Megola (MGON) 10-Q 2009 Q2 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: January 31, 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 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: 80,986,029 at January 31, 2009

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	12
Forward-Looking Statements	12
Item 3.    Controls and Procedures	15
PART II - OTHER INFORMATION	16
Item 1.    Legal Proceedings	16
Item 2.    Changes in Securities	16
Item 3.    Defaults upon Senior Securities.	16
Item 4.    Submission of Matters to a Vote of Security Holders.	16
Item 5.    Other Information.	16
Item 6.    Exhibits and Reports on S-8	16

2

PART I - FINANCIAL INFORMATION

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

Six Months Ended January 31, 2009 (Amounts expressed in US dollars)

MEGOLA, INC.

CONSOLIDATED BALANCE SHEETS

(Amounts expressed in US dollars)

	January 31, 2009			July 31, 2008
	(Unaudited)			(Audited)
ASSETS
Cash		185,683			-
Inventory (note 4)		252,633			51,429
Prepaid expenses		-			113
		438,316			51,542
Intangible asset (note 7)		1,350,000			1,350,000
Loan receivable (note 11)		117,191			116,872
Property and equipment		13,200			5,558
	$	1,918,707		$	1,523,972
LIABILITIES
Bank overdraft		-			1,291
Accounts payable		85,046			57,577
Accrued expenses		40,624			99,356
Accrued interest		31,037			25,821
Advances from stockholders (note 8)		704,620			386,284
		861,327			570,329
Note payable (note 12)		471,619			585,670
		1,332,947			1,155,999
Going concern - (note 2)
Subsequent events - (note 10)
STOCKHOLDERS' EQUITY
Capital stock (note 9)		80,986			78,486
Additional paid in capital (note 9)		5,977,112			5,904,612
Accumulated deficit		(5,557,067	)		(5,615,600	)
Accumulated other comprehensive loss:
Foreign currency translation adjustment		84,729			475
		585,760			367,973
		1,918,707			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 MONTHS ENDED						FOR THE 6 MONTHS ENDED
	January 31, 2009			January 31, 2008			January 31, 2009		January 31, 2008
Income - sales	$	2,845		$	8,372		$	14,256	$	12,691
Cost of sales		1,330			330			6,679		1,404
GROSS PROFIT (LOSS)		1,515			8,042			7,577		11,287
Royalty income (note 3)		400,000			0			400,000		0
		401,515			8,042			407,577		11,287
General and administrative		117,376			187,768			259,031		277,366
Depreciation		1,144			674			2,137		1,346
Interest		4,194			224			9,646		1,842
Consulting fees		0			0			78,232		0
TOTAL EXPENSES		122,714			188,666			349,044		280,554
NET INCOME (LOSS)		278,801			(180,624	)		58,533		(269,267	)
Foreign currency translation adjustment		(36,451	)		1,301			84,435		3,287
COMPREHENSIVE INCOME (LOSS)		242,350			(179,323	)		142,968		(265,980	)
Weighted average common shares outstanding		80,986,029			78,486,029			80,374,529		76,040,377
Loss per share - basic and diluted	$	0.003		$	(0.002	)	$	0.001	$	(0.004	)
Comprehensive loss per share - basic and diluted	$	0.003		$	(0.002	)	$	0.002	$	(0.003	)

See accompanying notes to unaudited interim consolidated financial statements

4

MEGOLA, INC.

CONSOLIDATED INTERIM STATEMENTS OF CASH FLOWS (UNAUDITED)

(Amounts expressed in US dollars)	FOR THE SIX MONTHS ENDED
	January 31, 2009			January 31, 2008
CASH FLOWS FROM OPERATING ACTIVITES
Net income (loss) for the period		58,533			(269,267	)
Adjustments to reconcile net income (loss) to net cash used in operating activites		(61,775	)		22,042
		(3,242	)		(247,225	)
CASH FLOWS FROM FINANCING ACTIVITES
Advances from stockholders		318,336			(92,450	)
Proceeds from issuance of investor loans		-			297,990
Principal payments on notes payable		(114,051	)		-
		204,285			205,540
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment		(9,793	)		-
		(9,793	)		-
EFFECT OF EXCHANGE RATE CHANGES ON CASH		(4,276	)		(149	)
NET INCREASE (DECREASE) IN CASH		186,974			(41,834	)
NET CASH, beginning of period		(1,291	)		32,660
NET CASH, end of period		185,683			(9,174	)
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid		0			0
Income taxes paid		0			0
NONCASH INVESTING AND FINANCING ACTIVITIES:
Conversion of debt into preferred stock		0			0
Issuance 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 - unaudited

(Amounts expressed in US dollars)

January 31, 2009

					Accumulated
					Other			Additional
	Common Stock				Comprehensive			Paid In			Accumulated
	Shares		Amount		Income (Loss)			Capital			Deficit			Totals
Balances, July 31, 2007		48,486,029	$	48,486	$	(2,902	)		5,934,612		$	(5,078,725	)	$	901,471
Stock for Distribution Rights		30,000,000		30,000		-			(30,000	)		-			-
Net Loss		-		-		-			-			(536,875	)		(536,875	)
Foreign Currency Translation Adjustment		-		-		3,377			-			-			3,377
Balances, July 31, 2008		78,486,029	$	78,486	$	475			5,904,612		$	(5,615,600	)	$	367,973
Stock for Services		2,500,000		2,500		-			72,500			-			75,000
Net Loss		-		-		-			-			58,533			58,533
Foreign Currency Translation Adjustment		-		-		84,254			-			-			84,254
Balances, January 31, 2009		80,986,029	$	80,986	$	84,729			5,977,112		$	(5,557,067	)	$	585,760

6

MEGOLA, INC.

Notes to Unaudited Interim Consolidated Financial Statements for the Six Months ended January 31, 2009 (Amounts expressed in US dollars)

1.  NATURE OF BUSINESS

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

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 Six Months ended January 31, 2009 (Amounts expressed in US dollars)

4.  INVENTORY

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

5.  LONG-TERM RECEIVABLE

The long-term receivable balance represents an amount owing by a supplier and will be offset against the Company’s future purchases of inventory. Since the amount will not be collected in the next 12 months, the balance has been classified as long-term loan receivable. The fair value of the long-term receivable has been estimated by discounting future cash flows using an estimated rate of 6%.  The fair value of long-term receivable is $118,609.

6.  CASH FLOW INFORMATION

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

	2008			2008
Depreciation		1,144			1,346
Stock-based compensation for services rendered		72,500			-
(Increase) decrease in loan receivable		(319	)		226
(Increase) decrease in inventory		(201,204	)		(8,595	)
(Increase) decrease in prepaid expenses		113			(725	)
Increase (decrease) in accounts payable		33,926			(12,783	)
Increase (decrease) in accrued expenses and other		(32,624	)		(1,427	)
Increase (decrease) in customer deposits		-			44,000
Increase (decrease) in accrued interest		5,215			0
		(61,775	)		22,042

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		Total
Six months ended January 31, 2009
Revenues	$	414,256	$	-	$	12,691
Net Income (Loss)	$	58,533		-	$	58,533
Interest Expense	$	9,646	$	-	$	9,646
Total Assets		1,918,707	$	-	$	1,918,707

Six months ended January 31, 2008	North America		Asia		Total
Revenues	$	12,691	$	-	$	12,691
Net Loss	$	269,267	$	-	$	269,267
Interest Expense	$		$	1,842	$	1,842
Total Assets	$	-	$	1,523,972	$	1,523,972

8

MEGOLA, INC.

Notes to Unaudited Interim Consolidated Financial Statements for the Six Months ended January 31, 2009 (Amounts expressed in US dollars)

8.  INTANGIBLE ASSET

DISTRIBUTION RIGHTS

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

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

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

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

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

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

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

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

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

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

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

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

9.  ADVANCES FROM STOCKHOLDERS

Included in the balance are advances in the amount of $445,511 unsecured, bearing interest at 6% and are due on demand.

Also included in the balance is an advance from a company related by common ownership in the amount $59,109.  The loan bears interest at 7.75% per annum and is due on demand.

Also included in the balance are advances in the amount of $200,000 unsecured, bearing interest at 6% and are due on demand.

9

MEGOLA, INC.

Notes to Unaudited Interim Consolidated Financial Statements for the Six Months ended January 31, 2009 (Amounts expressed in US dollars)

10. 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.

On August 14, 2008, Megola issued 1,000,000 restricted shares of its common stock, for consulting fees, to Matthew Sacco, valued at $30,000.

On August 14, 2008, Megola issued 1,500,000 restricted shares of its common stock, for consulting fees, to Regal Capital Partners LLC (RCP), valued at $45,000.

(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-end.

(c) The Company has a Stock Incentive Plan for employees and consultants.  There were no shares issued under the plan during the quarter ending January 31, 2009.  In the year ending July 31, 2007, the Company issued 10,270,000 restricted common stock for consulting fees valued at $412,800.

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 $110,558.

12.  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.

10

MEGOLA, INC.

Notes to Unaudited Interim Consolidated Financial Statements for the Six Months ended January 31, 2009 (Amounts expressed in US dollars)

13. 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	$	20,709
Year Ended	July 31, 2010	$	20,709
Year Ended	July 31, 2011	$	10,354
Total		$	51,772

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

Office
Year Ended	July 31, 2009	$	33,030
Year Ended	July 31, 2010	$	36,033
Year Ended	July 31, 2011	$	36,033
Year Ended	July 31, 2012	$	36,033
Year Ended	July 31, 2013	$	36,033
Year Ended	July 31, 2014	$	3,003
Total		$	180,165
Warehouse
Year Ended	July 31, 2009	$	13,452
Year Ended	July 31, 2010	$	14,675
Year Ended	July 31, 2011	$	14,675
Year Ended	July 31, 2012	$	14,675
Year Ended	July 31, 2013	$	14,675
Year Ended	July 31, 2014	$	1,223
Total		$	73.375

(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	$	27,997
Year Ended	July 31, 2010	$	33,597
Year Ended	July 31, 2011	$	33,597
Year Ended	July 31, 2012	$	5,599
Total		$	100,790

14. SUBSEQUENT EVENTS

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

Year Ended	July 31, 2009	$	1,967
Year Ended	July 31, 2010	$	7,870
Year Ended	July 31, 2011	$	7,870
Year Ended	July 31, 2012	$	5,903
Total		$	23,610

11

MEGOLA, INC.

Notes to Unaudited Interim Consolidated Financial Statements for the Six Months ended January 31, 2009 (Amounts expressed in US dollars)

14. Subsequent Events (con’t)

(ii) On April 20, 2009, Megola extended an offer to shareholders to exchange twenty five (25) common shares of the Company's Common Stock for one (1) share of the Company's newly created Series 'A' Convertible Preferred Stock, valued at $5.00 per share. Holders of Series A Convertible Preferred Stock shall have one-hundred (100) votes for each full share Series A Convertible Preferred Stock. No conversion of Series A Convertible Preferred Stock to Common Stock can occuruntil after a holding period of twelve (12) months from May 29, 2009. The Company also announced that each Preferred Shareholder shall also be granted Warrants to purchase up to ten (10) common shares of Megola, Inc. stock at a price of $0.45 for every one (1) Series A Convertible Preferred Stock held.

(iii)On April 23, 2009, Megola announced an offer to the Company's Creditors to exchange any or all of the company's outstanding debt for Megola Series B Convertible Preferred Stock. Creditors will receive one (1) share of the Company's Series B Convertible Preferred Stock for every ten dollars ($10) of debt exchanged. The purpose of this exchange offer is to replace the company's long-term debt with long-term equity investment in Megola through our Series B Convertible Preferred Stock.  The holders of Series B Convertible Preferred Stock shall have no voting rights. No conversion of Series B Convertible Preferred Stock to Common Stock can occur until after a holding period of twelve (12) months from time of debt conversion. Thereafter, Creditor has the option to convert the Series B Convertible Preferred Stock into Common Stock.

(iv) On April 30, 2009, $22,000 of customer deposits included in accounts payable has been settled in stock.

(v)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.

Item 2. Management's Discussion and Plan of Operation

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

For the Quarter Ended January 31, 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.

12

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 gain for the six months ended January 31, 2009 vs. six months ended January 31, 2008 was $58,533. The Company has an accumulated deficit of $5,557,067 as of January 31, 2009. These conditions create an uncertainty as to Megola's ability to continue as a going concern. Management is trying to raise additional capital through various funding arrangements. It is not certain as to whether Megola will raise this additional capital. The financial statements did not include any adjustment that might be necessary if Megola is unable to continue as a going concern.

GENERAL

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

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

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

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

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 97% of our revenues in the first 6 months of fiscal year 2009. Holly Oak Chemical, Inc. accounted for 80% of cost of goods for the first 6 months of fiscal year 2008. Sales of the ScaleGuard devices accounted for 1%, and Hartindo products accounted for 99% of our total gross revenues in the first 6 months of fiscal year 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.

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RESULTS OF OPERATIONS

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

Our revenues for the three months ended January 31, 2009 vs. three months ended January 31, 2008 increased 4,711.81% from $8,372 to $402,845 due to a royalty payment based on a North American Distribution Agreement.

Our cost of sales for the three months ended January 31, 2009 vs. three months ended January 31, 2008 increased 303.03% from $330 to $1,330. 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 January 31, 2009 vs. three months ended January 31, 2008 decreased 37.489% from $187,765 to $117,376 because of a decrease in product testing and foreign currency conversion rates.

Our interest expense for the three months ended January 31, 2009 vs. three months ended January 31, 2008 increased 1772.32% from $224 to $4,194 because of the Company's increased interest owing towards stockholder loans and payroll deductions.

Accordingly, our net gain for the three months ended January 31, 2009 vs. three months ended January 31, 2008 was $459,425.

Six months ended January 31, 2009 vs. Six months ended January 31, 2008.

Our revenues for the six months ended January 31, 2009 vs. six months ended January 31, 2008 increased 3,164.17% from $12,691 to $414,256 due to a royalty payment based on a North American Distribution Agreement.

Our cost of sales for the six months ended January 31, 2009 vs. six months ended January 31, 2008 increased 375.71% from $1,404 to $6,679. 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 six months ended January 31, 2009 vs. six months ended January 31, 2008 decreased 6.61% from $277,366 to $259,031 because of the decrease in product testing.

Our interest expense for the six months ended January 31, 2009 vs. six months ended January 31, 2008 increased 423.67% from $1,842 to $9,646 because of the company's increased interest owing towards stockholder loans and payroll deductions.

Accordingly, our net gain for the six months ended January 31, 2009 vs. six months ended January 31, 2008 was $58,533.

LIQUIDITY AND CAPITAL RESOURCES

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

At January 31, 2009, we had an accumulated deficit of $5,557,067.

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.

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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 5, 2008

Form: 8-K Filing Date November 28, 2008

Form: 8-K Filing Date January 23, 2009

Exhibit Name and/or Identification of Exhibit Number

31 Certification

32 Certification

SIGNATURES

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

MEGOLA, INC.
(Registrant)
	By: /s/ Joel Gardner
	Joel Gardner
	President, CEO, Principal Financial
	Officer and Principal Accounting Officer

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