UNITED
STATES
 SECURITIES
AND EXCHANGE COMMISSION
 Washington,
D.C. 20549
 FORM
10-Q
 (Mark
One)
 
 xQUARTERLY REPORT PURSUANT TO SECTION
13 OR 15(d) OF THE SECURITIES
 EXCHANGE
ACT OF 1934
 For the
quarterly period ended: April 30, 2009
 Or
  ̈TRANSITION REPORT PURSUANT TO SECTION
13 OR 15(d) OF THE SECURITIES
 EXCHANGE
ACT OF 1934
 For the transition period from
____________ to _____________
  MEGOLA,
INC.
  (EXACT
NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
  Nevada
                    
                    88-0492605(STATE
      OR OTHER JURISDICTION
                    
                    (IRS
      EMPLOYEROF
                    
                    INDENTIFICATION
      NO.)INCORPORATION
      OR ORGANIZATION)
 
 SEC File
Number: 000-49815
 
 704
      Mara Street, Suite 111Point
      Edward, ON
                    
                    N7V
      1X4(Address
      of Principal
                    
                    (Zip
      Code)Executive
      Offices)
 
 Registrant's
telephone number, including area code: Tel: (519) 336-0628
  (Former
Name or Former Address, if Changed Since Last Report)
 
 (Address
of Principal Executive Offices) (Zip Code)
  Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
  Yes  ̈ No
x
 
 Indicate
by check mark whether the registrant is a shell Company (as defined in Rule
12b-2 of the Exchange Act).
  Yes ̈Nox
  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:
80,986,029 at April 30, 2009.
  
 
 Megola, Inc.
  Table of
Contents
 
 PART
      I– FINANCIAL INFORMATIONItem
      1.    Unaudited Interim Consolidated Financial
      Statements
                3Item
      2.    Management's Discussion and Plan of
      Operation
                12Forward-Looking
      Statements
                12Item
      3.    Controls and Procedures
                14PART
      II - OTHER INFORMATION
                14Item
      1.    Legal Proceedings
                14Item
      2.    Changes in Securities
                14Item
      3.    Defaults upon Senior Securities.
                14Item
      4.    Submission of Matters to a Vote of Security
      Holders.
                14Item
      5.    Other Information.
                14Item
      6.    Exhibits and Reports on S-8
                14Signatures
                15
 
 2
  PART
I - FINANCIAL INFORMATION
  Item 1.Megola, Inc. Interim Consolidated
Financial Statements – Unaudited
 Nine Months Ended April 30, 2009(Amounts expressed in US dollars)
  MEGOLA,
INC.
 CONSOLIDATED
BALANCE SHEETS
 (Amounts
expressed in US dollars)
 
 April
      30, 2009
                                  
                                  
                                  July
      31, 2008(Unaudited)
                                  
                                  
                                  (Audited)ASSETSCash
                                  
                                  
                                  71,504
                                  
                                  
                                  
                                  -Inventory
      (note 4)
                                  
                                  
                                  257,010
                                  
                                  
                                  
                                  51,429Prepaid
      expenses
                                  
                                  
                                  48,802
                                  
                                  
                                  
                                  113377,316
                                  
                                  
                                  
                                  51,542Long-term
      receivable (note 5)
                                  
                                  
                                  120,974
                                  
                                  
                                  
                                  116,872Intangible
      asset (note 8)
                                  
                                  
                                  1,350,000
                                  
                                  
                                  
                                  1,350,000Property
      and equipment
                                  
                                  
                                  12,659
                                  
                                  
                                  
                                  5,558$
                                  1,860,949
                                  
                                  
                                  $
                                  1,523,972LIABILITIESBank
      overdraft
                                  
                                  
                                  -
                                  
                                  
                                  
                                  1,291Advances
      from stockholders
                                  
                                  
                                  -
                                  
                                  
                                  
                                  386,284Accrued
      expenses
                                  
                                  
                                  22,099
                                  
                                  
                                  
                                  99,356Accounts
      payable
                                  
                                  
                                  146,844
                                  
                                  
                                  
                                  57,577Accrued
      interest
                                  
                                  
                                  25,821
                                  
                                  
                                  
                                  25,821194,764
                                  
                                  
                                  
                                  570,329Note
      payable (note 10)
                                  
                                  
                                  -
                                  
                                  
                                  
                                  585,670194,764
                                  
                                  
                                  
                                  1,155,999Going
      concern - (note 2)Subsequent
      events - (note 12)STOCKHOLDERS'
      EQUITYCapital
      stock: (note 9)Common
                                  
                                  
                                  80,986
                                  
                                  
                                  
                                  78,486Preferred
      "B"
                                  
                                  
                                  1,378,850
                                  
                                  
                                  
                                  -Additional
      paid in capital (note 9)
                                  
                                  
                                  5,977,112
                                  
                                  
                                  
                                  5,904,612Accumulated
      deficit
                                  
                                  
                                  (5,696,264
                                  )
                                  
                                  
                                  (5,615,600
                                  )Accumulated
      other comprehensive loss:Foreign
      currency translation adjustment
                                  
                                  
                                  (74,499
                                  )
                                  
                                  
                                  4751,666,185
                                  
                                  
                                  
                                  367,9731,860,949
                                  
                                  
                                  
                                  1,523,972
 See
accompanying notes to unaudited interim consolidated financial
statements
  3
 
 MEGOLA,
INC.
 CONSOLIDATED
INTERIM STATEMENTS OF OPERATIONS (UNAUDITED)
 (Amounts expressed in US dollars)
                                          
                                          FOR THE 3 MONTHSENDED
                                          
                                          
                                          FOR THE 9 MONTHSENDEDApril 30,
                                            2009
                                          
                                          
                                          April 30,
                                            2008
                                          
                                          
                                          April 30,
                                            2009
                                          
                                          
                                          April 30,
                                            2008Income
      - sales
                                          
                                          $
                                          10,442
                                          
                                          
                                          $
                                          659
                                          
                                          
                                          $
                                          24,698
                                          
                                          
                                          $
                                          13,265Cost
      of sales
                                          
                                          
                                          1,878
                                          
                                          
                                          
                                          100
                                          
                                          
                                          
                                          8,557
                                          
                                          
                                          
                                          1,504GROSS
      PROFIT (LOSS)
                                          
                                          
                                          8,565
                                          
                                          
                                          
                                          559
                                          
                                          
                                          
                                          16,141
                                          
                                          
                                          
                                          11,761Royalty
      income (note 3)
                                          
                                          
                                          0
                                          
                                          
                                          
                                          0
                                          
                                          
                                          
                                          400,000
                                          
                                          
                                          
                                          08,565
                                          
                                          
                                          
                                          559
                                          
                                          
                                          
                                          416,141
                                          
                                          
                                          
                                          11,761General
      and administrative
                                          
                                          
                                          133,619
                                          
                                          
                                          
                                          144,633
                                          
                                          
                                          
                                          395,553
                                          
                                          
                                          
                                          405,348Stock
      issued for services
                                          
                                          
                                          0
                                          
                                          
                                          
                                          0
                                          
                                          
                                          
                                          75,000
                                          
                                          
                                          
                                          0Depreciation
                                          
                                          
                                          1,136
                                          
                                          
                                          
                                          1,314
                                          
                                          
                                          
                                          3,276
                                          
                                          
                                          
                                          2,000Interest
                                          
                                          
                                          13,157
                                          
                                          
                                          
                                          224
                                          
                                          
                                          
                                          22,976
                                          
                                          
                                          
                                          2,432TOTAL
      EXPENSES
                                          
                                          
                                          147,912
                                          
                                          
                                          
                                          146,171
                                          
                                          
                                          
                                          496,805
                                          
                                          
                                          
                                          409,780NET
      LOSS
                                          
                                          
                                          (139,348
                                          )
                                          
                                          
                                          (145,612
                                          )
                                          
                                          
                                          (80,664
                                          )
                                          
                                          
                                          (398,019
                                          )Foreign
      currency translation adjustment
                                          
                                          
                                          (158,934
                                          )
                                          
                                          
                                          62
                                          
                                          
                                          
                                          (74,974
                                          )
                                          
                                          
                                          3,349COMPREHENSIVE
      LOSS
                                          
                                          
                                          (298,282
                                          )
                                          
                                          
                                          (145,550
                                          )
                                          
                                          
                                          (155,638
                                          )
                                          
                                          
                                          (394,670
                                          )Weighted
      average common shares outstanding
                                          
                                          
                                          80,986,029
                                          
                                          
                                          
                                          78,486,029
                                          
                                          
                                          
                                          80,859,279
                                          
                                          
                                          
                                          76,641,767Loss
      per share - basic and diluted
                                          
                                          $
                                          (0.00
                                          )
                                          
                                          $
                                          (0.00
                                          )
                                          
                                          $
                                          (0.00
                                          )
                                          
                                          $
                                          (0.01
                                          )Comprehensive
      loss per share - basic and diluted
                                          
                                          $
                                          (0.00
                                          )
                                          
                                          $
                                          (0.00
                                          )
                                          
                                          $
                                          (0.00
                                          )
                                          
                                          $
                                          (0.01
                                          )
 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 9 MONTHS ENDEDApril 30,
                      2009
                    
                    
                    April 30,
                      2008CASH
      FLOWS FROM OPERATING ACTIVITESNet
      loss for the period
                    
                    
                    (80,664
                    )
                    
                    
                    (398,019
                    )Adjustments
      to reconcile net loss to net cash used in operating
    activites
                    
                    
                    (140,894
                    )
                    
                    
                    58,655(221,558
                    )
                    
                    
                    (339,364
                    )CASH
      FLOWS FROM FINANCING ACTIVITESAdvances
      from stockholders
                    
                    
                    386,284
                    
                    
                    
                    (65,023
                    )Proceeds
      from issuance of investor loans
                    
                    
                    -
                    
                    
                    
                    298,140Principal
      payments on note
                    
                    
                    (114,051
                    )272,233
                    
                    
                    
                    233,117CASH
      FLOWS FROM INVESTING ACTIVITIESBank
      Indebtedness
                    
                    
                    -
                    
                    
                    
                    20,107Purchase
      of property and equipment
                    
                    
                    (10,430
                    )
                    
                    
                    -(10,430
                    )
                    
                    
                    20,107EFFECT
      OF EXCHANGE RATE CHANGES ON CASH
                    
                    
                    (14,761
                    )
                    
                    
                    53,480NET
      INCREASE (DECREASE) IN CASH FOR THE PERIOD
                    
                    
                    25,484
                    
                    
                    
                    (32,660
                    )NET
      CASH, beginning of period
                    
                    
                    (1,291
                    )
                    
                    
                    32,660NET
      CASH, end of period
                    
                    
                    24,193
                    
                    
                    
                    -SUPPLEMENTAL
      CASH FLOW INFORMATIONInterest
      paid
                    
                    
                    0
                    
                    
                    
                    0Income
      taxes paid
                    
                    
                    0
                    
                    
                    
                    0NONCASH
      INVESTING AND FINANCING ACTIVITIES:Conversion
      of debt into preferred stock
                    
                    
                    1,378,850
                    
                    
                    
                    0Issuance
      of stock for services rendered
                    
                    
                    75,000
                    
                    
                    
                    0
  See
accompanying notes to unaudited interim consolidated financial
statements
  5
 
 Megola, Inc.
 CONSOLIDATED
INTERIM STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY) - unaudited
 (Amounts
expressed in US dollars)
 
 Common Stock
                              
                              
                              Preferred Stock Series"B"Shares
                              
                              
                              Amount
                              
                              
                              Shares
                              
                              
                              AmountBalances, July 31, 2007
                              
                              
                              48,486,029
                              
                              
                              $
                              48,486
                              
                              
                              
                              -
                              
                              
                              $
                              -Stock
      for Distribution Rights
                              
                              
                              30,000,000
                              
                              
                              
                              30,000
                              
                              
                              
                              -
                              
                              
                              
                              -Net
      Loss
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -Foreign
      CurrencyTranslation
      Adjustment
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -Balances,
      July 31, 2008
                              
                              
                              78,486,029
                              
                              
                              $
                              78,486
                              
                              
                              
                              -
                              
                              
                              $
                              -Stock
      for services
                              
                              
                              2,500,000
                              
                              
                              
                              2,500
                              
                              
                              
                              -
                              
                              
                              
                              -Debt
      converted to Preferred "B"
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              137,885
                              
                              
                              
                              1,378,850Net
      Loss
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -Foreign
      CurrencyTranslation
      Adjustment
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -Balances,
      April 30, 2009
                              
                              
                              80,986,029
                              
                              
                              $
                              80,986
                              
                              
                              
                              137,885
                              
                              
                              $
                              1,378,850
 
 AccumulatedOther
                  
                  
                  AdditionalComprehensive
                  
                  
                  Paid In
                  
                  
                  AccumulatedIncome (Loss)
                  
                  
                  Capital
                  
                  
                  Deficit
                  
                  
                  TotalsBalances,
      July 31, 2007
                  
                  
                  (2,902
                  )
                  
                  $
                  5,934,612
                  
                  
                  $
                  (5,078,725
                  )
                  
                  
                  901,471Stock
      for Distribution Rights
                  
                  
                  -
                  
                  
                  
                  (30,000
                  )
                  
                  
                  -
                  
                  
                  
                  -Net
      Loss
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (536,875
                  )
                  
                  
                  (536,875
                  )Foreign
      CurrencyTranslation
      Adjustment
                  
                  
                  3,377
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  3,377Balances,
      July 31, 2008
                  
                  
                  475
                  
                  
                  $
                  5,904,612
                  
                  
                  $
                  (5,615,600
                  )
                  
                  $
                  367,973Stock
      for services
                  
                  
                  -
                  
                  
                  
                  72,500
                  
                  
                  
                  -
                  
                  
                  
                  75,000Debt
      converted to Preferred "B"
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  1,378,850Net
      Loss
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (80,664
                  )
                  
                  
                  (80,664
                  )Foreign
      CurrencyTranslation
      Adjustment
                  
                  
                  (74,974
                  )
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (74,974
                  )Balances,
      April 30, 2009
                  
                  
                  (74,499
                  )
                  
                  $
                  5,977,112
                  
                  
                  $
                  (5,696,264
                  )
                  
                  $
                  1,666,185
 See
accompanying notes to unaudited interim consolidated financial
statements
  6
 
 MEGOLA,
INC.
 Notes
to Unaudited Interim Consolidated Financial Statements for the Nine Months ended
April 30, 2009 (Amounts expressed in US dollars)
 
 1.
              NATURE
      OF BUSINESS
 
 The
accompanying unaudited interim consolidated financial statements of Megola, Inc.
(the "Company" or “Megola”) have been prepared in accordance with accounting
principles generally accepted in the United States of America and the rules of
the Securities and Exchange Commission ("SEC"), and should be read in
conjunction with the audited consolidated financial statements and notes thereto
contained in Megola's Annual Report filed with the SEC on Form 10-KSB. In the
opinion of management, all adjustments, consisting of normal recurring
adjustments, necessary for a fair presentation of financial position and the
results of operations for the interim periods presented have been reflected
herein. The results of operations for interim periods are not necessarily
indicative of the results to be expected for the full year. Notes to the
unaudited interim consolidated financial statements which would substantially
duplicate the disclosure contained in the audited consolidated financial
statements for fiscal 2008 as reported in the 10-KSB have been
omitted.
 
 2.
              GOING
      CONCERN
 
 These
unaudited interim consolidated financial statements have been prepared on a
going concern basis which contemplates the realization of assets and the payment
of liabilities in the ordinary course of business. At present, the Company does
not have sufficient resources to fund its current working capital requirements.
The Company has planned to obtain additional capital through various financing
arrangements to service its current working capital requirements, any additional
or unforeseen obligations or to implement any future opportunities. Should the
Company be unable to continue as a going concern, it may be unable to realize
the carrying value of its assets and to meet its liabilities as they become due.
These unaudited interim consolidated financial statements do not include any
adjustments for this uncertainty.
 Management’s
Discussion and Analysis of Financial Condition and Results of Operation,
management has undertaken the following initiatives that it believes will be
instrumental in leading to better management of cash flows and more profitable
operations:
 •
 Outsourcing of much of the manufacturing activities has been established
along with appropriate analysis ensuring cost competitiveness to minimize
capital outlay and provide for rapid potential growth in production
levels
 •
 Establishment of policies and procedures for production processes to
ensure timely delivery of product to distribution groups and
customers
 •
 Established relationships with Distribution groups that can provide the
necessary expertise in commercialization of our entire product line to ensure
maximum market penetration
 •  Signing
of Definitive Sales and Agency Agreements, pertaining to the distribution
rights, that have purchase/sale order requirements expected to generate
substantial sales in the next five years
 •
 Requirement for cash deposit with sales orders to minimize drain on
working capital
  3.
              ROYALTY
      INCOME
 
 One of
the Company's manufacturers also sells certain Megola products directly
throughout Asia. By agreement, Megola is entitled to a royalty payment for each
of these units. Megola recognizes royalty revenue upon fulfillment of its
contractual obligations and upon sale by the manufacturer of royalty-bearing
products. There was no royalty income received during the period due to the
manufacturer moving its facilities to a new location in Southeast Asia, thereby
not producing or selling any additional units.
 
 On
January 19, 2009 the Company entered into a Distributorship, Sales Agency and
Royalty Agreement with Vulcan Technologies LLC.  Vulcan is granted
exclusive distribution and sales rights for the Hartindo line of anti-fire
products in Canada and Mexico as well as co-exclusive rights similarly in the
United States for the Railroad Industry for a ten year term.  Megola
receives payments as follows.  A payment of $400,000 within five days of
the execution of the Agreement (funds have been received) and an additional
$350,000 due 90 days following the date of this Agreement, provided that, under
various existing contracts, Megola has purchased no less than 100,000 gallons of
Hartindo AF21 in its fully diluted form.
 Vulcan
will also pay a commission payment of 25% of Vulcan’s profits on products sold
by any party in the Railroad Industry.  They also commit to generating no
less than $3 million on or before the second anniversary of the Agreement. 
They also commit to a 15% increase in gross sales for each year
thereafter.
  7
 
 MEGOLA,
INC.
 Notes
to Unaudited Interim Consolidated Financial Statements for the Nine Months ended
April 30, 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
$114,126.
 
 6.
              CASH
      FLOW INFORMATION
 
 ADJUSTMENTS
TO RECONCILE NET LOSS TO NET CASH USED IN OPERATING ACTIVITIES
 
 2009
                        
                        
                        2008Depreciation
                        
                        
                        3,276
                        
                        
                        
                        2,000Stock
      issued for services
                        
                        
                        75,000
                        
                        
                        
                        -(Increase)
      decrease in loan receivable
                        
                        
                        (4,101
                        )
                        
                        
                        3,591(Increase)
      decrease in inventory
                        
                        
                        (205,581
                        )
                        
                        
                        404(Increase)
      decrease in prepaid expense
                        
                        
                        (48,960
                        )
                        
                        
                        3,280
      3(Decrease)
      increase in accounts payable and accrued liabilities
                        
                        
                        (22,348
                        )
                        
                        
                        49,380(Decrease)
      increase in customer deposits
                        
                        
                        61,820
                        
                        
                        
                        -(140,894
                        )
                        
                        
                        58,655
 
 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
                      
                      
                      TotalNine
      months ended April 30, 2009Revenues
                      
                      $
                      424,698
                      
                      
                      $
                      -
                      
                      
                      $
                      424,698Net
      Loss
                      
                      $
                      (80,664
                      )
                      
                      
                      -
                      
                      
                      $
                      (80,664
                      )Interest
      Expense
                      
                      $
                      22,976
                      
                      
                      $
                      -
                      
                      
                      $
                      22,976Total
      Assets
                      
                      
                      1,860,949
                      
                      
                      $
                      -
                      
                      
                      $
                      1,860,949
 
 Nine
      months ended April 30, 2008
                              
                              North
      America
                              
                              
                              Asia
                              
                              
                              TotalRevenues
                              
                              $
                              13,265
                              
                              
                              $
                              -
                              
                              
                              $
                              13,265Net
      Loss
                              
                              $
                              398,019
                              
                              
                              $
                              -
                              
                              
                              $
                              398,019Interest
      Expense
                              
                              $
                              -
                              
                              
                              $
                              2,432
                              
                              
                              $
                              2,432Total
      Assets
                              
                              $
                              -
                              
                              
                              $
                              1,523,972
                              
                              
                              $
                              1,523,972
  8


MEGOLA,
INC.


Notes
to Unaudited Interim Consolidated Financial Statements for the Nine Months ended
April 30, 2009 (Amounts expressed in US dollars)





8.
            INTANGIBLE
      ASSET


DISTRIBUTION
RIGHTS





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





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





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





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





This
agreement shall remain in full force and effect so long as the Company and its
Hartindo dealers, sub-agents and/or sales representatives (the “Megola Group”)
purchase Hartindo products in the aggregate amounts specified below,
namely:




(a)
              If
      in the period up to January 2010, the Megola Group purchases, in the
      aggregate, a minimum of US $200,000 Hartindo Products, the distribution
      agreement shall be extended until January 31, 2011;
  and
 
 (b)
              If
      in the period up to January 31, 2011, the Megola Group purchases, in the
      aggregate, a minimum of US $300,000 Hartindo products, the distribution
      agreement shall be extended until January 31, 2012;
  and
 
 (c)
              If
      in the period up to January 31, 2012, the Megola Group purchases, in the
      aggregate, a minimum of US $400,000 Hartindo products, the distribution
      agreement shall be extended until January 31, 2013;
  and
 
 (d)
              If
      in the period up to January 31, 2013, the Megola Group purchases, in the
      aggregate, a minimum of US $500,000 Hartindo products, the distribution
      agreement shall be extended until January 31, 2014;
  and
 
 (e)
              If
      in the period up to January 31, 2014, the Megola Group purchases, in the
      aggregate, a minimum of US $750,000 Hartindo products, the distribution
      agreement shall be extended for 25 years from January 31, 2014, or for
      such longer period as the Company retains the Hartindo product marketing
      rights for Canada, without any further performance conditions to be
      met.




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





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





9.
            CAPITAL
      STOCK AND ADDITIONAL PAID IN
CAPITAL


(a)Capital Stock


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


(b)Additional paid in
capital


Additional
paid in capital decreased $30,000 due to Megola’s common stock being
reclassified for the acquisition of distribution rights at year ended July 31,
2007.  These rights were contracted for before year-end but the shares
were issued after year-ending July 31, 2008.


(c) The
Company has a Stock Incentive Plan for employees and
consultants.  There were no shares issued under the plan during the
quarter ending April 30, 2009.


(d) 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.


9





MEGOLA,
INC.


Notes
to Unaudited Interim Consolidated Financial Statements for the Nine Months ended
April 30, 2009 (Amounts expressed in US dollars)





10.
            NOTE
      PAYBALE





Effective
July 25, 2007 Megola, FireStop USA, LLC ("FSU"), an unrelated party, and Pacific
Channel Ltd. ("PCL") have agreed that FSU will loan $250,000 to Megola under a
note payable and security agreement. FSU specified that no interest on the loan
will be due if the loan is repaid in full within six months. Any amounts owing
after six months will be subject to interest at 15% per annum. As security for
the loan, Megola pledged a first priority interest in the U.S. manufacturing
rights for the Hartindo line of products.





On March
1, 2008, FSU assigned the loan to PCL with modifications as follows: the
security pledge to FSU was voided; the due date was extended to December 31,
2009 per agreement; PCL reserved the right to further extend the due date and
interest-free period at their sole discretion.





On October 22,
2007,Megola signed a note and security
agreement with PCL to obtain additional funding in the amount of $249,060.
Megola, upon receipt of the loan, will incur no interest should the loan be
repaid after specified time period. Any amounts still owing after the period,
unless such date is extended by PCL, will be subject to a 15% rate of interest.


The due
date on the entire amounts loaned will be December 31, 2009.


As
security for the loan, Megola has pledged to PCL the right to revoke Megola’s
Licensing Agreement to the Hartindo line of products.





During
the year-ended July 31, 2008, PCL assumed several vendor invoices on behalf of
the company in the amount of $42,690.  The amount is non-interest
bearing and PCL waived their right to demand payment before January 1,
2010.  PCL reserved the right to further extend the due date and
interest-free period at their sole discretion.





On April 30, 2009, Megola satisfied
this entire note by issuing Preferred B stock in exchange for the
debt.





11.
            LEASE
      COMMITMENTS


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


Year
      Ended
                  July
      31, 2009
                  
                  $
                  20,414Year
      Ended
                  July
      31, 2010
                  
                  $
                  20,414Year
      Ended
                  July
      31, 2011
                  
                  $
                  10,207Total
                  
                  
                  $
                  51,035





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





OfficeYear
      Ended
                      July
      31, 2009
                      
                      $
                      32,560Year
      Ended
                      July
      31, 2010
                      
                      $
                      35,520Year
      Ended
                      July
      31, 2011
                      
                      $
                      35,520Year
      Ended
                      July
      31, 2012
                      
                      $
                      35,520Year
      Ended
                      July
      31, 2013
                      
                      $
                      35,520Year
      Ended
                      July
      31, 2014
                      
                      $
                      2,960Total
                      
                      
                      $
                      177,600WarehouseYear
      Ended
                      July
      31, 2009
                      
                      $
                      13,261Year
      Ended
                      July
      31, 2010
                      
                      $
                      14,467Year
      Ended
                      July
      31, 2011
                      
                      $
                      14,467Year
      Ended
                      July
      31, 2012
                      
                      $
                      14,467Year
      Ended
                      July
      31, 2013
                      
                      $
                      14,467Year
      Ended
                      July
      31, 2014
                      
                      $
                      1,206Total
                      
                      
                      $
                      72,335


10





MEGOLA,
INC.


Notes
to Unaudited Interim Consolidated Financial Statements for the Nine Months ended
April 30, 2009 (Amounts expressed in US dollars)





11.
LEASE COMMITMENTS (con’t)





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





Year
      Ended
                    July
      31, 2009
                    
                    $
                    27,599Year
      Ended
                    July
      31, 2010
                    
                    $
                    33,119Year
      Ended
                    July
      31, 2011
                    
                    $
                    33,119Year
      Ended
                    July
      31, 2012
                    
                    $
                    5,520Total
                    
                    
                    $
                    99,357





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





Year
      Ended
                  July
      31, 2009
                  
                  $
                  1,939Year
      Ended
                  July
      31, 2010
                  
                  $
                  7,758Year
      Ended
                  July
      31, 2011
                  
                  $
                  7,758Year
      Ended
                  July
      31, 2012
                  
                  $
                  5,819Total
                  
                  
                  $
                  23,274





12.
            SUBSEQUENT
      EVENTS




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




(ii) On
May 12, 2009, the Company has extended the expiration date of the offer to
exchange Company Common Stock at a price of $0.20 for every common share
exchanged for shares of the Company's Series A Convertible Preferred Stock to
Monday, June 15, 2009.


11


Item 2. Management's Discussion and Plan
of Operation


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


For the
Quarter Ended April 30, 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 nine months ended April 30, 2009 vs. nine months ended April
30, 2008 decreased 79.73% from $398,019 to $80,664. The Company has an
accumulated deficit of $5,696,264 as of April 30, 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.


12





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





Megola
was dependent on one customer, Vulcan Technologies, LLC for sales accounting for
approximately 98% of our revenues in the first 9 months of fiscal year 2009.
Holly Oak Chemical, Inc. accounted for 100% of cost of goods for the first 9
months of fiscal year 2009. Sales of the ScaleGuard devices accounted for 1%,
and Hartindo products accounted for 99% of our total gross revenues in the first
9 months of fiscal year 2009.





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





RESULTS
OF OPERATIONS





Three
months ended April 30, 2009 vs. three months ended April 30, 2008.





Our
revenues for the three months ended April 30, 2009 vs. three months ended April
30, 2008 increased 1,484.52% from $659 to $10,442 due to a royalty payment based
on a North American Distribution Agreement.





Our cost
of sales for the three months ended April 30, 2009 vs. three months ended April
30, 2008 increased 1,778% from $100 to $1,878. 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 April 30, 2009
vs. three months ended April 30, 2008 decreased 7.62% from $144,633 to $133,619
because of a decrease in travel expenses.





Our
interest expense for the three months ended April 30, 2009 vs. three months
ended April 30, 2008 increased 5773.66% from $224 to $13,157 because of the
Company's increased interest owing towards payroll deductions and stockholder
loans.





Accordingly,
our net loss for the three months ended April 30, 2009 vs. three months ended
April 30, 2008 decreased 4.30% from $145,612 to $139,348.





Nine
months ended April 30, 2009 vs. Nine months ended April 30, 2008.





Our
revenues for the nine months ended April 30, 2009 vs. nine months ended April
30, 2008 increased 3,101.64% from $13,265 to $424,698 due to a royalty payment
based on a North American Distribution Agreement. 95% of our 9 month revenues
were royalties.





Our cost
of sales for the nine months ended April 30, 2009 vs. nine months ended April
30, 2008 increased 468.95% from $1,504 to $8,557. 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 nine months ended April 30, 2009 vs.
nine months ended April 30, 2008 decreased 2.42% from $405,348 to $395,553
because of the decrease in travel expenses.





Our
interest expense for the nine months ended April 30, 2009 vs. nine months ended
April 30, 2008 increased 844.74% from $2,432 to $22,976 because of the company's
increased interest owing towards payroll deductions and stockholder
loans.





Accordingly,
our net loss for the nine months ended April 30, 2009 vs. nine months ended
April 30, 2008 decreased 79.73% from $398,019 to $80,664.





LIQUIDITY
AND CAPITAL RESOURCES





The
financial statements as of and for the period ending April 30, 2009 have been
prepared assuming we continue as a going concern.





At April
30, 2009, we had an accumulated deficit of $5,696,264.





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.


13





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 October 5,
2008
 
 Form:
8-K Filing Date November 28,
2008
 
 Form:
8-K Filing Date January 23,
2009
 
 Form:
Press Release Release Date April
20, 2009
 
 Form:
Press Release Release Date April
23, 2009





14





Exhibit
Name and/or Identification of Exhibit Number





31
Certification


32
Certification





SIGNATURES





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





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


15