Megola (MGON) 10-Q 2010 Q1 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: October 31, 2009

Or

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

EXCHANGE ACT OF 1934

For the transition period from ____________ to _____________

MEGOLA, INC.

(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

Nevada	88-0492605
(STATE OR OTHER JURISDICTION	(IRS 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 x No ¨

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

Yes  ¨    No  x

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

APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: 36,345,919 at October 31, 2009.

Megola, Inc.

TABLE OF CONTENTS

PART I
Item 1.	Unaudited Interim Consolidated Financial Statements	3
Item 2.	Management’s Discussion and Analysis or Plan of Operations	13
Item 3.	Controls and Procedures	15
PART II
Item 1.	Legal Proceedings	15
Item 2.	Change in Securities	15
Item 3.	Defaults upon Senior Securities	15
Item 4.	Submission of Matters to a Vote of Security Holders	15
Item 5.	Other Information	15
Item 6.	Exhibits and Reports on S-8	15
Signatures		15

2

PART I - FINANCIAL INFORMATION

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

Three Months Ended October 31, 2009 (Amounts expressed in US dollars)

MEGOLA, INC.

CONSOLIDATED BALANCE SHEETS

(Amounts expressed in US dollars)

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

See accompanying notes to unaudited interim consolidated financial statements

3

MEGOLA, INC.

CONSOLIDATED INTERIM STATEMENTS OF OPERATIONS (UNAUDITED)

Amounts expressed in US dollars)

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

See accompanying notes to unaudited interim consolidated financial statements

4

MEGOLA, INC.

CONSOLIDATED INTERIM STATEMENTS OF CASH FLOWS (UNAUDITED)

(Amounts expressed in US dollars)

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

See accompanying notes to unaudited interim consolidated financial statements

5

Megola, Inc.

CONSOLIDATED INTERIM STATEMENTS OF STOCKHOLDERS' EQUITY - unaudited

(Amounts expressed in US dollars)

October 31, 2009

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

See accompanying notes to unaudited interim consolidated financial statements

6

MEGOLA, INC.

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

(Amounts expressed in US dollars)

1.  NATURE OF BUSINESS

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

2. GOING CONCERN

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

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

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

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

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

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

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

3.  ROYALTY INCOME

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

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

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

7

MEGOLA, INC.

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

(Amounts expressed in US dollars)

4.  INVENTORY

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

5.  LONG-TERM RECEIVABLE

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

6.  CASH FLOW INFORMATION

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

	October 31			October 31
	2009			2008
Depreciation		1,225		983
Shares issued for consulting services		64,000		75,000
(Increase) decrease in loan receivable		(7,361	)	(8,853)
(Increase) decrease in inventory		(2,318)		(202,534)
Decrease in prepaid expenses		6,973		-
Increase (decrease) in accounts payable		38,011		6,883
Increase (decrease)  in accrued expenses		(2,575	)	33,235
Increase in accrued interest		-		2,246
		97,955		(93,040)

7.  SEGMENT REPORTING

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

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

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

8

MEGOLA, INC.

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

(Amounts expressed in US dollars)

8.  INTANGIBLE ASSET

     DISTRIBUTION RIGHTS

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

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

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

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

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

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

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

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

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

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

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

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

9.   ADVANCES FROM STOCKHOLDERS

Included in the balance are advances in the amount of $120,985 unsecured, bearing interest at 6% and are due on demand.

9

MEGOLA, INC.

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

(Amounts expressed in US dollars)

10.   CAPITAL STOCK AND ADDITIONAL PAID IN CAPITAL

(a) Common stock

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

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

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

(b) Additional paid in capital

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

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

(d) Preferred “B”

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

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

(e) Preferred “A”

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

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

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

10

MEGOLA, INC.

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

(Amounts expressed in US dollars)

11.   LEASE COMMITMENTS

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

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

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

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

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

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

12.   SUBSEQUENT EVENTS

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

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

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

11

MEGOLA, INC.

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

(Amounts expressed in US dollars)

12.   SUBSEQUENT EVENTS (continued)

B. Minimum Purchase Requirements of Buyer

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

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

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

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

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

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

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

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

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

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MEGOLA, INC.

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

(Amounts expressed in US dollars)

Item 2. Management's Discussion and Plan of Operation

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

For the Quarter Ended October 31, 2009

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

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

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

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

The safe harbors of forward-looking statements provided by Section 21E of the Exchange Act are unavailable to issuers of penny stock. As we issued securities at a price below $5.00 per share, our shares are considered penny stock and such safe harbors set forth under the Reform Act are unavailable to us.

GOING CONCERN

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

GENERAL

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

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

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

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

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

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

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

RESULTS OF OPERATIONS

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

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

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

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

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

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

LIQUIDITY AND CAPITAL RESOURCES

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

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

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

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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.

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

None

ITEM 2. CHANGES IN SECURITIES

None

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

None

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

None

ITEM 5. OTHER INFORMATION.

None

ITEM 6. EXHIBITS AND REPORTS ON S-8

Form: 8-K Filing Date December 15, 2009

Exhibit Name and/or Identification of Exhibit Number

31 Certification

32 Certification

SIGNATURES

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

	MEGOLA, INC. (Registrant)
Date: December 14, 2009	By:	/s/ Joel Gardner
		Joel Gardner
		President, CEO, Principal Financial
		Officer and Principal Accounting Officer

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