Megola (MGON) 10-Q 2008 Q3 Quarterly report

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: April 30, 2008

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 EMPLOYER
OF	INDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)

SEC File Number: 000-49815

704 Mara Street, Suite 111
Point Edward, ON	N7V 1X4
(Address of Principal	(Zip Code)
Executive Offices)

Registrant's telephone number, including area code: Tel: (519) 336-0628

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

 (Address of Principal Executive Offices) (Zip Code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ¨ No x

Indicate by check mark whether the registrant is a shell Company (as defined in Rule 12b-2 of the Exchange Act).

Yes  ¨    No  x

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS: Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes o No o

APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: 78,486,029 at April 30, 2008

Megola, Inc.

Table of Contents

PART I –  FINANCIAL INFORMATION
Item 1. Unaudited Interim Consolidated Financial Statements	3
Item 2. Management's Discussion and Plan of Operation	14
Forward-Looking Statements	14
Item 3. Controls and Procedures	16
PART II – OTHER INFORMATION	17
Item 1. Legal Proceedings	17
Item 2. Changes in Securities	17
Item 3. Defaults upon Senior Securities.	17
Item 4. Submission of Matters to a Vote of Security Holders.	17
Item 5. Other Information.	17
Item 6. Exhibits and Reports on S-8	17

2

PART I - FINANCIAL INFORMATION

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

Nine Months Ended April 30, 2008 (Amounts expressed in US dollars)

MEGOLA, INC.

CONSOLIDATED BALANCE SHEETS

(Amounts expressed in US dollars)

	April 30,  2008			July 31, 2007
	(Unaudited)			(Audited)
ASSETS
Cash		-			32,660
Inventory (note 4)		57,817			58,221
Prepaid expenses		1,350			9,342
		59,167			100,223
Intangible asset (note 7)		1,350,000			1,350,000
Loan receivable (note 11)		117,472			122,085
Deposits		4,965			-
Property and equipment		6,238			8,207
	$	1,537,841		$	1,580,515
LIABILITIES
Bank overdraft		20,107			-
Advances from stockholders (note 8)		270,502			290,689
Note payable (note 12)		547,870			250,000
Customer deposits		44,000			-
Accounts payable and accrued liabilites		122,740			112,533
Accrued interest		25,821			25,822
		1,031,040			679,044
Going concern - (note 2)
Subsequent events - (note 10)
STOCKHOLDERS' EQUITY
Capital stock (note 9)		78,486			48,486
Additional paid in capital (note 9)		5,904,612			5,934,612
Accumulated deficit		(5,476,744	)		(5,078,725	)
Accumulated other comprehensive loss:
Foreign currency translation adjustment		447			(2,902	)
		506,801			901,471
	$	1,537,841		$	1,580,515

See accompanying notes to unaudited interim consolidated financial statements

3

MEGOLA, INC.                                                                                          

CONSOLIDATED INTERIM STATEMENTS OF OPERATIONS (UNAUDITED)

(Amounts expressed in US dollars)	FOR THE 3 MONTHS ENDED						FOR THE 9 MONTHS ENDED
	April 30, 2008			April 30, 2007			April 30,  2008			April 30, 2007
Income - sales	$	659		$	6,315		$	13,265		$	22,147
Cost of sales		100			312,921			1,504			315,195
GROSS PROFIT (LOSS)		559			(306,606	)		11,761			(293,048	)
Royalty income (note 3)		0			58,000			0			140,000
		559			(248,606	)		11,761			(153,048	)
General and administrative		144,633			79,562			405,348			280,928
Stock issued for services		0			25,000			0			437,800
Depreciation		1,314			1,954			2,000			5,183
Interest		224			3,064			2,432			8,886
TOTAL EXPENSES		146,171			109,580			409,780			732,797
NET LOSS		(145,612	)		(358,186	)		(398,019	)		(885,845	)
Foreign currency translation adjustment		62			(16,097	)		3,349			30,223
COMPREHENSIVE LOSS		(145,550	)		(374,283	)		(394,670	)		(855,622	)
Weighted average common shares outstanding		78,486,029			48,447,140			76,641,767			48,138,044
Loss per share - basic and diluted	$	(0.00	)	$	(0.01	)	$	(0.01	)	$	(0.02	)
Comprehensive loss per share - basic and diluted	$	(0.00	)	$	(0.01	)	$	(0.01	)	$	(0.02	)

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 ENDED
	April 30,  2008			April 30,  2007
CASH FLOWS FROM OPERATING ACTIVITES
Net loss for the period		(398,019	)		(885,845	)
Adjustments to reconcile net loss to net cash used in operating activites		58,655			509,505
		(339,364	)		(376,340	)
CASH FLOWS FROM FINANCING ACTIVITES
Advances from stockholders		(65,023	)		129,031
Proceeds from issuance of investor loans		298,140			250,000
		233,117			379,031
CASH FLOWS FROM INVESTING ACTIVITIES
Bank Indebtedness		20,107			(38,600	)
Purchase of property and equipment		-			(1,086	)
		20,107			(39,686	)
EFFECT OF EXCHANGE RATE CHANGES ON CASH		53,480			80,978
NET INCREASE (DECREASE) IN CASH FOR THE PERIOD		(32,660	)		43,983
NET CASH, beginning of period		32,660			(43,983	)
NET CASH, end of period		-			-
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid		0			0
Income taxes paid		0			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)

April 30, 2008

					Accumulated Other			Additional
	Common Stock				Comprehensive			Paid In			Accumulated
	Shares		Amount		Loss			Capital			Deficit			Totals
Balances, July 31, 2006		37,716,029	$	37,716	$	(19,245	)	$	4,157,582		$	(4,337,973	)		(161,920	)
Stock Issued For Services		10,770,000		10,770		-			427,030			-			437,800
Stock to be issued		-		-		-						-			-
for Distribution Rights									1,350,000						1,350,000
Net Loss		-		-		-			-			(740,752	)		(740,752	)
Foreign Currency
Translation Adjustment		-		-		16,343			-			-			16,343
Balances, July 31, 2007		48,486,029	$	48,486	$	(2,902	)		5,934,612		$	(5,078,725	)	$	901,471
Stock Issued for Distribution Rights		30,000,000		30,000		-			(30,000	)		-			-
Net Loss		-		-		-			-			(398,019	)		(398,019	)
Foreign Currency
Translation Adjustment		-		-		3,349			-			-			3,349
Balances, April 30, 2008		78,486,029	$	78,486	$	447			5,904,612		$	(5,476,744	)	$	506,801

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, 2008  

(Amounts expressed in US dollars)

1.            NATURE OF BUSINESS

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

2.            GOING CONCERN

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

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.

4.            INVENTORY

During the last fiscal year ended July 31, 2007, the Company recorded a provision for 245,032 (2006-$nil) related to inventory impairment.  The inventory amount of $57,817 reflects the cost of sales of these products sold.  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.

7

MEGOLA, INC.

Notes to Unaudited Interim Consolidated Financial Statements for the Nine Months ended April 30, 2008  

(Amounts expressed in US dollars)

5. CASH FLOW INFORMATION

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

	2008		2007
Depreciation		2,000		5,183
Stock issued for services		-		437,800
(Increase) decrease in loan receivable		3,591		(102,338	)
(Increase) decrease in inventory		404		283,178
(Increase) decrease in prepaid expenses		3,280		(12,481	)
(Decrease) increase in accounts payable and accrued liabilities		5,380		(101,837	)
Increase (decrease) in customer deposits		44,000		-
		58,655		509,505

6.            SEGMENT REPORTING

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

	North America			International			Total
Nine months ended April 30, 2008
Revenues		$	13,265		$	0		$	13,265
Net Loss		$	398,019			-		$	398,019
Interest Expense		$			$	2,432		$	2,432
Total Assets					$	1,537,841		$	1,537,841
Nine months ended April 30, 2007	North America			International			Total
Revenues		$	22,147		$	140,000		$	162,147
Net Loss		$	885,845		$	0		$	885,845
Interest Expense		$	-		$	8,886		$	8,886
Total Assets		$	-		$	1,538,913		$	1,538,913

7.             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.  As at July 31, 2007 the shares had not been issued.  Consequently, the amount due is included in additional paid in capital. 

These shares were subsequently issued after year end (Note 9).

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

8

MEGOLA, INC.

Notes to Unaudited Interim Consolidated Financial Statements for the Nine Months ended April 30, 2008

(Amounts expressed in US dollars)

7. Intangible assets (continued)

(a) 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

(b) 50% of all other consideration received by the Company that is received by the Company other than as a percentage of Hartindo sales shall be paid to PCL with the balance of 50% to be retained by the Company

(c) Where the Company receives revenue from Hartindo sales made by Sales Agents, as a percentage of such Hartindo sales, the first 3% of the percentage payable to the Company on such sales shall be paid to PCL with any remaining balance to be retained by the Company

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

This agreement, as amended subsequent to April 30, 2008 (see note 10(iii)), 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.

8.            ADVANCES FROM STOCKHOLDERS

In the normal course of operations, the Company borrows from its stockholders.

These advances are unsecured, bearing interest at 6%, have no fixed terms of repayment, and the stockholders    have waived their right to demand repayment prior to August 1, 2008.

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

9

MEGOLA, INC.

Notes to Unaudited Interim Consolidated Financial Statements for the Nine Months ended April 30, 2008

(Amounts expressed in US dollars)

9. Capital Stock and Additional Paid in Capital (continued)

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

10.          SUBSEQUENT EVENTS

(i) On October 5, 2008 the Company in cooperation with MSE Enviro-Tech Corp entered into a Hartindo AF21 Product, Purchase, Sales, Distribution, Marketing, and Service Agreement with WoodSmart Solutions, Inc. The basic terms and conditions proposed are as follows:

1) Megola will provide WoodSmart:

Hartindo AF21 Product

                Use of Hartindo AF21 Product Technology

The option to obtain the exclusive use and rights of the Hartindo AF21 product for use on or in any lumber, Oriented Strand Board (OSB), and plywood in North America and:

The option to obtain exclusive use and rights for the Enhanced Product for use on or in any wood based materials in North America

2) WoodSmart's Purchase Requirements include:

             Annual Minimum 400,000 gallons within first 12 months

             Annual Minimum 550,000 gallons within months 13-24

             Annual Minimum 700,000 gallons within months 25-36

WoodSmart retains exclusive use and rights to the product as described in this agreement beginning the 37th monthand thereafter as long as they purchase 1,500,000 gallons in each of the following 12 month periods.

The first year begins 90 days after execution of the agreement.

(ii) On November 24, 2008 Megola entered into a Consulting Agreement with Regal Capital Partners LLC (RCP) to assist and advise the Company in identifying investor relations and/or public relations and/or market relations organizations which are engaged by Megola.

RCP was to receive a commencement bonus of 1,500,000 restricted common shares of Megola stock with Piggy Back registration rights.  The shares are in lieu of a $400,000 payment and are based on $ .0266 per share. Upon the effective date Megola was to issue to RCP a total of 3,000,000 restricted common stock purchase warrants as follows:

Vesting Date	Exercise price		Warrants/Common Shares
Effective Date	$	0.15		1,000,000
90 Days after effective date	$	0.25		1,000,000
180 Days after effective date	$	0.40		1,000,000

10

MEGOLA, INC.

Notes to Unaudited Interim Consolidated Financial Statements for the Nine Months ended April 30, 2008

(Amounts expressed in US dollars)

10. Subsequent Events (continued)

(iii) On December 8, 2008, the sales/performance quotas in the agreement with PCL dated January 12, 2007, have been moved forward starting January 31, 2010.

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

Office
Year Ended	July 31, 2009	$	40,513
Year Ended	July 31, 2010	$	44,196
Year Ended	July 31, 2011	$	44,196
Year Ended	July 31, 2012	$	44,196
Year Ended	July 31, 2013	$	44,196
Year Ended	July 31, 2014	$	3,683
Total		$	220,980
Warehouse
Year Ended	July 31, 2009	$	16,500
Year Ended	July 31, 2010	$	18,000
Year Ended	July 31, 2011	$	18,000
Year Ended	July 31, 2012	$	18,000
Year Ended	July 31, 2013	$	18,000
Year Ended	July 31, 2014	$	1,500
Total		$	90,000

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

Year Ended	July 31, 2009	$	34,340
Year Ended	July 31, 2010	$	41,208
Year Ended	July 31, 2011	$	41,208
Year Ended	July 31, 2012	$	6,868
Total		$	123,624

(vi) The Company entered into a consulting agreement with Matthew Sacco on August 1, 2008.  He is to assist with establishing a distribution network of Megola’s Hartindo product lines.  The compensation in lieu of a cash payment of $30,000 was 1,000,000 shares of Company stock issued on August 14, 2008.

(vii) On January 19, 2009 the Company entered into a Distributorship and Sales Agency and Royalty Agreement with Vulcan Technologies, LLC for the Hartindo line of Anti-Fire Products (Product) which will include, but not be limited to, the following:

11

MEGOLA, INC.

Notes to Unaudited Interim Consolidated Financial Statements for the Nine Months ended April 30, 2008

(Amounts expressed in US dollars)

10. Subsequent Events (continued)

§ Vulcan is granted exclusive distribution/sales representative rights for the Product in the countries of Canada and Mexico to the railroad industry (the “Railroad Industry”) for a ten (10) year term.

§ Vulcan is granted co-exclusive distribution/sales representative rights in the United States of America (the “U.S.”), to the railroad industry (the “Railroad Industry”) for a ten (10) year term.

§ In consideration of its appointments set forth in the Agreement, Vulcan agrees to pay Megola the sum of Seven Hundred Fifty Thousand ($750,000.00) USD dollars, as follows:

o a partial payment of $400,000 to Megola due five (5) business days after the execution and delivery of this  Agreement by all parties, and;

o a payment of $350,000 ninety (90) days following the date of this Agreement, provided, however, that such payment shall only be due and owing at that time if Woodsmart, under the Woodsmart Contract, and Janus, under the Janus Contract and any other distribution means by Megola has purchased no less than 100,000 gallons of Hartindo AF21, in its fully diluted form.

§ Vulcan shall pay to Megola a commission payment equal to twenty-five (25%) percent of Vulcan’s profit on Products purchased (the “Vulcan Commission”) by any party in the Railroad Industry.

§ Vulcan hereby commits to generate aggregate gross sales of the Hartindo Products in the Railroad Industry of no less than $3 Million USD on or before the second anniversary of this Agreement, and, thereafter, agrees to increase such aggregate gross sales by fifteen (15%) percent for each year thereafter, commencing with the third year of the term.

11.           LOAN RECEIVABLE

The loan receivable balance represents an amount owing by a supplier and will be offset against the Company’s future purchases of inventory. Since the amount will not be collected in the next 12 months, the balance has been classified as long-term loan receivable. The fair value of the loan receivable has been estimated by discounting future cash flows using an estimated rate of 6%.  The fair value of loan receivable is $110,823.

12.           NOTE PAYBALE

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.

Subsequent to July 31, 2007, 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.

12

MEGOLA, INC.

Notes to Unaudited Interim Consolidated Financial Statements for the Nine Months ended April 30, 2008 (Amounts expressed in US dollars)

12. Note Payable (continued)

On October 22, 2007,Megola signed a note and security agreement with PCL to obtain additional funding in the amount of $300,000 (CAD). 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. PCL shall extend the January 25, 2008 due date of an existing loan of $250,000 (USD) to coincide with the due date of this new agreement.

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.

13

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, 2008

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, 2008 vs. nine months ended April 30, 2007 decreased 55.07% from $885,845 to $398,019. The Company has an accumulated deficit of $5,476,744 as of April 30, 2008. 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.

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

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

Megola was dependent on three customers, Refrigeration Services, morEnergy and Ralph Goddard for sales accounting for approximately 68% of our revenues in the first 9 months of fiscal year 2008. H203 Solutions accounted for 81% of cost of goods for the first 9 months of fiscal year 2008. Sales of the ScaleGuard devices accounted for 93%, AirGuardian units accounted for 5% and Hartindo products accounted for 2% of our total gross revenues in the first 9 months of fiscal year 2008.

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, 2008 vs. three months ended April 30, 2007.

Our revenues for the three months ended April 30, 2008 vs. three months ended April 30, 2007 decreased 98.98% from $64,315 to $659 due to a reduction in royalty payments and sales initiatives owing to a restructuring of product offerings and staffing. Staff focus during this period was allocated to new product acquisitions and reconfiguring of existing product lines. In order to accommodate potential new product initiatives, the Company intends to increase sales staff in the future.

Our cost of sales for the three months ended April 30, 2008 vs. three months ended April 30, 2007 decreased 99.97% from $312,921 to $100. The overall decrease in the cost of sales during this period is directly attributable to the decrease in revenues.

Our general and administrative expenses for the three months ended April 30, 2008 vs. three months ended April 30, 2007 increased 81.79% from $79,562 to $144,633 because of an increase in payroll.

Our interest expense for the three months ended April 30, 2008 vs. three months ended April 30, 2007 decreased 92.69% from $3,064 to $224 because of the Company's decreased interest owing towards payroll deductions.

Accordingly, our net loss for the three months ended April 30, 2008 vs. three months ended April 30, 2007 decreased 59.35% from $358,186 to $145,612.

Nine months ended April 30, 2008 vs. Nine months ended April 30, 2007.

Our revenues for the nine months ended April 30, 2008 vs. nine months ended April 30, 2007 decreased 91.82% from $162,147 to $13,265 due to a reduction in royalty payments and sales initiatives owing to a restructuring of product offerings and staffing. Staff focus during this period was allocated to new product acquisitions and reconfiguring of existing product lines. In order to accommodate potential new product initiatives, the Company intends to increase sales staff in the future.

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Our cost of sales for the nine months ended April 30, 2008 vs. nine months ended April 30, 2007 decreased 99.52% from $315,195 to $1,504. The overall decrease in the cost of sales during this period is directly attributable to the decrease in revenues.

Our general and administrative expenses for the nine months ended April 30, 2008 vs. nine months ended April 30, 2007 increased 44.29% from $280,928 to $405,348 because of the increase in product testing, professional fees and payroll.

Our interest expense for the nine months ended April 30, 2008 vs. nine months ended April 30, 2007 decreased 72.63% from $8,886 to $2,432 because of the company's decreased interest owing towards payroll deductions.

Accordingly, our net loss for the nine months ended April 30, 2008 vs. nine months ended April 30, 2007 decreased 55.07% from $885,845 to $398,019.

LIQUIDITY AND CAPITAL RESOURCES

The financial statements as of and for the period ending April 30, 2008 have been prepared assuming we continue as a going concern.

At April 30, 2008, we had an accumulated deficit of $5,476,744.

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

Item 3. CONTROLS AND PROCEDURES

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

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

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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 31, 2007

Form: 8-K Filing Date November 16, 2007

Form: 8-K Filing Date November 26, 2007

Form: 8-K Filing Date December 3, 2007

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 Gardner
	Joel Gardner
	President, CEO, Principal Financial
	Officer and Principal Accounting Officer

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