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: October 31, 2010


Or


o 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:
27,075,755 at October 31, 2010.







Megola,
Inc.





TABLE
OF CONTENTS




PART
      IItem
      1.
                        Unaudited
      Interim Consolidated Financial Statements
                        3Item
      2.
                        Management’s
      Discussion and Analysis or Plan of Operations
                        13Item
      3.
                        Controls
      and Procedures
                        14PART
      IIItem
      1.
                        Legal
      Proceedings
                        15Item
      2.
                        Change
      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
                        15Signatures
                        15


2




PART
I - FINANCIAL INFORMATION


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


Three Months Ended(Amounts
expressed in US dollars)




MEGOLA,
INC.


CONSOLIDATED
BALANCE SHEETS


(Amounts expressed in US dollars)




October 31,
                      
                      
                      July 31,2010
                      
                      
                      2010(Unaudited)
                      
                      
                      (Audited)ASSETSInventory
                      
                      $
                      209,154
                      
                      
                      $
                      209,334Prepaid
      expenses
                      
                      
                      6,628
                      
                      
                      
                      13,595Accounts
      receivable, net
                      
                      
                      2,625
                      
                      
                      
                      7,855Total
      Current Assets
                      
                      
                      218,407
                      
                      
                      
                      230,784Property
      and equipment, net
                      
                      
                      6,233
                      
                      
                      
                      7,389TOTAL
      ASSETS
                      
                      $
                      224,640
                      
                      
                      $
                      238,173LIABILITIESBank
      overdraft
                      
                      $
                      20,026
                      
                      
                      $
                      20,729Accrued
      expenses
                      
                      
                      148,535
                      
                      
                      
                      168,992Accounts
      payable
                      
                      
                      70,838
                      
                      
                      
                      64,230Accrued
      interest
                      
                      
                      1,203
                      
                      
                      
                      -Loans
      payable
                      
                      
                      1,644
                      
                      
                      
                      1,134Advances
      from stockholders
                      
                      
                      120,201
                      
                      
                      
                      115,437Convertible
      Debenture
                      
                      
                      27,551
                      
                      
                      
                      20,000Total
      Current Liabilities
                      
                      
                      389,998
                      
                      
                      
                      390,522Commitments
      and Contingencies
                      
                      
                      -
                      
                      
                      
                      -STOCKHOLDERS'
      EQUITY (DEFICIT)Capital
      stock: (note 8)Common,
      $0.001 par value; 200,000,000 shares authorized, 27,075,755 and 33,570,455
      issued and outstanding as of October 31, 2010 and July 31, 2010
      respectively
                      
                      
                      27,076
                      
                      
                      
                      33,570Preferred
      "A", $0.001 par value; 3,500,000 shares authorized, 1,071,741 and
      1,092,225 issued and outstanding as of October 31, 2010 and July 31, 2010
      respectively
                      
                      
                      1,072
                      
                      
                      
                      1,092Preferred
      "B", $0.001 par value; 1,500,000 shares authorized, 117,879 and 47,561
      issued and outstanding as of October 31, 2010 and July 31, 2010
      respectively
                      
                      
                      118
                      
                      
                      
                      47Treasury
      stock
                      
                      
                      (1,080
                      )Additional
      paid in capital (note 8)
                      
                      
                      7,846,738
                      
                      
                      
                      7,761,917Deficit
                      
                      
                      (7,916,177
                      )
                      
                      
                      (7,830,206
                      )Accumulated
      other comprehensive loss:Foreign
      currency translation adjustment
                      
                      
                      (123,105
                      )
                      
                      
                      (118,769
                      )Total
      Stockholders' Equity
                      
                      
                      (165,358
                      )
                      
                      
                      (152,349
                      )TOTAL
      LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
                      
                      
                      224,640
                      
                      
                      
                      238,173
 
 See
accompanying notes to audited consolidated financial
statements


3





MEGOLA,
INC.


CONSOLIDATED
STATEMENTS OF OPERATIONS


Amounts expressed in US dollars)




For
      3 Months EndedOctober 31,
                        
                        
                        October
      31,2010
                        
                        
                        2009Income
      - sales
                        
                        $
                        1,763
                        
                        
                        $
                        138,487Cost
      of sales
                        
                        
                        180
                        
                        
                        
                        33,149GROSS
      PROFIT (LOSS)
                        
                        
                        1,583
                        
                        
                        
                        105,338General
      and administrative
                        
                        
                        83,769
                        
                        
                        
                        167,370Depreciation
                        
                        
                        1,212
                        
                        
                        
                        1,225Interest
                        
                        
                        2,573
                        
                        
                        
                        703Consulting
      fees
                        
                        
                        -
                        
                        
                        
                        64,000TOTAL
      EXPENSES
                        
                        
                        87,554
                        
                        
                        
                        233,298NET
      LOSS
                        
                        
                        (85,971
                        )
                        
                        
                        (127,960
                        )Foreign
      currency translation adjustment
                        
                        
                        (4,336
                        )
                        
                        
                        (11,118
                        )COMPREHENSIVE
      LOSS
                        
                        $
                        (90,307
                        )
                        
                        $
                        (139,078
                        )Weighted
      average common shares outstanding
                        
                        
                        28,572,146
                        
                        
                        
                        33,172,159Loss
      per share - basic and diluted
                        
                        
                        (0.003
                        )
                        
                        
                        (0.004
                        )
 
 See
accompanying notes to audited consolidated financial
statements




4




MEGOLA,
INC.


CONSOLIDATED
STATEMENTS OF CASH FLOWS


(Amounts expressed in US dollars)




3 Months EndedOctober
      31,
                        
                        
                        October
      31,2010
                        
                        
                        2009CASH
      FLOWS FROM OPERATING ACTIVITIESNet
      loss for the period
                        
                        
                        (85,971
                        )
                        
                        
                        (127,960
                        )Adjustments
      to reconcile net loss to net cash used in operating
      activities:Non-cash operationg
      transactionsDepreciation
                        
                        
                        1,156
                        
                        
                        
                        1,225Amortization
      of beneficial conversion privilege
                        
                        
                        15,593
                        
                        
                        
                        -Shares
      issued for rent
                        
                        
                        6,967
                        
                        
                        
                        -Shares
      issued for services
                        
                        
                        -
                        
                        
                        
                        64,000Allowance
      for doubtful accounts
                        
                        
                        5,230
                        
                        
                        
                        -Cash used by operating
      activitiesLong
      term receivable
                        
                        
                        -
                        
                        
                        
                        (7,361
                        )Inventory
                        
                        
                        180
                        
                        
                        
                        (2,318
                        )Prepaid
      expenses
                        
                        
                        -
                        
                        
                        
                        6,973Accounts
      payable
                        
                        
                        6,610
                        
                        
                        
                        38,011Accrued
      Interest
                        
                        
                        1,203
                        
                        
                        
                        -Accrued
      expenses
                        
                        
                        (20,457
                        )
                        
                        
                        (2,575
                        )Cash
      flows used in operating activites
                        
                        
                        (69,489
                        )
                        
                        
                        (30,005
                        )CASH
      FLOWS FROM FINANCING ACTIVITESIncrease
      (decreased) in bank indebtedness
                        
                        
                        (703
                        )
                        
                        
                        -Advances
      from stockholders
                        
                        
                        5,273
                        
                        
                        
                        120,985Convertible
      deventure borrowing
                        
                        
                        70,000
                        
                        
                        
                        -Cash
      flows provided from financing activities
                        
                        
                        74,570
                        
                        
                        
                        120,985CASH
      FLOWS FROM INVESTING ACTIVITESBuyback
      of common stock
                        
                        
                        (745
                        )
                        
                        
                        -Cash
      flows used in investing activities
                        
                        
                        (745
                        )
                        
                        
                        -EFFECT
      OF EXCHANGE RATE CHANGES ON CASH
                        
                        
                        (4,336
                        )
                        
                        
                        (11,118
                        )NET
      INCREASE (DECREASE) IN CASH FOR THE YEAR
                        
                        
                        4,336
                        
                        
                        
                        79,862NET
      CASH, beginning of year
                        
                        
                        -
                        
                        
                        
                        (74,737
                        )NET
      CASH, end of year
                        
                        
                        -
                        
                        
                        
                        5,125SUPPLEMENTAL
      CASH FLOW INFORMATIONInterest
      paid
                        
                        
                        2,573
                        
                        
                        
                        -Income
      taxes paid
                        
                        
                        -
                        
                        
                        
                        -NONCASH
      INVESTING AND FINANCING ACTIVITIES:Issuance
      of stock for services rendered
                        
                        
                        -
                        
                        
                        
                        64,000





See
accompanying notes to audited interim consolidated financial statements


5




Megola,
Inc.
 CONSOLIDATED  STATEMENTS
OF STOCKHOLDERS' EQUITY (DEFICIENCY)  (Amounts
expressed in US dollars)


Common
      Stock
                                        
                                        
                                        Preferred
      Stock Series "A"
                                        
                                        
                                        Preferred
      Stock Series "B"Shares
                                        
                                        
                                        Amount
                                        
                                        
                                        Shares
                                        
                                        
                                        Amount
                                        
                                        
                                        Shares
                                        
                                        
                                        AmountBalances,
      July 31, 2009
                                        
                                        
                                        663,749
                                        
                                        
                                        $
                                        664
                                        
                                        
                                        
                                        1,911,940
                                        
                                        
                                        $
                                        1,912
                                        
                                        
                                        
                                        137,885
                                        
                                        
                                        $
                                        138Stock
      for services
                                        
                                        
                                        64,000
                                        
                                        
                                        
                                        64
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        5,000
                                        
                                        
                                        
                                        5Common  converted
      to Preferred "A"
                                        
                                        
                                        (23,668
                                        )
                                        
                                        
                                        (24
                                        )
                                        
                                        
                                        47,400
                                        
                                        
                                        
                                        48
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -Debt
      converted to Preferred "B"
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        16,561
                                        
                                        
                                        
                                        16Preferred
      "A" converted to common
                                        
                                        
                                        21,677,874
                                        
                                        
                                        
                                        21,678
                                        
                                        
                                        
                                        (867,115
                                        )
                                        
                                        
                                        (867
                                        )Preferred
      "B" converted to common
                                        
                                        
                                        11,188,500
                                        
                                        
                                        
                                        11,188
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        (111,885
                                        )
                                        
                                        
                                        (112
                                        )Net
      Loss
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -Foreign
      CurrencyTranslation
      Adjustment
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -Balances,
      July 31, 2010
                                        
                                        
                                        33,570,455
                                        
                                        
                                        $
                                        33,570
                                        
                                        
                                        
                                        1,092,225
                                        
                                        
                                        $
                                        1,092
                                        
                                        
                                        
                                        47,561
                                        
                                        
                                        $
                                        47Common
      converted to Preferred A
                                        
                                        
                                        (1,000,000
                                        )
                                        
                                        
                                        (1,000
                                        )
                                        
                                        
                                        40,000
                                        
                                        
                                        
                                        40
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -Common
      converted to Preferred B
                                        
                                        
                                        (7,031,800
                                        )
                                        
                                        
                                        (7,032
                                        )
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        70,318
                                        
                                        
                                        
                                        70Preferred
      "A" converted to Common
                                        
                                        
                                        1,537,100
                                        
                                        
                                        
                                        1,537
                                        
                                        
                                        
                                        (61,484
                                        )
                                        
                                        
                                        (61
                                        )
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -Common
      stock buyback
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -Beneficial
      conversion feature
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -Net
      Loss
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -Foreign
      CurrencyTranslation
      Adjustment
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -Balances,
      October 31, 2010
                                        
                                        
                                        27,075,755
                                        
                                        
                                        
                                        27,075
                                        
                                        
                                        
                                        1,070,741
                                        
                                        
                                        
                                        1,072
                                        
                                        
                                        
                                        117,879
                                        
                                        
                                        
                                        118Comprehensive
                                        
                                        
                                        Paid
      In
                                        
                                        
                                        AccumulatedTreasury
      Stock
                                        
                                        
                                        Income
      (Loss)
                                        
                                        
                                        Capital
                                        
                                        
                                        Deficit
                                        
                                        
                                        TotalsShares
                                        
                                        
                                        AmountBalances,
      July 31, 2009
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        (92,327
                                        )
                                        
                                        $
                                        7,514,297
                                        
                                        
                                        $
                                        (5,873,774
                                        )
                                        
                                        $
                                        1,550,910Stock
      for services
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        113,931
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        114,000Common  converted
      to Preferred "A"
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        (24
                                        )
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -Debt
      converted to Preferred "B"
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        165,600
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        165,616Preferred
      "A" converted to common
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        (20,811
                                        )
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -Preferred
      "B" converted to common
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        (11,076
                                        )
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -Net
      Loss
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        (1,956,432
                                        )
                                        
                                        
                                        (1,956,432
                                        )Foreign
      CurrencyTranslation
      Adjustment
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        (26,442
                                        )
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        (26,442
                                        )Balances,
      July 31, 2010
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        (118,769
                                        )
                                        
                                        $
                                        7,761,917
                                        
                                        
                                        $
                                        (7,830,206
                                        )
                                        
                                        $
                                        (152,348
                                        )Common
      converted to Preferred "A"
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        960
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -Common
      converted to Preferred "B"
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        6,962
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -Preferred
      "A" converted to Common
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        (1,476
                                        )
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -Common
      stock buyback
                                        
                                        
                                        18,000
                                        
                                        
                                        
                                        (1,080
                                        )
                                        
                                        
                                        -
                                        
                                        
                                        
                                        335
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        (745
                                        )Beneficial
      conversion feature
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        78,042
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        78,042Net
      Loss
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        (85,971
                                        )
                                        
                                        
                                        (85,971
                                        )Foreign
      CurrencyTranslation
      Adjustment
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        (4,336
                                        )
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        (4,336
                                        )Balances,
      October 31, 2010
                                        
                                        
                                        18,000
                                        
                                        
                                        
                                        (1,080
                                        )
                                        
                                        
                                        (123,105
                                        )
                                        
                                        
                                        7,846,738
                                        
                                        
                                        
                                        (7,916,177
                                        )
                                        
                                        
                                        (165,358
                                        )
 
 See
accompanying notes to audited interim consolidated financial
statements


6





MEGOLA,
INC.


Notes
to Unaudited Interim Consolidated Financial Statements for the Three Months
ended October 31, 2010


(Amounts
expressed in US dollars)





1.
            NATURE
      OF BUSINESS





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


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


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 2010 as reported in the 10-K have been
omitted.





2.
            GOING
      CONCERN


These
consolidated financial statements have been prepared on a going concern basis
which contemplates the realization of assets and the payment of liabilities in
the ordinary course of business. As shown in the accompanying consolidated
financial statements, Megola incurred recurring net losses of $70,378 and
$127,960 in the 2010 and 2009 quarter ended respectively, and negative cash
flows from operations of $69,489 and a deficit of $7,900,584 as at October 31,
2010. These conditions create an uncertainty as to Megola's ability to continue
as a going concern. At present, the Company does not have sufficient resources
to fund its current working capital requirements. The Company's financing plans
include obtaining additional capital through various debt and/or equity
financing arrangements to service its current working capital requirements; any
additional or unforeseen obligations and to fund the implementation of future
opportunities. Should the Company be unable to continue as a going concern, it
may be unable to realize the carrying value of its assets and to meet its
liabilities as they become due. These consolidated financial statements do not
include any adjustments for this uncertainty.


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


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


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


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


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


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





3.
            RECENT
      ACCOUNTING PRONOUNCEMENTS





In
January 2010, the FASB has published ASU 2010-01 “Equity (Topic 505) - Accounting for
Distributions to Shareholders with Components of Stock and Cash—a consensus of
the FASB Emerging Issues Task Force,”as codified in ASC 505. ASU
No. 2010-01 clarifies the treatment of certain distributions to
shareholders that have both stock and cash components. The stock portion of such
distributions is considered a share issuance that is reflected in earnings per
share prospectively and is not a stock dividend. 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.  Early adoption is
permitted.  The adoption of this standard did not have an impact on the
Company’s consolidated financial position and results of
operations.





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 consolidated financial
position and results of operations.


7





MEGOLA,
INC.


Notes
to Unaudited Interim Consolidated Financial Statements for the Three Months
ended October 31, 2010


(Amounts
expressed in US dollars)





3.
            RECENT
      ACCOUNTING PRONOUNCEMENTS
(continued)





In
February 2010, the FASB issued ASU 2010-09 which requires that an SEC
filer, as defined, evaluate subsequent events through the date that the
financial statements are issued. The update also removed the requirement for an
SEC filer to disclose the date through which subsequent events have been
evaluated in originally issued and revised financial statements. The adoption of
this guidance on January 1, 2010 did not have a material effect on the
Company’s consolidated financial statements.





In April
2010, the FASB issued Accounting Standard Update No. 2010-13 “Stock
Compensation” (Topic 718). ASU No.2010-13 provides amendments to Topic 718 to
clarify that an employee share-based payment award with an exercise price denominated
in the currency of a market in which a substantial portion of the entity's
equity securities trades should not be considered to contain a condition that is
not a market, performance, or service condition. Therefore, an entity would not
classify such an award as a liability if it otherwise qualifies as equity. The
amendments in this Update are effective for fiscal years, and interim periods
within those fiscal years, beginning on or after December 15, 2010. The
amendments in this Update should be applied by recording a cumulative-effect
adjustment to the opening balance of retained earnings. The cumulative-effect
adjustment should be calculated for all awards outstanding as of the beginning
of the fiscal year in which the amendments are initially applied, as if the
amendments had been applied consistently since the inception of the award. The
cumulative-effect adjustment should be presented separately. Earlier application
is permitted. The adoption of this guidance has not had and is not expected to
have a material impact on the Company’s consolidated financial
statements.


In August
2010, the FASB issued Accounting Standard Updates No. 2010-21 (ASU No. 2010-21)
“Accounting for Technical Amendments to Various SEC Rules and Schedules” and No.
2010-22 (ASU No. 2010-22) “Accounting for Various Topics – Technical Corrections
to SEC Paragraphs”.  ASU No 2010-21 amends various SEC paragraphs pursuant
to the issuance of Release no. 33-9026: Technical Amendments to Rules, Forms,
Schedules and Codification of Financial Reporting Policies.  ASU No.
2010-22 amends various SEC paragraphs based on external comments received and
the issuance of SAB 112, which amends or rescinds portions of certain SAB
topics.  Both ASU No. 2010-21 and ASU No. 2010-22 are effective upon
issuance.  The amendments in ASU No. 2010-21 and No. 2010-22 will not have
a material impact on the Company’s financial statements.


Other
ASUs not effective until after September 30, 2010, are not expected to have a
significant effect on the Company’s consolidated financial position or results
of operations.





4. 
          INVENTORY





Inventory
is valued at the lower of cost (determined on a first -in, first-out method) and
net realizable value.   Megola records provisions to write down its
inventory for estimated obsolescence or unmarketable inventory equal to the
difference between cost of the inventory and its estimated net realizable value
based on assumptions about future market demand and market conditions. If future
demand or market conditions are less favorable than currently expected,
additional inventory provisions may be required. During the quarters ended
October 31, 2010 and 2009 impairment expense was $nil and $nil, respectively
related to inventory impairments. In the year ending July 31, 2007, included in
the impairment reserve is $245,032 for slow moving products. These products are
in good condition and are still expected to be sold.





5. 
         CONVERTIBLE NOTES
PAYABLE





On July
16, 2010, a third party loaned the Company $20,000. The loan bears a rate of
interest of 9% per annum and is payable on April 6, 2011 or such earlier date as
this Debenture is required or permitted to be repaid as provided hereunder (the
“Maturity Date”), and to pay interest to the Holder on the aggregate unconverted
and then outstanding principal amount of this Debenture at the rate of 9% per
annum, payable on the Maturity Date, unless the Debenture is converted to
shares of common stock in accordance with the terms and conditions herein.. The
holder of the note has the right to convert the note into common stock of the
Company at a price of $0.01 per share of common stock or a price of seventy
percent (70%) of the average of the two lowest volume weighted average prices
(“VWAPs”), determined on the then current trading market for the Company’s
common stock, for ten (10) trading days prior to conversion (the “Set Price”),
at the option of the Holder, in whole at any time and from time to
time.





The
Company has calculated a beneficial conversion feature of $11,746, which has
been deducted from the total amount owed, and shown as additional paid up
capital. This beneficial conversion feature has been amortized over the life of
the convertible debenture, which amounts to $4,568, for the three months ended
October 31, 2010.




8




MEGOLA,
INC.


Notes
to Unaudited Interim Consolidated Financial Statements for the Three Months
ended October 31, 2010


(Amounts
expressed in US dollars)





5.
            CONVERTIBLE
      NOTES PAYABLE (continued)





On
October 19, 2010, Megola was issued $25,000 as proceeds from a 9% Convertible
Debenture issued to Tangiers Investors, LP (the “Holder) and designated as its
9% Convertible Debenture due July 19, 2011.


Megola
promises to pay to the Holder the principal sum of $25,000 on July 19, 2011 or
such earlier date as this Debenture is required or permitted to be repaid as
provided hereunder, and to pay interest to the Holder on the aggregate
unconverted and then outstanding principal amount of this Debenture at the rate
of 9% per annum, payable on the Maturity Date, unless the Debenture is converted
to shares of common stock in accordance with the terms and conditions
herein.


This
Debenture is exchangeable for an equal aggregate principal amount of Debentures
of different authorized denominations, as requested by the Holder surrendering
the same. No service charge will be made for such registration of transfer or
exchange.


This
Debenture may be transferred or exchanged only in compliance with applicable
federal and state securities laws and regulations. Prior to due presentment to
the Company for transfer of this Debenture, the Company and any agent of the
Company may treat the Person in whose name this Debenture is duly registered on
the Debenture Register as the owner hereof for the purpose of receiving payment
as herein provided and for all other purposes, whether or not this Debenture is
overdue, and neither the Company nor any such agent shall be affected by notice
to the contrary.





The
Company has calculated a beneficial conversion feature of $21,296, which has
been deducted from the total amount owed, and shown as additional paid up
capital. This beneficial conversion feature has been amortized over the life of
the convertible debenture, which amounts to $1,025, for the three months ended
October 31, 2010.





On August
31, 2010, Megola (“Company”) entered into a Securities Purchase Agreement with
Asher Enterprises, Inc. (“Buyer”).


The basic
parameters of the Agreement with Asher Enterprises, Inc. will include, but not
be limited to, the following:


(a) The
Company and the Buyer is executing and delivering this Agreement in reliance
upon the exemption from securities registration afforded by the rules and
regulations as promulgated by the United States Securities and Exchange
Commission (the “SEC”) under the Securities Act of 1933, as amended (the “1933
Act”);





(b) Buyer
desires to purchase and the Company desires to issue and sell, upon the terms
and conditions set forth in this Agreement an 8% convertible note of the
Company, in the form attached hereto as Exhibit A, in the aggregate principal
amount of $45,000 (together with any note(s) issued in replacement thereof or as
a dividend thereon or otherwise with respect thereto in accordance with the
terms thereof, the “Note”), convertible into shares of common stock of the
Company (the “Common Stock”), upon the terms and subject to the limitations and
conditions set forth in such Note.





(c) The
Buyer wishes to purchase, upon the terms and conditions stated in this
Agreement, such principal amount of Note as is set forth immediately below its
name on the signature pages hereto





The
Company has calculated a beneficial conversion feature of 45,000, which has been
deducted in full from the total amount owed, and shown as additional paid up
capital. This beneficial conversion feature has been amortized over the life of
the convertible debenture, which amounts to $10,000, for the three months ended
October 31, 2010.





6.
            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
                  
                  
                  TotalThree
      months ended October 31, 2010Revenues
                  
                  $
                  1,763
                  
                  
                  $
                  -
                  
                  
                  $
                  1,763Net
      Loss
                  
                  $
                  70,378
                  
                  
                  $
                  -
                  
                  
                  $
                  70,378Interest
      Expense
                  
                  $
                  2,573
                  
                  
                  $
                  -
                  
                  
                  $
                  2,573Total
      Assets
                  
                  $
                  224,640
                  
                  
                  $
                  -
                  
                  
                  $
                  224,640





Three
      months ended October 31, 2009
                      
                      North America
                      
                      
                      Asia
                      
                      
                      TotalRevenues
                      
                      $
                      138,487
                      
                      
                      $
                      -
                      
                      
                      $
                      138,487Net
      Loss
                      
                      $
                      127,960
                      
                      
                      $
                      -
                      
                      
                      $
                      127,960Interest
      Expense
                      
                      $
                      703
                      
                      
                      $
                      -
                      
                      
                      $
                      703Total
      Assets
                      
                      $
                      1,780,272
                      
                      
                      $
                      -
                      
                      
                      $
                      1,780,272





7.
            ADVANCES
      FROM STOCKHOLDERS





Included
in the balance are advances in the amount of $120,201 unsecured, bearing
interest at 6% and are due on demand.




9





MEGOLA,
INC.


Notes
to Unaudited Interim Consolidated Financial Statements for the Three Months
ended October 31, 2010


(Amounts
expressed in US dollars)





8.
            CAPITAL
      STOCK AND ADDITIONAL PAID IN
CAPITAL





(a) Common
stock





Common
stock ($.001 par value per share): 200,000,000 shares are authorized, with
27,075,755 shares issued and outstanding at October 31, 2010 and 33,570,455 at
July 31, 2010.





On
September 3, 2010, the corporation approved the conversion, thru RBC Dominion
Securities, of 7,031,800 restricted common shares of Megola Inc. (MGON) to
70,318 shares of Megola Inc Series B Preferred Stock.





On
September 8, 2010, Megola announced that the company had opened a brokerage
account with Glendale Securities for the purpose of initiating a stock buyback
plan.





On
September 9, 2010, Megola received a request from TD AMERITRADE Clearing Inc. to
reverse a conversion and transfer that was done per their request by the
transfer agent.  As the conversion and transfer from Megola Series ‘A’
Preferred stock to Megola Common stock was done without the authorization of
their client TD AMERITRADE Clearing Inc. asked for consent to reverse the
transaction and revert the Common Shares back to Preferred Series A Shares.
Megola has given consent for 1,000,000 Common Shares to be reverted back to the
original 40,000 shares of Series ‘A’ Preferred stock into the name of their
client.





On
September 17, 2010, the Company purchased 18,000 shares at 0.04 per share of its
common stock valued at $745 and will return to treasury. The stock on that day
was trading at 0.06 per share.





(b)
Preferred “A”





Preferred
A stock ($.001 par value per share): 3,500,000 shares are authorized, with
1,071,741 shares issued and outstanding at October 31, 2010 and 1,092,225 at
July 31, 2010.





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 9, 2010, Megola received a request from TD AMERITRADE Clearing Inc. to
reverse a conversion and transfer that was done per their request by the
transfer agent.  As the conversion and transfer from Megola Series ‘A’
Preferred stock to Megola Common stock was done without the authorization of
their client TD AMERITRADE Clearing Inc. asked for consent to
reverse the transaction and revert the Common Shares back to Preferred Series A
Shares. Megola has given consent for 1,000,000 Common Shares to be reverted back
to the original 40,000 shares of Series ‘A’ Preferred stock into the name of
their client.





On May
29, 2010, all Preferred series A stock were eligible for conversion back to
common stock. During the period Of August
1, 2010 to October 31, 2010, 61,484 shares of Preferred series A stock were
converted into 1,537,100 shares of common stock. One share of Series A
Convertible Preferred Stock was received for each 25 shares of common tendered.





(c)
Preferred “B”





Preferred
B stock ($.001 par value per share): 1,500,000 shares are authorized, with
117,879 shares issued and outstanding at October 31, 2010 and 47,561 at July 31,
2010.




10




MEGOLA,
INC.


Notes
to Unaudited Interim Consolidated Financial Statements for the Three Months
ended October 31, 2010


(Amounts
expressed in US dollars)





8.
            CAPITAL
      STOCK AND ADDITIONAL PAID IN CAPITAL
(continued)





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
September 3, 2010, the corporation approved the conversion, thru RBC Dominion
Securities, of 7,031,800 restricted common shares of Megola Inc. (MGON) to
70,318 shares of Megola Inc Series B Preferred Stock.





(d)Additional paid in
capital





From the
quarter ended October 31, 2010 additional paid in capital increased by $6,781
due to common stock being converted to Preferred “A”, common stock being
converted to Preferred “B”, Preferred “A” being converted to common stock and
common stock buy back.





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





9.
            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, 2011
                        
                        $
                        43,409Year
      Ended
                        
                        July
      31, 2012
                        
                        $
                        43,409Year
      Ended
                        
                        July
      31, 2013
                        
                        $
                        43,409Year
      Ended
                        
                        July
      31, 2014
                        
                        $
                        3,617Total
                        
                        
                        
                        $
                        133,844WarehouseYear
      Ended
                        
                        July
      31, 2011
                        
                        $
                        17,680Year
      Ended
                        
                        July
      31, 2012
                        
                        $
                        17,680Year
      Ended
                        
                        July
      31, 2013
                        
                        $
                        17,680Year
      Ended
                        
                        July
      31, 2014
                        
                        $
                        1,473Total
                        
                        
                        
                        $
                        54,513




(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, 2011
                        
                        $
                        40,474Year
      Ended
                        
                        July
      31, 2012
                        
                        $
                        6,746Total
                        
                        
                        
                        $
                        47,220





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




Year
      Ended
                        
                        July
      31, 2011
                        
                        $
                        9,481Year
      Ended
                        
                        July
      31, 2012
                        
                        $
                        7,111Total
                        
                        
                        
                        $
                        16,592





11




MEGOLA,
INC.


Notes
to Unaudited Interim Consolidated Financial Statements for the Three Months
ended October 31, 2010


(Amounts
expressed in US dollars)





10.
            CONTINGENCIES





On March
30, 2010, the Company entered in a Master Distributor agreement with CY Holding
Company. Through this agreement the Company acquired exclusive rights to sell
the equipment of CY Holding Company in North America.  This agreement is
contingent on the minimum annual sales of 10,000 – 20,000 units during any
calendar twelve month period. As of October 31, 2010, the Company had not sold
any units related to CY Holding’s equipment.





11.
            ALLOWANCE
      FOR DOUBTFUL ACCOUNTS





For the
period ending October 31, 2010, the Company has recorded an allowance for
doubtful account in the amount of $5,212.





12.
            SUBSEQUENT
      EVENTS





On
November 29, 2010, Megola (“Company”) entered into a Securities Purchase
Agreement with Asher Enterprises, Inc. (“Buyer”).





The basic
parameters of the Agreement with Asher Enterprises, Inc. will include, but not
be limited to, the following:





(a) The
Company and the Buyer is executing and delivering this Agreement in reliance
upon the exemption from securities registration afforded by the rules and
regulations as promulgated by the United States Securities and Exchange
Commission (the “SEC”) under the Securities Act of 1933, as amended (the “1933
Act”);





(b) Buyer
desires to purchase and the Company desires to issue and sell, upon the terms
and conditions set forth in this Agreement an 8% convertible note of the
Company, in the form attached hereto as Exhibit A, in the aggregate principal
amount of $32,500 (together with any note(s) issued in replacement thereof or as
a dividend thereon or otherwise with respect thereto in accordance with the
terms thereof, the “Note”), convertible into shares of common stock of the
Company (the “Common Stock”), upon the terms and subject to the limitations and
conditions set forth in such Note.





(c) The
Buyer wishes to purchase, upon the terms and conditions stated in this
Agreement, such principal amount of Note as is set forth immediately below its
name on the signature pages hereto


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 October 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 three months ended October 31, 2010 vs. three months ended
October 31, 2009 decreased 45.00% from $127,960 to $70,378. The Company has an
accumulated deficit of $7,900,584 as of October 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.





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.


13





Megola
was dependent on one customer, Door Painters Ltd. for a sale accounting for
approximately 100% of our revenues in the first 3 months of fiscal year 2011.
Holly Oak Chemicals accounted for 100% of cost of goods for the first 3 months
of fiscal year 2011. Sales of Hartindo products accounted for 100% of our total
gross revenues in the first 3 months of fiscal year 2011.





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 October 31, 2010 vs. three months ended October 31,
2009.





Our
revenues for the three months ended October 31, 2010 vs. three months ended
October 31, 2009 decreased 98.73% from $138,487 to $1,763 due to an decrease in
Hartindo Sales.





Our cost
of sales for the three months ended October 31, 2010 vs. three months ended
October 31, 2009 decreased 99.46% from $33,149 to $180. The overall decrease in
the cost of sales during this period is directly attributable to the decrease in
revenues.





Our
general and administrative expenses for the three months ended October 31, 2010
vs. three months ended October 31, 2009 decreased 59.27% from $167,370 to
$68,176 due to in decrease in salaries, insurance premiums and vehicle lease
commitments.





Our
interest expense for the three months ended October 31, 2010 vs. three months
ended October 31, 2009 increased 266.00% from $703 to $2,573 due to the
Company's increased interest owing towards payroll liabilities and accrued
interest on convertible debenture loans.





Accordingly,
our net loss for the three months ended October 31, 2010 vs. three months ended
October 31, 2009 decreased 45.00% from $127,960 to $70,378.





LIQUIDITY
AND CAPITAL RESOURCES





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





At
October 31, 2010, we had an accumulated deficit of $7,900,584.





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.


14





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 File Date
November 3, 2010


Form:
8-K File Date
September 22, 2010


Form:
8-K File Date
September 8, 2010





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)Date:
      December 15, 2010
              By:
              /s/ Joel GardnerJoel
      GardnerPresident,
      CEO, Principal FinancialOfficer
      and Principal Accounting Officer


15