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, 2009


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:
36,345,919 at October 31, 2009.








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
                  15PART
      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 October 31, 2009(Amounts expressed in US dollars)




MEGOLA,
INC.


CONSOLIDATED
BALANCE SHEETS


(Amounts expressed in US dollars)







October 31, 2009
                                      
                                      
                                      July 31, 2009(unaudited)
                                      
                                      
                                      (Audited)ASSETSCash
                                      
                                      $
                                      5,125
                                      
                                      
                                      $
                                      -Inventory
                                      
                                      
                                      243,341
                                      
                                      
                                      
                                      241,023Prepaid
      expenses
                                      
                                      
                                      34,509
                                      
                                      
                                      
                                      41,482Total
      Current Assets
                                      
                                      
                                      282,975
                                      
                                      
                                      
                                      282,504Long-term
      receivable - (note 5)
                                      
                                      
                                      136,115
                                      
                                      
                                      
                                      128,754Intangible
      Asset (note 8)
                                      
                                      
                                      1,350,000
                                      
                                      
                                      
                                      1,350,000Property
      and equipment, net of accumulated depreciation of $62,132
      (2008-$46,563)
                                      
                                      
                                      11,181
                                      
                                      
                                      
                                      12,424TOTAL
      ASSETS
                                      
                                      
                                      1,780,272
                                      
                                      
                                      
                                      1,773,682LIABILITIESBank
      overdraft
                                      
                                      $
                                      -
                                      
                                      
                                      $
                                      74,737Accrued
      expenses
                                      
                                      
                                      73,818
                                      
                                      
                                      
                                      76,393Accounts
      payable
                                      
                                      
                                      83,816
                                      
                                      
                                      
                                      45,822Accrued
      interest
                                      
                                      
                                      25,821
                                      
                                      
                                      
                                      25,821Advances
      from stockholders - (note 9)
                                      
                                      
                                      120,985
                                      
                                      
                                      
                                      -Total
      Liabilities
                                      
                                      
                                      304,441
                                      
                                      
                                      
                                      222,773Commitments
      and Contingencies
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -STOCKHOLDERS'
      EQUITYCapital
      stock: (note 10)Common,
      $0.001 par value; 200,000,000 shares authorized,36,345,919
      and 33,187,419 issued and outstanding at October 31, 2009 and July 31,
      2009 repectively
                                      
                                      
                                      36,345
                                      
                                      
                                      
                                      33,178Preferred
      "A", $0.001 par value; 3,500,000 shares authorized,1,913,600
      and 1,911,940 issued and outstanding at October 31, 2009 and July 31, 2009
      respectively
                                      
                                      
                                      1,914
                                      
                                      
                                      
                                      1,912Preferred
      "B", $0.001 par value; 1,500,000 shares authorized,$nil
      and 137,885 issued and outstanding at October 31, 2009 and July 31, 2009
      respectively
                                      
                                      
                                      138
                                      
                                      
                                      
                                      138Additional
      paid in capital - (note 10)
                                      
                                      
                                      7,542,614
                                      
                                      
                                      
                                      7,481,774Deficit
                                      
                                      
                                      (6,001,735
                                      )
                                      
                                      
                                      (5,873,775
                                      )Accumulated
      other comprehensive income (loss):
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -Foreign
      currency translation adjustment
                                      
                                      
                                      (103,445
                                      )
                                      
                                      
                                      (92,327
                                      )Total
      Stockholders' Equity
                                      
                                      
                                      1,475,831
                                      
                                      
                                      
                                      1,550,900TOTAL
      LIABILITIES AND STOCKHOLDERS' EQUITY
                                      
                                      $
                                      1,780,272
                                      
                                      
                                      $
                                      1,773,673





See
accompanying notes to unaudited interim consolidated financial
statements


3


MEGOLA,
INC.


CONSOLIDATED
INTERIM STATEMENTS OF OPERATIONS (UNAUDITED)


Amounts expressed in US dollars)





FOR
      THE 3 MONTHS ENDEDOctober 31,
                                    
                                    
                                    October 31,2009
                                    
                                    
                                    2008Income
      - sales
                                    
                                    $
                                    138,487
                                    
                                    
                                    $
                                    11,411Cost
      of sales
                                    
                                    
                                    33,149
                                    
                                    
                                    
                                    5,349GROSS
      PROFIT
                                    
                                    
                                    105,338
                                    
                                    
                                    
                                    6,062Income
      - royalties - (note 3)
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -105,338
                                    
                                    
                                    
                                    6,062General
      and administrative
                                    
                                    
                                    167,370
                                    
                                    
                                    
                                    146,939Depreciation
                                    
                                    
                                    1,225
                                    
                                    
                                    
                                    983Interest
                                    
                                    
                                    703
                                    
                                    
                                    
                                    5,521Consulting
      fees
                                    
                                    
                                    64,000
                                    
                                    
                                    
                                    75,000TOTAL
      EXPENSES
                                    
                                    
                                    233,298
                                    
                                    
                                    
                                    228,444NET
      LOSS
                                    
                                    
                                    (127,960
                                    )
                                    
                                    
                                    (222,382
                                    )Foreign
      currency translation adjustment
                                    
                                    
                                    (11,118
                                    )
                                    
                                    
                                    120,886-COMPREHENSIVE
      LOSS
                                    
                                    $
                                    (139,078
                                    )
                                    
                                    $
                                    (101,496
                                    )Weighted
      average common shares outstanding
                                    
                                    
                                    33,172,159
                                    
                                    
                                    
                                    79,763,279Loss
      per share - basic and diluted
                                    
                                    
                                    (0.004
                                    )
                                    
                                    
                                    (0.003
                                    )





See
accompanying notes to unaudited interim consolidated financial
statements


4


MEGOLA,
INC.


CONSOLIDATED
INTERIM STATEMENTS OF CASH FLOWS (UNAUDITED)


(Amounts expressed in US dollars)


FOR
      THE 3 MONTHS ENDEDOctober 31,
                                        
                                        
                                        October 31,2009
                                        
                                        
                                        2008CASH
      FLOWS FROM OPERATING ACTIVITIESNet
      loss for the period
                                        
                                        $
                                        (127,960
                                        )
                                        
                                        $
                                        (222,382
                                        )Adjustments
      to reconcile net loss to net cash used in operating
    activities
                                        
                                        
                                        97,955
                                        
                                        
                                        
                                        (93,040
                                        )(30,005
                                        )
                                        
                                        
                                        (315,422
                                        )CASH
      FLOWS FROM FINANCING ACTIVITESAdvances
      from stockholders
                                        
                                        
                                        120,985
                                        
                                        
                                        
                                        215,413Proceeds
      from issuance of investor loans - note payable
                                        
                                        
                                        -
                                        
                                        
                                        
                                        200,000Cash
      flows from financing activities
                                        
                                        
                                        120,985
                                        
                                        
                                        
                                        415,413CASH
      FLOWS FROM INVESTING ACTIVITESPurchase
      of property and equipment
                                        
                                        
                                        -
                                        
                                        
                                        
                                        (5,818
                                        )Cash
      flows from investing activities
                                        
                                        
                                        -
                                        
                                        
                                        
                                        (5,818
                                        )EFFECT
      OF EXCHANGE RATE CHANGES ON CASH
                                        
                                        
                                        (11,118
                                        )
                                        
                                        
                                        4,431NET
      INCREASE IN CASH FOR THE QUARTER
                                        
                                        
                                        79,862
                                        
                                        
                                        
                                        98,604NET
      CASH, beginning of year
                                        
                                        
                                        (74,737
                                        )
                                        
                                        
                                        (1,291
                                        )NET
      CASH, end of quarter
                                        
                                        
                                        5,125
                                        
                                        
                                        
                                        97,313NET
      CASH REPRESENTED BY:CASH
                                        
                                        
                                        5,125
                                        
                                        
                                        
                                        97,313BANK
      INDEBTEDNESS
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -NET
      CASH, end of period
                                        
                                        $
                                        5,125
                                        
                                        
                                        $
                                        97,313SUPPLEMENTAL
      CASH FLOW INFORMATIONInterest
      paid
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -Income
      taxes paid
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -NONCASH
      INVESTING AND FINANCING ACTIVITIES:Issuance
      of stock for services rendered
                                        
                                        
                                        64,000
                                        
                                        
                                        
                                        75,000





See
accompanying notes to unaudited interim consolidated financial
statements


5





Megola,
Inc.


CONSOLIDATED
INTERIM STATEMENTS OF STOCKHOLDERS' EQUITY - unaudited


(Amounts
expressed in US dollars)


October
31, 2009




Common
      Stock
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  Preferred
      Stock Series "A"
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  Preferred
      Stock Series "B"Shares
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  Amount
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  Shares
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  Amount
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  Shares
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  AmountBalances,
      July 31, 2008
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  78,486,029
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  $
                                                                                                                                                                                                                                                  78,486
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  -
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  $
                                                                                                                                                                                                                                                  -
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  -
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  $
                                                                                                                                                                                                                                                  -Stock
      for services
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  2,500,000
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  2,500
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  -
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  -
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  -
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  -Common  converted
      to Preferred "A"
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  (47,798,610
                                                                                                                                                                                                                                                  )
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  (47,799
                                                                                                                                                                                                                                                  )
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  1,911,940
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  1,912Debt
      converted to Preferred "B"
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  -
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  -
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  137,885
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  138Stock
      WarrantsNet
      Loss
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  -
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  -
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  -
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  -
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  -
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  -Foreign
      CurrencyTranslation
      Adjustment
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  -
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  -
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  -
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  -
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  -
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  -Balances,
      July 31, 2009
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  33,187,419
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  $
                                                                                                                                                                                                                                                  33,187
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  1,911,940
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  $
                                                                                                                                                                                                                                                  1,912
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  137,885
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  $
                                                                                                                                                                                                                                                  138Stock
      for services
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  3,200,000
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  3,200
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  -
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  -
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  -
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  -Common  converted
      to Preferred "A"
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  (41,500
                                                                                                                                                                                                                                                  )
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  (42
                                                                                                                                                                                                                                                  )
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  1,660
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  2Net
      Loss
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  -
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  -
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  -
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  -
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  -
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  -Foreign
      CurrencyTranslation
      Adjustment
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  -
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  -
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  -
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  -
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  -
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  -Balances,
      October 31, 2009
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  36,345,919
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  $
                                                                                                                                                                                                                                                  36,345
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  1,913,600
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  $
                                                                                                                                                                                                                                                  1,914
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  137,885
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  $
                                                                                                                                                                                                                                                  138Accumulated
      Other
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  AdditionalComprehensive
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  Paid
      In
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  AccumulatedIncome
      (Loss)
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  Capital
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  Deficit
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  TotalsBalances,
      July 31, 2008
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  475
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  $
                                                                                                                                                                                                                                                  5,904,612
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  $
                                                                                                                                                                                                                                                  (5,615,600
                                                                                                                                                                                                                                                  )
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  367,973Stock
      for services
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  -
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  72,500
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  -
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  75,000Common  converted
      to Preferred "A"
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  45,887
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  -Debt
      converted to Preferred "B"
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  1,378,712
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  1,378,850Stock
      Warrants
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  80,063
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  80,063Net
      Loss
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  -
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  -
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  (258,175
                                                                                                                                                                                                                                                  )
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  (258,175
                                                                                                                                                                                                                                                  )Foreign
      CurrencyTranslation
      Adjustment
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  (92,802
                                                                                                                                                                                                                                                  )
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  -
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  -
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  (92,802
                                                                                                                                                                                                                                                  )Balances,
      July 31, 2009
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  (92,327
                                                                                                                                                                                                                                                  )
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  $
                                                                                                                                                                                                                                                  7,481,774
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  $
                                                                                                                                                                                                                                                  (5,873,775
                                                                                                                                                                                                                                                  )
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  $
                                                                                                                                                                                                                                                  1,550,909Stock
      for services
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  -
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  60,800
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  -
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  64,000Common  converted
      to Preferred "A"
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  40
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  -Net
      Loss
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  -
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  -
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  (127,960
                                                                                                                                                                                                                                                  )
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  (127,960
                                                                                                                                                                                                                                                  )Foreign
      CurrencyTranslation
      Adjustment
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  (11,118
                                                                                                                                                                                                                                                  )
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  -
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  -
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  (11,118
                                                                                                                                                                                                                                                  )Balances,
      October 31, 2009
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  (103,445
                                                                                                                                                                                                                                                  )
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  $
                                                                                                                                                                                                                                                  7,542,614
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  $
                                                                                                                                                                                                                                                  (6,001,735
                                                                                                                                                                                                                                                  )
                                                                                                                                                                                                                                                  
                                                                                                                                                                                                                                                  $
                                                                                                                                                                                                                                                  1,475,831


See
accompanying notes to unaudited interim consolidated financial
statements


6





MEGOLA,
INC.


Notes
to Unaudited Interim Consolidated Financial Statements for the Three Months
ended October 31, 2009


(Amounts
expressed in US dollars)





1. 
NATURE OF BUSINESS





The
accompanying unaudited interim consolidated financial statements of Megola, Inc.
(the "Company" or “Megola”) have been prepared in accordance with accounting
principles generally accepted in the United States of America and the rules of
the Securities and Exchange Commission ("SEC"), and should be read in
conjunction with the audited consolidated financial statements and notes thereto
contained in Megola's Annual Report filed with the SEC on Form 10-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 2007 as reported in the 10-K have been
omitted.





2. GOING
CONCERN





These
unaudited interim consolidated financial statements have been prepared on a
going concern basis which contemplates the realization of assets and the payment
of liabilities in the ordinary course of business. At present, the Company does
not have sufficient resources to fund its current working capital requirements.
The Company has planned to obtain additional capital through various financing
arrangements to service its current working capital requirements, any additional
or unforeseen obligations or to implement any future opportunities. Should the
Company be unable to continue as a going concern, it may be unable to realize
the carrying value of its assets and to meet its liabilities as they become due.
These unaudited interim consolidated financial statements do not include any
adjustments for this uncertainty.


Management’s
Discussion and Analysis of Financial Condition and Results of Operation,
management has undertaken the following initiatives that it believes will be
instrumental in leading to better management of cash flows and more profitable
operations:


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


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


·
 Established relationships with Distribution groups that can provide the
necessary expertise in commercialization of our entire product line to ensure
maximum market penetration


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


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





3.  ROYALTY
INCOME





One of
the Company's manufacturers also sells certain Megola products directly
throughout Asia. By agreement, Megola is entitled to a royalty payment for each
of these units. Megola recognizes royalty revenue upon fulfillment of its
contractual obligations and upon sale by the manufacturer of royalty-bearing
products. There was no royalty income received during the fiscal year due to the
manufacturer moving its facilities to a new location in Southeast Asia, thereby
not producing or selling any additional units.





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


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


7





MEGOLA,
INC.


Notes
to Unaudited Interim Consolidated Financial Statements for the Three Months
ended October 31, 2009


(Amounts
expressed in US dollars)





4.  INVENTORY





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





5.  LONG-TERM
RECEIVABLE





The
long-term receivable balance represents an amount owing by a supplier and will
be offset against the Company’s future purchases of inventory. Since the
amount will not be collected in the next 12 months, the balance has been
classified as long-term loan receivable. The fair value of the long-term
receivable has been estimated by discounting future cash flows using an
estimated rate of 6%.  The fair value of long-term receivable is
$128,410.





6.  CASH
FLOW INFORMATION





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





October
      31
                        
                        
                        October
      312009
                        
                        
                        2008Depreciation
                        
                        
                        1,225
                        
                        
                        983Shares
      issued for consulting services
                        
                        
                        64,000
                        
                        
                        75,000(Increase)
      decrease in loan receivable
                        
                        
                        (7,361
                        )
                        
                        (8,853)(Increase)
      decrease in inventory
                        
                        
                        (2,318)
                        
                        
                        (202,534)Decrease
      in prepaid expenses
                        
                        
                        6,973
                        
                        
                        -Increase
      (decrease) in accounts payable
                        
                        
                        38,011
                        
                        
                        6,883Increase
      (decrease)  in accrued expenses
                        
                        
                        (2,575
                        )
                        
                        33,235Increase
      in accrued interest
                        
                        
                        -
                        
                        
                        2,24697,955
                        
                        
                        (93,040)





7.  SEGMENT
REPORTING





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


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





North America
                      
                      
                      Asia
                      
                      
                      TotalThree
      months ended October 31, 2008Revenues
                      
                      $
                      11,411
                      
                      
                      $
                      -
                      
                      
                      $
                      11,411Net
      Loss
                      
                      $
                      222,382
                      
                      
                      $
                      -
                      
                      
                      $
                      222,382Interest
      Expense
                      
                      $
                      5,521
                      
                      
                      $
                      -
                      
                      
                      $
                      5,521Total
      Assets
                      
                      $
                      1,837,484
                      
                      
                      $
                      -
                      
                      
                      $
                      1,837,484




8


MEGOLA,
INC.


Notes
to Unaudited Interim Consolidated Financial Statements for the Three Months
ended October 31, 2009


(Amounts
expressed in US dollars)





8.  INTANGIBLE
ASSET


DISTRIBUTION
RIGHTS





In
January 2007, the Company acquired exclusive rights to establish a distribution
network for the Hartindo line of fire safety products (“Hartindo”) from Pacific
Channel Ltd. (“PCL”), an unrelated party.  These rights were acquired
for $1,350,000 to be paid by the issuance of 30,000,000 common shares of
the Company and are considered to have an indefinite
life.




Per terms
of the distribution agreement, for each contract the Company enters into, the
following applies:





50%
      of all up-front fees received by the Company and 50% of all other forms of
      consideration received by the Company as a one-time payment for the grant
      of the distribution license shall be paid to PCL and 50% shall be retained
      by Megola





All
payments are to be made quarterly within 30 days of the end each calendar
quarter.





This
agreement, as amended subsequent to October 31, 2008 (see note 13(ii)), shall
remain in full force and effect so long as the Company and its Hartindo dealers,
sub-agents and/or sales representatives (the “Megola Group”) purchase Hartindo
products in the aggregate amounts specified below, namely:





(a)
            If
      in the period up to January 2010, the Megola Group purchases, in the
      aggregate, a minimum of US $200,000 Hartindo Products, the distribution
      agreement shall be extended until January 31, 2011;
  and





(b)
            If
      in the period up to January 31, 2011, the Megola Group purchases, in the
      aggregate, a minimum of US $300,000 Hartindo products, the distribution
      agreement shall be extended until January 31, 2012;
  and





(c)
            If
      in the period up to January 31, 2012, the Megola Group purchases, in the
      aggregate, a minimum of US $400,000 Hartindo products, the distribution
      agreement shall be extended until January 31, 2013;
  and





(d)
            If
      in the period up to January 31, 2013, the Megola Group purchases, in the
      aggregate, a minimum of US $500,000 Hartindo products, the distribution
      agreement shall be extended until January 31, 2014;
  and





(e)
            If
      in the period up to January 31, 2014, the Megola Group purchases, in the
      aggregate, a minimum of US $750,000 Hartindo products, the distribution
      agreement shall be extended for 25 years from January 31, 2014, or for
      such longer period as the Company retains the Hartindo product marketing
      rights for Canada, without any further performance conditions to be
      met.





The
Company shall deliver to PCL on or before the end of February in each and every
year, a statement showing the aggregate Hartindo purchases made by the Megola
Group in the 12 month period ended January 31 in the prior year.





Failure
to meet any of the above conditions shall give PCL the right to terminate the
distribution agreement by a written notice to the Company with the agreement
remaining in force until all payments owing by one party to another have been
made. In December 2008, the sales/performance quota in the agreement with PCL
has been moved forward starting January 31, 2010.





9.   ADVANCES
FROM STOCKHOLDERS


Included
in the balance are advances in the amount of $120,985 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, 2009


(Amounts
expressed in US dollars)





10.   CAPITAL STOCK AND ADDITIONAL PAID IN
CAPITAL





(a)
Common stock


Common
stock ($.001 par value per share): 200,000,000 shares are authorized, with
36,345,919 shares issued and outstanding at October 31, 2009 and 80,986,029 at
October 31, 2008.


On August
5, 2009, Megola issued 3,200,000 shares of its common stock, for consulting
services, under an agreement, valued at $64,000.


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





(b)
Additional paid in capital


Additional
paid in capital increased $60,840 due to the company issuing common stock for
services and common stock being converted to Preferred “A”.





(c) The
Company has a Stock Incentive Plan for employees and
consultants.  There were no shares issued under the plan during the
three months ended October 31, 2009.





(d)
Preferred “B”


On April
30, 2009, Megola issued 1,378,850 shares of its Preferred B
stock.  The stock was issued in return for various existing loans,
advances and future lease payments on one of its existing building
leases.


On April
24 2009, Megola offered to exchange selected Debt for shares of a newly created
Series B Convertible Preferred Stock, priced at $10.00 per share. The holders of
Series B Convertible Preferred Stock shall have the right to convert the Series
B Convertible Preferred Stock into Debt at a later time subject to certain
conditions.  No conversion of Series B Convertible Preferred Stock to Debt
can occur until after a holding period of twelve (12) months from date of
conversion.  Thereafter, at your option, you may convert the Series B
Convertible Preferred Stock into common stock.  For purposes of conversion,
the value of each share of Series B Convertible Preferred Stock will be deemed
to be $10.00.  The number of shares of common shares to be received upon a
conversion will be based on a value of $0.10 per share or the value of the
market bid price at the time of conversion, whichever is less.
That value will be based on the average closing bid price of the common stock
for each of the ten (10) consecutive trading days immediately prior to the date
of conversion.





(e)
Preferred “A”


On April
24, 2009, the company offered all common shareholders of record the opportunity
to tender their shares in exchange for the company’s Series A Convertible
Preferred stock.  As of the offer expiration date, June 15, 2009,
47,798,610 common shares had been tendered.  One share of Series A
Convertible Preferred Stock was received for each 25 shares of common
tendered.  There is a mandatory holding period for the Series A Convertible
that expires May 29, 2010, before shareholders can then convert back to common
shares.  The stated value of the Series A Convertible is $5. per share or
$.20 per common share.  On May 29, 2010 Preferred A shareholders may
convert their shares back to common at $.20 per common share or market,
whichever is less.  Each
Preferred Series A still represents 25 shares of common.  The holders of
Series A Convertible Preferred Stock have 100 votes for each full share Series A
Convertible Preferred Stock.


Each
Series A Preferred also has a warrant attached which allows the owner to
purchase 10 common shares at $.45 per share.  The warrant applies only to
shareholders that have not yet converted their Preferred A shares back to common
on the date they exercise their warrants.  These warrants expire on May 29,
2011.


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


10


MEGOLA,
INC.


Notes
to Unaudited Interim Consolidated Financial Statements for the Three Months
ended October 31, 2009


(Amounts
expressed in US dollars)





11.   LEASE
COMMITMENTS





(i) The
Company leased warehouse space and additional office space in Point Edward,
Ontario, and Canada that commenced September of 2008.  Required
minimum lease payments are as follows:





OfficeYear
      Ended
                  July
      31, 2010
                  
                  $
                  40,930Year
      Ended
                  July
      31, 2011
                  
                  $
                  40,930Year
      Ended
                  July
      31, 2012
                  
                  $
                  40,930Year
      Ended
                  July
      31, 2013
                  
                  $
                  40,930Year
      Ended
                  July
      31, 2014
                  
                  $
                  3,411Total
                  
                  
                  $
                  167,131WarehouseYear
      Ended
                  July
      31, 2010
                  
                  $
                  16,670Year
      Ended
                  July
      31, 2011
                  
                  $
                  16,670Year
      Ended
                  July
      31, 2012
                  
                  $
                  16,670Year
      Ended
                  July
      31, 2013
                  
                  $
                  16,670Year
      Ended
                  July
      31, 2014
                  
                  $
                  1,389Total
                  
                  
                  $
                  68,069





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





Year
      Ended
                    July
      31, 2010
                    
                    $
                    38,163Year
      Ended
                    July
      31, 2011
                    
                    $
                    38,163Year
      Ended
                    July
      31, 2012
                    
                    $
                    6,360Total
                    
                    
                    $
                    82,686





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





Year
      Ended
                    July
      31, 2010
                    
                    $
                    8,940Year
      Ended
                    July
      31, 2011
                    
                    $
                    8,940Year
      Ended
                    July
      31, 2012
                    
                    $
                    6,705Total
                    
                    
                    $
                    24,585





12.   SUBSEQUENT
EVENTS





1.) On
November 11, 2009 we entered into a Hartindo AF21 Product, Purchase, Sales,
Distribution, Marketing and Service Agreement with EcoBlu Products, Inc. The
basic terms and conditions proposed by MGOA into the agreement will include, but
not be limited to, the following:




A.
            Megola
      Inc. will provide EcoBlu Products,
Inc:





(i)
            a
      supply of the Hartindo AF21 Product(ii)
            use
      of the technical data, non-proprietary intellectual property and other
      information relating to the Hartindo AF21 Product’s application, handling
      and storage and all material, non-proprietary modifications thereof as
      more fully set forth herein while this Agreement is in effect (“Hartindo
      AF21 Product Technology”)




11


MEGOLA,
INC.


Notes
to Unaudited Interim Consolidated Financial Statements for the Three Months
ended October 31, 2009


(Amounts
expressed in US dollars)





12.   SUBSEQUENT
EVENTS (continued)





B.
            Minimum
      Purchase Requirements of Buyer





(i)
            Within
      the first 12 months immediately following the execution of this agreement;
      455 totes of Product including the initial purchase of 30
      totes.(ii)
            The
      next 13-24 months; 842 totes of
Product.





(iii)
            The
      next 25-36 months; 1263 totes of
Product.





The sole
remedy of Seller if Buyer does not meet these minimum Product purchase
requirements is Buyer will lose its exclusivity and this Agreement will
terminate.





2.) On
November 25, 2009, Megola Inc. (PINKSHEETS: MGOA) announces it
will have Glendale Securities, Inc. file Form 211 with the Financial Industry
Regulatory Authority (FINRA) OTC Compliance Unit in accordance with its stated
goal of regaining status on the OTCBB. Megola is currently awaiting final
auditor review of its 2009 year end financials. Megola has also filed all
requisite documentation with FINRA and has been approved to move forward with
its plan to perform a Reverse Stock Split on all outstanding Common Shares at a
1:50 ratio. The effective date of the 1:50 Reverse Split is at market open,
Friday, November 27, 2009. Megola Inc. will trade under the new symbol of
(PINKSHEETS: MGON).





The
Management and Board of Directors of Megola Inc. have reviewed the recent
activity and events of the company and feel that the company's common stock is
vastly undervalued. Megola has therefore initiated a comprehensive plan to
increase the share value of the Common Stock.





The first
step taken towards accomplishing this goal was the offer to all Common
shareholders in April of 2009 to convert their Common Shares to a newly created
class of Series A Preferred Shares. This had the effect of reducing our
outstanding Common Shares significantly to the current level of 36,345,919.
Concurrent with this offer was a similar offer to all of our Creditors to
convert all outstanding debt on Megola's books as of April 30, 2009 to Series B
Preferred Shares.





In the
meantime, Megola has pushed to get all of our required filings, including all
Financial Reporting, up to date in order for us to make an application with the
filing for Form 211 to get positioned back on the OTCBB, a much more regulated
market than the Pink Sheets, with the potential to attract private placement
opportunities as well as institutional investors.





Megola
will reduce its current outstanding shares through a reverse split on a 1:50
basis (for every 50 Common Shares previously held Shareholder will now hold 1
Common Share, with any fractional shares being rounded up). This will result in
a reduction in outstanding shares from 36,345,919 to 726,919 and increase our
current share price value by a multiple of 50.





3.) On
November 27, 2009, Megola Inc. (PINKSHEETS: MGON) announces that
Form 211 has been filed with the Financial Industry Regulatory Authority (FINRA)
OTC Compliance Unit in accordance with its stated goal of regaining status on
the OTCBB. With the filing of its 2009 Year End Financials and all related
regulatory requirements, Megola has achieved its stated goal of being in full
compliance with the SEC. Megola has prepared all requisite documentation in
order for Glendale Securities, Inc. to file Form 211 with FINRA to move Megola
back on the OTCBB.


12


MEGOLA,
INC.


Notes
to Unaudited Interim Consolidated Financial Statements for the Three Months
ended October 31, 2009


(Amounts
expressed in US dollars)





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, 2009




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





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





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





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





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, 2009 vs. three months ended
October 31, 2008 decreased 42.46% from $222,382 to $127,370. The Company has an
accumulated deficit of $6,001,735 as of October 31, 2009. These conditions
create an uncertainty as to Megola's ability to continue as a going concern.
Management is trying to raise additional capital through various funding
arrangements. It is not certain as to whether Megola will raise this additional
capital. The financial statements did not include any adjustment that might be
necessary if Megola is unable to continue as a going concern.





GENERAL





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





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





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





Megola’s
AirGuardian indoor air quality product units are uniquely engineered, integrated
ultraviolet light systems designed to dramatically reduce and control airborne
allergens and toxic compounds such as mold, fungus, formaldehyde, xylene gases
and tobacco smoke along with infectious agents such as bacteria, influenza,
hemolytic streptococci and many others in an indoor environment.  The
duct-mounted units are ideal for improving indoor air quality in homes, cottages
and business areas while the portable units are effective in deodorizing
automobiles, change rooms and sporting equipment.


13





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





Megola
was dependent on two customers, New Fire Solutions LLC and Innovative Composites
Inc. for sales accounting for approximately 97% of our revenues in the first 3
months of fiscal year 2010. Silver Best SDN BHD accounted for 83% of cost of
goods for the first 3 months of fiscal year 2009. Sales of Hartindo products
accounted for 100% of our total gross revenues in the first 3 months of fiscal
year 2010.





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





RESULTS
OF OPERATIONS





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





Our
revenues for the three months ended October 31, 2009 vs. three months ended
October 31, 2008 increased 1,113.63% from $11,411 to $138,487 due to an increase
in Hartindo Sales.





Our cost
of sales for the three months ended October 31, 2009 vs. three months ended
October 31, 2008 increased 519.72% from $5,349 to $33,149. The overall increase
in the cost of sales during this period is directly attributable to the increase
in revenues.





Our
general and administrative expenses for the three months ended October 31, 2009
vs. three months ended October 31, 2008 increased 13.90% from $146,939 to
$167,370 due to an increase in salaries, insurance premiums and vehicle lease
commitments.





Our
interest expense for the three months ended October 31, 2009 vs. three months
ended October 31, 2008 decreased 87.27% from $5,521 to $703 due to the Company's
decreased interest owing towards stockholder loans.





Accordingly,
our net loss for the three months ended October 31, 2009 vs. three months ended
October 31, 2008 decreased 42.46% from $222,382 to $127,960.





LIQUIDITY
AND CAPITAL RESOURCES





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





At
October 31, 2009, we had an accumulated deficit of $6,001,735.





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


14





Item 3. CONTROLS AND
PROCEDURES





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





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





PART
II - OTHER INFORMATION





ITEM
1. LEGAL PROCEEDINGS





None





ITEM
2. CHANGES IN SECURITIES





None





ITEM
3. DEFAULTS UPON SENIOR SECURITIES.





None





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





None





ITEM
5. OTHER INFORMATION.





None





ITEM
6. EXHIBITS AND REPORTS ON S-8




Form: 8-K
Filing Date December 15, 2009


Exhibit
Name and/or Identification of Exhibit Number





31
Certification


32
Certification





SIGNATURES





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




MEGOLA,
      INC.
                    (Registrant)Date:
      December 14, 2009
                  By:
                  /s/ Joel
      GardnerJoel
      GardnerPresident,
      CEO, Principal FinancialOfficer
      and Principal Accounting Officer




15