MEGOLA INC - FORM 10-K - November 27, 2009

Attached files

file	filename
EX-32.1 - MEGOLA INC	v167782_ex32-1.htm
EX-32.2 - MEGOLA INC	v167782_ex32-2.htm
EX-31.1 - MEGOLA INC	v167782_ex31-1.htm
EX-31.2 - MEGOLA INC	v167782_ex31-2.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-KSB

(Mark One)

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Fiscal Year Ended: July 31, 2009

¨ 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 ¨ 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: 33,187,419 at July 31, 2009.

TABLE OF CONTENTS

PART I

Item 1.	Description of Business	4
Item 2.	Description of Property	10
Item 3.	Legal Proceedings	10
Item 4.	Submission of Matters to a Vote of Security Holders	10

PART II

Item 5.	Market for Common Equity and Related Stockholder Matters and Small Business Issuer Purchases of Equity Securities	11
Item 6.	Selected Consolidated Financial Data	13
Item 7.	Management’s Discussion and Analysis or Plan of Operations	13
Item 7A	Quantitative and Qualitative Disclosures About Market Risk	15
Item 8	Financial Statements and Supplementary Data	16
Item 9.	Changes In and Disagreements with Accountants on Accounting and Financial Disclosure	37
Item 9A(T).	Controls and Procedures	37
Item 9B.	Other Information	38

PART III

Item 10.	Directors, Executive Officers, Promoters, Control Persons and Corporate Governance; Compliance With Section 16(a) of the Exchange Act	38
Item 11.	Executive Compensation	40
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	41
Item 13.	Certain Relationships and Related Transactions, and Director Independence	42
Item 14.	Principal Accounting Fees and Services	42

PART IV

Item 15.	Exhibits	43

Signatures		44

The statements contained in this Report that are not historical facts are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 with respect to our financial condition, results of operations and business, which can be identified by the use of forward-looking terminology, such as “estimates,” “projects,” “plans,” “believes,” “expects,” “anticipates,” “intends,” or the negative thereof or other variations thereon, or by discussions of strategy that involve risks and uncertainties. Management wishes to caution the reader of the forward-looking statements that such statements, which are contained in this Report, reflect our current beliefs with respect to future events and involve known and unknown risks, uncertainties and other factors, including, but not limited to, economic, competitive, regulatory, technological, key employee, and general business factors affecting our operations, markets, growth, services, products, licenses and other factors discussed in our other filings with the Securities and Exchange Commission, and that these statements are only estimates or predictions. No assurances can be given regarding the achievement of future results, as actual results may differ materially as a result of risks facing us, and actual events may differ from the assumptions underlying the statements that have been made regarding anticipated events. Factors that may cause our actual results, performance or achievements, or industry results, to differ materially from those contemplated by such forward-looking statements include, without limitation:

The availability of additional funds to successfully pursue our business plan;

	¨	The cooperation of industry service partners that have signed agreements with us;
	¨	Our ability to market our services to current and new customers and generate customer demand for our products and services in the geographical areas in which we operate;

The ability to comply with provisions of our financing agreements;

The highly competitive nature of our industry;

	¨	Our ability to retain key personnel;
	¨	Our ability to maintain adequate customer care and manage our churn rate;

	¨	Our ability to maintain, attract and integrate internal management, technical information and management information systems;
	¨	Our ability to manage rapid growth while maintaining adequate controls and procedures;

The availability and maintenance of suitable vendor relationships, in a timely manner, at reasonable cost;

General economic conditions.

These forward-looking statements are subject to numerous assumptions, risks and uncertainties that may cause our actual results to be materially different from any future results expressed or implied by us in those statements.

These risk factors should be considered in connection with any subsequent written or oral forward-looking statements that we or persons acting on our behalf may issue. All written and oral forward looking statements made in connection with this Report that are attributable to us or persons acting on our behalf are expressly qualified in their entirety by these cautionary statements. Given these uncertainties, we caution investors not to unduly rely on our forward-looking statements. We do not undertake any obligation to review or confirm analysts’ expectations or estimates or to release publicly any revisions to any forward-looking statements to reflect events or circumstances after the date of this document or to reflect the occurrence of unanticipated events. Further, the information about our intentions contained in this document is a statement of our intention as of the date of this document and is based upon, among other things, the existing regulatory environment, industry conditions, market conditions and prices, the economy in general and our assumptions as of such date. We may change our intentions, at any time and without notice, based upon any changes in such factors, in our assumptions or otherwise.

PART I

Item 1. BUSINESS DEVELOPMENT

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 residential, commercial, industrial and agricultural 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.

On November 26, 2003, Megola was acquired by SuperiorClean, Inc. in a transaction accounted for as a reverse acquisition. Megola’s stockholders were issued 13,389,591 SuperiorClean shares in exchange for 100% of the outstanding common and preferred stock of Megola, plus $250,000 in cash and $200,000 in notes payable. Two major stockholders of SuperiorClean and two other persons then signed consulting contracts for 1,250,000 common shares. Prior to the merger, SuperiorClean had no assets or operations. SuperiorClean’s name was later changed to Megola, Inc.

Our ScaleGuard Systems products are sold under a license granted by the German manufacturer, Megola GmbH. Under the terms of our agreement with Megola GmbH, we are the exclusive distributor of ScaleGuard devices in North America, Mexico, and Asia excluding India. We may not sell competing devices without the permission of Megola GmbH. Prices we pay are established by Megola GmbH and may be changed from time to time at the discretion of Megola GmbH. The agreement has no termination date, but may be terminated for cause as defined in the agreement. As of June 30, 2006 we have now independently acquired certain additional patents used in our products directly from the owners of Megola GmbH.

For fiscal year ended July 31, 2009 2% of our revenues were generated from sales of ScaleGuard products under our agreement with Megola GmbH (Germany).

Business

Our principal executive offices are located at 704 Mara Street, Suite 111, Point Edward, Ontario N7V 1X4. Our telephone number is (519) 336-0628.

ScaleGuard units are a one-time capital cost as there are no ongoing chemical additives required and since the units have no moving parts they are essentially maintenance free. Cost savings on chemical treatments and the associated labor make ScaleGuard cost effective. ScaleGuard units use electromagnetic technology to condition and soften water, both preventing the ongoing build-up of scale and eliminating historical scale build-up in water delivery systems and machinery. Rather than attempting to prevent - by removing or adding chemicals - the natural tendency of hard water to form scale, ScaleGuard treatment actually assists and encourages scale formation by electronic means. The coils that are wrapped on the exterior of the water pipe introduce variable, high frequency magnetic impulses that alter the properties of the water in such a manner that the scale remains suspended in the water rather than forming on surfaces within the water system. These suspended crystals of scale will also carry away - slowly but surely - any scale that already exists in the system.

Due to excessive scale build-up pipes, showers, bathtubs, water heaters, spas, boilers, nozzles, valves, heat exchange compressors and other equipment need to be prematurely replaced. Scale can also reduce water flow and pressure and negatively impact the ability of heating elements. The advantage of ScaleGuard is that it can be installed on any pipe material in any home or building and does not require chemical agents and their associated costs and dangers.

We also sell air purification, microbiological control and waste water treatment products.

Air issues: Airborne germs that result in asthma, flu and colds

Water (Microbiological) Issues:

Unsanitary water may be dangerous due to bacteria, viruses, pathogens such as e-coli, giardia, cryptosporidium.

At July 31, 2009 we had an accumulated deficit of $5,873,775. We had a net loss of $258,175 in fiscal year 2009. Our independent auditors have indicated that there is substantial doubt about our ability to continue as a going concern over the next twelve months.

During the year ending July 31, 2009 our revenues increased from $36,399 for 2008 to $116,968 for the year ended July 31, 2009.

PRINCIPAL PRODUCTS AND SERVICES

Our principal product is our ScaleGuard Systems. Megola’s ScaleGuard technology cost effectively conditions hard water while also eliminating the historical build-up of scale caused by hard water in residential, commercial and industrial applications. ScaleGuard units use a revolutionary electromagnetic technology to condition the soften water, both preventing the ongoing build-up of scale and eliminating historical scale build-up in water delivery systems and machinery.

Megola, Inc. is a leading solution provider in physical water treatment, microbiological control, wastewater treatment and air purification. Our environmentally friendly, technologically advanced product lines have us positioned at the forefront of environmental air and water treatment. Our experience in these fields allows us to provide tailor-made solutions to our clients using the technology available to us. For more information on Megola products, please go to www.megola.com.

THE SCALEGUARD SYSTEM

Description of ScaleGuard:

Traditionally, hard water problems - the underlying cause of scale - have been solved with ion-exchange (salt) water softeners or chemical treatments. These solutions are often environmentally unfriendly, time-consuming and expensive.

Megola’s scientists have invented a deceptively simple-looking box containing a computer-programmable chip that delivers low-voltage, high-frequency magnetic impulses that can alter the scale-forming properties of water. The company’s revolutionary solution prevents new scale formation, while eliminating previous scale build-up.

ScaleGuard is a non-invasive, physical water treatment device. That is, it does not make any direct contact with the water, and it neither adds chemicals to nor removes chemicals from the water.

Due to the high technological nature of our systems and limited knowledge of the technical functions by our consumers, Megola, at times, installs systems on trial basis with prospective industrial customers in an effort to collect data and prove ScaleGuard’s reliability and success. Megola is confident these trial installation situations will convert to sales, while increasing product exposure.

We no longer offer residential trials. We encourage our dealers to install systems for their personal use. For commercial and industrial installations we may install as part of a pilot project with a predetermined time schedule. See following example:

A Southwestern Ontario refinery (Suncor) was having a scaling issue with a four bank tube and shell exchanger. This exchanger was undersized when designed and needed cleaning every 8-10 weeks as after 10 weeks there was no heat exchange taking place at all. Megola offered a trial of its ScaleGuard electronic conditioner for 3 months. The exchanger was cleaned as per its regular maintenance and the ScaleGuard system was installed. The operators said they would know within 4 weeks if the ScaleGuard system was keeping the exchanger from fouling as the performance of the exchanger to cool the product was well documented. After 4 weeks there was no loss of cooling. Normally after an 8 week period this exchanger would lose almost all of its ability to cool. However with the ScaleGuard system installed in this exchanger never needed descaling and had only lost one degree of cooling over the next 21 months (90 weeks). It was approximated that the refinery saved $60,000 in costs during the time that the ScaleGuard was in use. The client purchased the systems.

We have no retail suggested price, as our dealers offer their own rebates, incentives, and volume discounts. It is our intention never to undercut our own dealers.

We are currently developing a revised business plan to deploy our ScaleGuard devices through our distribution network throughout the world. We believe that the increasing data that we have been collecting, and continue to collect on our systems, and the increasing market exposure we have been getting through our satisfied customers, can be used as sales tools for our distributors.

ScaleGuard Models:

We currently have eight models of ScaleGuard devices, all of which have been used in trials and sold to customers that have hard water or scale problems. Over the years, Megola has sold these units all over the world, ranging from residential applications to large industrial applications. The principal differences between the eight models, other than cost, are that they are designed to work with different water flows and pipe sizes.

The final cost of the individual units may vary, as they may be designed for certain customers to perform differently based on their specific needs. Also, depending on the geographic region, some distributors may sell the ScaleGuard products for more than Megola’s suggested retail price.

ScaleGuard Models:

TFK

SG100

SG200

SG300

SG400

SG500

SG1000

Manufacturing:

The ScaleGuard devices were designed and custom manufactured in Germany under the direction of Megola GmbH. The technology of the product is owned by Megola GmbH and is protected under intellectual/ software property rights. The units are pre-assembled in Germany and are then shipped to China where the final assembly is completed and packaged.

Notable Installations of our ScaleGuard Systems:

Our systems have been in operation with various customers with some in operation for over 6 years. Some of our more notable installations include:

LanXess

Nova Chemicals

The Great Hall of the People (the national assembly of China)

Mengniu Dairy Group

Runan Mu Gong Shan Group

Zhoushan Gang Ming Foodstuff Industries

Zhong Mei Coal Mining Company

Zhujiang Brewery

Country Fresh Dairy

Tim Horton’s

Kentucky Fried Chicken

Zurn Industries

Royal Plastics

TRW Automotive

Parmalat

FritoLay

Honeywell

DuPont Canada

Colgate University

For fiscal year ended July 31, 2009 2% of our revenues were generated from sales of ScaleGuard products under our agreement with Megola GmbH (Germany).

AIR PURFICIATION

AirGuardian System

The AirGuardian 1000 is a uniquely engineered, integrated UVC & UVV system designed to dramatically reduce/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. This product is duct-mounted on the central Heating, Ventilation, Air Conditioning (HVAC) system and, to enhance system effectiveness, is designed to run continuously with the HVAC system fan in the "on' position. This product is certified by the American Institute of Toxicology to produce only safe levels of UVV (ozone) and is available with a UVC only bulb. There are 3 different AirGuardian models.

(manufactured in China)

AirGuardian Power Filter

The AirGuardian Power Filter uses an active electromagnetic field to magnetize both airborne particles and the fibers of the disposable filter pad. This creates a virtual "force field" within the ductwork, capturing many of the smallest, most dangerous to breathe submicron particles. This 1" filter is a very cost effective and easy to maintain electronic air cleaner and is an essential component of any air purification system. Under normal operating conditions, each disposable filter pad remains at peak operating efficiency for about four months before needing to be replaced.

(manufactured in USA)

We did not have any sales for AirGuardian for fiscal year 2009.

Portable Ozone Systems

Equipment Master - Sports equipment Deodorizing unit

Room Blaster - Room Deodorizing unit

Air Care - Room Air Treatment unit

(all units manufactured in China)

We did not have any sales for Ozone Systems for fiscal year 2009.

Microbiological Control and Waste Water Treatment

Ozone Treatment Systems

Megola, Inc. is a North American distributor of ozone treatment systems manufactured by Dalian Bingshan H203 Solutions Co., Ltd. Utilizing the powerful biocidal properties of ozone, these systems are an alternative to chemical treatments for microbiological control.

Applications include:

	¨	Cooling towers
	¨	HVAC systems
	¨	Drinking water (agriculture)
	¨	Surface disinfection water

Bioguard UltraViolet (UV) Water Treatment Systems

Ultraviolet treatment is the disinfection process of passing water by a special light source. Immersed in the water in a protective transparent sleeve, the special light source emits UV waves that can inactivate harmful microorganisms.

Applications include:

	¨	Disinfection of fresh, process, wash, and cooling water
	¨	Disinfection and biodegradability improvement of wastewater
	¨	Drinking water - POE and POU systems
	¨	Swimming pools and ponds
	¨	Medical and pharmaceutical industries
	¨	Quality control measures
	¨	Vending machines (manufactured in China)

We did not have any sales for Micro-Bio and Waste Water Treatment Systems for fiscal year 2009.

IonClear - Copper Ionization Systems

The IonClear System is an electronic, non-chemical means to disinfect and treat dirty water. The system is used for killing bacteria, viruses, pathogens & other coli forms together with the treatment of algae, typically found and/or associated with the following:

	¨	Swimming Pools
	¨	Hydrotherapy, heated pool & spas
	¨	Ornamental water gardens, fountains & ponds
	¨	Water storage tanks
	¨	Water cooling towers, water cooled heat exchangers, & evaporators(manufactured in China)

HARTINDO LINE OF ANTI-FIRE PRODUCTS

HARTINDO AF11E

1:1 direct drop-in replacement for both Halon 1301 and 1211

Belonging to the Halocarbon group of vaporizing liquid fire extinguishing chemicals AF11E is similar in action to Halon but without any of the environmental or toxicity problems associated with Halons.

Of all the Halocarbon alternatives to Halon, AF11E has the lowest overall environmental impact.

In common with other Halocarbons Hartindo AF11E is:

• Multi Purpose, effective on A, B, and C class fires

• a Clean Agent, leaving no residue

• Non Electrically conductive

Unique qualities of Hartindo AF11E

•	Only replacement to Halon that can be used as both a total flooding gas as well as a streaming agent for use in Portable fire extinguishers.

•	The world’s first, and so far only proven, 1:1 direct drop-in replacement for HALON 1301.

HARTINDO AF21

a water-based, non-toxic, non-corrosive, fire inhibitor

Hartindo AF21 is a colorless water based solution that is:

• Non-toxic

• Non-corrosive

• Biodegradable

• Environment friendly

Features:

• Prevents the spread of fire

• Eliminates afterglow

• Treated materials classified Class 0 non-flammable

• Ease of application (spraying, padding, dipping, brushing or fogging)

• Does not affect the look, feel, smell or color of the treated items

• Offers permanent protection from fire once applied

Uses: Suitable for use on all water absorbent as well as many synthetic fiber materials including:

• Curtains

• Carpets and rugs

• Upholstery fabrics

• Mattresses

• Porous wall coverings / Partitions

• Exposed wood surfaces prior to all decorative surface treatments

• Corks

• Dried flowers

• Soft toys

• Polypropylene backed carpets

• 100% polyester

• Paper / Cardboard

Standards and Approvals:

Hartindo AF21 meets all international standards including British Standards (BTTG WIRA & LPC tested to Civil Aviation Authority CAA, UK); US Regulations (tested to Federal Aviation Administration - FAA, USA); SISIR (Singapore); SIRIM (Malaysia) and BPPT (Indonesia).

Testing/Certifications;

	¨	ASTM E84 (CLASS A) – surface burning characteristics of building materials
	¨	ASTM E84 (with Bluwood) (CLASS A) – various types of wood products – Douglas Fir, Southern Yellow Pine (SYP), SPF, plywood, etc…
	¨	16 CFR 1633 – open flame mattress flammability test
	¨	ASTM D 3201 – Hygroscopicity Test(compared to Dricon (pressure-treated wood))
	¨	NFPA 701- vertical burn test; flame propagation of textiles
	¨	NFPA 2112 – flame resistance for protection of industrial personnel against flash fires

HARTINDO AF31

a multi-purpose, water-based, non-toxic, non-corrosive and environmentally friendly fire extinguishing and inhibiting agent

Hartindo AF31 is

• an "Environment Friendly" non Ozone Depleting Substance.

• Water based, biodegradable and non toxic.

• Clean, requires no specialized clean up procedures.

• Effective in portable form on all classes of fire (Class A, B, C, D and F/K)

• Easy to use with it's fast knockdown.

• Able to render objects non-flammable, preventing re-ignition.

• Able to be delivered by conventional water or foam dispersal systems.

• Suitable for use in all water or foam tenders without modification.

• Able to provide rapid extinction of fire with no reignition creating a safe escape route for rescue.

• Most effective media for creating fire breaks when fighting forest fire.

• Suitable for training purposes

Hartindo AF31 eliminates all worries and dangers when fighting reactive fires such as metal, coal, car tire dumps and deep pan oil fires.

Testing/Certifications;

	¨	ASTM E84 (CLASS A) – Surface burning characteristics of building materials (to show inhibition of reignition on Class A fires and potential as a fire inhibitor
	¨	Aquatic toxicity
	¨	Standard toxicity (mammalian) – oral, dermal, eye irritation (prerequisites for NFPA approvals)

Titan 21 Fire Blanket

100% cotton blanket that protects from flash fires as well as direct fire attack

The Titan 21 Fire Blanket can protect people from fire and can also be used to blanket, and extinguish, the fire source. It is ideal for houses, offices, hospitals, hotels, buses, ships, nightclubs, etc. Unlike synthetic fire blankets, that are designed to only withstand flash fire, the 100% cotton Titan 21 Fire Blanket protects from flash fires as well as DIRECT FIRE attack over 1000°C.

Testing/Certifications;

	¨	NFPA 701 – flame propagation of textiles
	¨	NFPA 2112 – flame resistant garments for protection of industrial personnel against flash fire
	¨	International Standard BS 476 Part 6 & Part 7: Class 0 (LPC BRE UK, SIRIM Malaysia and BOMBA Malaysia)

DECTAN

a water-based, environmentally friendly rust converter and priming agent

DECTAN is a complex mixture of a Vinyl Acrylic Copolymer and Tannic Acid. When used to treat corroded steel and iron surfaces, it neutralizes the corrosion process by converting the rust into a blueblack metallo-organic complex which passivates the surfaces. It has been tested and certified as fit for use for the carriage of grain and can also be used in sensitive foodstuff areas.

DECTAN can also be applied to non-finished wooden structures as a priming agent and may be coated when cured with any conventional paint using brush, roller or spray.

DECTAN resists spillage to a wide range of corrosive chemicals including strong acids, alkalis, aliphatic solvents, alcohols, glycols, petrol, crude oil and diesel oil. It is designed for application by spray and brush and dries to the touch in as little as 10 minutes to two hours depending on temperature, humidity and air movement.

Testing/Certifications;

ASTM B117 – continuous salt-spray test

For fiscal year ended July 31, 2009 98% of our revenues were generated from sales of Hartindo Fire Products.

Employees

We currently have 5 full-time employees and 1 part-time employee.

Item 2. DESCRIPTION OF PROPERTY

Our principal executive offices are located at 704 Mara Street, Suite 111, Point Edward, Ontario N7V 1X4. We lease this 2,600 square foot facility at a rental of $3,867 per month for a five-year term ending August 1, 2013. This facility consists of an office and administration area. To the extent that we require additional space in the near future, we believe that we will be able to secure additional leased facilities at commercially reasonable rates.

Our telephone number at the above location is 519-336-0628.

We do not intend to renovate, improve, or develop properties. We have no policy with respect to investments in real estate or interests in real estate and no policy with respect to investments in real estate mortgages. Further, we have no policy with respect to investments in securities of or interests in persons primarily engaged in real estate activities.

Item 3. LEGAL PROCEEDINGS

We are not currently involved in any legal proceedings nor do we have knowledge of any threatened litigation.

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

None

PART II

Item 5. Market for Common Equity and Related Stockholder Matters and Small Business Issuer Purchases of Equity Securities

Market for Securities

Our common stock currently trades on The Pink Sheets under the symbol MGOA. The high and low closing price for each quarterly period of our last two fiscal years is listed below:

	High		Low
Fiscal 2008
1st Quarter	$	0.05	$	0.03
2nd Quarter		0.07		0.03
3rd Quarter		0.07		0.04
4th Quarter		0.05		0.03

Fiscal 2009
1st Quarter	$	0.05	$	0.02
2nd Quarter		0.05		0.02
3rd Quarter		0.05		0.01
4th Quarter		0.05		0.02


*	The quotations reflect inter-dealer prices, without mark-up, mark-down or commission and may not represent actual transactions.

Unregistered sales of common stock

Not applicable

Reclassification

Certain amounts presented at July 31, 2008 have been reclassified to conform to presentation at July 31, 2009.

Penny Stock Considerations

Our shares will be "penny stocks" as that term is generally defined in the Securities Exchange Act of 1934 to mean equity securities with a price of less than $5.00. Our shares thus will be subject to rules that impose sales practice and disclosure requirements on broker-dealers who engage in certain transactions involving a penny stock.

Under the penny stock regulations, a broker-dealer selling a penny stock to anyone other than an established customer or accredited investor must make a special suitability determination regarding the purchaser and must receive the purchaser's written consent to the transaction prior to the sale, unless the broker-dealer is otherwise exempt. Generally, an individual with a net worth in excess of $1,000,000 or annual income exceeding $100,000 individually or $300,000 together with his or her spouse is considered an accredited investor. In addition, under the penny stock regulations the broker-dealer is required to:

*	Deliver, prior to any transaction involving a penny stock, a disclosure schedule prepared by the Securities and Exchange Commissions relating to the penny stock market, unless the broker-dealer or the transaction is otherwise exempt;

*	Disclose commissions payable to the broker-dealer and our registered representatives and current bid and offer quotations for the securities;

*	Send monthly statements disclosing recent price information pertaining to the penny stock held in a customer's account, the account's value and information regarding the limited market in penny stocks; and

*	Make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser's written agreement to the transaction, prior to conducting any penny stock transaction in the customer's account.

Because of these regulations, broker-dealers may encounter difficulties in their attempt to sell shares of our common stock, which may affect the ability of selling stockholders or other holders to sell their shares in the secondary market and have the effect of reducing the level of trading activity in the secondary market. These additional sales practice and disclosure requirements could impede the sale of our securities, if our securities become publicly traded. In addition, the liquidity for our securities may be decreased, with a corresponding decrease in the price of our securities. Our shares in all probability will be subject to such penny stock rules and our stockholders will, in all likelihood, find it difficult to sell their securities.

Holders

As of July 31, 2009, we had 109 holders of record of our common stock.

Dividends

We have not declared any cash dividends on our common stock since our inception and do not anticipate paying such dividends in the foreseeable future. We plan to retain any future earnings for use in our business. Any decisions as to future payments of dividends will depend on our earnings and financial position and such other facts, as the board of directors deems relevant.

Reports to Stockholders

We have become subject to the information and reporting requirements of the Securities Exchange Act of 1934 and will file periodic reports, proxy statements and other information with the Securities and Exchange Commission. We intend to voluntarily send an annual report with audited consolidated financial statements to our security holders.

Where You Can Find Additional Information

For further information about us and the shares of common stock registered hereunder, please refer to the registration statement and the exhibits and schedules thereto. The registration statement and exhibits may be inspected, without charge, and copies may be obtained at prescribed rates, at the SEC's Public Reference Room at 100F. St., N.E., Washington, D.C. 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The registration statement and other information filed with the SEC are also available at a web site maintained by the SEC at http://www.sec.gov.

Item 6. Selected Consolidated Financial Data

Not required.

Item 7. Management's Discussion and Analysis or Plan of Operation.

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

This Annual 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 Annual 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.

Special Information Regarding Forward Looking Statements

Some of the statements in this report are “forward-looking statements.” These forward-looking statements involve certain known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements. These factors include, among others, the factors set forth above under “Risk Factors.” The words “believe,” “expect,” “anticipate,” “intend,” “plan,” and similar expressions identify forward-looking statements. We caution you not to place undue reliance on these forward-looking statements. We undertake no obligation to update and revise any forward-looking statements or to publicly announce the result of any revisions to any of the forward-looking statements in this document to reflect any future or developments. However, the Private Securities Litigation Reform Act of 1995 is not available to us as a penny stock issuer and thus we may not rely on the statutory safe harbor from liability for forward-looking statements.

Overview

Megola, Inc. is committed to solving environmental problems without the use of harsh chemicals that, in the long run, can have deleterious effects on company budgets and our environment. Megola, Inc. is the exclusive worldwide distributor for Megola GmbH, a German company that designs and manufactures the ScaleGuard series of physical water treatment equipment. Megola, Inc. has created a distribution network throughout the world.

Since the introduction of the ScaleGuard line of physical water treatment products, Megola has identified the need for a more comprehensive approach to environmentally-friendly water treatment. Now, five years later, Megola has obtained rights to market and distribute technologically advanced products for the industrial, commercial, residential and agricultural markets.

Current Results of Operations and Financial Status

Results of Operations:

Our revenues are difficult to forecast and may vary significantly from quarter to quarter and year to year. In addition, our expense levels for each quarter are, to a significant extent, fixed in advance based upon our expectation as to the net revenues to be generated during that quarter. We therefore are generally unable to adjust spending in a timely manner to compensate for any unexpected shortfall in net revenues. Further, as a result of these factors, any delay in product introductions, whether due to internal delays or delays caused by third party difficulties, or any significant shortfall in demand in relation to our expectations, would have an almost immediate adverse impact on our operating results and on ability to maintain profitability in a quarter.

Comparison of the year ended July 31, 2009 with the year ended July 31, 2008.

During the year ending July 31, 2009 our revenues increased from $36,399 for 2008 to $116,968 for the year ended July 31, 2009, an increase of 221.34% over the prior year. Our revenues for the year ended July 31, 2009 vs. year ended July 31, 2008 increased due to a royalty payment based on a North American Distribution Agreement.

Cost of sales consists of direct manufacturing costs and applied overhead expenses for our cost of raw materials to manufacture the ScaleGuard, Hartindo and other systems. Cost of sales decreased to $23,216 and, as a percentage of revenues, decreased to 19.84% in the year ended July 31, 2009, as compared to $32,592 and 89.54% of revenue for the year ended July 31, 2008. The overall decrease in the cost of sales during 2009 is due to decrease costs of raw material acquisition and product manufacturing. In note 3(k) we indicated a reduction to inventory during the year-end July 31, 2007. Even though these items have been slow to move, they are still salable and there is little concern with obsolescence. Future product sales of these slow moving items will have no corresponding cost of sales due to the reduction entered above. During the year ended July 31, 2009, $400,000 (2008-$nil) of our revenues were generated from royalties based on a North American Distribution Agreement. When royalty payments are received, we do not incur any cost of sales.

General and administrative (operating) expenses increased 39.33% to $723,502 during 2009 from $519,259 in 2008. The overall increase in general and administrative (operating) expenses is due to stock warrants and consulting fees that aided in our product expansion and sales.

Interest expense increased 27.91% in 2009 to $23,960 from $18,732 in 2008, because of the Company's increased interest on stockholder loans during the year. As of Q3, all stockholder interest owing, along with all outstanding stockholder debt was converted into Preferred “B” stock. (see note 8)

Accumulated other comprehensive loss increased 19,537.26% in 2009 to $92.327 from $475, which is directly attributable to the foreign currency translation adjustment.

Net Income (Loss)

For the reasons outlined above, we realized a net loss of $258,175 for the year ended July 31, 2009 as compared to a net loss of $536,875 for the year ended July 31, 2008, a decrease of 51.91%.

	2009			2008
REVENUE
Sales	$	116,968		$	36,399
Royalty		400,000			-
Total Revenue		516,968			36,399

COST OF SALES		23,216			32,592

SELLING and GENERAL ADMINISTRATIVE		723,502			519,259
DEPRECIATION and AMORTIZATION		4,465			2,691
INTEREST		23,960			18,732
Total Expenses		751,927			540,682

NET LOSS	$	(258,175	)	$	(536,875	)

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.

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.

Liquidity and Capital Resources

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

At July 31, 2009, we had an accumulated deficit of $5,873,775.

Cash and cash equivalents at July 31, 2009 were $nil and $nil at July 31, 2008. Our inventory increased for the same period from $51,429 to $241,023 or 368.65%;

Megola is also pursuing other financial resources to augment its cash requirements for retirement of debt, expansion of operations and acquisition of suitable companies and products.

Our success and ongoing financial viability is contingent upon its selling of our products and the related generation of cash flows. We evaluate our liquidity and capital needs on a continuous basis and based on our requirements and capital market conditions may, from time to time, raise working capital through additional debt or equity financing. There is no assurance that such financing will be available in the future to meet our additional capital needs, or that any such terms or conditions of any such financing would be favorable to us. Both our current growth and expanded business involve significant financial risk and require significant capital investment.

One customer accounted for 70% of sales in 2009. One customer accounted for 61% of sales in 2008. One vendor accounted for 99% of cost of goods sold in 2009. One vendor accounted for 100% of cost of goods sold in 2008.

Our ability to continue as a going concern is dependent on our ability to raise funds to implement our planned development; however we may not be able to raise sufficient funds to do so. Our independent auditors have indicated that here is substantial doubt about our ability to continue as a going concern over the next twelve months. Our poor financial condition could inhibit our ability to achieve our business plan. Because we are currently operating at a substantial loss, an investor cannot determine if we will ever become profitable.

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 7A. Quantitative and Qualitative Disclosures About Market Risk

Not required.

Item 8. Financial Statements and Supplementary Data.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To The Shareholders and Board of Directors of Megola, Inc.

We have audited the accompanying consolidated balance sheets of Megola, Inc. (the “Company”) as of July 31, 2009 and the related consolidated statements of operations, changes in consolidated Shareholders’ equity and cash flows for the year ended July 31, 2009. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provided a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Megola, Inc. as of July 31, 2009, and the results of its operations and its cash flows for the years ended July 31, 2009, in conformity with accounting principles generally accepted in the United States.

The accompanying financial statements referred to above have been prepared assuming that the Company will continue as a going concern. As discussed in note 2 to the consolidated financial statements, the continuance of the Company is dependent on its future profitability and the ongoing support of its stockholders, affiliates and creditors. Management’s plans as to these matters are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Jewett, Schwartz, Wolfe & Associates

/s/Jewett, Schwartz, Wolfe & Associates

Hollywood, Florida

November 25, 2009

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders of Megola, Inc.

We have audited the consolidated balance sheets of Megola, Inc. (the “Company”) as at July 31, 2008 and 2007 and the related consolidated statements of operations and comprehensive loss, changes in stockholders’ equity and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of July 31, 2008 and 2007 and the consolidated results of its operations and its cash flows for the years then ended in accordance with generally accepted accounting principles in the United States of America.

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in note 2 to the consolidated financial statements, the continuance of the Company is dependent on its future profitability and the ongoing support of its stockholders, affiliates and creditors. This raises substantial doubt about its ability to continue as a going concern. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Since the accompanying consolidated financial statements have not been prepared in accordance with generally accepted accounting principles and standards in Canada, they may not satisfy the reporting requirements of Canadian statutes and regulations.

	“SCHWARTZ LEVITSKY FELDMAN LLP”

Toronto, Ontario, Canada

May 1, 2009	Chartered Accountants
	Licensed Public Accountants

MEGOLA, INC.

CONSOLIDATED BALANCE SHEETS

(Amounts expressed in US dollars)

	July 31,			July 31,
	2009			2008
	(Audited)			(Audited)

ASSETS
Cash	$	-		$	-
Inventory		241,023			51,429
Prepaid expenses		41,482			113
Total Current Assets		282,504			51,542

Long-term receivable - (note 16)		128,754			116,872
Intangible asset (note 4)		1,350,000			1,350,000
Property and equipment, net of accumulated depreciation of $38,461 (2008-$30,381)(note 5)		12,424			5,558
TOTAL ASSETS	$	1,773,682		$	1,523,972

LIABILITIES
Bank overdraft	$	74,737		$	1,291
Accrued expenses - (note 7)		76,393			99,356
Accounts payable		45,822			57,577
Accrued interest		25,821			25,821
Advances from stockholders		-			386,284
Total Current Liabilities		222,773			570,329

Note payable (note 6)		-			585,670
Total Liabilities		222,773			1,155,999

Commitments and Contingencies		-			-

STOCKHOLDERS' EQUITY
Capital stock: (note 8)
Common, $0.001 par value; 200,000,000 shares authorized,
33,187,419 and 78,486,029 issued and outstanding in 2009 and 2008 respectively		33,187			78,486
Preferred "A", $0.001 par value; 3,500,000 shares authorized,
1,911,940 and $nil issued and outstanding in 2009 and 2008 respectively		1,912			-
Preferred "B", $0.001 par value; 1,500,000 shares authorized,
137,885 and $nil issued and outstanding in 2009 and 2008 respectively		138			-
Additional paid in capital (note 8)		7,481,774			5,904,612
Deficit		(5,873,775	)		(5,615,600	)
Accumulated other comprehensive loss:
Foreign currency translation adjustment		(92,327	)		475
Total Stockholders' Equity		1,550,909			367,973
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY		1,773,682			1,523,972

See accompanying notes to audited consolidated financial statements

MEGOLA, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(Amounts expressed in US dollars)

	Year Ended			Year Ended
	July 31,			July 31,
	2009			2008

Income - sales	$	116,968		$	36,399
Cost of sales		23,216			32,592
GROSS PROFIT (LOSS)		93,752			3,807

Income - royalties (note 12)		400,000			-
		493,752			3,807

General and administrative		723,502			519,259
Depreciation		4,465			2,691
Interest		23,960			18,732
TOTAL EXPENSES		751,927			540,682

NET LOSS		(258,175	)		(536,875	)

Foreign currency translation adjustment		(92,802	)		3,377

COMPREHENSIVE LOSS	$	(350,977	)	$	(533,498	)

Weighted average common shares outstanding		74,867,404			77,253,152

Loss per share - basic and diluted		(0.003	)		(0.007	)

See accompanying notes to audited consolidated financial statements

MEGOLA, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts expressed in US dollars)

	YEAR ENDED
	July 31, 2009			July 31, 2008

CASH FLOWS FROM OPERATING ACTIVITIES
Net loss for the period		(258,175	)		(536,875	)
Adjustments to reconcile net loss to net cash used in operating activities (note 11)		(98,803	)		63,281
		(356,978	)		(473,594	)

CASH FLOWS FROM FINANCING ACTIVITES
Increase in bank indebtedness		73,446			1,291
Advances from stockholders		336,112			88,843
Increase in notes payable		-			344,850
Principal payments on notes payable		(134,051	)		-
Cash flows from financing activities		275,507			434,984

CASH FLOWS FROM INVESTING ACTIVITES
Purchase of property and equipment		(11,331	)		-
Cash flows from investing activities		(11,331	)		-

EFFECT OF EXCHANGE RATE CHANGES ON CASH		92,802			5,950
NET INCREASE (DECREASE) IN CASH FOR THE YEAR		0			(32,660	)
NET CASH, beginning of year		0			32,660
NET CASH, end of year		-			-

SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid
Income taxes paid

NONCASH INVESTING AND FINANCING ACTIVITIES:
Conversion of debt into preferred stock		1,378,850
Issuance of stock for services rendered		75,000

See accompanying notes to audited interim consolidated financial statements

Megola, Inc.

CONSOLIDATED INTERIM STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY) - audited

(Amounts expressed in US dollars)

	Common Stock						Preferred Stock Series "A"						Preferred Stock Series "B"
	Shares			Amount			Shares			Amount			Shares		Amount
Balances, July 31, 2007		48,486,029		$	48,486			-		$	-			-	$	-

Stock for Distribution Rights		30,000,000			30,000			-			-			-		-
Net Loss		-			-			-			-			-		-

Foreign Currency
Translation Adjustment		-			-			-			-			-		-

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

	Accumulated Other			Additional
	Comprehensive			Paid In			Accumulated
	Income (Loss)			Capital			Deficit			Totals
Balances, July 31, 2007		(2,902	)	$	5,934,612		$	(5,078,725	)		901,471

Stock for Distribution Rights		-			(30,000	)		-			-
Net Loss		-			-			(536,875	)		(536,875	)

Foreign Currency
Translation Adjustment		3,377			-			-			3,377

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

See accompanying notes to audited interim consolidated financial statements

MEGOLA, INC.

Notes to Consolidated Financial Statements for the Years ended July 31, 2009 and 2008

(Amounts expressed in US dollars)

1.	NATURE OF BUSINESS

Megola, Inc. ("Megola" or "the Company") was incorporated in Ontario, Canada on August 28, 2000. Megola was formed to sell physical water treatment devices to a wide range of end-users in the United States, Canada and internationally under a license granted by Megola GmbH in Germany.

The Company presently distributes the following product lines: physical water treatment; water filtration; air purification; microbiological control; waste water treatment and fire safety.

2.	GOING CONCERN

These 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. As shown in the accompanying consolidated financial statements, Megola incurred recurring net losses of $258,175 and $536,875 in the 2009 and 2008 fiscal years respectively, has negative cash flows from operations and a deficit of $5,873,775 as at July 31, 2009. These conditions create an uncertainty as to Megola's ability to continue as a going concern. At present, the Company does not have sufficient resources to fund its current working capital requirements. The Company's financing plans include obtaining additional capital through various debt and/or equity financing arrangements to service its current working capital requirements; any additional or unforeseen obligations and to fund the implementation of 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 consolidated financial statements do not include any adjustments for this uncertainty.

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 the Company’s 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.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a) Basis of presentation

These consolidated financial statements are presented in U.S. dollars and have been prepared by management in accordance with accounting principles generally accepted in the United States of America ("US GAAP") and the rules of the Securities Exchange Commission ("SEC").

(b) Principles of consolidation

The Company's consolidated financial statements include the accounts of Megola and its wholly owned subsidiary. All significant intercompany balances and transactions have been eliminated on consolidation.

The preparation of the consolidated financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. Significant estimates are comprised of depreciation, accrued expenses, impairment of intangible asset, and recoverability of deferred tax asset. These consolidated financial statements have, in management’s opinion, been properly prepared within reasonable limits of materiality and within the framework of the accounting policies summarized in these consolidated financial statements.

MEGOLA, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED JULY 31, 2009 and 2008

(AMOUNTS EXPRESSED IN U.S. DOLLARS)

3.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

(d) Foreign currency translation

Megola determined that its functional currency is the Canadian Dollar as substantially all of its operations are in Canada. Megola’s reporting currency is U.S. dollars. Transactions and balances originally denominated in U.S. dollars are presented at their original amounts. Transactions and balances in other currencies are converted into U.S. dollars in accordance with SFAS No. 52, Foreign Currency Translation, and are included in determining net income or loss. For foreign operations with the local currency as the functional currency, assets and liabilities are translated from the local currencies into U.S. dollars at the exchange rate prevailing at the balance sheet date. Revenues and expenses are translated at weighted average exchange rates for the period to approximate translation at the exchange rates prevailing at the dates those elements are recognized in the consolidated financial statements. Translation adjustments resulting from the process of translating the local currency consolidated financial statements into U.S. dollars are included in determining comprehensive loss. As of July 31, 2009, the exchange rate for the Canadian Dollar was $1.00 U.S. for $1.08 Canadian (2008 - $1.00 U.S. for $1.02). The annual average exchange rate for the 2009 fiscal year was $1.00 U.S. for $1.18 (2008 - $1.00 U.S. for $1.00). The Canadian economy weakened considerably in relation to the U.S. during the fiscal year of 2009, and as a result currency fluctuations have affected Megola's operations. In the future, inflation rates and the devaluation or valuation of the Canadian Dollar in relation to the U.S. dollar may have significant effects on Megola's consolidated financial statements. During the year-ended July 31, 2009 the company incurred an aggregated foreign currency translation loss of $92,327.

(e) Cash equivalents

For the purposes of the Consolidated Statement of Cash Flows, the Company considers all highly liquid investments purchased with an original maturity of 90 days or less to be cash equivalents.

(f) Revenue recognition

Revenue is recognized when it is realized or realizable and earned. Megola considers revenue realized or realizable and earned when persuasive evidence of an arrangement exists, services have been provided, and collectability is reasonably assured. In the case of exclusive agreements with distributors, finished goods are shipped directly FOB manufacturer/point of assembly. Megola offers no independent warranty and refers any warranty claims to the manufacturer for products it sells. Therefore, Megola recognizes revenue under these agreements when the goods are shipped. Megola recognizes royalty revenue as the Company is informed that such payments are due.

(g) Shipping and Handling

Megola provides all customers the option of having product delivered or making their own shipping arrangements. All shipping and handling costs are disclosed in the pricing estimate. Megola contacts its primary shipping facility for shipping costs at the time orders are received and provides to customer in the pricing estimate.

(h) Intangible assets

Intangible assets include distribution rights acquired from an independent party. Intangible assets with an indefinite life are not amortized. Indefinite-lived intangible assets are tested for impairment annually and will be tested for impairment between annual tests if an event occurs or circumstances change that would indicate that the carrying amount may be impaired. An impairment loss is recognized when the carrying amount of an asset exceeds the estimated undiscounted cash flows used in determining the fair value of the asset. At year end the management has performed an impairment analysis and determined that an impairment allowance is not required. The amount of the impairment loss to be recorded is calculated by the excess of the asset’s carrying value over its fair value. Fair value is generally determined using a discounted cash flow analysis.

MEGOLA, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED JULY 31, 2009 and 2008

(AMOUNTS EXPRESSED IN U.S. DOLLARS)

3.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

(i) Financial Instruments

Fair Value

The Company’s financial instruments consist of long-term receivable, bank overdraft, accrued expenses, accounts payable and accrued interest. The fair value of bank overdraft, accrued expenses, accounts payable and accrued interest approximates their carrying amount given short period to receipt or payment of cash. The fair value of long-term receivable is disclosed in note 17. It is management’s opinion that the Company is not exposed to any significant interest rate or credit risks arising from these financial instruments.

Foreign Currency Risk

The company is exposed to currency risks due to potential variation of the currencies in which it operates.

Principal currencies include the United States dollar and Canadian Dollar. The company monitors the foreign currency exposure regularly to minimize the foreign currency risk exposure.

Liquidity Risk

The company is exposed to liquidity risk as its continued operations are dependant upon obtaining additional capital to satisfy its liabilities as they come due.

(j) Allowance for doubtful accounts

Megola does not require collateral from its customers with respect to accounts receivable but performs periodic credit evaluations of such customers’ financial conditions. Megola determines any required allowance by considering a number of factors including lengths of time accounts receivable are past due and Megola’s previous loss history. Megola provides reserves for accounts receivable when they become uncollectible, and payments subsequently received on such receivables are credited to the allowance for doubtful accounts. Megola requires payment in full for most orders, which minimizes collection requirements. Certain customers are able to provide us with a deposit of 50% up front with the balance due on shipping. Our standard procedures related to any delayed payments are to follow up within 10 days with a friendly reminder phone call and a letter in 30 days. After 60 days, we will have a letter drafted by our lawyer go out demanding payment in full along with any outstanding interest charges. Failure to make payment in the next 15 days will result in the account being forwarded to a collection agency for recovery. Receivables will be classified as doubtful after 120 days and written off as Bad Debt. Interest charges will start to accumulate on the 30th day following the Invoice for any unpaid balances at a rate of 18% per annum calculated daily.

As of July 31, 2009 and 2008, Megola had $nil and $nil respectively as an allowance for doubtful accounts.

(k) Inventory

Inventory is valued at the lower of cost (determined on a first -in, first-out method) and net realizable value. Megola records provisions to write down its inventory for estimated obsolescence or unmarketable inventory equal to the difference between cost of the inventory and its estimated net realizable value based on assumptions about future market demand and market conditions. If future demand or market conditions are less favorable than currently expected, additional inventory provisions may be required. During the fiscal years ended July 31, 2009 and 2008 impairment expense was $nil and $nil, respectively related to inventory impairments. In the year ending July 31, 2007, included in the impairment expense is $245,032 for slow moving products. These products are in good condition and are still expected to be sold.

(l) Property and equipment

Property and equipment are stated on the basis of historical cost less accumulated depreciation. Depreciation is provided using the straight-line method over the estimated useful lives of the assets, which range from 3 to 7 years. Depreciation expense for the years ended July 31, 2009 and 2008 was $4,465 and $2,691, respectively. Depreciation of property and equipment acquired and disposed of during the year is recorded at one half of the indicated rates.

MEGOLA, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED JULY 31, 2009 and 2008

(AMOUNTS EXPRESSED IN U.S. DOLLARS)

3.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

(m) Impairment of long-lived assets

Long-lived assets other than intangible assets require the recognition of an impairment loss whenever it is indicated that an asset may be impaired and the future cash flows from that asset are less than the asset’s carrying value.

(n) Comprehensive income (loss)

The Company has adopted SFAS No. 130 Reporting Comprehensive Income. This standard requires companies to disclose comprehensive income (loss) in their consolidated financial statements. In addition to items included in net income, comprehensive income (loss) includes items currently charged or credited directly to stockholders’ deficiency, such as foreign currency translation adjustments.

(o) Concentration of credit risk

SFAS No. 105, "Disclosure of Information about Financial Instruments with Off-Balance Sheet Risk and Financial Instruments with Concentration of Credit Risk", requires disclosure of any significant off-balance sheet risk and credit risk concentration. The Company does not have significant off-balance sheet risk or credit concentration.

(p) Income taxes

Megola accounts for income taxes under Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes.". Under Statement 109, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under Statement 109, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. There was no current or deferred income tax expense or benefits for the period ending July 31, 2009 and 2008.

(q) Net earnings (loss) per common share

Basic loss per share is calculated by dividing the loss for the year by the weighted average number of common shares outstanding during the year. Diluted loss per share is computed using the treasury stock method. Under this method, the diluted weighted average number of shares is calculated assuming the proceeds that arise from the exercise of stock options and other dilutive instruments are used to repurchase the Company’s shares at their weighted average market price for the period.

(r) Share-based compensation

The Company has adopted the requirements of FASB Statement of Financial Accounting Standards No. 123(R), “Share-Based Payments", and Staff Accounting Bulletin No. 107, or SAB 107, "Share-Based Payments". These pronouncements require that the fair value method of accounting be applied to all share-based compensation payments to both employees and non-employees respectively.

The fair value method of accounting is used to account for share based payments granted to directors, officers, employees and others whereby the fair value of share based payments granted is recorded as an expense in the consolidated financial statements. The expense is based on the estimated fair value at the time of the grant and recognized over any vesting period.

MEGOLA, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED JULY 31, 2009 and 2008

(AMOUNTS EXPRESSED IN U.S. DOLLARS)

3.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

The fair value of share based payments granted to employees and non-employees is determined using the Black-Scholes option pricing model.

(s) Recent accounting pronouncements

Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles

In June 2009, the Financial Accounting Standards Board issued Statement “FASB” issued Statement No. 168, “The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles” (“SFAS No. 168”). SFAS No. 168 will become the single source of authoritative nongovernmental U.S. generally accepted accounting principles (“GAAP”), superseding existing FASB, American Institute of Certified Public Accountants (“AICPA”), Emerging Issues Task Force (“EITF”), and related accounting literature. SFAS No. 168 reorganizes the thousands of GAAP pronouncements into roughly 90 accounting topics and displays them using a consistent structure. Also included is relevant Securities and Exchange Commission guidance organized using the same topical structure in separate sections. SFAS No. 168 will be effective for financial statements issued for reporting periods that end after September 15, 2009. This statement will have an impact on the Company’s financial statements since all future references to authoritative accounting literature will be references in accordance with SFAS No. 168.

Subsequent Events

In May 2009, the FASB issued SFAS No. 165, “Subsequent Events”. This Statement establishes general standards of accounting for and disclosures of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. It requires the disclosure of the date through which an entity has evaluated subsequent events and the basis for that date and is effective for interim and annual periods ending after June 15, 2009. The adoption of SFAS No. 165 is not expected to have a material impact on the Company’s financial statements.

Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly

In April 2009, the FASB issued FSP FAS No. 157-4, “Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly". This FSP provides additional guidance for estimating fair value in accordance with FASB Statement No. 157, Fair Value Measurements, when the volume and level of activity for the asset or liability have significantly decreased. This FSP also includes guidance on identifying circumstances that indicate a transaction is not orderly. FSP FAS No. 157-4 is effective for interim and annual reporting periods ending after June 15, 2009, and shall be applied prospectively. The implementation of FSP FAS No. 157-4 did not have a material on the Company’s financial position and results of operations.

Recognition and Presentation of Other-Than-Temporary Impairments

In April 2009, the FASB issued FSP FAS No. 115-2 and FAS No. 124-2, “Recognition and Presentation of Other-Than-Temporary Impairments ". The objective of an other-than-temporary impairment analysis under existing U.S. generally accepted accounting principles (GAAP) is to determine whether the holder of an investment in a debt or equity security for which changes in fair value are not regularly recognized in earnings (such as securities classified as held-to-maturity or available-for-sale) should recognize a loss in earnings when the investment is impaired. An investment is impaired if the fair value of the investment is less than its amortized cost basis. FSP FAS No. 115-2 and FAS No. 124-2 is effective for interim and annual reporting periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009. Earlier adoption for periods ending before March 15, 2009, is not permitted. The implementation of FSP FAS No. 115-2 and FAS No. 124-2 did not have a material impact on the Company’s financial position and results of operations.

MEGOLA, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED JULY 31, 2009 and 2008

(AMOUNTS EXPRESSED IN U.S. DOLLARS)

(r) Recent accounting pronouncements (con’t)

Interim Disclosures about Fair Value of Financial Instruments

In April 2009, the FASB issued FSP FAS No. 107-1 and APB No. 28-1, “Interim Disclosures about Fair Value of Financial Instruments". This FSP amends SFAS No. 107, Disclosures about Fair Value of Financial Instruments, to require disclosures about fair value of financial instruments for interim reporting periods of publicly traded companies as well as in annual financial statements. This FSP also amends APB Opinion No. 28, Interim Financial Reporting, to require those disclosures in summarized financial information at interim reporting periods. FSP FAS No. 107-1 is effective for interim reporting periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009. The implementation of FSP FAS No. 107-1 did not have a material impact on the Company’s financial position and results of operations

Interim Disclosure about Fair Value of Financial Instruments

In April 2009, the FASB issued FASB Staff Position “FSP” No. SFAS 107-1 and APB 28-1, “Interim Disclosures about Fair Value of Financial Instruments”. This FSP amends SFAS No. 107 to require disclosures about fair values of financial instruments for interim reporting periods as well as in annual financial statements. The FSP also amends Accounting Principles Board Opinions “APB Opinion” No. 28 to require those disclosures in summarized financial information at interim reporting periods. This FSP becomes effective for interim reporting periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009. The adoption of this FSP is not expected to have a material impact on our consolidated financial statements.

Amendments to the Impairment Guidance of EITF Issue No. 99-20

In January 2009, the FASB issued FSP Emerging Issues Task Force ("EITF") Issue No. 99-20-1, “Amendments to the Impairment Guidance of EITF Issue No. 99-20". This FSP amends the impairment guidance in EITF Issue No. 99-20, “Recognition of Interest Income and Impairment on Purchased Beneficial Interests and Beneficial Interests That Continue to Be Held by a Transferor in Securitized Financial Assets,” to achieve more consistent determination of whether an other-than-temporary impairment has occurred. The FSP also retains and emphasizes the objective of an otherthan- temporary impairment assessment and the related disclosure requirements in FASB Statement No. 115, Accounting for Certain Investments in Debt and Equity Securities, and other related guidance. This Issue is effective for interim and annual reporting periods ending after December 15, 2008, and shall be applied prospectively. Retrospective application to a prior interim or annual reporting period is not permitted. The adoption of FSP EITF 99-20-1 did not have a material effect on the Company’s consolidated financial statements

Accounting for Own-Share Lending Arrangements in Contemplation of Convertible Debt Issuance or Other Financing

In June 2009, the FASB issued FSP Emerging Issues Task Force ("EITF") Issue No. 09-1, “Accounting for Own-Share Lending Arrangements in Contemplation of Convertible Debt Issuance or Other Financing”. This Issue is effective for fiscal years beginning on or after December 15, 2009, and interim periods within those fiscal years for arrangements outstanding as of the beginning of those fiscal years. Share lending arrangements that have been terminated as a result of counterparty default prior to the effective date of this Issue but for which the entity has not reached a final settlement as of the effective date are within the scope of this Issue. This Issue requires retrospective application for all arrangements outstanding as of the beginning of fiscal years beginning on or after December 15, 2009. This Issue is effective for arrangements entered into on or after the beginning of the first reporting period that begins on or after June 15, 2009. Early adoption is not permitted. The Company is currently assessing the impact of FSP EITF 09-1 on its financial position and results of operations.

MEGOLA, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED JULY 31, 2009 and 2008

(AMOUNTS EXPRESSED IN U.S. DOLLARS)

(r) Recent accounting pronouncements (con’t)

Determining the Fair Value of a Financial Asset When the Market for That Asset is Not Active

In October 2008, the FASB issued FSP FAS No. 157-3, “Determining the Fair Value of a Financial Asset When the Market for That Asset is Not Active.” This FSP clarifies the application of SFAS No. 157, “Fair Value Measurements,” in a market that is not active. The FSP also provides examples for determining the fair value of a financial asset when the market for that financial asset is not active. FSP FAS No. 157-3 was effective upon issuance, including prior periods for which financial statements have not been issued. The impact of adoption was not material to the Company’s consolidated financial condition or results of operations.

The Hierarchy of Generally Accepted Accounting Principles

In May 2008, the FASB issued SFAS No. 162, "The Hierarchy of Generally Accepted Accounting Principles.” SFAS No. 162 identifies the sources of accounting principles and the framework for selecting the principles used in the preparation of financial statements. SFAS No. 162 is effective 60 days following the SEC's approval of the Public Company Accounting Oversight Board amendments to AU Section 411, "The Meaning of Present Fairly in Conformity with Generally Accepted Accounting Principles". The implementation of this standard will not have a material impact on the Company's consolidated financial position and results of operations.

Determination of the Useful Life of Intangible Assets

In April 2008, the FASB issued FSP FAS No. 142-3, “Determination of the Useful Life of Intangible Assets”, which amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of intangible assets under SFAS No. 142 “Goodwill and Other Intangible Assets”. The intent of this FSP is to improve the consistency between the useful life of a recognized intangible asset under SFAS No. 142 and the period of the expected cash flows used to measure the fair value of the asset under SFAS No. 141 (revised 2007) “Business Combinations” and other U.S. generally accepted accounting principles. The implementation of FSP FAS No. 142-3 is not expected to have a material impact on its consolidated financial statements.

Disclosure about Derivative Instruments and Hedging Activities

In March 2008, the FASB issued SFAS No. 161, “Disclosure about Derivative Instruments and Hedging Activities, an amendment of SFAS No. 133.” This statement requires that objectives for using derivative instruments be disclosed in terms of underlying risk and accounting designation. The Company was required to adopt SFAS No. 161 on January 1, 2009. The adoption of SFAS No.161 on January 1, 2009 did not have a material effect on the Company’s consolidated financial statements

Fair Value Option for Financial Assets and Financial Liabilities

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities – Including an amendment of SFAS No. 115,” which becomes effective on February 1, 2008, permits companies to choose to measure many financial instruments and certain other items at fair value and report unrealized gains and losses in earnings. Such accounting is optional and is generally to be applied instrument by instrument. The election of this fair-value option did not have a material effect on its consolidated financial condition, results of operations, cash flows or disclosures.

MEGOLA, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED JULY 31, 2009 and 2008

(AMOUNTS EXPRESSED IN U.S. DOLLARS)

(r) Recent accounting pronouncements (con’t)

Fair Value Measurements

In September 2006, the FASB No. 157, “Fair Value Measurements” (“SFAS No. 157”). SFAS No. 157 defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles and expands disclosures about fair value investments. SFAS No. 157 was effective for financial assets and liabilities on January 1, 2008. The statement deferred the implementation of the provisions of SFAS No. 157 relating to certain non-financial assets and liabilities until January 1, 2009. The adoption of SFAS No.157 on January 1, 2009 for financial assets and liabilities did not have a material effect on the Company’s consolidated financial statements.

4.	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 year-end, 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.

MEGOLA, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED JULY 31, 2009 and 2008

(AMOUNTS EXPRESSED IN U.S. DOLLARS)

4.	INTANGIBLE ASSET (continued)

DISTRIBUTION RIGHTS (continued)

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 quotas in the agreement with PCL have been moved forward starting January 31, 2010.

5.	PROPERTY AND EQUIPMENT

	2009				2008
	Cost		Accumulated Depreciation		Net		Net
	$		$		$		$
Sports Ozone Machines		16,000		13,126		2,874		5,142
Office Furniture and Equipment		31,846		22,296		9,550		416
	$	47,846	$	35,422	$	12,424	$	5,558

Amortization for the year amounted to $4,465 ($2,691 in 2008).

6.	NOTE PAYABLE

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. No interest has been accrued or paid on the loan for the year ended July 31, 2008.

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 $292,980. 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. No interest has been accrued or paid on the loan for the year ended July 31, 2008.

During the year, 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. The amount of imputed interest for the year ended July 31, 2008 is not material.

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

MEGOLA, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED JULY 31, 2009 and 2008

(AMOUNTS EXPRESSED IN U.S. DOLLARS)

7.	ACCRUED EXPENSES

The composition of accrued expenses is as follows:

	2009		2008

Accrued Payroll Liabilities		50,393		60,865
Other		26,000		38,491

Total accrued liabilities	$	76,393	$	99,356

8.	CAPITAL STOCK AND ADDITIONAL PAID IN CAPITAL

(a) Common stock

Common stock ($.001 par value per share): 200,000,000 shares are authorized, with 33,187,419 shares issued and outstanding at July 31, 2009 and 78,486,029 at July 31, 2008.

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.

On June 15, 2009, 47,798,610 common shares were tendered for conversion into the company’s series “A” convertible Preferred Stock. (see note 8(e))

The shareholder of each common share is entitled to one vote. Megola’s common stock currently has no additional

rights or privileges.

(b) Additional paid in capital

Additional paid in capital increased $1,577,162 due to the company issuing common stock for services (see note 8(a)), issuing Preferred “B” for debt (see note 8(d)), common stock being converted to Preferred “A” (see note 8(e)), and stock warrants attached to Preferred “A” offer.

(c) The Company has a Stock Incentive Plan for employees and consultants. There were no shares issued under the plan during the year ending July 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.

MEGOLA, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED JULY 31, 2009 and 2008

(AMOUNTS EXPRESSED IN U.S. DOLLARS)

8.	PAID IN CAPITAL AND ADDITIONAL PAID IN CAPITAL (continued)

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.

9.	SEGMENT REPORTING

The Company sells products in North America and Asia and has two reportable geographic segments and three reportable product segments summarized as follows:

	North America			Asia		Total

Year ended July 31, 2009
Sales and Royalties	$	516,968		$	-	$	516,968
Net loss	$	(258,174	)	$	-	$	(258,174	)
Depreciation	$	4,465		$	-	$	4,465
Interest Expense	$	23,960		$	-	$	23,960
Total Assets	$	1,773,682		$	-	$	1,773,682

Year ended July 31, 2008
Sales and Royalties	$	36,399		$		$	36,399
Net loss	$	(536,875	)	$		$	(536,875	)
Depreciation	$	2,691		$	-	$	2,691
Interest Expense	$	18,732		$	-	$	18,732
Total Assets	$	1,523,972		$		$	1,523,972

Breakdown of sales and royalties by product line

	Air Purification		Physical Water Treatment		Fire Safety		Total
Year Ended July 31, 2009	$	-	$	2,826	$	514,142	$	516,968
Year Ended July 31, 2008	$	1,525	$	12,620	$	22,254	$	36,399

There were no sales for water filtration, microbiological control and waste water treatment.

MEGOLA, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED JULY 31, 2009 and 2008

(AMOUNTS EXPRESSED IN U.S. DOLLARS)

10.	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	$	37,602
Year Ended	July 31, 2011	$	37,602
Year Ended	July 31, 2012	$	37,602
Year Ended	July 31, 2013	$	37,602
Year Ended	July 31, 2014	$	3,133
Total		$	153,541

Warehouse
Year Ended	July 31, 2010	$	15,314
Year Ended	July 31, 2011	$	15,314
Year Ended	July 31, 2012	$	15,314
Year Ended	July 31, 2013	$	15,314
Year Ended	July 31, 2014	$	1,276
Total		$	62,532

(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	$	35,060
Year Ended	July 31, 2011	$	35,060
Year Ended	July 31, 2012	$	5,843
Total		$	75,963

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

Year Ended	July 31, 2010	$	8,213
Year Ended	July 31, 2011	$	8,213
Year Ended	July 31, 2012	$	6,160
Total		$	22,586

MEGOLA, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED JULY 31, 2009 and 2008

(AMOUNTS EXPRESSED IN U.S. DOLLARS)

11.	CASH FLOW INFORMATION

(i) ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH USED IN OPERATING ACTIVITIES

	2009			2008
	$			$
Depreciation		4,465			2,691
Shares issued for rent		48,802			-
Shares issued for consulting services		75,000			-
(Increase) decrease in long-term receivable		(11,881	)		5,604
(Increase) decrease in inventory		(189,594	)		6,792
(Increase) decrease in prepaid expenses		(41,369	)		9,542
Increase (decrease) in accounts payable		16,737			1,148
Increase (decrease) in accrued expenses		(22,963	)		37,504
Increase (decrease) in distributor deposit		22,000			-
		(98,803	)		63,281

(ii) SUPPLEMENTAL CASH FLOW INFORMATION

Non Cash Transactions:
Preferred “B” Shares issued for long term debt	$	1,378,850	$
Preferred “B” Shares issued for future rents	$	41,482	$
Stock issued for distribution rights	$	-	$	1,350,000
Interest paid	$	-	$	-
Income taxes paid	$	-	$	-

12.	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.

Agreement provided that, under various existing contracts, Megola has purchased no less than 100,000 gallons of Hartindo AF21 in its fully diluted form.

13.	RESEARCH AND DEVELOPMENT

In 2008, Megola had $38,831 in research and development related expenditures. Much work had been completed in furthering the potential marketability of the Hartindo product line. In 2009, expenses were significantly reduced to $12,527 due to securing the services of our distribution groups. Each of our distribution groups has focused their research and development efforts around their prospective sales prospects and opportunities.

MEGOLA, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED JULY 31, 2009 and 2008

(AMOUNTS EXPRESSED IN U.S. DOLLARS)

14.	ECONOMIC DEPENDENCE

During 2009, one customer accounted for 70% of sales respectively (2008 – one customer accounted for 61%) and one vendor accounted for 99% of purchases (2008 - 100%).

15.	INCOME TAXES

Deferred income taxes arise from timing differences resulting from income and expense items reported for financial accounting and tax purposes in different periods. A deferred tax asset valuation allowance is recorded when it is more likely than not that deferred tax assets will not be realized. The Company's deferred tax assets, in the amount of $2,055,821 ($1,230,100 in 2008) consist entirely of benefit from net operating loss (NOL) carry forwards.

The Company’s deferred tax assets are offset by a valuation allowance due to the uncertainty of the realization of the net operating loss carry forwards. Net operating loss carry forwards in the amount of $4,375,471 ($3,465,072 in 2008) may be further limited by a change in ownership and other provisions of the tax laws.

Income taxes at the combined federal and state rates are as follows:

	2009			2008
InIncome tax benefit at the combined rate resulting from net operating loss carry forward		(35.5	)%		(35.5	)%
Deferred income tax valuation allowance		35.5	%		35.5	%

Actual tax rate		0	%		0	%

16.	EARINING PER SHARE

Basic earnings per share is computed by dividing net income available to common shareholders by the weighted average number of common shares outstanding during the period. Diluted earnings per share reflects the potential dilution that could occur if stock options and other commitments to issue common stock were exercised or equity awards vest resulting in the issuance of common stock or conversion of notes into shares of the Company’s common stock that could increase the number of shares outstanding and lower the earnings per share of the Company’s common stock. This calculation is not done for periods in a loss position as this would be antidilutive. As of July 31, 2009, there were no stock options or stock awards that would have been included in the computation of diluted earnings per share that could potentially dilute basic earnings per share in the future. The information related to basic and diluted earnings per share is as follows:

	Ended July 31,
	2009			2008

Numerator:
Continuing operations:
Income from continuing operations	$	(281,175	)	$	(536,875	)
Effect of dilutive convertible debt		—			—
Total	$	(281,175	)	$	(536,875	)

Discontinued operations
Loss from discontinued operations		—			—

Net income (loss)	$	(281,175	)	$	(536,875	)

Denominator:
Weighted average number of shares outstanding – basic and diluted		74,867,404			77,253,152

EPS:
Basic:
Continuing operations	$	(.003	)	$	.007
Discontinued operations		0.00			0.00
Net income/(loss)	$	(281,175	)	$	(536,875	)

Diluted
Continuing operations	$	(.003	)	$	.007
Discontinued operations		0.00			0.00
Net income/(loss)	$	(281,175	)	$	(536,875	)

17.	LONG TERM RECEIVABLE

The accounts 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 accounts 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 $121,466.

18.	COMPARATIVE FIGURES

Certain amounts in the prior years’ consolidated financial statements have been reclassified to conform to the current year presentation.

Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None—Not Applicable

Item 9A(T). Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

We carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) at July 31, 2009. This evaluation was carried out under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, at July 31, 2009, our disclosure controls and procedures are effective.

Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act are recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.

The Company has established disclosure controls and procedures to ensure that information disclosed in this annual report on Form 10-K was properly recorded, processed, summarized and reported to the Company’s Board of Directors. A control system, no matter how well conceived or operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met.

Internal Control Over Financial Reporting

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework stated by the Committee of Sponsoring Organizations of the Treadway Commission.

The Company’s Chief Executive Officer and Chief Financial Officer has evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of July 31, 2009 and for the fiscal year ending July 31, 2009 covered by this Annual Report on Form 10-K. Based upon such evaluation, the Chief Executive Officer and Chief Financial Officer has concluded that, as of July 31, 2009 and for the fiscal year ending July 31, 2009, the Company’s disclosure controls and procedures were not effective as required under Rules 13a-15(e) and 15d-15(e) under the Exchange Act. This conclusion by the Company’s Chief Executive Officer and Chief Financial Officer does not relate to reporting periods after July 31, 2009.

There is a material weakness in our internal control over financial reporting as of July 31, 2009 and for the fiscal year ending July 31, 2009 covered by the Annual Report filed on Form 10-K. A material weakness is a deficiency, or a combination of control deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis.

The Company is in the process of evaluating its material weaknesses and has already begun remediation procedures to address these weaknesses. In an effort to remediate the identified material weaknesses and enhance its internal controls, the Company has initiated, or plans to initiate, the following series of measures:

Recently hired a CFO

identify a communication process such that transactions entered into by executive management are communicated in a timely and effective manner to avoid unnecessary financial reporting delays and adjustments;

establish comprehensive formal general accounting policies and procedures and require employees, or consultants in areas such as accounting, reporting and administration, to facilitate sign off of such policies and procedures with executive management as documentation of their understanding of and compliance with Company policies; and

finalize formal policies governing accounting transaction and financial reporting processes which were started as part of this endeavor.

The Company continued to have the material weaknesses outlined above throughout 2008; however due to increased personnel in 2009, the Company believes that it will be able to implement the above remedial measures by July 31, 2010. Additionally, the Company plans to test its updated internal control over financial reporting by July 31, 2010.

This annual report does not include an attestation report of the Company s registered public accounting firm regarding internal control over financial reporting. Management s report was not subject to attestation by our registered public accounting firm pursuant to temporary rules of the SEC that permit us to provide only management’s report in this Annual Report on Form 10-KSB.

Changes in Internal Control Over Financial Reporting

No change in the Company s internal control over financial reporting occurred during the year ended July 31, 2009, that materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

Item 9B. Other Information

None.

PART III - OTHER INFORMATION

Item 10. Directors, Executive Officers, Promoters, Control Persons and Corporate Governance; Compliance with Section 16(a) of the Exchange Act

Each of our directors’ serves for a term of one year or until the successor is elected at our annual shareholders' meeting and is qualified, subject to removal by our shareholders. Each officer serves, at the pleasure of our board of directors, for a term of one year and until the successor is elected at the annual meeting of the board of directors and is qualified.

The names, ages and positions of the Company's directors and executive officers are as follows:

Name	Age	Position

Joel Gardner	42	Chief Executive Officer/President/Director

Craig Wagenschutz	51	Chief Financial Officer

Daniel Gardner	38	Treasurer

Sufan Siauw	41	Director

Willard Brown	52	Director

Joel Gardner joined Megola as president, CEO and Director in August 2000. From November 13, 1998 to July 2000, he was vice president of Aqua-Cristall Limited. From September 1990 to August 1998, he played professional hockey. In 1990 he received a BA, education major, minor in geology from Colgate University, NY.

Craig Wagenschutz joined Megola as CFO in January 2009. He is responsible for the development and implementation of company financial systems and processes as well as business plans and strategies, revenue models and budgeting. Mr. Wagenschutz will also work directly with the company's SEC Auditing firm to ensure financial compliancy of quarterly and year-end filings. A graduate of Adrian College with a BA in accounting, Mr. Wagenschutz became a licensed CPA in 1984 and founded Wagenschutz & Associates CPA Firm in 1988. He is a current member of the Michigan Association of CPAs and the American Institute of CPAs.

Daniel Gardner joined Megola in January 2005 in the role of General Manager and was appointed Treasurer in September 2006. He is responsible for daily business operations as well as working to implement business plans, marketing strategies, and product development. He is also a key figure in the area of investor relations on the public side of the company.

Willard "Buzz'' Brown joined Megola as director in October 2000. He brings over 20 years of business management knowledge to Megola. Currently, he is President and Owner of J&C Ice Technologies, Inc., a distributor for Zamboni in the mid-Atlantic region. In addition, Buzz also owns and operates Island Style Construction Company in Nantucket, a custom home-building construction company. Mr. Brown is a graduate of St. Lawrence University.

Sufan Siauw is currently the Chief Technology Officer of Dalian Bingshan H2O3 Environmental Solutions Co. Ltd., a Chinese ozone water treatment system manufacturer that is part of the Bingshan Group, one of China's largest diversified conglomerates, consisting of 46 different companies.

Family Relationships

Joel Gardner, CEO/President and Daniel Gardner, Treasurer, are brothers.

Legal Proceedings

No officer, director, or persons nominated for such positions, promoter or significant employee has been involved in the last five years in any of the following:

Any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time;

Any conviction in a criminal proceeding or being subject to a pending criminal proceeding (excluding traffic violations and other minor offenses);

Being subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities; and

Being found by a court of competent jurisdiction (in a civil action), the Commission or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated.

Code of Ethics

We do not currently have a Code of Ethics applicable to our principal executive, financial or accounting officer.

Compliance with Section 16(a) of the Exchange Act

Section 16(a) of the Securities Exchange Act of 1934, as amended, requires our directors and executive officers, and persons who beneficially own more than 10% of a registered class of our equity securities, to file reports of beneficial ownership and changes in beneficial ownership of our securities with the SEC on Forms 3 (Initial Statement of Beneficial Ownership), 4 (Statement of Changes of Beneficial Ownership of Securities) and 5 (Annual Statement of Beneficial Ownership of Securities). Directors, executive officers and beneficial owners of more than 10% of our Common Stock are required by SEC regulations to furnish us with copies of all Section 16(a) forms that they file. Based solely on review of the copies of such forms furnished to us, or written representations that no reports were required, we believe that for the fiscal year ended July 31 2009 beneficial owners complied with Section 16(a) filing requirements applicable to them.

Item 11. Executive Compensation

The following table sets forth the compensation paid to our executive officers during fiscal year ended July 31, 2008 and 2009 (collectively, the “Named Executive Officers”):

Summary Compensation Table

										Non-Equity		Non-Qualified
Name and										Incentive		Deferred		All
Principal						Stock		Option		Plan		Compensation		Other
Position	Year	Salary		Bonus		Awards		Awards		Compensation		Earnings		Compensation		Total
		($)		($)		($)		($)		($)		($)		($)		($)
Joel Gardner	2008		1		0		0		0		0		0		0		1
President/CEO	2009		1		0		0		0		0		0		0		1

Compensation Agreements

We have the no compensation agreements with our executive officers.

Summary Equity Awards Table

The following table sets forth certain information for our executive officers concerning unexercised options, stock that has not vested, and equity incentive plan awards as of July 31, 2009.

OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END
Name	Number of Securities Underlying Unexercised Options (#) Exercisable		Number of Securities Underlying Unexercised Options (#) Unexercisable		Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#)		Option Exercise Price ($)		Option Expiration Date		Number of Shares or Units of Stock That Have Not Vested (#)		Market Value of Shares or Units of Stock That Have Not Vested ($)		Equity Incentive Plan Awards: Number Of Unearned Shares, Units or Other Rights That Have Not Vested (#)		Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($)
Joel Gardner		0		0		0		0		0		0		0		0		0

Director Compensation Table

									Change in
									Pension
									Value and
							Non-Equity		Non-Qualified
	Fees Earned						Incentive		Deferred
	or Paid		Stock		Option		Plan		Compensation		All Other
Name	in Cash		Awards		Awards		Compensation		Earnings		Compensation		Total
	($)		($)		($)		($)		($)		($)		($)
Sufan Siauw	$	0		0		0		0		0		0		0
Joel Gardner	$	0		0		0		0		0		0		0
Willard Brown	$	0		0		0		0		0		0		0

Advisory Board

Megola Inc. has formed an Advisory Board that consist of individuals that it believes to be an important group of people that will play an integral role in assisting Megola in the overall growth of the company. The Company will turn, from time to time, to its Advisory Board for direction and advice on certain business matters of the company. Nothing has been compensated to these individuals but maybe figured into the future.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

As of the date of this Annual Report, the following table sets forth certain information with respect to the beneficial ownership of our common stock by each stockholder known by us to be the beneficial owner of more than 5% of our common stock and by each of our current directors and executive officers. Each person has sole voting and investment power with respect to the shares of common stock, except as otherwise indicated. Beneficial ownership consists of a direct interest in the shares of common stock, except as otherwise indicated. As of the date of this Annual Report, there are 51,189,000 shares of common stock issued and outstanding.

The following tables set forth the ownership, as of the date of this prospectus, of our common stock by each person known by us to be the beneficial owner of more than 5% of our outstanding common stock, our directors, and our executive officers and directors as a group. To the best of our knowledge, the persons named have sole voting and investment power with respect to such shares, except as otherwise noted. There are not any pending or anticipated arrangements that may cause a change in control.

The information presented below regarding beneficial ownership of our voting securities has been presented in accordance with the rules of the Securities and Exchange Commission and is not necessarily indicative of ownership for any other purpose. Under these rules, a person is deemed to be a "beneficial owner" of a security if that person has or shares the power to vote or direct the voting of the security or the power to dispose or direct the disposition of the security. A person is deemed to own beneficially any security as to which such person has the right to acquire sole or shared voting or investment power within 60 days through the conversion or exercise of any convertible security, warrant, option or other right. More than one person may be deemed to be a beneficial owner of the same securities. The percentage of beneficial ownership by any person as of a particular date is calculated by dividing the number of shares beneficially owned by such person, which includes the number of shares as to which such person has the right to acquire voting or investment power within 60 days, by the sum of the number of shares outstanding as of such date plus the number of shares as to which such person has the right to acquire voting or investment power within 60 days. Consequently, the denominator used for calculating such percentage may be different for each beneficial owner. Except as otherwise indicated below and under applicable community property laws, we believe that the beneficial owners of our common stock listed below have sole voting and investment power with respect to the shares shown. The business address of the shareholders is 704 Mara Street, Suite 111, Point Edward, ON N7V 1X4.

Holder of Preferred Series A

	Amount and Nature of
Name of Beneficial Owner	Beneficial Ownership		Percentage of Class(A)
Joel Gardner and affiliates		770,534		40.3	%
Craig Wagenschutz and affiliates		55,842		3	%
Willard Brown		26,000		1.4	%
Dan Gardner and affiliates		3,240		0.2	%
All officers and directors as a group [4 persons]		855,616		44.9	%

The above is based on 1,911,940 shares of Preferred Series A Stock issued and outstanding as of July 31, 2009. Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission and generally includes voting or investment power with respect to securities. Except as otherwise indicated, we believe that the beneficial owners of the Preferred Series A Stock listed above, based on information furnished by such owners, have sole investment and voting power with respect to such shares, subject to community property laws where applicable.

Holder of Preferred Series B

	Amount and Nature of
Name of Beneficial Owner	Beneficial Ownership		Percentage of Class(B)
Joel Gardner and affiliates		70,318		51	%

The above is based on 137,885 shares of Preferred Series B Stock issued and outstanding as of July 31, 2009. Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission. Preferred Series B Stock does not include voting power with respect to securities.

Item 13. Certain Relationships and Related Transactions, and Director Independence

Director Independence

We are not subject to the listing requirements of any national securities exchange or national securities association and, as a result, we are not at this time required to have our board comprised of a majority of “independent directors.” Currently, we have only one director and we believe that such directors currently does not meet the definition of "independent" as promulgated by the rules and regulations of Nasdaq.

Item 14. Principal Accountant Fees and Services.

The aggregate fees billed by our principal accountant for each of the last two fiscal years for Audit Fees, Audit-Related Fees, Tax Fees and All Other Fees are as follows:

	Fiscal Year Ended July 31,
	2009		2008

Audit Fees	$	26,000	$	40,088
Audit-Related Fees	$	6,000	$	6,500
Tax Fees	$	-	$	-
All Other Fees	$	-	$	-

PART IV - Item 15. Exhibits

Form: Press Release Date May 1, 2009

The following exhibits are filed with this Annual Report on Form 10-K:

Exhibit No.		Description of Exhibit
31.1		CEO Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2		CFO Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1		CEO Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2		CFO Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

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

Date: Dated: November 26, 2009

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated:

Signature	Title	Date

/s/ Joel Gardner		November 26, 2009
Joel Gardner	Chief Executive Officer, and Director (Principal Executive Officer and Principal Accounting Officer)

/s/ Craig Wagenschutz		November 26, 2009
Craig Wagenschutz	Chief Financial Officer

/s/ Daniel Gardner		November 26, 2009
Daniel Gardner	Treasurer and Director

/s/ Sufan Siauw		November 26, 2009
Sufan Siauw	Director

/s/ Willard Brown		November 26, 2009
Willard Brown	Director

Attached files

MEGOLA INC Reports

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