                                                                                                                                                        $
                                                                                                                                                                                                        7,743,810
                                                                                                                                                                                                        
                                                                                                                                                                                                        
                                                                                                                                                                                                        $
                                                                                                                                                                                                        (6,075,178
                                                                                                                                                                                                        )
                                                                                                                                                                                                        
                                                                                                                                                                                                        $
                                                                                                                                                                                                        1,561,740


See
accompanying notes to unaudited interim consolidated financial
statements


6


MEGOLA,
INC.


Notes
to Unaudited Interim Consolidated Financial Statements for the Six Months ended
January 31, 2010


(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-K. 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 2009 as reported in the 10-K 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.
            ACCOUNTING
      STANDARDS UPDATES





In
January 2010, the FASB has published ASU 2010-06 “Fair Value Measurements and
Disclosures (Topic 820): - Improving Disclosures about Fair Value Measurements.
ASU No. 2010-06 clarifies improve disclosure requirement related to fair
value measurements and disclosures – Overall Subtopic (Subtopic 820-10) of the
FASB Accounting Standards Codification. The new disclosures and clarifications
of existing disclosures are effective for interim and annual reporting periods
beginning after December 15, 2009, except for the disclosure about purchase,
sales, issuances, and settlement in the roll forward of activity in Level 3 fair
value measurements.  Those disclosures are effective for fiscal years
beginning after December 15, 2010, and for interim periods within those fiscal
years. The amendments in this Update are effective for interim and annual
periods ending on or after December 15, 2009, and should be applied on a
retrospective basis.  The adoption of this standard is not expected to
have a material impact on the Company’s financial position and results of
operations.  The adoption of this standard did not have an impact on
the Company’s financial position and results of operations.


7


MEGOLA,
INC.


Notes
to Unaudited Interim Consolidated Financial Statements for the Six Months ended
January 31, 2010


(Amounts
expressed in US dollars)





3.
            ACCOUNTING
      STANDARDS UPDATES (con’t)




In August
2009, the FASB issued ASU 2009-05 which includes amendments to Subtopic 820-10,
“Fair Value Measurements and Disclosures—Overall”. The update provides
clarification that in circumstances, in which a quoted price in an active market
for the identical liability is not available, a reporting entity is required to
measure fair value using one or more of the techniques provided for in this
update. The amendments in this ASU clarify that a reporting entity is not
required to include aseparate
input or adjustment to other inputs relating to the existence of a restriction
that prevents the transfer of the liability and also clarifies that both a
quoted price in an active market for the identical liability at the measurement
date and the quoted price for the identical liability when traded as an asset in
an active market when no adjustments to the quoted price of the asset are
required are Level 1 fair value measurements. The guidance provided in this ASU
is effective for the first reporting period, including interim periods,
beginning after issuance.  The adoption of this standard did not have
a material impact on the Company’s financial position and results of
operations.





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.





4.
            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.





5.
            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.





6.
            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
$110,558.


8


MEGOLA,
INC.


Notes
to Unaudited Interim Consolidated Financial Statements for the Six Months ended
January 31, 2010


(Amounts
expressed in US dollars)





7.
            CASH
      FLOW INFORMATION





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





January 31,
                      
                      
                      January 31,2010
                      
                      
                      2009Depreciation
                      
                      
                      2,256
                      
                      
                      
                      1,144Stock-based
      compensation for services rendered
                      
                      
                      64,000
                      
                      
                      
                      72,500(Increase)
      decrease in loan receivable
                      
                      
                      (61,352
                      )
                      
                      
                      (319
                      )(Increase)
      decrease in inventory
                      
                      
                      45,304
                      
                      
                      
                      (201,204
                      )(Increase)
      decrease in prepaid expenses
                      
                      
                      13,944
                      
                      
                      
                      113Increase
      (decrease) in accounts payable
                      
                      
                      31,729
                      
                      
                      
                      33,926Increase
      (decrease) in accrued expenses and other
                      
                      
                      14,847
                      
                      
                      
                      (32,624
                      )Increase
      (decrease) in accrued interest
                      
                      
                      -
                      
                      
                      
                      5,215(110,728
                      )
                      
                      
                      (61,775
                      )





8.
            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, 2010Revenues
                        
                        $
                        315,271
                        
                        
                        $
                        -
                        
                        
                        $
                        315,271Net
      Income (Loss)
                        
                        $
                        201,403
                        
                        
                        
                        -
                        
                        
                        $
                        201,403Interest
      Expense
                        
                        $
                        1,418
                        
                        
                        $
                        -
                        
                        
                        $
                        1,418Total
      Assets
                        
                        
                        1,776,018
                        
                        
                        $
                        -
                        
                        
                        $
                        1,776,018





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


9.
            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.


9


MEGOLA,
INC.


Notes
to Unaudited Interim Consolidated Financial Statements for the Six Months ended
January 31, 2010 (Amounts expressed in US dollars)





9.
            INTANGIBLE
      ASSET


DISTRIBUTION
RIGHTS (con’t)





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.





On
January 28, 2010, the sales/performance quota in the agreement with PCL has been
completely removed.





10.
            ADVANCES
      FROM STOCKHOLDERS





Included
in the balance are advances in the amount of $19,597 unsecured, bearing interest
at 6% and are due on demand.





11.
            CAPITAL
      STOCK AND ADDITIONAL PAID IN
CAPITAL




(a) Common stock


Common
stock ($.001 par value per share): 200,000,000 shares are authorized, with
704,080 shares issued and outstanding at January 31, 2010 and 663,749 at July
31, 2009.





On August
5, 2009, Megola issued 3,200,000 shares of its common stock, for consulting
services, under an agreement, valued at $64,000.  These shares were
affected by the 1:50 reverse split that took place on November 25, 2009 and were
converted into 64,000 shares.





On
September 28, 2009, Megola’s common stock decreased by 41,500 shares, due to a
tender offer to the company’s Series A Convertible Preferred
stock.  These shares were submitted for tender prior to the deadline
of June 15, 2009; however, an error was made in the transmittal of the request
and subsequently was not processed until this time. These shares were affected
by the 1:50 reverse split that took place on November 25, 2009 and were
converted into 830 shares.


10


MEGOLA,
INC.


Notes
to Unaudited Interim Consolidated Financial Statements for the Six Months ended
January 31, 2010 (Amounts expressed in US dollars)





11.
            CAPITAL
      STOCK AND ADDITIONAL PAID IN
CAPITAL




(a)
Common Stock (con’t)


On
November 25, 2009 Megola approved a corporate action of a reverse 1:50 stock
split.  The Management and Board of Directors of Megola Inc. have
reviewed the recent activity and events of the company and feel that the
company's common stock is vastly undervalued. Megola has therefore initiated a
comprehensive plan to increase the share value of the common stock.





On
January 21, 2010, Megola’s common stock decreased by 1,143,500 shares, due to a
tender offer to the company’s Series A Convertible Preferred
stock.  These shares were submitted late due to a late conversion
instruction provided to the transfer agent.  These shares were
affected by the 1:50 reverse split that took place on November 25, 2009 and were
converted into 22,838 shares.





(b)
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.




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.





On
September 28, 2009, the company’s Series A Convertible Preferred stock increased
by 1,660 shares and common stock decreased by 41,500 shares, due to a tender
offer for the company’s Series A Convertible Preferred stock.  These
shares were submitted for tender prior to the deadline of June 15, 2009;
however, an error was made in the transmittal of the request and subsequently
was not processed until this time.





On
January 21, 2010, the company’s Series A Convertible Preferred stock increased
by 45,740 shares and common stock decreased by 22,838 shares, due to a tender
offer to the company’s Series A Convertible Preferred stock.  These
shares were submitted late due to a late conversion instruction provided to the
transfer agent.





(c)
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.





On
January 29, 2010, Megola issued 16,561 shares of its Preferred B
stock.  The stock was issued in return for a stockholder
loan.


11


MEGOLA,
INC.


Notes
to Unaudited Interim Consolidated Financial Statements for the Six Months ended
January 31, 2010 (Amounts expressed in US dollars)





11.
            CAPITAL
      STOCK AND ADDITIONAL PAID IN CAPITAL
(con’t)





(d)
Additional paid in capital


From the
year ended July 31, 2009 to the end of the quarter ended January 31, 2010,
additional paid in capital increased by $229,512 due to the company issuing
common stock for services, common stock being converted to Preferred “A”, debt
converted to Preferred “B”, and common stock being decreased due to the reverse
1:50 stock split.





(e) The
Company has a Stock Incentive Plan for employees and
consultants.  There were no shares issued under the plan during the
three months ended January 31, 2010.





12.
            LEASE
      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
                  
                  $
                  41,332Year
      Ended
                  July
      31, 2011
                  
                  $
                  41,332Year
      Ended
                  July
      31, 2012
                  
                  $
                  41,332Year
      Ended
                  July
      31, 2013
                  
                  $
                  41,332Year
      Ended
                  July
      31, 2014
                  
                  $
                  3,444Total
                  
                  
                  $
                  168,772WarehouseYear
      Ended
                  July
      31, 2010
                  
                  $
                  16,834Year
      Ended
                  July
      31, 2011
                  
                  $
                  16,834Year
      Ended
                  July
      31, 2012
                  
                  $
                  16,834Year
      Ended
                  July
      31, 2013
                  
                  $
                  16,834Year
      Ended
                  July
      31, 2014
                  
                  $
                  1,403Total
                  
                  
                  $
                  68,739





(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
                      
                      $
                      38,538Year
      Ended
                      July
      31, 2011
                      
                      $
                      38,538Year
      Ended
                      July
      31, 2012
                      
                      $
                      6,423Total
                      
                      
                      $
                      83,499





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





Year
      Ended
                  July
      31, 2010
                  
                  $
                  9,027Year
      Ended
                  July
      31, 2011
                  
                  $
                  9,027Year
      Ended
                  July
      31, 2012
                  
                  $
                  6,771Total
                  
                  
                  $
                  24,825


12


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, 2010





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.





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 loss for the six months ended January 31, 2010 vs. six months ended January
31, 2009 was $201,403. The Company has an accumulated deficit of $6,075,178 as
of January 31, 2010. 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.


13


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 two customers, New Fire Solutions LLC for sales accounting for
approximately 40% and EcoBlu Products Inc. for sales accounting for
approximately 39% of our revenues in the first 6 months of fiscal year 2010.
Megola was dependant on two vendors, Silver Best SDN BHD for purchases
accounting for 59% of costs of good sold and Holly Oak Chemical, Inc. for
purchases accounting for 41% of cost of goods for the first 6 months of fiscal
year 2010. 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 2010.





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.





RESULTS
OF OPERATIONS





Three
months ended January 31, 2010 vs. three months ended January 31,
2009.





Our
revenues for the three months ended January 31, 2010 vs. three months ended
January 31, 2009 decreased 56.12% from $402,845 to $176,784 due to a one-time
royalty purchase payment from Vulcan Technologies that took place last
year.





Our cost
of sales for the three months ended January 31, 2010 vs. three months ended
January 31, 2009 increased 4,359.55% from $1,330 to $59,312. The overall
increase in the cost of sales during this period is directly attributable to the
sales of Hartindo product.





Our
general and administrative expenses for the three months ended January 31, 2010
vs. three months ended January 31, 2009 increased 61.17% from $117,376 to
$189,169 due to an increase in purchases of Hartindo products, insurance
premiums and transfer agent fees.





Our
interest expense for the three months ended January 31, 2010 vs. three months
ended January 31, 2009 decreased 82.95% from $4,194 to $715 due to the Company's
decreased interest owing towards stockholder loans.





Accordingly,
our net loss for the three months ended January 31, 2010 vs. three months ended
January 31, 2009 was $73,443.





Six
months ended January 31, 2010 vs. Six months ended January 31,
2009.





Our
revenues for the six months ended January 31, 2010 vs. six months ended January
31, 2009 decreased 23.90% from $414,256 to $315,271 due to a one-time royalty
purchase payment from Vulcan Technologies that took place last
year.





Our cost
of sales for the six months ended January 31, 2010 vs. six months ended January
31, 2009 increased 1,284.35% from $6,679 to $92,461. The overall increase in the
cost of sales during this period is directly attributable to the sales of
Hartindo product.





Our
general and administrative expenses for the six months ended January 31, 2010
vs. six months ended January 31, 2009 increased 37.64% from $259,031 to $356,539
due to an increase in purchases of Hartindo products, shipping and receiving
costs, insurance premiums and transfer agent fees.





Our
interest expense for the six months ended January 31, 2010 vs. six months ended
January 31, 2009 decreased 85.30% from $9,646 to $1,418 due to the Company's
decreased interest owing towards stockholder loans.





Accordingly,
our net loss for the six months ended January 31, 2010 vs. six months ended
January 31, 2009 was $201,403.





LIQUIDITY
AND CAPITAL RESOURCES





The
financial statements as of and for the period ending January 31, 2010 have been
prepared assuming we continue as a going concern.





At
January 31, 2010, we had an accumulated deficit of $6,075,178.


14


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 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.





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
November 24, 2009





Form:
8-K Filing Date
November 25, 2009





Form:
8-K Filing Date
December 15, 2009


15


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





Date:
March 11, 2010


16