U.S.
      SECURITIES AND EXCHANGE COMMISSION


WASHINGTON,
      D.C. 20549


__________________





FORM
      10-QSB


_________________





(MARK
      ONE)





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





FOR
      THE
      QUARTERLY PERIOD ENDED: MARCH 31, 2006





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




FOR
      THE
      TRANSITION PERIOD FROM ____________ TO ____________





COMMISSION
      FILE NUMBER 0-29204


__________________





GLOBAL
      MATRECHS, INC.


*(* Exact
      name of small business issuer as specified in its charter *)*





**Delaware**
            **58-2153309**(State
                or other jurisdiction of incorporation or organization)
            (IRS
                Employer Identification No.)





90
      Grove
      Street


Suite
      201


Ridgefield,
      CT 06877


(Address
      of principal executive offices)





(203)
      431-6665


(Issuer's
      telephone number)


__________________





Check
      whether the issuer (1) filed all reports required to be filed by Section 13
      of
      15(d) of the Exchange Act during the past 12 months (or for such shorter period
      that the registrant was required to file such reports), and (2) has been subject
      to such filing requirements for the past 90 days. Yes x No  ̈





Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act). Yes  ̈ No x





As
      of May
      11, 2006, there were 322,738,374 shares of our common stock, par value $0.0001
      per share, outstanding.





Transitional
      Small Business Disclosure Format (check one): Yes  ̈ No x




















Global
      Matrechs, Inc.





Form
      10-QSB





Quarterly
      Report





March
      31,
      2006





Table
      of
      Contents








PART
                I.
            FINANCIAL
                INFORMATIONItem
                1.
            Financial
                Statements
            2Consolidated
                Balance Sheet
            2Consolidated
                Statements of Operations
            4Consolidated
                Statements of Cash Flows
            5Notes
                to Unaudited Consolidated Financial Statements
            6Item
                2.
            Management's
                Discussion and Analysis of Financial Conditionand
                Results of Operations
            9Item
                3.
            Controls
                and Procedures
            20PART
                II.
            OTHER
                INFORMATIONItem
                1.
            Legal
                Proceedings
            21Item
                5.
            Other
                Information
            22Item
                6.
            Exhibits
            22
























**PART
      I. FINANCIAL INFORMATION**


**ITEM
      1. FINANCIAL STATEMENTS**


GLOBAL
      MATRECHS, INC.


BALANCE
      SHEET


AS
      OF
      MARCH 31, 2006





March
                31,
              2006(unaudited)ASSETSCURRENT
                ASSETS:Cash
                and cash equivalents
            
            $
            60,783Investment
                in available for sale marketable securities
            
            
            95,556Note
                Receivable
            
            
            50,000Inventory
            
            
            28,590Prepaid
                Expenses
            
            
            13,467TOTAL
                CURRENT ASSETS
            
            
            248,396Note
                receivable
            
            
            250,000Investment
                in Tulix at cost
            
            
            51,949TOTAL
                ASSETS
            
            $
            550,345LIABILITIES
                AND STOCKHOLDERS’ DEFICITCURRENT
                LIABILITIES:Accounts
                payable and accrued expenses
            
            $
            1,382,691Note
                payable
            
            
            200,000Convertible
                notes payable - net of debt discount
            
            
            4,873,234Derivative
                liability
            
            
            633,338TOTAL
                CURRENT LIABILITIES
            
            
            7,089,263Convertible
                preferred stock
            
            $
            4,035,159







2







STOCKHOLDERS'
                DEFICIT:Preferred
                stock, Series H, $.01 par value,13,500
                shares authorized, 10,162 sharesissued
                and outstanding at March 31, 2006,convertible,
                participating, $10,162,000liquidation
                  value at March 31, 2006
            
            
            101Preferred
                stock, Series I, $.01 par value,490.5
                shares authorized, 490.5 sharesissued
                and outstanding at March 31, 2006,convertible,
                participating, $49,050 liquidationvalue
                at March 31, 2006
            
            
            5Common
                stock, $.0001 par value, 300,000,000 shares authorized,280,452,084
                  shares issued and outstanding at March 31, 2006
            
            
            28,045Additional
                paid-in capital
            
            
            26,820,596Accumulated
                deficit
            
            
            (37,289,786
            )Accumulated
                other comprehensive loss
            
            
            (133,038
            )TOTAL
                STOCKHOLDERS’ DEFICIT
            
            
            (10,574,077
            )Total
                liabilities and stockholder deficit
            
            $
            550,345




The
      accompanying notes are an integral part of these financial
      statements.




3




GLOBAL
      MATRECHS, INC.


STATEMENTS
      OF OPERATIONS


FOR
      THE
      THREE MONTHS ENDED MARCH 31, 2006 AND 2005





Three
                Months Ended
              March
                31,2006
            
            2005
              restated(unaudited)
            
            (unaudited)**Revenues**
            
            $
            125
            
            $
            —**Cost
                of revenues**
            
            
            —
            
            
            —**Gross
                profit**
            
            
            125
            
            
            —Operating
                expenses:Selling,
                general and administrative
            
            
            342,594
            
            
            452,915Depreciation
                and amortization
            
            
            —
            
            
            49,311**Total
                operating expenses**
            
            
            342,594
            
            
            502,226**Loss
                from continuing operations**
            
            
            (342,469
            )
            
            (504,607
            )**Other
                expenses (income)**Interest
                expense
            
            
            346,604
            
            
            1,800,720Change
                in fair value of derivative instruments
            
            
            129,202
            
            
            64,918Interest
                income
            
            
            (44
            )
            
            (1,225
            )**Total
                other expenses, net**
            
            
            475,762
            
            
            1,864,413**Net
                loss from continuing operations**
            
            
            (818,231
            )
            
            (2,366,639
            )**Discontinued
                Operations:****Income
                from discontinued operations**
            
            
            —
            
            
            49,985Net
                loss applicable to common shareholders
            
            
            (818,231
            )
            
            (2,316,654
            )Comprehensive
                loss
              Unrealized
                loss on available for sale marketable securities
            
            
            (13,111
            )
            
            —Total
                comprehensive loss
            
            $
            (831,342
            )
            $
            (2,316,654
            )Net
                loss per share - basic and diluted:Net
                loss from continuing operations
            
            $
            (0.00
            )
            $
            (0.04
            )Net
                income from discontinued operations
            
            
            —
            
            
            (0.00
            )$
            (0.00
            )
            $
            (0.04
            )Weighted
                number of shares outstanding - basicand
                diluted
            
            
            198,527,008
            
            
            57,918,004








The
      accompanying notes are an integral part of these financial
      statements.


4




GLOBAL
      MATRECHS, INC.


STATEMENTS
      OF CASH FLOWS


FOR
      THE
      THREE MONTHS ENDED MARCH 31, 2006 AND 2005




Three
                Months Ended
              March
                31,2006
            
            
            2005
              restated(unaudited)
            
            
            (unaudited)CASH
                FLOW FROM OPERATING ACTIVITIES:Net
                loss
            
            $
            (818,231
            )
            $
            (2,366,639
            )Adjustments
                to reconcile net income (loss)to
                cash used in operating activities:Amortization
                of intangibles
            
            
            —
            
            
            49,311Change
                in fair value of derivative instruments
            
            
            133,645
            
            
            64,918Amortization
                of beneficial conversion feature
            
            
            282,506
            
            
            1,786,325Change
                in fair value of derivative conversion feature
            
            
            —
            
            
            —Common
                stock issued in exchange for servicesPerformed
            
            
            —
            
            
            82,261Loan
                to Tulix
            
            
            —
            
            
            (1,225
            )Change
                in operating assets and liabilities:Prepaid
                expenses
            
            
            (6,577
            )
            
            17,250Accounts
                payable and accrued expenses
            
            
            (22,662
            )
            
            64,813Net
                cash used in continuing operating activities
            
            
            (431,319
            )
            
            (302,986
            )Net
                cash used in discontinued operating activities
              (including
                income from operations of $49,985)
            
            
            —
            
            
            (100,151
            )Net
                cash used in operating activities
            
            
            (431,319
            )
            
            (403,137
            )CASH
                FLOW FROM FINANCING ACTIVITIES:Proceeds
                from warrant exercise
            
            
            5,750Proceeds
                from equity line
            
            
            418,359Proceeds
                from issuance of convertible loans
            
            
            
            
            
            425,000Net
                cash provided by continuing financing activities
            
            
            424,109
            
            
            425,000Net
                cash used in discontinued financing activities
            
            
            —
            
            
            (110,429
            )Net
                cash provided by financing activities
            
            
            424,109
            
            
            314,571Net
                increase (decrease) in cash and cash equivalents
            
            
            (7,210
            )
            
            (88,566
            )Cash
                and cash equivalents at beginning of period
            
            
            67,993
            
            
            131,471Cash
                and cash equivalents at end of period
            
            $
            60,783
            
            $
            42,905Non-cash
                investing and financing activities:Unrealized
                Loss on securities held for sale
            
            $
            13,111
            
            
            —Conversion
                of preferred sharesinto
                68,150,954 shares of common stock as March 31, 2006
            
            $
            175,903
            
            
            —





The
      accompanying notes are an integral part of these financial
      statements.




5




GLOBAL
      MATRECHS, INC.


NOTES
      TO
      FINANCIAL STATEMENTS


(UNAUDITED)





**1. 
      BASIS OF PRESENTATION**





The
      accompanying unaudited consolidated financial statements of Global Matrechs,
      Inc. (the “Company”, “we” or “us”), have been prepared in accordance with
      accounting principles generally accepted in the United States (“GAAP”) for
      interim financial information and with the instructions to Form 10-QSB and
      Rule
      310(b) of Regulation S-B. Accordingly, they do not include all of the
      information and footnotes required by GAAP for complete financial statements.
      In
      the opinion of management, all adjustments (consisting of normal recurring
      accruals) considered necessary for a fair presentation have been included.
      Operating results for the quarter ended March 31, 2006 are not necessarily
      indicative of the results that may be expected for the calendar year ending
      December 31, 2006.





**2. 
      GOING CONCERN MATTERS**





As
      reflected in the accompanying financial statements, the Company has incurred
      significant losses since its incorporation resulting in an accumulated deficit
      as of March 31, 2006 of approximately $37,289,786. The Company’s financial
      statements are prepared using generally accepted accounting principles
      applicable to a going concern, which contemplate the realization of assets
      and
      liquidation of liabilities in the normal course of business. The Company
      continues to experience negative cash flows from operations and is dependent
      on
      continued financing from investors to sustain its activities. During 2005,
      the
      Company sold its former wholly-owned subsidiary True To Form, Ltd. (“True To
      Form”, “TTF”), which subsidiary represented all significant revenues generated
      by the Company in 2005. These factors raise substantial doubt about the
      Company’s ability to continue as a going concern. Management is planning to
      obtain additional capital principally through the sale of debt and equity
      securities. The realization of assets and satisfaction of liabilities in the
      normal course of business is dependent upon the Company obtaining additional
      equity capital and ultimately obtaining profitable operations. However, no
      assurances can be given that the Company will be successful in these activities.
      Should any of these events not occur, the accompanying financial statements
      will
      be materially affected. The financial statements do not include any adjustments
      that might be necessary if the Company is unable to continue as a going concern.





NON-RELIANCE
      ON HISTORICAL FINANCIAL STATEMENTS





On
      April
      15, 2005, the Company's management, in consultation with the Company's
      independent registered public accounting firm, concluded that the Company's
      historical financial information related to fiscal 2001 through fiscal 2003
      and
      for the first three fiscal quarters of 2004 accounted incorrectly for certain
      convertible preferred stock instruments. As such, the management has concluded
      that the Company's historical financial statements should no longer be relied
      upon. While the Company does not intend
      to amend its previously filed annual and quarterly reports covering the periods
      noted above, the Company has restated historical financial information for
      the
      periods required to be presented in its annual report on Form 10-KSB for the
      year ended December 31, 2004 to reflect the correct accounting treatment. The
      Company has also included in its annual report on Form 10-KSB five years of
      restated financial information highlighting the differences resulting from
      the
      application of the change in accounting treatment to its historical financial
      statements and restated selected quarterly information for 2003 and
      2004.





RESTATED
      FINANCIAL STATEMENTS





On
      October 7, 2005, the Company amended its Annual Report on Form 10-KSB/A for
      the
      year ending December 31, 2004. For a full discussion on the nature of the
      restatements, these financial statements should be read in conjunction with
      the
      financial statements and notes thereto included in the amended filing. The
      Company has amended this Quarterly Report on Form 10-QSB for the quarter
      ending March 31, 2005 to reflect the impact of these changes.





Warrants





The
      fair
      values of the warrants issued in connection with the convertible promissory
      notes were originally recorded as credits to additional paid-in capital and
      debits to unamortized note discount (up to the amount of the proceeds received),
      and prepaid expense (representing the value of the warrants in excess of the
      proceeds received). Both the prepaid expense and unamortized discount were
      amortized to interest expense over the lives of the notes. In this amended
      filing, the accounting for the warrants has been restated to (a) expense the
      value of the warrants in excess of the proceeds received (i.e., write-off the
      prepaid expense), (b) reduce interest expense for the reversal of the
      amortization of the prepaid expense, (c) record the fair values of the warrants
      as a long-term liability, and (d) record the changes in the fair values of
      the
      warrants from their issue dates to the balance sheet date in current income
      under the caption “change in fair value of warrants.”




6




**3.
       STOCK BASED COMPENSATION**





The
      Company adopted SFAS 123(R) on January 1, 2006 using the modified prospective
      method under which compensation cost is recognized on or after the effective
      date for the portion of the outstanding awards for which services has not been
      rendered based on the fair value of the awards calculated under SFAS 123. 
The compensation cost expensed, under the provisions of SFAS 123(R), during
      the
      three months ended March 31, 2006 was $4,444.  In addition, fair value
      of options for the three months ended March 31, 2006 increased by $3,488. 
No restatement has been made for the periods ended December 31, 2005 and
      prior.





Prior
      to
      January 1, 2006, the Company had adopted the disclosure requirement of Statement
      of Financial Accounting Standards No. 148 (SFAS 148), “Accounting for
      Stock-Based Compensation-Transition and Disclosure” effective December 15, 2002.
      SFAS 148 amends Statement of Financial Accounting Standards No. 123  (SFAS
      123), “Accounting for Stock Based Compensation,” to provide alternative methods
      of transition for a voluntary change to the fair value based method of
      accounting for stock-based compensation and also amends the disclosure
      requirements of SFAS 123 to require prominent disclosure in both annual and
      interim financial statements about the methods of accounting for stock-based
      employee compensation and the effect of the method used on report results.
      No
      compensation expense was recorded as all options granted had an exercise price
      equal to the market value of the underlying stock on the grant date. The
      pro-forma effect on our results of operations, had expense been recognized
      using
      the fair value method described in SFAS 123, using the Black-Scholes option
      pricing model.




Stock
      option pricing assumptions





Three
                months ended March 31,2006
            2005Expected
                volatility
            200%
            200%Expected
                dividends
            —
            —Risk-free
                rate of return (weighted average)
            4.25%
            4.25%Weighted
                average grant-date fair value
            $0.33
            $0.71





Expected
      volatility is based on the historical volatility of the Company's stock price.
      No dividend payouts were assumed, as the Company has operated with significant
      net losses as discussed. The risk-free rate of return reflects the average
      a the
      10-year treasury note during the period of the granting of the
      options.





**4. 
      TAXES**





There
      was
      no provision for cash payment of income taxes for the three months ended March
      31, 2006, as the Company anticipates a net taxable loss for the year ended
      December 31, 2006.





**5. 
      CONVERTIBLE PREFERRED STOCK**





As
      a
      requirement of the private placements of the Company's Series B, C, D and E
      Convertible Preferred Stock, originally, the Company was obligated to file
      and
      have declared effective, within a specified time period, a registration
      statement with respect to a minimum number of shares of common stock issuable
      upon conversion of the Series B, C, D and E Preferred Stock. As of March 31,
      2006, such registration statement has not been declared effective. As of March
      14, 2003, the holders of these series waived all penalties related to the
      registration, along with mandatory conversion dates.





Through
      August 14, 2004, the terms of the Company's Series B, C, D, and E Convertible
      Preferred Stock provided for a guaranteed return on unconverted shares of 5%
      for
      series B, 6% for series C and D, and 8% for series E.





**6. 
      PRIVATE EQUITY CREDIT AGREEMENT**





**Summary.** On
      January 10, 2006, we entered into the Private Equity Credit Agreement with
      Brittany Capital Management Limited, a limited liability company organized
      and
      existing under the laws of The Bahamas. Under the Private Equity Credit
      Agreement, we may draw up to $15 million from time to time, at our discretion,
      in exchange for shares of our common stock, subject to conditions outside of
      the
      control of Brittany further described below.





**Put
      Shares.** Each
      draw under the Private Equity Credit Agreement is structured as a put option,
      wherein we require Brittany to purchase a number of shares of our common stock
      after a discount to the market price is applied. For a given put, we must
      deliver a notice to Brittany indicating the dollar amount we wish to draw down.
      Five trading days after delivery of this notice, Brittany must




7




deliver
      this amount in two equal installments, one each on the fifth and tenth trading
      day following the delivery of the notice. In exchange, we must issue to
      Brittany, in the case of the first installment, the number of shares of common
      stock obtained by dividing the amount of the installment by 92% of the average
      of the three closing bid prices immediately preceding the installment date,
      and
      in the case of the second installment, the number of shares obtained by dividing
      the amount of the installment by 92% of the average of the three lowest closing
      bid prices during the ten trading day period immediately preceding the
      installment date. We refer to the shares we sell under the agreement as “put
      shares.” The issuance of put shares to Brittany are to take place from time to
      time, at our discretion, over the course of a commitment period extending 36
      months after the effective date of our registration statement.




We
      are
      required to draw down a minimum of one million dollars. If we draw a lesser
      amount, we must pay Brittany an amount equal to nine percent of the difference
      between that amount and the minimum. Based on our current assessment of our
      financing needs, we intend to draw in excess of the one million dollar
      minimum.




**Blackout
      Shares.** If
      we
      suspend sales of common stock pursuant to the registration statement covering
      shares issuable under the equity line within 15 trading days of a sale of common
      stock to Brittany and our stock price declines during the suspension period,
      we
      will be required to issue that number of additional shares of our common stock
      which, when combined with the shares purchased during the 15 trading days
      immediately preceding the suspension, will equal the number of shares Brittany
      would have received had the purchase been made at the conclusion of the
      suspension period (at the lower per share price). Any obligation to deliver
      blackout shares arising under the Private Equity Credit Agreement would be
      irrevocable, and Brittany would have no discretion regarding whether or not
      to
      receive them.




**Fees** .
      We are
      required to pay Greenfield Capital Partners, LLC, a registered broker-dealer,
      a
      finder’s fee, in cash, equal to 1% of the amounts we draw down from the equity
      line as consideration for services related to the establishment of the Private
      Equity Credit Agreement.




**Number
      of shares issuable under the Private Equity Credit Agreement.** We
      cannot
      predict the actual number of shares of common stock that may be issued under
      the
      Private Equity Credit Agreement, in part because the purchase price of the
      shares will fluctuate based on prevailing market conditions and we have not
      determined the total amount of cash advances we intend to draw. However, for
      illustrative purposes, we have calculated the number of shares we would have
      to
      issue in connection with a hypothetical draw amount of $50,000 based on the
      assumptions set forth below:




**Shares
      Issuable Under Private Equity Credit Agreement for $50,000 Draw at Various
      Market Prices**




**Hypothetical
                Market Price**
            **Discounted
                Market**
              **Price**
            **Shares
                to be issued**$0.025
            $0.0230
            2,173,913$0.020
            $0.0187
            2,717,391$0.015
            $0.0138
            3,623,188$0.010
            $0.0092
            5,434,783$0.005
            $0.0046
            10,869,565




Based
      on
      the closing price of our stock of $0.009 on March 31, 2006, we would have to
      issue to Brittany 1,625,737,889 shares of our common stock in order to draw
      down
      the remaining $14,631,641 million available to us under the Private Equity
      Credit Agreement. We have registered the resale of 100,000,000 shares we may
      issue under the agreement pursuant to a Registration Statement on Form SB-2
      (File # 333-131106), which was declared effective by the Securities &
Exchange Commission on February 2, 2006. As of March 31, 2006, we had issued
      57,525,076 **** shares
      under this agreement.  During the period ended March 31, 2006, the Company
      drew down $368,359 under this facility.




**Dilution.** The
      issuance and sale of shares under the Private Equity Credit Agreement will
      have
      a significant dilutive impact on our stockholders for the following reasons:




· As
      described above, the lower our stock price is, the more shares we would have
      to
      issue for a given draw down amount, and the more shares we issue, the greater
      the extent of dilution to the ownership interest of our current stockholders.
      To
      illustrate, if we issue and sell all of the shares being offered under our
      current registration statement, they would represent approximately 40% of our
      outstanding common stock after giving effect to such issuance.




· Because
      the shares we may issue under the Private Equity Credit Agreement are
      discounted, the issuance of these shares will also have a financially dilutive
      impact on our current stockholders.




8




·  The
      Brittany’s sale of material amounts of our common stock into the market may
      result in significant downward pressure on the price of the common stock as
      the
      supply of freely tradable shares increases. Furthermore, this downward pressure
      may encourage short sales, which could further depress on the price of the
      common stock.




**7. 
      SUBSEQUENT EVENTS**




On
      Tuesday, April 25, 2006, a Special Meeting of Stockholders was held at the
      offices of Foley Hoag LLP, World Trade Center West, 155 Seaport Boulevard,
      Boston, Massachusetts 02210. At the meeting, the holders of a majority of the
      shares eligible to vote, voted in favor of (i) an amendment to the Company's
      Certificate of Incorporation to effect a reverse split of its issued and
      outstanding common stock at any one of the following ratios: 1-for-5, 1-for-10,
      1-for-15, or 1-for-20 and (ii) an amendment to the Company’s Certificate of
      Incorporation to increase to Nine Hundred Million (900,000,000) the number
      of
      shares of common stock which the Company is authorized to issue. On April 27,
      2006, the Company amended its Certificate of Incorporation to increase the
      number of shares of common stock authorized for issuance thereunder to
      900,000,000 shares.






On
      April
      28, 2006, the Company dismissed Sherb & Co., LLP as its independent
      registered public accounting firm and appointed Mantyla McReynolds, LLC as
      their
      replacement.




**ITEM
      2.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
      RESULTS OF OPERATIONS**





***Special
      Note Regarding Forward-Looking Statements***




Except
      for historical facts, the statements in this quarterly report are
      forward-looking statements. Forward-looking statements are merely our current
      predictions of future events. These statements are inherently uncertain, and
      actual events could differ materially from our predictions. Important factors
      that could cause actual events to vary from our predictions include those
      discussed under the heading “Factors That May Affect Future Performance” in this
      section. We assume no obligation to update our forward-looking statements to
      reflect new information or developments or any other reason, or reflect any
      events or circumstances after the date of this quarterly report or the date
      of
      any applicable amendment to this quarterly report. We urge readers to review
      carefully the risk factors described in this quarterly report and the other
      documents that we file with the Securities and Exchange Commission. These
      documents can be read at *www.sec.gov* .





**Our
      Business**




We
      are
      the successor to a variety of businesses dating back to 1994. We have undergone
      material changes to our business and our financial structure during the period
      covered by the financial statements included in this report.




Prior
      to
      May 31, 2004, we derived revenue from professional web development
      services, software licensing, application development, insurance and securities
      sales commissions, hosting fees and transactions fees. On May 31, 2004, we
      sold substantially all of our assets used in the operation of our hosting and
      web site maintenance business. We have kept a 15% interest in the surviving
      entity. As a result of this sale, our business consisted exclusively of the
      marketing of technologies licensed from Eurotech, Ltd under a licensing
      agreement dated May 22, 2003.




On
      December 31, 2004, we completed the acquisition of True To Form, Limited (“True
      To Form”), a maker of specialized lighting products for a range of markets from
      its sole shareholder, Mark J. Allen, who was at the time also a member of our
      Board of Directors. Mark Allen continued as the President of True To Form and
      served as an Executive Vice President of Global Matrechs. Upon our acquiring
      True to Form, it became our primary source of operating revenue. However, during
      the first three quarters of 2005, it was unprofitable.




On
      December 29, 2005 we completed the transfer of all of the issued and outstanding
      capital stock of True To Form Limited, Inc. back to Mr. Allen pursuant to the
      terms of a Stock Purchase Agreement between him, True To Form, and us. As a
      result of this sale, we no longer hold any equity interest in True To Form.
      The
      consideration was determined on the basis of these negotiations. The
      consideration for the sale of True To Form consisted of:




·  the issuance by True To Form to us of a promissory note described below in
      the
      initial principal amount of $250,000, which note accrues interest at an annual
      rate of one percent plus the prime rate as reported by a nationally recognized
      commercial bank and has a maturity date of January 1, 2011;




·  the cancellation of our guaranty of the amounts owed under a promissory note
      issued by True To Form to Mr. Allen in connection with our acquisition of True
      To Form; and




9




·  the surrender by Mr. Allen of the 10,000,000 shares of our common stock that
      were issued to him as partial consideration for our purchase of True To Form
      on
      December 31, 2004 and the cancellation of all other equity interest in Global
      Matrechs held by Mr. Allen. The 10,000,000 shares of common stock have a fair
      value of $71,000.




In
      addition, we agreed to the cancellation of amounts owed under a note issued
      by
      us to True To Form for working capital purposes in the aggregate amount of
      $280,000 and Mr. Allen resigned from his positions as Executive Vice President
      and Director of Global Matrechs.





As
      a
      result of the sale of True To Form, we have once again narrowed the focus of
      our
      business to marketing the technologies we currently license from Eurotech.
      A
      more detailed description of the sale of True To Form is provided below,
      including the following technologies:





·   **NUCAP(TM)** ,
      formerly called EKOR(TM), a silicon based elastomer developed jointly by
      scientists at the I.V. Kurchatov Institute and members of the Euro-Asian
      Physical Society, both based in Moscow, Russia for the purposes of long term
      isolation of radioactive or otherwise hazardous materials.




·   **HNIPU** ,
      a
      hybrid polyurethane with uses in a number of industrial application contexts
      such as manufacturing automotive components, paints, foams, plastics and truck
      bed liners; aerospace sealants, industrial adhesives, coatings, flooring, glues;
      industrial equipment and machinery; and consumer goods such as appliances,
      footwear, furniture and plastic products.




We
      also
      license several other technologies relating to hazardous materials handling,
      electromagnetic radiography, and chemical processing. We are currently seeking
      manufacturing partners for these products.




We
      have,
      to date, derived no significant revenue from the technologies we license from
      Eurotech. The development and commercialization of these NuCap(TM), HNIPU and
      the other technologies we license will depend largely on the success of our
      marketing efforts and our ability to identify manufacturing partners, and we
      cannot be certain that we will be able to conduct our activities in such a
      way
      that builds interest in these products, or that any such interest will result
      in
      revenue to us. Furthermore, even if these licensed technologies do become a
      source of revenue for us, there is no guarantee such revenue will be sufficient
      to offset our administrative costs. Although the exclusive focus of our business
      is on the marketing of these licensed technologies, there can be no assurance
      that these efforts will succeed.





**Critical
      Accounting Policies**





Our
      consolidated financial statements are prepared in accordance with accounting
      principles generally accepted in the United States. These accounting principles
      require us to make certain estimates, judgments and assumptions. We believe
      that
      the estimates, judgments and assumptions upon which we rely are reasonable
      based
      upon information available to us at the time that these estimates, judgments
      and
      assumptions are made. These estimates, judgments and assumptions can affect
      the
      reported amounts of assets and liabilities as of the date of the financial
      statements, as well as the reported amounts of revenues and expenses during
      the
      periods presented. Those estimates and judgments are based on management's
      historical experience, the terms of existing agreements, our observance of
      trends in the industry, information that we obtain from our customers and
      outside sources, and on various other assumptions that management believes
      to be
      reasonable and appropriate under the circumstances, the results of which form
      the basis for making judgments about the carrying values of assets and
      liabilities that are not readily apparent from other sources. To the extent
      there are material differences between these estimates, judgments or assumptions
      and actual results, our financial statements will be affected.





The
      significant accounting policy that we believe is most critical in fully
      understanding and evaluating our reported financial results is our policy
      regarding revenue recognition which is discussed in detail in our Annual Report
      on Form 10-KSB filed with the Securities and Exchange Commission. We have
      reviewed and determined that our revenue recognition policy remains our critical
      accounting policy
      for the three-month period ended March 31, 2006. We did not make any changes
      to
      this policy during this period.





**Recent
      Developments**





On
      Tuesday, April 25, 2006, a Special Meeting of Stockholders was held at the
      offices of Foley Hoag LLP, World Trade Center West, 155 Seaport Boulevard,
      Boston, Massachusetts 02210. At the meeting, the stockholders approved (i)
      an
      amendment to the Company’s Certificate of Incorporation to effect a reverse
      split of its issued and outstanding common stock at any one of the following
      ratios: 1-for-5, 1-for-10, 1-for-15, or 1-for-20 and (ii) an amendment to the
      Company’s Certificate of Incorporation to increase to Nine Hundred Million
      (900,000,000) the number of shares of common stock which the Company is
      authorized to issue. On April 27, 2006, the Company amended its Certificate
      of
      Incorporation to increase the number of shares of common stock authorized for
      issuance thereunder to 900,000,000 shares. The Board of Directors is still
      in
      the process of determining whether to proceed with the reverse stock
      split.




10




**Results
      of Operations during Three Months Ended March 31, 2006 and 2005**





*Net
      Sales* .
      Net
      sales increased in the quarter ended March 31, 2006 to $125 from the quarter
      ended March 31, 2005 which was $0.





*General
      And Administrative* .
      General
      and administrative expense includes salaries for administrative personnel,
      insurance and other administrative expenses, as well as expenses associated
      with
      maintaining our records and SEC reporting. General and administrative expenses
      decreased to $342,594 in the quarter ended March 31, 2006 from $452,915 for
      the
      quarter ended March 31, 2005. This decrease was primarily due to lower legal
      and
      professional fees.





*Depreciation
      And Amortization* .
      No
      amortization or depreciation was recorded for the quarter end March 31, 2006
      as
      compared to $49,311 for the quarter end March 31, 2005. The decrease was due
      to
      the write off of all intangible assets as of December 31, 2005.




*Other
      Income* .
      Other
      income in the quarter ended March 31, 2005 consisted of $1,225 in interest
      charged to Tulix for interest on their notes.




*Interest
      Expense.* Interest
      expense for the quarter ended March 31, 2006 was $346,604 compared to March
      31,
      2005 which was $1,800,720. For 2006 it consisted of $314,157 and for 2005 it
      consisted of $1,795,989 of interest in connection with the beneficial conversion
      features and amortization of warrant features related to convertible notes,
      and
      $32,447 and $14,571, respectively, in accrued interest expense on other
      borrowings.  Amortization of debt discount and the beneficial conversion
      feature for the three months ended March 31, 2006 was $221, 060 and $59,116,
      respectively.





*Other
      Expenses* .
      Other
      expenses for the quarter ended March 31, 2006 consisted of $129,202 versus
      $64,918 for the comparable period in 2005. The expenses were the result of
      a
      change in the fair value of our derivative instruments.





**Liquidity
      and Capital Resources**





Our
      sources of capital are extremely limited. We have incurred operating losses
      since inception and as of March 31, 2006, we had an accumulated deficit of
      $37,289,786 and a working capital deficit of $6,840,867.





***Cash
      Provided by Financing Activities***




During
      the three months ended March 31, 2006, we financed our business primarily by
      drawing down on our equity line, the terms of which are described below. Cash
      provided by financing activities for the year ended March 31, 2006 was $424,109,
      compared to $425,000 for the year ended March 31, 2005.  Of the amount
      recieved for the three months ended March 31, 2006, $368,359 represents proceeds
      from draws under the new facility established January 10, 2006.





**Private
      Equity Credit Line**




**Summary.** On
      January 10, 2006, we entered into the Private Equity Credit Agreement with
      Brittany Capital Management Limited, a limited liability company organized
      and
      existing under the laws of The Bahamas. Under the Private Equity Credit
      Agreement, we may draw up to $15 million from time to time, at our discretion,
      in exchange for shares of our common stock, subject to conditions outside of
      the
      control of Brittany further described below.





**Put
      Shares.** Each
      draw under the Private Equity Credit Agreement is structured as a put option,
      wherein we require Brittany to purchase a number of shares of our common stock
      after a discount to the market price is applied. For a given put, we must
      deliver a notice to Brittany indicating the dollar amount we wish to draw down.
      Five trading days after delivery of this notice, Brittany must deliver this
      amount in two equal installments, one each on the fifth and tenth trading day
      following the delivery of the notice. In exchange, we must issue to Brittany,
      in
      the case of the first installment, the number of shares of common stock obtained
      by dividing the amount of the installment by 92% of the average of the three
      closing bid prices immediately preceding the installment date, and in the case
      of the second installment, the number of shares obtained by dividing the amount
      of the installment by 92% of the average of the three lowest closing bid prices
      during the ten trading day period immediately preceding the installment date.
      We
      refer to the shares we sell under the agreement as “put shares.” The issuance of
      put shares to Brittany are to take place from time to time, at our discretion,
      over the course of a commitment period extending 36 months after the effective
      date of our registration statement.




We
      are
      required to draw down a minimum of one million dollars. If we draw a lesser
      amount, we must pay Brittany an amount equal to nine percent of the difference
      between that amount and the minimum. Based on our current assessment of our
      financing needs, we intend to draw in excess of the one million dollar
      minimum.




**Blackout
      Shares.** If
      we
      suspend sales of common stock pursuant to the registration statement covering
      shares issuable under the equity line within 15 trading days of a sale of common
      stock to Brittany and our stock price declines during the suspension period,
      we
      will be required to issue that number of additional shares of our common stock
      which, when combined with the shares purchased




11




during
      the 15 trading days immediately preceding the suspension, will equal the number
      of shares Brittany would have received had the purchase been made at the
      conclusion of the suspension period (at the lower per share price). Any
      obligation to deliver blackout shares arising under the Private Equity Credit
      Agreement would be irrevocable, and Brittany would have no discretion regarding
      whether or not to receive them.




**Fees** .
      We are
      required to pay Greenfield Capital Partners, LLC, a registered broker-dealer,
      a
      finder’s fee, in cash, equal to 1% of the amounts we draw down from the equity
      line as consideration for services related to the establishment of the Private
      Equity Credit Agreement.




**Number
      of shares issuable under the Private Equity Credit Agreement.** We
      cannot
      predict the actual number of shares of common stock that may be issued under
      the
      Private Equity Credit Agreement, in part because the purchase price of the
      shares will fluctuate based on prevailing market conditions and we have not
      determined the total amount of cash advances we intend to draw. However, for
      illustrative purposes, we have calculated the number of shares we would have
      to
      issue in connection with a hypothetical draw amount of $50,000 based on the
      assumptions set forth below:




**Shares
      Issuable Under Private Equity Credit Agreement for $50,000 Draw at Various
      Market Prices**




**Hypothetical
                Market Price**
            **Discounted
                Market**
              **Price**
            **Shares
                to be issued**$0.025
            $0.0230
            2,173,913$0.020
            $0.0187
            2,717,391$0.015
            $0.0138
            3,623,188$0.010
            $0.0092
            5,434,783$0.005
            $0.0046
            10,869,565




Based
      on
      the closing price of our stock of $0.009 on March 31, 2006, we would have to
      issue to Brittany 1,625,737,889 shares of our common stock in order to draw
      down
      the remaining $14,631,641 million available to us under the Private Equity
      Credit Agreement. We have registered the resale of 100,000,000 shares we may
      issue under the agreement pursuant to a Registration Statement on Form SB-2
      (File # 333-131106), which was declared effective by the Securities &
Exchange Commission on February 2, 2006. As of March 31, 2006, we had issued
      57,525,076 **** shares
      under this agreement.




**Dilution.** The
      issuance and sale of shares under the Private Equity Credit Agreement will
      have
      a significant dilutive impact on our stockholders for the following reasons:




· As
      described above, the lower our stock price is, the more shares we would have
      to
      issue for a given draw down amount, and the more shares we issue, the greater
      the extent of dilution to the ownership interest of our current stockholders.
      To
      illustrate, if we issue and sell all of the shares being offered under our
      current registration statement, they would represent approximately 40% of our
      outstanding common stock after giving effect to such issuance.




· Because
      the shares we may issue under the Private Equity Credit Agreement are
      discounted, the issuance of these shares will also have a financially dilutive
      impact on our current stockholders.




·  The
      Brittany’s sale of material amounts of our common stock into the market may
      result in significant downward pressure on the price of the common stock as
      the
      supply of freely tradable shares increases. Furthermore, this downward pressure
      may encourage short sales, which could further depress on the price of the
      common stock.




**Financing
      Activities in 2005**




During
        2005, we financed our business by drawing down on our equity line and through
        issuances of convertible debt.


*Private
      Placements with Southridge Partners LP*





On
      January 31, 2005, we entered into a Second Securities Purchase Agreement with
      Southridge Partners LP, one of our existing investors, whereby we agreed to
      sell
      a convertible promissory note in the principal amount of $250,000 and warrant
      to
      purchase up to 10,000,000 shares of our common stock to Southridge in exchange
      for its $250,000 investment. The note is convertible, at the option of the
      holder, into shares of our common stock at a conversion price of $0.02 per
      share. Southridge may require us to repurchase some or all of its note if the
      market price of our common stock falls below $0.03 per share for ten (10)
      consecutive trading days, at a repurchase




12




price
      equal to 140% of the principal amount of the note. In the event we default
      under
      the terms of the note, the entire outstanding principal (and any outstanding
      interest accrued thereon) shall become immediately due and payable, and the
      interest rate will rise to 18% per annum.





Under
      the
      terms of the purchase agreement, Southridge had the option, and at any time
      prior to July 1, 2005, purchase an additional note in the principal amount
      of up
      to $1,500,000, and otherwise on substantially the same terms as the note issued
      on January 31, 2005. During the nine months ended September 30, 2005, Southridge
      exercised this option on March 2, April 11, and May 2, 2005, purchasing notes
      in
      the aggregate principal amount of 425,000 and warrants to purchase up to
      17,000,000 shares of our common stock. All of these transactions were exempt
      from registration pursuant to the provisions of Section 4(2) of the Securities
      Act, as amended. On July 8, 2005, we and Southridge Partners LP terminated
      its
      option to purchase additional notes.





We
      have
      secured the payment of the notes with a subordinated security interest in our
      accounts, general intangibles, inventories, and other collateral. In addition,
      in the event we propose to register securities under the Securities Act of
      1933,
      as amended, we are required to notify Southridge in advance of such registration
      and, at its request (subject to limited exceptions), include the shares of
      our
      common stock underlying the note and warrant on the registration statement
      filed
      in connection with such registration (and assume any expenses associated
      therewith). The warrant has an expiration date of January 31, 2010. It contains
      a cashless exercise provision whereby the holder may pay the exercise price
      associated with any exercise by having us withhold a number of shares otherwise
      issuable upon such exercise having a fair market value equal to the applicable
      aggregate exercise price. In the event such provision is used with respect
      to an
      exercise, we would receive no proceeds upon such exercise.





*Exchange
      Agreement with Woodward LLC*





On
      January 31, 2005, we entered into an Exchange Agreement with Woodward LLC
      pursuant to which we acquired promissory notes, and have accordingly assumed
      all
      rights pertaining thereto, issued by Eurotech Ltd. The notes are currently
      in
      default and have an aggregate outstanding principal amount of $290,000. The
      notes carry a default annual interest rate of 18% and are past due in their
      entirety. In exchange for these notes, we issued to Woodward a promissory note
      in the principal amount of $250,000. Under the terms of the Exchange Agreement,
      in the event we propose to register securities under the Securities Act of
      1933,
      as amended, we are required to notify Woodward in advance of such registration
      and, at its request (subject to limited exceptions), include the shares of
      our
      common stock underlying the note on the registration statement filed in
      connection with such registration, and assume any expenses associated
      therewith.





*Private
      Placements with McNab LLC*





On
      June
      14, July 13, August 1, September 14, 2005, and October 3, 2005, we entered
      into
      Securities Purchase Agreements with McNab LLC, each in substantially the same
      form, pursuant to which we sold nonnegotiable 2% secured convertible promissory
      notes in the aggregate principal amount of $595,000, and common stock purchase
      warrants to purchase up to 23,800,000 shares of our common stock, $.0001 par
      value per share, for an aggregate purchase price of $595,000. The notes and
      warrants are on substantially the same terms as the notes and warrants issued
      to
      Southridge, as described above.





*Debt
      Issuance to Southridge Partners LP.*




On
      December 7, 2005, we issued a promissory note in the original principal amount
      of $200,000 to Southridge Partners LP. It accrues interest on the unpaid
      principal balance at a rate of 8% per year. The note originally had a maturity
      date of February 10, 2006, but on March 29, 2006, the maturity date was extended
      to July 20, 2006. In the event of a default, the annual interest rate will
      increase to 18% and Southridge may, at its option, demand immediate payment
      of
      all amounts due under the promissory note.





**Going
      Concern and Financing Requirements**





The
      report of our registered independent public accounting firm dated March, 27
      2006
      includes a going-concern qualification, which indicates an absence of obvious
      or
      reasonably assured sources of future funding that will be required by us to
      maintain ongoing operations. If we are unable to obtain additional funding,
      we
      may not be able to continue operations. To date, we have funded our operations
      through equity investments and issuances of debt. Additionally, we had an
      accumulated deficit of approximately $36,471,555 and $37,289,786 as of December
      31, 2005 and March 31, 2006, respectively. This deficit indicates that we may
      be
      unable to meet our future obligations unless additional funding sources are
      obtained. There is no assurance that we will be able to raise any additional
      capital that we require to continue operations.




Our
      consolidated unaudited interim financial statements included with this Quarterly
      Report on Form 10-QSB have been prepared assuming that we will continue as
      a
      going concern. As shown in the accompanying consolidated unaudited financial
      statements, we had negative working capital of approximately
      $6,840,866.




13




In
      the
      event that we are unable to raise additional financing on acceptable terms,
      then
      we may have to scale back our plan of operations and operating expenditures
      or
      seek the protection of the bankruptcy courts. We anticipate that we will
      continue to incur losses until such time as the revenues we are able to generate
      revenue from sales and licensing of our products exceed our increased operating
      expenses. There can be no assurance that we will be able to generate
      revenue.





**Off-Balance
      Sheet Arrangements**




We
      have
      no off-balance sheet arrangements that have or are reasonably likely to have
      a
      current or future effect on our financial condition, changes in financial
      condition, revenues or expenses, results of operations, liquidity, capital
      expenditures or capital resources.




**Commitments
      and Contingencies**




***Facilities
      Leases***




As
      of
      March 31, 2006 the Company occupied approximately 550 square feet in one office
      building in Ridgefield, Connecticut on a lease that goes through September
      2006. The
      Company also has an offsite office of which it pays rent on a month-to-month
      basis. The total rent expense was $27,200 for the three months ended March
      31,
      2006.





**Recently
      Issued Accounting Pronouncements**




In
      April
      2005, the Securities and Exchange Commission’s Office of the Chief Accountant
      and its Division of Corporation Finance has released Staff Accounting Bulletin
      (SAB) No. 107 to provide guidance regarding the application of FASB Statement
      No. 123 (revised 2004), Share-Based Payment.  Statement No. 123(R) covers a
      wide range of share-based compensation arrangements including share options,
      restricted share plans, performance-based awards, share appreciation rights,
      and
      employee share purchase plans.  SAB 107 provides interpretative guidance
      related to the interaction between Statement No. 123R and certain SEC rules
      and
      regulations, as well as the staff’s views regarding the valuation of chare-based
      payment arrangements for public companies. SAB 107 also reminds public companies
      of the importance of including disclosures within filings made with the SEC
      relating to the accounting for share-based payment transactions, particularly
      during the transition to Statement No. 123R. As required, the Company has
      adopted this pronouncement for the quarter end March 31, 2006.




In
      May 2005, the Financial Accounting Standards Board (“FASB”) issued
      Statement of Financial Accounting Standards No. 154, “Accounting Changes
      and Error Corrections-a replacement of APB Opinion No. 20 and FASB
      Statement No. 3” (“SFAS 154”).  This Statement replaces APB Opinion
      No. 20, Accounting Changes, and FASB Statement No. 3, Reporting
      Accounting Changes in Interim Financial Statements, and changes the requirements
      for the accounting for and reporting of a change in accounting principle. This
      Statement applies to all voluntary changes in accounting principle. It also
      applies to changes required by an accounting pronouncement in the unusual
      instance that the pronouncement does not include specific transition provisions.
      When a pronouncement includes specific transition provisions, those provisions
      should be followed.




Opinion
      20 previously required that most voluntary changes in accounting principle
      be
      recognized by including in net income of the period of the change the cumulative
      effect of changing to the new accounting principle. This Statement requires
      retrospective application to prior periods’ financial statements of changes in
      accounting principle, unless it is impracticable to determine either the
      period-specific effects or the cumulative effect of the change. When it is
      impracticable to determine the period-specific effects of an accounting change
      on one or more individual prior periods presented, this Statement requires
      that
      the new accounting principle be applied to the balances of assets and
      liabilities as of the beginning of the earliest period for which retrospective
      application is practicable and that a corresponding adjustment be made to the
      opening balance of retained earnings (or other appropriate components of equity
      or net assets in the statement of financial position) for that period rather
      than being reported in an income statement. When it is impracticable to
      determine the cumulative effect of applying a change in accounting principle
      to
      all prior periods, this Statement requires that the new accounting principle
      be
      applied as if it were adopted prospectively from the earliest date practicable.
      This Statement shall be effective for accounting changes and corrections of
      errors made in fiscal years beginning after December 15, 2005. The Company
      does not believe that the adoption of SFAS 154 will have a significant effect
      on
      its financial statements.




Other
      accounting standards that have been issued or proposed by the FASB or other
      standards-setting bodies that do not require adoption until a future date are
      not expected to have a material impact on the consolidated financial statements
      upon adoption.




**Factors
      that May Affect Future Performance**




*An
      investment in our common stock involves a high degree of risk. You should
      carefully consider the following risk factors in evaluating our business. If
      any
      of these risks, or other risks not presently known to us or that we currently
      believe are not significant, develops into an actual event, then our business,
      financial condition and results of operations could be adversely affected.
      If
      that happens, the market price of our common stock could decline.*




14





***We
      have a history of operating losses, and there is no assurance we will achieve
      profitability in the future. If we cannot obtain additional capital required
      to
      fund our operations and finance our growth, our business will
      suffer.***





We
      have a
      history of operating losses. During the fiscal years ended December 31, 2005,
      and December 31, 2004, we recorded net losses available to common
      stockholders of $6,109,806 and $2,998,429, respectively. As of March 31,
      2006, we had an accumulated deficit of $37,289,786. If we continue to
      experience operating losses, an investment in our common stock is at risk of
      being lost. We cannot predict when, or if, we will ever achieve profitability.
      The continued development of our current technologies or acquisitions of new
      technologies will require additional capital. If we are unable to generate
      additional capital through our operations, we will be required to resort to
      financing activities. We may be unable to obtain additional funds in a timely
      manner or on acceptable terms, which would render us unable to fund our
      operations or expand our business.




If
      we are
      unable to obtain capital when needed, we may have to restructure our business
      or
      delay or abandon our development and expansion plans. Although we have been
      successful in the past in obtaining financing for working capital and capital
      expenditures, we will have ongoing capital needs as we expand our business.
      Our
      inability to obtain adequate financing will result in the need to curtail
      business operations. Our financial statements do not include any adjustments
      that might result from the outcome of this uncertainty. If we raise additional
      funds through the sale of equity or convertible securities,




·  the
      ownership percentage of our common stock will be reduced;




·  the value of our stock may be diluted;




·  we may issue securities that have rights, preferences and privileges senior
      to
      our common stock; and




·  the terms of any additional indebtedness may include restrictive financial
      and
      operating covenants that would limit our ability to compete and expand, thereby
      increasing the price of our stock.




***We
      have a going concern qualification in the report by our*** ***independent*** ***registered
      public accounting firm for our financial statements for the year ended December
      31, 2005, which may make capital raising difficult and may require us to scale
      back or cease operations.***




The
      report of our independent registered public accounting firm dated March 27,
      2006
      includes a going-concern qualification, which indicates an absence of obvious
      or
      reasonably assured sources of future funding that will be required by us to
      maintain ongoing operations. Our ability to obtain additional funding will
      determine our ability to continue as a going concern. Accordingly, there is
      substantial doubt about our ability to continue as a going concern. Our
      financial statements do not include any adjustments that might result from
      the
      outcome of this uncertainty.




***The
      management of our finances and the quality and timeliness of our financial
      reporting may be adversely affected if we are unable to increase the size and
      capabilities of our internal administrative and finance function as our business
      grows.***




We
      have
      engaged an outside accounting firm (other than our independent registered public
      accounting firm) to provide financial management and accounting services on
      a
      temporary basis. If we are unable to retain sufficient financial management
      and
      accounting services on a cost-effective basis, our ability to effectively manage
      our finances and the quality and timeliness of our financial reporting could
      be
      adversely affected.




***We
      are currently dependent upon external financing (including our Private Equity
      Credit Agreement with Brittany Capital Management) to fund our operations and
      may not be able to access sufficient funds when needed. As a result, our
      business may suffer.***




Currently,
      we are dependent upon external financing to fund our operations. Our financing
      needs are expected to be provided, in large part, by our Private Equity Credit
      Agreement dated January 10, 2006 with Brittany Capital Management. We have
      registered the resale of 100,000,000 shares of common stock we may issue under
      this agreement pursuant to our current registration statement.





The
      number of shares we have to issue for a given draw down under the Private Equity
      Credit Agreement has an inverse relationship to our market price. Therefore,
      the
      lower our market price, the less we will be able to raise by issuing the
      100,000,000 registered shares to Brittany. In the event we have additional
      financing needs after we have exhausted the shares being registered under the
      registration statement, we will need to find alternative methods of financing
      our operations or registering additional shares to be issued under the Private
      Equity Credit Agreement.





In
      addition, our access to funds under the Private Equity Credit Agreement may
      be
      limited by the following factors:




15





·   *Maximum
      Put Amount* .
      The
      maximum amount of each put is equal to the lesser of (a) $500,000, or (b) 500%
      percent of the weighted average volume for the 20 trading days immediately
      preceding the put date.




·   *9.99%
      Cap* .
      Our
      Private Equity Credit Agreement provides that in no event shall the number
      of
      shares issuable to Brittany cause it to own in excess of 9.99% of the then
      outstanding shares of our common stock. Because of this maximum advance
      restriction, we may not be able to access sufficient funds when needed.




·   *Authorized
      Shares of Common Stock* .
      At the
      market price of our common stock as of May 11, 2006, it would require
      2,563,157,895 shares to draw down the full $14,610,000 that remained available
      under the agreement as of that date.




***We
      face intense competition, which could result in lower revenues and higher
      research and development expenditures and could adversely affect our results
      of
      operations.***




If
      we do
      not develop or acquire new and enhanced products, or if we are not able to
      invest adequately in our research and development activities, our business,
      financial condition and results of operations could be negatively impacted.
      Many
      of our competitors have significantly more cash and resources than we have.
      Our
      competitors may introduce products that are competitively priced, have increased
      performance or functionality, or incorporate technological advances that we
      have
      not yet developed or implemented. To remain competitive, we must continue to
      develop, market and sell new and enhanced systems and products at competitive
      prices, which will require significant research and development
      expenditures.




***If
      we cannot effectively manage our growth, our business may
      suffer.***




Recently,
      we have expanded our operations to pursue existing and potential new market
      opportunities. This growth has placed, and is expected to continue to place,
      a
      strain on our personnel, management, financial and other resources. To manage
      our growth effectively, we must, among other things:




·  successfully attract, train, motivate and manage a larger number of employees
      for sales and customer support activities;




·  control working capital requirements; and




·  improve the efficiency of our operating, administrative, financial and
      accounting systems, procedures and controls.




If
      we
      fail to manage our growth properly, we may incur unnecessary expenses and the
      efficiency of our operations may decline.




***We
      may be unable to hire and retain the skilled personnel we need to expand our
      operations.***




To
      meet
      our growth objectives, we must attract and retain highly skilled technical,
      operational, managerial and sales and marketing personnel. If we fail to attract
      and retain the necessary personnel, we may be unable to achieve our business
      objectives and may lose our competitive position, which could lead to a
      significant decline in net sales. We face significant competition for these
      skilled professionals from other companies, research and academic institutions,
      government entities and other organizations.




***Our
      success depends on the services of our executive officers and key
      employees.***





We
      depend
      upon the continued services of our senior management for our continued success.
      The loss of any member of senior management could have a serious negative impact
      upon our business and operating results. We can provide no assurances that
      we
      will be able to retain our senior management or other key personnel.





***Our
      business may suffer if we cannot protect our proprietary
      technology.***




Our
      ability to compete depends significantly upon our trade secrets and our other
      proprietary technology. We have filed patents in connection with HNIPU and
      have
      a trade secret on NuCap(TM). These steps that we have taken to protect our
      technology may be inadequate to prevent others from using what we regard as
      our
      technology to compete with us. Existing trade secrets, copyright and trademark
      laws offer only limited protection. In addition, the laws of some foreign
      countries do not protect our proprietary technology to the same extent as the
      laws of the United States, which could increase the likelihood of
      misappropriation. Furthermore, other companies could independently develop
      similar or superior technology without violating our intellectual property
      rights. Any misappropriation of our technology or the development of competing
      technology could seriously harm our competitive position, which could lead
      to a
      substantial reduction in net sales.




16





If
      we
      resort to legal proceedings to enforce our intellectual property rights, the
      proceedings could be burdensome, disruptive and expensive, distract the
      attention of management, and there can be no assurance that we would prevail.




***Claims
      by others that we infringe their intellectual property rights could harm our
      business and financial condition.***





Our
      industries are characterized by the existence of a large number of patents
      and
      frequent claims and related litigation regarding patent and other intellectual
      property rights. We cannot be certain that our products do not and will not
      infringe issued patents, patents that may be issued in the future, or other
      intellectual property rights of others.




We
      do not
      conduct exhaustive patent searches to determine whether the technology used
      in
      our products infringes patents held by third parties. In addition, product
      development is inherently uncertain in a rapidly evolving technological
      environment in which there may be numerous patent applications pending, many
      of
      which are confidential when filed, with regard to similar technologies.




We
      may
      face claims by third parties that our products or technology infringe their
      patents or other intellectual property rights. Any claim of infringement could
      cause us to incur substantial costs defending against the claim, even if the
      claim is invalid, and could distract the attention of our management. If any
      of
      our products are found to violate third-party proprietary rights, we may be
      required to pay substantial damages. In addition, we may be required to
      re-engineer our products or obtain licenses from third parties to continue
      to
      offer our products. Any efforts to re-engineer our products or obtain licenses
      on commercially reasonable terms may not be successful, which would prevent
      us
      from selling our products, and, in any case, could substantially increase our
      costs and have a material adverse effect on our business, financial condition
      and results of operations.





***We
      believe that Brittany and other stockholders intend to sell their shares of
      common stock in the market, which sales may cause our stock price to
      decline.***




Brittany
      may sell in the public market up to 100,000,000 shares of common stock. Such
      sales may cause our stock price to decline. Specifically,




·  Existing stockholders will experience substantial dilution if we draw down
      the
      maximum amount of shares of common stock registered (approximately 30% of our
      outstanding shares after giving effect to the issuance, based on the shares
      outstanding as of March 15, 2006). The risk associated with the possible sale
      of
      a large number of shares issued under the equity line could cause some of our
      stockholders to sell their stock, thus causing the price of our stock to
      decline.




·  Because Brittany is purchasing our shares at a discount, it will have an
      incentive to sell immediately so that it can realize a gain on the difference.
      If our common stock market price does decline, this could further accelerate
      sales of our common stock.




·  To the extent Brittany sells its common stock, the common stock price may
      decrease due to the additional shares in the market. This could allow Brittany
      to sell greater amounts of common stock, the sales of which would further
      depress the stock price.




·  Actual or anticipated downward pressure on our stock price due to actual or
      anticipated sales of stock under the Private Equity Credit Agreement could
      cause
      some institutions or individuals to engage in short sales of our common stock,
      which may itself cause the price of our stock to decline.




***Existing
      stockholders will experience significant dilution from our sale of shares under
      the Private Equity Credit Agreement, the conversion of notes and preferred
      stock, and the exercise of warrants.***




To
      date,
      we have funded our operations through equity investments and issuances of debt.
      Stockholders will experience substantial dilution as a result of our agreements
      with our investors. The number of shares issuable under some of these
      arrangements is indeterminate. The issuance and sale of common stock to our
      investors will reduce the ownership interest of our existing stockholders in
      our
      company, and may depress the value of our common stock. In addition, the
      subsequent resale by the investors of those shares may further reduce our share
      price.




***If
      the price of our stock continues to decline and we cannot prepay the notes
      we
      have issued, we will be in default and the holders of the notes will have the
      remedies available to creditors. Some or all of our assets could be liquidated,
      our operations may be disrupted and our business may
      suffer.***





If
      the
      market price of our common stock falls below $0.03 per share for 10 consecutive
      trading days, holders of the notes may require us to prepay (within 60 days
      of
      the receipt of a notice of such election) the principal outstanding at the
      time
      of such prepayment plus a premium equal to 140% of the principal amount being
      prepaid. If we cannot prepay the notes, we will be in default, and the holders
      of the notes will have the remedies available to creditors. All of our assets
      are subject to security agreements, and the holders of




17




these
      notes, in the event of default, could foreclose and liquidate some or all of
      our
      assets. The claims of our creditors to our assets are senior to those of our
      stockholders. Accordingly, $718,000 is included in accounts payable and accrued
      expenses as a contingent liability in the event that the note holders assert
      this prepayment penalty. As of March 24, 2006, only one of the note holders
      has
      made the assertion, and in accordance with the assertion, during March 2006,
      the
      Company paid $10,000, representing 40% of the note, to the note
      holder.




***If
      an active and liquid market for our common stock does not develop, or is not
      sustained, it may be difficult for investors to resell their shares. As a
      result, they may not be able to sell their shares when they
      want.***




Our
      common stock is not traded on a registered securities exchange and we do not
      meet the initial listing criteria for any registered securities exchange or
      the
      NASDAQ Capital Market. It is quoted on the less recognized OTC Bulletin Board.
      This factor may impair an investor’s ability to sell his shares when he wants
      and/or could depress our stock price. As a result, an investor may find it
      difficult to dispose of, or to obtain accurate quotations of the price of,
      our
      securities because smaller quantities of shares could be bought and sold,
      transactions could be delayed and security analyst and news coverage of our
      company may be reduced. These factors could result in lower prices and larger
      spreads in the bids and ask prices for our shares. Due to the current price
      of
      our common stock, many brokerage firms may not be willing to effect transactions
      in our securities, particularly because of an SEC rule imposing additional
      sales
      requirements on broker-dealers who sell low-priced securities (generally those
      below $5.00 per share). These factors severely limit the liquidity of our common
      stock and likely have a material adverse effect on our market price and on
      our
      ability to raise additional capital. We cannot predict the extent to which
      investor interest in our stock, if any, will lead to an increase in our market
      price or the development of a more active trading market or how liquid that
      market might become.




***Our
      common stock is deemed to be a “penny stock,” which may make it more difficult
      for investors to sell these shares due to suitability and disclosure
      requirements.***




Due
      to
      the current price of our common stock, $.0057 as of May 11, 2006, many brokerage
      firms may not be willing to effect transactions in its securities, particularly
      because low-priced securities are subject to SEC rules (referred to as the
      “penny stock rules”) imposing additional sales requirements on broker-dealers
      who sell low-priced securities (generally those below $5.00 per share). These
      disclosure requirements may have the effect of reducing the trading activity
      in
      the secondary market for Global Matrechs common stock as it is subject to these
      penny stock rules. These rules severely limit the liquidity, if any, of our
      common stock, and would likely have a material adverse effect on its market
      price and on our ability to raise additional capital.




The
      penny
      stock rules require a broker-dealer, prior to a transaction in a penny stock,
      to
      deliver a standardized risk disclosure document prepared by the Commission,
      that: (a) contains a description of the nature and level of risk in the market
      for penny stocks in both public offerings and secondary trading; (b) contains
      a
      description of the broker’s or dealer’s duties to the customer and of the rights
      and remedies available to the customer with respect to a violation to such
      duties or other requirements of Securities’ laws; (c) contains a brief, clear,
      narrative description of a dealer market, including bid and ask prices for
      penny
      stocks and the significance of the spread between the bid and ask price; (d)
      contains a toll-free telephone number for inquiries on disciplinary actions;
      (e)
      defines significant terms in the disclosure document or in the conduct of
      trading in penny stocks; and (f) contains such other information and is in
      such
      form, including language, type, size and format, as the SEC may require by
      rule
      or regulation.




In
      addition, the broker-dealer also must provide, prior to effecting any
      transaction in a penny stock, the customer with: (a) bid and offer quotations
      for the penny stock; (b) the compensation of the broker-dealer and its
      salesperson in the transaction; (c) the number of shares to which such bid
      and
      ask prices apply, or other comparable information relating to the depth and
      liquidity of the market for such stock; and (d) monthly account statements
      showing the market value of each penny stock held in the customer’s account.




Finally,
      the penny stock rules require that prior to a transaction in a penny stock
      not
      otherwise exempt from those rules, the broker-dealer must make a special written
      determination that the penny stock is a suitable investment for the purchaser
      and receive the purchaser’s written acknowledgment of the receipt of a risk
      disclosure statement, a written agreement to transactions involving penny
      stocks, and a signed and dated copy of a written suitability statement. These
      requirements may reduce the potential market for our common stock by reducing
      the number of potential investors, brokers and traders. This may make it more
      difficult for investors in our common stock to sell shares to third parties
      or
      to otherwise dispose of them. This could cause our stock price to decline.




We
      cannot
      predict the extent to which investor interest in our common stock or a business
      combination, if any, will lead to an increase in its market price or the
      development of an active trading market or how liquid that market, if any,
      might
      become.




***The
      market price of our common stock may be volatile.***




Our
      stock
      price has been volatile. From January 1, 2005 to March 31, 2006, the trading
      price of our common stock ranged from $0.005 to $0.108. Many factors may cause
      the market price of our common stock to fluctuate, including:




18




·  variations in our quarterly results of operations;




·  the introduction of new products by us or our competitors;




·  acquisitions or strategic alliances involving us or our competitors;




·  future sales of shares of common stock in the public market; and




·  market
      conditions in our industries and the economy as a whole.




In
      addition, the stock market has recently experienced extreme price and volume
      fluctuations. These fluctuations are often unrelated to the operating
      performance of particular companies. These broad market fluctuations may
      adversely affect the market price of our common stock. When the market price
      of
      a company’s stock drops significantly, stockholders often institute securities
      class action litigation against that company. Any litigation against us could
      cause us to incur substantial costs, divert the time and attention of our
      management and other resources or otherwise harm our business.




We
      can
      provide no assurance that the financing sources described above, or any other
      financing that we may obtain in the future (if we are able to obtain financing
      from any other sources, and we can provide no assurances that we will be able
      to
      obtain any such financing), will enable us to sustain our operations. The
      aforementioned factors raise substantial doubt about our ability to continue
      as
      a going concern. The financial statements included herein have been prepared
      assuming we are a going concern and do not include any adjustments that might
      result should we be unable to continue as a going concern.





***We
      have never paid dividends on our capital stock, and we do not anticipate paying
      dividends in the foreseeable future.***




We
      have
      not paid dividends on any of our classes of capital stock to date, and we
      currently intend to retain our future earnings, if any, to fund the development
      and growth of our business. As a result, capital appreciation, if any, of our
      common stock will be the sole source of gain for the foreseeable future. In
      addition, before we may pay any dividends with respect to our common stock,
      we
      must pay the holders of our preferred stock an equivalent dividend. If we
      determine that we are in the position to declare a dividend, the amount of
      the
      dividend we ultimately declare may be substantially reduced as the result of
      our
      obligations under the terms of our preferred stock.





***The
      sale of material amounts of common stock under our registration statement could
      encourage short sales by third parties and further depress the price of our
      common stock.***




The
      significant downward pressure on our stock price caused by the sale of a
      significant number of shares under the Private Equity Credit Agreement could
      cause our stock price to decline, thus allowing short sellers of our stock
      an
      opportunity to take advantage of any decrease in the value of our stock. The
      presence of short sellers in our common stock may further depress the price
      of
      our common stock.




***Our
      charter, bylaws and Delaware law may deter takeovers.***




Our
      certificate of incorporation, bylaws and Delaware law contain provisions that
      could have an anti-takeover effect and discourage, delay or prevent a change
      in
      control or an acquisition that many stockholders may find attractive. These
      provisions may also discourage proxy contests and make it more difficult for
      our
      stockholders to take some corporate actions, including the election of
      directors. These provisions relate to:




·  the ability of our board of directors to issue preferred stock, and determine
      its terms, without a stockholder vote;




·  the classification of our board of directors, which effectively prevents
      stockholders from electing a majority of the directors at any one annual meeting
      of stockholders;




·  the limitation that directors may be removed only for cause by the affirmative
      vote of the holders of at least 75% of our shares of capital stock entitled
      to
      vote; and




·  advance notice requirements for stockholder proposals and director
      nominations.




***We
      are not subject to the same corporate governance standards as listed companies.
      This may affect market confidence and company performance. As a result, our
      business could be harmed and the price of our stock could decrease.***




19




Registered
      exchanges and the Nasdaq National Market have adopted enhanced corporate
      governance requirements that apply to issuers that list their securities on
      those markets. These standards deal with the rights and responsibilities of
      a
      company’s management, its board, shareholders and various stakeholders. How well
      companies are run may affect market confidence as well as company performance.
      Our common stock is quoted on the OTC Bulletin Board, which does not have
      comparable requirements. As a result, our business and the price of our stock
      may be adversely affected.




For
      instance, we are not required to have any independent directors and we do not
      have independent directors. Therefore management has significant influence
      over
      decisions made by the Board on behalf of the stockholders.




In
      some
      circumstances, management may not have the same interests as the shareholders
      and conflicts of interest may arise. We do not have a policy to resolve
      conflicts of interest and we are not required to have one. Notwithstanding
      the
      exercise of their fiduciary duties as directors and executive officers and
      any
      other duties that they may have to us or our other stockholders in general,
      these persons may have interests different than our shareholders.




***Our
      administrative costs and expenses resulting from new regulations have increased,
      adversely affecting our financial condition and results of operations.***




We
      face
      new corporate governance requirements under the Sarbanes-Oxley Act of 2002
      and
      SEC rules adopted thereunder. These regulations increased our legal and
      financial compliance and made some activities more difficult, time-consuming
      and
      costly. Our expenses will continue to increase as we continue to implement
      these
      new regulations.




***New
      corporate governance requirements have made it more difficult to attract
      qualified directors. As a result, our business may be harmed and the price
      of
      our stock may be adversely affected.***




New
      corporate governance requirements have increased the role and responsibilities
      of directors and executive officers of public companies. These new requirements
      will make it more difficult and more expensive for us to obtain director and
      officer liability insurance. We may be required to accept reduced coverage
      or
      incur significantly higher costs to obtain coverage. As a result, it may be
      more
      difficult for us to attract and retain qualified individuals to serve as members
      of our board of directors.




***If
      we fail to maintain effective internal controls over financial reporting, the
      price of our common stock may be adversely affected.***




We
      are
      required to establish and maintain appropriate internal controls over financial
      reporting. Our internal controls over financial reporting may have weaknesses
      and conditions that need to be addressed, the disclosure of which may have
      an
      adverse impact on the price of our common stock. Failure to establish those
      controls, or any failure of those controls once established, could adversely
      impact our public disclosures regarding our business, financial condition or
      results of operations. In addition, management’s assessment of internal controls
      over financial reporting may identify weaknesses and conditions that need to
      be
      addressed in our internal controls over financial reporting or other matters
      that may raise concerns for investors. Any actual or perceived weaknesses and
      conditions that need to be addressed, disclosure of management’s assessment of
      our internal controls over financial reporting or disclosure of our independent
      registered public accounting firm’s attestation to or report on management’s
      assessment of our internal controls over financial reporting may have an adverse
      impact on the price of our common stock.




***Standards
      for compliance with Section 404 of the Sarbanes-Oxley Act of 2002 are uncertain,
      and if we fail to comply in a timely manner, our business could be harmed and
      our stock price could decline.***




Rules
      adopted by the SEC pursuant to Section 404 of the Sarbanes-Oxley Act of 2002
      require annual assessment of our internal control over financial reporting,
      and
      attestation of this assessment by our independent registered public accountant.
      Unless the SEC delays the date on which this requirement becomes effective,
      we
      will first have to include our assessment of our internal control over financial
      reporting in our annual report for fiscal year ending December 31, 2007. The
      standards that must be met for management to assess the effectiveness of the
      internal control over financial reporting are new and complex, and require
      significant documentation, testing and possible remediation to meet the detailed
      standards. We may encounter problems or delays in completing activities
      necessary to make an assessment of its internal control over financial
      reporting. In addition, we may encounter problems or delays in completing the
      implementation of any requested improvements and receiving an attestation of
      its
      assessment by our independent registered public accountants. If management
      cannot assess our internal control over financial reporting as effective, or
      our
      independent auditors are unable to issue an unqualified attestation report
      on
      such assessment, investor confidence and share value may be negatively
      impacted.





**ITEM
      3. CONTROLS AND PROCEDURES**





**Disclosure
      Controls and Procedures**




20




Our
        management has evaluated, under the supervision and with the participation
        of
        our chief executive officer and acting chief financial officer, the
        effectiveness of our disclosure controls and procedures as of the end of
        the
        period covered by this report. Based upon that evaluation, our chief executive
        officer and acting chief financial officer concluded that our disclosure
        controls and procedures were effective to provide reasonable assurance that
        we
        record, process, summarize and report the information we must disclose in
        reports that we file or submit under the Securities Exchange Act of 1934,
        as
        amended, within the time periods specified in the SEC’s rules and
        forms.





However,
      during the course of this evaluation, our chief executive officer and acting
      chief financial officer made the following observations:




**•**
            We
                have restated certain financial information contained in our quarterly
                report on Form 10-QSB for the quarter ended March 31,
                2005.





**•**
            Due
                to the significant commitment of Company time and resources required
                in
                connection with the review of our financial statements and the auditing
                of
                our 2004 financial statements, we did not timely file our annual
                report on
                Form 10-KSB for the fiscal year ended December 31, 2004 or our quarterly
                reports on Form 10-QSB for the quarters ended March 31, 2005, June
                30,
                2005 and September 30, 2005.




Management
      concluded that the problems set forth above did not necessitate a conclusion
      that our disclosure controls and procedures were ineffective as of March 31,
      2006.  First, our management has concluded that the problems set forth
      above were largely the result of inadequate staffing, competence and segregation
      of duties in our accounting and financial reporting functions and insufficient
      analysis, documentation and review of the selection and application of generally
      accepted accounting principles to significant non-routine transactions, which
      we
      have addressed by retaining an outside consultant to assist with some of the
      highly technical issues relating to the company’s capital structure. Second, we
      were able to timely file our quarterly report on Form 10-QSB for the quarter
      ended September 30, 2005, our annual report on Form 10-KSB for the year ended
      December 31, 2005, and this quarterly report (with extension), indicating that
      the issues relating to the timeliness of our reporting have been successfully
      addressed.





Management
      believes that additional progress in strengthening our disclosure controls
      and
      procedures will continue throughout fiscal year 2006. To further ensure that
      our
      disclosure controls and procedures continue to be effective, we intend to hire
      an accounting professional to increase our capabilities related to interpretive
      research into complex accounting issues promptly after we raise sufficient
      financing to permit us to do so.





Management
      continues to consider methods to improve the quality and timeliness of reporting
      and will continue to evaluate and address any issues it identifies relating
      to
      the processes and resources necessary for effective disclosure controls and
      procedures.




The
        effectiveness of a system of disclosure controls and procedures is subject
        to
        various inherent limitations, including cost limitations, judgments used
        in
        decision making, assumptions about the likelihood of future events, the
        soundness of internal controls, and the risk of fraud. Because of these
        limitations, there can be no assurance that any system of disclosure controls
        and procedures will be successful in preventing all errors or fraud or in
        making
        all material information known in a timely manner to the appropriate levels
        of
        management.




**Changes
      in Internal Control over Financial Reporting**




There
      were no changes in our internal control over financial reporting during the
      quarter ended March 31, 2006 that have materially affected, or are
      reasonably likely to materially affect, our internal control over financial
      reporting.





**PART
      II. OTHER INFORMATION**


**ITEM
      1.  LEGAL PROCEEDINGS**





**Legal
      Proceedings**





On
      February 9, 2005 Global Matrechs, Inc, filed suit in the Supreme Court of the
      State of New York, County of New York against Eurotech, Ltd. for its failure
      to
      fulfill its obligations under the license agreement between the parties dated
      May 22, 2003. The suit also sought the enforcement of the notes issued by
      Eurotech to Woodward, LLC which were assumed by Global Matrechs in the exchange
      agreement between Global Matrechs and Woodward on January 31, 2005. The
      complaint sought damages totaling $672,677 plus interest and attorney’s fees
      which are yet to be determined. This litigation was settled in connection with
      the settlement of claims with Eurotech and Carey Naddell individually described
      below.





On
      April
      13, 2005 Carey Naddell, CEO of Eurotech, Ltd., filed suit against the Company
      in
      the United States District Court - Southern District of New York for damages
      in
      the amount of at least $240,000 with interest attorney’s fees and disbursement
      based upon an alleged breach of a written service agreement.





On
      June
      24, 2005, Eurotech, Ltd. filed a complaint against Global Matrechs in the
      Supreme Court of the State of New York, County of New York, (Index No.
      108773/05) for an alleged failure to fulfill our obligations under our License
      and Exchange Agreement




21




dated
      March 27, 2003 with Eurotech, Ltd. thereby depriving Eurotech, Ltd. of its
      contractual right to convert 700 Series H Preferred Stock and selling 7 million
      shares of our common stock. Eurotech, Ltd. is seeking damages in an amount
      to be
      determined at trial but believed according to the defendant to exceed $100,000
      plus interest and attorney’s fees which are yet to be determined.





On
      March
      16, 2006, we, Naddell and Eurotech executed a full mutual release of claims,
      completing a settlement of each of the above-described actions.





In
      connection with the Eurotech matter, Eurotech will return 2,500 shares of Series
      H, convertible Preferred Stock to the Company in full settlement of claims
      relating to its failure to fulfill obligations under the license agreement,
      and
      Eurotech’s obligations to Woodward, which were assumed by the Company on January
      31, 2005.





In
      connection with the Cary Naddell matter, a settlement was reached whereby this
      former consultant received $175,000 in full settlement of related claims for
      compensation of past services.




At
      December 31, 2005, based on settlement date of March 15, 2006, the Company
      accrued a settlement liability and related settlement expense of $175,000.
      Under
      the terms of the settlement, $25,000 was due and paid at closing, and the
      balance of $150,000 is payable in seven (7) equal monthly installments of
      $21,428.57 commencing on April 15, 2006 with final installment payment due
      on or
      before October 15, 2006. The Company made its first payment due under this
      settlement.





We
      are
      not a party to any other material legal proceedings. From time to time, we
      are
      involved in various routine legal proceedings incidental to the conduct of
      our
      business.





**ITEM
      5.  OTHER INFORMATION.**





From
      time
      to time between March 27, 2006 and May 11, 2006 we issued and sold an aggregate
      23,326,531 shares pursuant to our private equity line credit agreements dated
      January 10, 2006. We received gross cash proceeds of $150,000 in consideration
      for the sold shares. The shares were sold to the purchaser at a discount of
      8%
      to the market price per share. We are required to pay a placement fee equal
      to
      1% of any proceeds received under the private equity line credit agreements.
      The
      issuance of the shares was exempt from registration under Section 4(2) of the
      Securities Act as a sale to an accredited investor not involving any public
      offering. The resale of the shares is registered under the Securities Act
      pursuant to a registration statement on Form SB-2 (File no. 333-131106), as
      amended. We have used or intend to use the proceeds from these issuances for
      general corporate purposes.





**ITEM
      6.  EXHIBITS**





(a)
      Exhibits





**EXHIBITS**




**Incorporated
                by Reference****Exhibit
                No.**
            **Description**
            **Filed
                with**
              **this
                Form**
              **10-QSB**
            **Form**
            **Filing
                Date**
            **Exhibit
                No.**2.1
            Agreement
                and Plan of Merger dated December 31, 2004 with True To Form, Limited,
                TTF
                Acquisition Corp. and Mark J. Allen
            
            8-K
            January
                6, 2005
            2.13.1
            Certificate
                of Amendment of Amended and Restated Certificate of
                Incorporation
            
            8-K
            June
                15, 2004
            3.13.2
            Amended
                and Restated Certificate of Incorporation
            
            S-1
            September
                18, 1996
            3.13.3
            Amended
                and Restated By-Laws
            
            S-1
            September
                18, 1996
            3.23.4
            Certificate
                of Designation, Rights, Preferences, Qualifications, Limitations
                and
                Restrictions of Series A Convertible Preferred Stock
            
            S-1/A
            January
                29, 1998
            3.3




22




**Incorporated
                  by Reference****Exhibit
                  No.**
              **Description**
              **Filed
                  with**
                **this
                  Form**
                **10-QSB**
              **Form**
              **Filing
                  Date**
              **Exhibit
                  No.**


3.5
            Certificate
                of Amendment of Certificate of Designations, Preferences and Rights
                of
                Series B Convertible Preferred Stock
            
            8-K
            June
                15, 2004
            3.23.6
            Certificate
                of Designations, Preferences and Rights of Series B Convertible Preferred
                Stock
            
            10-K
            March
                31, 1999
            10.493.7
            Certificate
                of Amendment of Certificate of Designations, Preferences and Rights
                of
                Series C Convertible Preferred Stock
            
            8-K
            June
                15, 2004
            3.43.8
            Certificate
                of Designations, Preferences and Rights of Series C Convertible Preferred
                Stock
            
            S-1
            May
                10, 1999
            3.53.9
            Certificate
                of Amendment of Certificate of Designations, Preferences and Rights
                of
                Series D Convertible Preferred Stock
            
            S-1
            May
                10, 1999
            3.63.10
            Amended
                Certificate of Designations, Preferences and Rights of Series E
                Convertible Preferred Stock
            
            S-3
            June
                1, 2000
            3.73.11
            Certificate
                of Designations, Preferences and Rights of Series F Convertible Preferred
                Stock
            
            10-K
            April
                15, 2003
            3.83.12
            Certificate
                of Designations, Preferences and Rights of Series G Convertible Preferred
                Stock
            
            10-K
            April
                15, 2003
            3.93.13
            Certificate
                of Designations, Preferences and Rights of Series H Convertible Preferred
                Stock
            
            10-Q
            October
                29, 2003
            3.13.14
            Certificate
                of Amendment of Amended and Restated Certificate of
                Incorporation
            X4.1
            Specimen
                stock certificate
            
            S-1
            November
                1, 1996
            4.210.1
            Private
                Equity Credit Agreement dated January 10, 2006 with Brittany Capital
                Management Limited.
            
            8-K
            January
                13, 2006
            10.110.2
            Registration
                Rights Agreement dated Janjary 10, 2006 with Brittany Capital Management
                Limited.
            
            SB-2
            January
                18, 2006
            10.2131.1
            Certification
                pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
            X31.2
            Certification
                pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
            X




23




SIGNATURES





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







**GLOBAL
                MATRECHS, INC.**Date:
                May 15, 2006
            By:
            /s/ 
                Michael Sheppard
              Name:
                Michael SheppardTitle:
                  President, Chief Executive Officer, and
                Acting
                  Chief Financial Officer







24




EXHIBIT
      INDEX




**Incorporated
                by Reference****Exhibit
                No.**
            **Description**
            **Filed
                with**
              **this
                Form**
              **10-QSB**
            **Form**
            **Filing
                Date**
            **Exhibit
                No.**2.1
            Agreement
                and Plan of Merger dated December 31, 2004 with True To Form, Limited,
                TTF
                Acquisition Corp. and Mark J. Allen
            
            8-K
            January
                6, 2005
            2.13.1
            Certificate
                of Amendment of Amended and Restated Certificate of
                Incorporation
            
            8-K
            June
                15, 2004
            3.13.2
            Amended
                and Restated Certificate of Incorporation
            
            S-1
            September
                18, 1996
            3.13.3
            Amended
                and Restated By-Laws
            
            S-1
            September
                18, 1996
            3.23.4
            Certificate
                of Designation, Rights, Preferences, Qualifications, Limitations
                and
                Restrictions of Series A Convertible Preferred Stock
            
            S-1/A
            January
                29, 1998
            3.33.5
            Certificate
                of Amendment of Certificate of Designations, Preferences and Rights
                of
                Series B Convertible Preferred Stock
            
            8-K
            June
                15, 2004
            3.23.6
            Certificate
                of Designations, Preferences and Rights of Series B Convertible Preferred
                Stock
            
            10-K
            March
                31, 1999
            10.493.7
            Certificate
                of Amendment of Certificate of Designations, Preferences and Rights
                of
                Series C Convertible Preferred Stock
            
            8-K
            June
                15, 2004
            3.43.8
            Certificate
                of Designations, Preferences and Rights of Series C Convertible Preferred
                Stock
            
            S-1
            May
                10, 1999
            3.53.9
            Certificate
                of Amendment of Certificate of Designations, Preferences and Rights
                of
                Series D Convertible Preferred Stock
            
            S-1
            May
                10, 1999
            3.63.10
            Amended
                Certificate of Designations, Preferences and Rights of Series E
                Convertible Preferred Stock
            
            S-3
            June
                1, 2000
            3.73.11
            Certificate
                of Designations, Preferences and Rights of Series F Convertible Preferred
                Stock
            
            10-K
            April
                15, 2003
            3.83.12
            Certificate
                of Designations, Preferences and Rights of Series G Convertible Preferred
                Stock
            
            10-K
            April
                15, 2003
            3.93.13
            Certificate
                of Designations, Preferences and Rights of Series H Convertible Preferred
                Stock
            
            10-Q
            October
                29, 2003
            3.1




25




**Incorporated
                by Reference****Exhibit
                No.**
            **Description**
            **Filed
                with**
              **this
                Form**
              **10-QSB**
            **Form**
            **Filing
                Date**
            **Exhibit
                No.**


3.14
            Certificate
                of Amendment of Amended and Restated Certificate of
                Incorporation
            X4.1
            Specimen
                stock certificate
            
            S-1
            November
                1, 1996
            4.210.1
            Private
                Equity Credit Agreement dated January 10, 2006 with Brittany Capital
                Management Limited.
            
            8-K
            January
                13, 2006
            10.110.2
            Registration
                Rights Agreement dated Janjary 10, 2006 with Brittany Capital Management
                Limited.
            
            SB-2
            January
                18, 2006
            10.2131.1
            Certification
                pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
            X31.2
            Certification
                pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
            X










26