UNITED
STATES
 SECURITIES
AND EXCHANGE COMMISSION
 Washington,
D.C. 20549
  Form
10-Q
   (Mark
One)
  x QUARTERLY REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
  For
the quarterly period ended March 31, 2009
  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: 000-23617
  Matech
Corp.
 (Exact
name of registrant as specified in its charter)
  Delaware
 (State or
other jurisdiction of
 incorporation
or organization)
  95-4622822
 (I.R.S.
Employer
 Identification
No.)
  11661
San Vicente Boulevard, Suite 707, Los Angeles, CA 90049
 (Address
of principal executive offices)
  (310)
208-5589
 (Issuer’s
telephone number)
   Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.    Yes  x     
No  o
  Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).    
Yes  o     
No  o
 
 Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a small reporting
company.
 Large
      accelerated filer
              o
              
              Accelerated
      filer
              oNon-accelerated
      filer
              o
              
              Smaller
      reporting company
              x
  Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).     Yes  o     
No  x
 
 
 
 
 
 APPLICABLE
ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
 PROCEEDINGS
DURING THE PRECEDING FIVE YEARS
 
 Indicate
by check mark whether the registrant has filed all documents and reports
required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act
of 1934 subsequent to the distribution of securities under a plan confirmed by a
court.     Yes  o    
No  o
 
 APPLICABLE
ONLY TO CORPORATE ISSUERS
  Indicate
the number of shares outstanding of each of the issuer's classes of common
stock, as of the latest practicable date:As of May 19, 2009, there
were 108,061,790 shares
of our Class A common stock issued and 31,492,621 outstanding, and
600,000 shares of Class B common stock issued and
outstanding.
  Transitional
Small Business Disclosure Format (Check one):     Yes
 o    
No  x
               
  MATECH
CORP.
  TABLE OF CONTENTS
  PART
      I–FINANCIAL
      INFORMATION
                      1Item 1. Financial
Statements
                      1Condensed Consolidated Balance
      Sheets
                      1Condensed
      Consolidated Statement of Operations –for the three months ended March
      31 2009 and 2008(unaudited)
                      3Condensed
      Consolidated Statements of Cash Flows –for the three months ended March
      31, 2009 and 2008(unaudited)
                      4Notes to Condensed Consolidated Financial
      Statements
                      6Item
      2. Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
                      27Item 3. Quantitative and Qualitative Disclosures about Market
      Risk
                      31Item 4. Controls and
      Procedures
                      31Item 4T. Controls and
      Procedures
                      32PART
      II–OTHER
      INFORMATION
                      33Item 1. Legal
      Proceedings
                      33Item 1A. Risk
      Factors
                      33Item 2. Unregistered Sales of Equity Securities and Use of
      Proceeds
                      33Item 3. Defaults Upon Senior
      Securities
                      34Item 4. Submission of Matters to a Vote of Security
      Holders
                      34Item 5. Other
      Information
                      34Item 6.
    Exhibits
                      34SIGNATURES
                      35


Table of Contents


PART I – FINANCIAL INFORMATION
  Item 1.   Financial
Statements
   MATECH
      CORP(Formerly
      known as Material Technologies, Inc.)(A
      Development Stage Company)CONDENSED CONSOLIDATED BALANCE SHEETSDecember
      31,
                                    
                                    
                                    March
      31,2008
                                    
                                    
                                    2009(Unaudited)ASSETSCurrent
      assets:Cash
      and cash equivalents
                                    
                                    $
                                    176,345
                                    
                                    
                                    $
                                    219,810Accounts
      receivable
                                    
                                    
                                    41,961
                                    
                                    
                                    
                                    97,977Inventories
                                    
                                    
                                    141,341
                                    
                                    
                                    
                                    74,943Prepaid
      expenses and other current assets
                                    
                                    
                                    359,227
                                    
                                    
                                    
                                    -Total
      current assets
                                    
                                    
                                    718,874
                                    
                                    
                                    
                                    392,730Property
      and equipment, net
                                    
                                    
                                    78,601
                                    
                                    
                                    
                                    71,552Loan
      fee, net
                                    
                                    
                                    -
                                    
                                    
                                    
                                    144,880Intangible
      assets, net
                                    
                                    
                                    1,764
                                    
                                    
                                    
                                    1,495Deposit
                                    
                                    
                                    2,348
                                    
                                    
                                    
                                    2,348$
                                    801,587
                                    
                                    
                                    $
                                    613,005


























See notes
to consolidated financial statements.


1
 Table of Contents
 MATECH
      CORP(Formerly
      known as Material Technologies, Inc.)(A
      Development Stage Company)CONDENSED
      CONSOLIDATED BALANCE SHEETSDecember
      31,
                                                                                                                              
                                                                                                                              
                                                                                                                              March
      31,2008
                                                                                                                              
                                                                                                                              
                                                                                                                              2009(Unaudited)LIABILITIES
      AND STOCKHOLDERS'  DEFICITCurrent
      liabilities:Accounts
      payable and accrued expenses
                                                                                                                              
                                                                                                                              $
                                                                                                                              670,207
                                                                                                                              
                                                                                                                              
                                                                                                                              $
                                                                                                                              924,170Deferred
      revenue - related party
                                                                                                                              
                                                                                                                              
                                                                                                                              90,000
                                                                                                                              
                                                                                                                              
                                                                                                                              
                                                                                                                              50,000Loans
      payable - related party
                                                                                                                              
                                                                                                                              
                                                                                                                              -
                                                                                                                              
                                                                                                                              
                                                                                                                              
                                                                                                                              12,768Current
      portion of payable due on legal settlement
                                                                                                                              
                                                                                                                              
                                                                                                                              54,033
                                                                                                                              
                                                                                                                              
                                                                                                                              
                                                                                                                              54,772Current
      portion of research and development sponsorship payable
                                                                                                                              
                                                                                                                              
                                                                                                                              25,000
                                                                                                                              
                                                                                                                              
                                                                                                                              
                                                                                                                              25,000Current
      portion of Convertible debentures and
      accrued interest payable, net of discount
                                                                                                                              
                                                                                                                              
                                                                                                                              1,859,325
                                                                                                                              
                                                                                                                              
                                                                                                                              
                                                                                                                              2,301,803Notes
      payable
                                                                                                                              
                                                                                                                              
                                                                                                                              299,542
                                                                                                                              
                                                                                                                              
                                                                                                                              
                                                                                                                              304,508Total
      current liabilities
                                                                                                                              
                                                                                                                              
                                                                                                                              2,998,107
                                                                                                                              
                                                                                                                              
                                                                                                                              
                                                                                                                              3,673,021Legal
      settlement  payable
                                                                                                                              
                                                                                                                              
                                                                                                                              155,978
                                                                                                                              
                                                                                                                              
                                                                                                                              
                                                                                                                              143,254Research
      and development sponsorship payable, net of current
portion
                                                                                                                              
                                                                                                                              
                                                                                                                              778,549
                                                                                                                              
                                                                                                                              
                                                                                                                              
                                                                                                                              787,956Convertible
      debentures and accrued interest payable, net of discount
                                                                                                                              
                                                                                                                              
                                                                                                                              335,834
                                                                                                                              
                                                                                                                              
                                                                                                                              
                                                                                                                              562,767Derivative
      and warrant liabilities
                                                                                                                              
                                                                                                                              
                                                                                                                              210,497,575
                                                                                                                              
                                                                                                                              
                                                                                                                              
                                                                                                                              329,442,548211,767,936
                                                                                                                              
                                                                                                                              
                                                                                                                              
                                                                                                                              330,936,525Total
      liabilities
                                                                                                                              
                                                                                                                              
                                                                                                                              214,766,043
                                                                                                                              
                                                                                                                              
                                                                                                                              
                                                                                                                              334,609,546Minority
      interest in consolidated subsidiary
                                                                                                                              
                                                                                                                              
                                                                                                                              825
                                                                                                                              
                                                                                                                              
                                                                                                                              
                                                                                                                              825Commitments
      and contingenciesStockholders'
      deficit:Class
      A preferred stock, $0.001 par value, liquidation
preferenceof  $720
      per share; 350,000 shares authorized; 337 shares issuedand
      outstanding as of  December 31, 2008 and  March 31,
      2009
                                                                                                                              
                                                                                                                              
                                                                                                                              -
                                                                                                                              
                                                                                                                              
                                                                                                                              
                                                                                                                              -Class
      B preferred stock, $0.001 par value, liquidation preference
    of$10,000
      per share; 15 shares authorized;  0 shares issued
      andoutstanding
      as of December 31, 2008 and March 31, 2009
                                                                                                                              
                                                                                                                              
                                                                                                                              -
                                                                                                                              
                                                                                                                              
                                                                                                                              
                                                                                                                              -Class
      C preferred stock, $0.001 par value, liquidation preference
    of$0.001
      per share; 25,000,000 shares authorized; 1,517 shares
    issuedand
      outstanding as of December 31, 2008 and March 31, 2009
                                                                                                                              
                                                                                                                              
                                                                                                                              1
                                                                                                                              
                                                                                                                              
                                                                                                                              
                                                                                                                              1Class
      D preferred stock, $0.001 par value, liquidation preference
    of$0.001
      per share; 20,000,000 shares authorized; 0 shares issuedand
      outstanding as of  December 31, 2008 and March 31,
      2009
                                                                                                                              
                                                                                                                              
                                                                                                                              -
                                                                                                                              
                                                                                                                              
                                                                                                                              
                                                                                                                              -Class
      E  convertible preferred stock, $0.001 par value, no
      liquidationpreference;
      60,000 shares authorized; 49,250 shares issued andoutstanding
      as of  December 31, 2008 and March 31, 2009
                                                                                                                              
                                                                                                                              
                                                                                                                              49
                                                                                                                              
                                                                                                                              
                                                                                                                              
                                                                                                                              49Class
      A Common Stock, $0.001 par value, 1,699,400,000 sharesauthorized;
      99,408,963 shares issued and 24,389,794 sharesoutstanding
      as of December 31, 2008;  107,416,290 shares
    issuedand
      30,847,121 shares outstanding as of March 31, 2009
                                                                                                                              
                                                                                                                              
                                                                                                                              24,390
                                                                                                                              
                                                                                                                              
                                                                                                                              
                                                                                                                              30,847Class
      B Common Stock, $0.001 par value, 600,000 shares
    authorized,issued
      and outstanding as of  December 31, 2008 and  March
      31, 2009
                                                                                                                              
                                                                                                                              
                                                                                                                              600
                                                                                                                              
                                                                                                                              
                                                                                                                              
                                                                                                                              600Warrants
      subscribed
                                                                                                                              
                                                                                                                              
                                                                                                                              10,000
                                                                                                                              
                                                                                                                              
                                                                                                                              
                                                                                                                              10,000Additional
      paid-in-capital
                                                                                                                              
                                                                                                                              
                                                                                                                              367,125,759
                                                                                                                              
                                                                                                                              
                                                                                                                              
                                                                                                                              368,287,619Deficit
      accumulated during the development stage
                                                                                                                              
                                                                                                                              
                                                                                                                              (581,117,806
                                                                                                                              )
                                                                                                                              
                                                                                                                              
                                                                                                                              (702,316,656
                                                                                                                              )Treasury
      stock ( 24,635 shares at cost at December 31,2008 and 25,448
      shares at cost at March 31, 2009)
                                                                                                                              
                                                                                                                              
                                                                                                                              (8,274
                                                                                                                              )
                                                                                                                              
                                                                                                                              
                                                                                                                              (9,826
                                                                                                                              )Total
      stockholders' deficit
                                                                                                                              
                                                                                                                              
                                                                                                                              (213,965,281
                                                                                                                              )
                                                                                                                              
                                                                                                                              
                                                                                                                              (333,997,366
                                                                                                                              )$
                                                                                                                              801,587
                                                                                                                              
                                                                                                                              
                                                                                                                              $
                                                                                                                              613,005
 See notes to consolidated financial statements.
2Table of Contents
 MATECH
      CORP(Formerly
      known as Material Technologies, Inc.)(A
      Development Stage Company)CONDENSED CONSOLIDATED STATEMENTS OF
    OPERATIONSFrom
      October 21, 1983For
      the Three Months Ended
                                                                                                  
                                                                                                  
                                                                                                  (Inception)March
      31,
                                                                                                  
                                                                                                  
                                                                                                  through2008
                                                                                                  
                                                                                                  
                                                                                                  2009
                                                                                                  
                                                                                                  
                                                                                                  March
      31, 2009(Unaudited)
                                                                                                  
                                                                                                  
                                                                                                  (Unaudited)
                                                                                                  
                                                                                                  
                                                                                                  (Unaudited)Revenues:Research
      and development
                                                                                                  
                                                                                                  $
                                                                                                  -
                                                                                                  
                                                                                                  
                                                                                                  $
                                                                                                  -
                                                                                                  
                                                                                                  
                                                                                                  $
                                                                                                  5,392,085Revenue
      from bridge testing
                                                                                                  
                                                                                                  
                                                                                                  1,090
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  64,181
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  475,427Other
                                                                                                  
                                                                                                  
                                                                                                  -
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  90,000
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  374,125Total
      revenues
                                                                                                  
                                                                                                  
                                                                                                  1,090
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  154,181
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  6,241,637Costs
      and expenses:Bridge
      testing costs
                                                                                                  
                                                                                                  
                                                                                                  -
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  108,626
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  181,883Research
      and development
                                                                                                  
                                                                                                  
                                                                                                  158,993
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  84,566
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  21,175,388General
      and administrative
                                                                                                  
                                                                                                  
                                                                                                  20,328,325
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  1,046,075
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  332,124,032Modification
      of research and development sponsorship agreement
                                                                                                  
                                                                                                  
                                                                                                  -
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  -
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  5,963,120Loss
      on settlement of lawsuits
                                                                                                  
                                                                                                  
                                                                                                  -
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  -
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  1,267,244Total
      costs and expenses
                                                                                                  
                                                                                                  
                                                                                                  20,487,318
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  1,239,267
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  360,711,667Loss
      from operations
                                                                                                  
                                                                                                  
                                                                                                  (20,486,228
                                                                                                  )
                                                                                                  
                                                                                                  
                                                                                                  (1,085,086
                                                                                                  )
                                                                                                  
                                                                                                  
                                                                                                  (354,470,030
                                                                                                  )Other
      income (expense):Gain
      (Loss) on modification of convertible debt
                                                                                                  
                                                                                                  
                                                                                                  -
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  -
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  (378,485
                                                                                                  )Loss
      on subscription receivable
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  -
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  (1,368,555
                                                                                                  )Interest
      expense
                                                                                                  
                                                                                                  
                                                                                                  (370,991
                                                                                                  )
                                                                                                  
                                                                                                  
                                                                                                  (1,166,188
                                                                                                  )
                                                                                                  
                                                                                                  
                                                                                                  (15,812,065
                                                                                                  )Other-than-temporary
      impairment of marketablesecurities available for
      sale
                                                                                                  
                                                                                                  
                                                                                                  -
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  -
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  (9,785,947
                                                                                                  )Loss
      on shareholder settlement relating to failure to register common
      shares
                                                                                                  
                                                                                                  
                                                                                                  -
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  -
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  (39,407,195
                                                                                                  )Net
      unrealized and realized loss of marketable securities
                                                                                                  
                                                                                                  
                                                                                                  (8
                                                                                                  )
                                                                                                  
                                                                                                  
                                                                                                  (1,803
                                                                                                  )
                                                                                                  
                                                                                                  
                                                                                                  (9,400,021
                                                                                                  )Change
      in fair value of investments derivative liability
                                                                                                  
                                                                                                  
                                                                                                  -
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  -
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  (210,953
                                                                                                  )Change
      in fair value of derivative and warrant liabilities
                                                                                                  
                                                                                                  
                                                                                                  8,559,576
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  (118,944,973
                                                                                                  )
                                                                                                  
                                                                                                  
                                                                                                  (271,923,869
                                                                                                  )Interest
      income
                                                                                                  
                                                                                                  
                                                                                                  12,443
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  -
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  483,056Other
                                                                                                  
                                                                                                  
                                                                                                  -
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  -
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  (25,992
                                                                                                  )Other
      income (expense), net
                                                                                                  
                                                                                                  
                                                                                                  8,201,020
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  (120,112,964
                                                                                                  )
                                                                                                  
                                                                                                  
                                                                                                  (347,830,026
                                                                                                  )Loss
      before provision for income taxes
                                                                                                  
                                                                                                  
                                                                                                  (12,285,208
                                                                                                  )
                                                                                                  
                                                                                                  
                                                                                                  (121,198,050
                                                                                                  )
                                                                                                  
                                                                                                  
                                                                                                  (702,300,056
                                                                                                  )Provision
      for income taxes
                                                                                                  
                                                                                                  
                                                                                                  (800
                                                                                                  )
                                                                                                  
                                                                                                  
                                                                                                  (800
                                                                                                  )
                                                                                                  
                                                                                                  
                                                                                                  (16,600
                                                                                                  )Net
      loss
                                                                                                  
                                                                                                  $
                                                                                                  (12,286,008
                                                                                                  )
                                                                                                  
                                                                                                  $
                                                                                                  (121,198,850
                                                                                                  )
                                                                                                  
                                                                                                  $
                                                                                                  (702,316,656
                                                                                                  )Per
      share data:Basic
      and diluted net loss per share
                                                                                                  
                                                                                                  $
                                                                                                  (88.67
                                                                                                  )
                                                                                                  
                                                                                                  $
                                                                                                  (4.39
                                                                                                  )Weighted
      average Class A common sharesoutstanding - basic and
      diluted
                                                                                                  
                                                                                                  
                                                                                                  138,562
                                                                                                  
                                                                                                  
                                                                                                  
                                                                                                  27,577,952
     See notes
to consolidated financial
statements.


3
 Table of Contents


MATECH
      CORP(Formerly
      known as Material Technologies, Inc.)(A
      Development Stage Company)CONSOLIDATED STATEMENTS OF CASH FLOWSFrom
      October 21, 1983For
      the Three Months Ended
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                (Inception)March
      31,
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                through2008
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                2009
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                March
      31, 2009(Unaudited)
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                (Unaudited)
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                (Unaudited)Cash
      flows from operating activities:Net
      loss
                                                                                                                                                
                                                                                                                                                $
                                                                                                                                                (12,286,008
                                                                                                                                                )
                                                                                                                                                
                                                                                                                                                $
                                                                                                                                                (121,198,850
                                                                                                                                                )
                                                                                                                                                
                                                                                                                                                $
                                                                                                                                                (702,316,656
                                                                                                                                                )Adjustments
      to reconcile net loss to net cash used in operating
      activities:Gain
      on modification of convertible debt
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                -
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                -
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                378,485Impairment
      loss
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                -
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                -
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                21,391,528Loss
      on charge off of subscription receivables
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                1,368,555Stock
      based compensation
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                4,580,400
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                568,317
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                211,046,698Increase
      in debt for services and fees
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                -
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                60,000
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                5,736,625Officer's
      stock based compensation
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                15,000,000
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                -
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                86,460,675Issuance
      of common stock for modification ofresearch
      and development sponsorship agreement
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                -
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                -
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                7,738,400Issuance
      of common stock in settlement for failure toregister
      common shares
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                -
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                -
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                39,407,195Change
      in fair value of derivative and warrant liabilities
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                -
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                118,944,973
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                274,159,069Net
      realized and unrealized loss on marketable securities
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                -
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                1,803
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                7,897,508Other-than-temporary
      impairment of marketablesecurities
      available for sale
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                -
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                -
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                9,785,946Legal
      fees incurred for note payable
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                -
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                -
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                1,456,142Accrued
      interest expense added to principal
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                130,984
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                139,641
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                2,057,135Amortization
      of discount on convertible debentures
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                339,725
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                934,142
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                13,457,173Change
      in fair value of investments derivative liability
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                (8,559,576
                                                                                                                                                )
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                -
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                3,223,323Accrued
      interest income added to principal
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                (2,407
                                                                                                                                                )
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                -
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                (305,885
                                                                                                                                                )Depreciation
      and amortization
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                5,310
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                19,919
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                269,890Other
      non-cash adjustments
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                -
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                -
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                (114,730
                                                                                                                                                )(Increase)
      decrease in trade receivables
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                84,371
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                (56,016
                                                                                                                                                )
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                (148,304
                                                                                                                                                )(Increase)
      decrease in inventories
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                (14,790
                                                                                                                                                )
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                66,398
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                (74,943
                                                                                                                                                )(Increase)
      decrease in prepaid expenses and other
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                -current
      assets
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                32,500
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                109,935
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                423,779(Decrease)
      increase in accounts payable and accrued
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                -expenses
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                (161,759
                                                                                                                                                )
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                241,977
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                2,781,472(Decrease)
      Increase in deferred revenue - related party
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                -
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                (40,000
                                                                                                                                                )
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                50,000Net
      cash used in operating activities
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                (851,250
                                                                                                                                                )
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                (207,761
                                                                                                                                                )
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                (13,870,920
                                                                                                                                                )Cash
      flows from investing activities:Proceeds
      from the sale of marketable securities
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                300,000
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                -
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                3,758,476Purchase
      of marketable securities
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                -
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                -
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                (2,206,379
                                                                                                                                                )Investment
      in certificate of deposits and commercial paper
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                (565,000
                                                                                                                                                )
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                -
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                (1,965,000
                                                                                                                                                )Redemptions
      of certificate of deposits and commercial paper
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                858,922
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                -
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                1,965,000Payment
      received on officer loans
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                -
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                -
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                876,255Funds
      advanced to officers
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                -
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                -
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                (549,379
                                                                                                                                                )Proceeds
      received in acquisition of consolidated subsidiaries
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                -
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                -
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                600,000Purchase
      of property and equipment
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                (17,167
                                                                                                                                                )
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                (12,600
                                                                                                                                                )
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                (386,020
                                                                                                                                                )Investment
      in joint ventures
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                -
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                -
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                (102,069
                                                                                                                                                )Proceeds
      from foreclosure
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                -
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                -
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                44,450Proceeds
      from the sale of property and equipment
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                -
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                -
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                19,250Payment
      for license agreement
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                -
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                -
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                (6,250
                                                                                                                                                )Net
      cash provided by (used in ) investing activities
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                576,755
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                (12,600
                                                                                                                                                )
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                2,048,334






See notes
to consolidated financial statements.
  4
 Table of Contents




MATECH
      CORP(Formerly
      known as Material Technologies, Inc.)(A
      Development Stage Company)CONSOLIDATED
      STATEMENTS OF CASH FLOWSFrom
      October 21, 1983For
      the Three Months Ended
                                                                  
                                                                  
                                                                  (Inception)March
      31,
                                                                  
                                                                  
                                                                  through2008
                                                                  
                                                                  
                                                                  2009
                                                                  
                                                                  
                                                                  March
      31, 2009(Unaudited)
                                                                  
                                                                  
                                                                  (Unaudited)
                                                                  
                                                                  
                                                                  (Unaudited)Cash
      flow from financing activities:Proceeds
      from the sale of  common stock and warrants
                                                                  
                                                                  $
                                                                  -
                                                                  
                                                                  
                                                                  $
                                                                  671
                                                                  
                                                                  
                                                                  $
                                                                  9,465,248Proceeds
      from convertible debentures and othernotes
      payable
                                                                  
                                                                  
                                                                  -
                                                                  
                                                                  
                                                                  
                                                                  295,000
                                                                  
                                                                  
                                                                  
                                                                  3,647,766Proceeds
      from the sale of preferred stock
                                                                  
                                                                  
                                                                  -
                                                                  
                                                                  
                                                                  
                                                                  -
                                                                  
                                                                  
                                                                  
                                                                  473,005Fees
      incurred in debt financing
                                                                  
                                                                  
                                                                  -
                                                                  
                                                                  
                                                                  
                                                                  -
                                                                  
                                                                  
                                                                  
                                                                  (1,505,932
                                                                  )Capital
      contributions
                                                                  
                                                                  
                                                                  -
                                                                  
                                                                  
                                                                  
                                                                  -
                                                                  
                                                                  
                                                                  
                                                                  301,068Purchase
      of treasury stock
                                                                  
                                                                  
                                                                  (1,590
                                                                  )
                                                                  
                                                                  
                                                                  (4,025
                                                                  )
                                                                  
                                                                  
                                                                  (180,939
                                                                  )Principal
      reduction on notes payable
                                                                  
                                                                  
                                                                  (252
                                                                  )
                                                                  
                                                                  
                                                                  (27,820
                                                                  )
                                                                  
                                                                  
                                                                  (152,820
                                                                  )Payment
      on proposed reorganization
                                                                  
                                                                  
                                                                  -
                                                                  
                                                                  
                                                                  
                                                                  -
                                                                  
                                                                  
                                                                  
                                                                  (5,000
                                                                  )Net
      cash provided by (used in) financing activities
                                                                  
                                                                  
                                                                  (1,842
                                                                  )
                                                                  
                                                                  
                                                                  263,826
                                                                  
                                                                  
                                                                  
                                                                  12,042,396Net
      change in cash and cash equivalents
                                                                  
                                                                  
                                                                  (276,337
                                                                  )
                                                                  
                                                                  
                                                                  43,465
                                                                  
                                                                  
                                                                  
                                                                  219,810Cash
      and cash equivalents, beginning of period
                                                                  
                                                                  
                                                                  809,710
                                                                  
                                                                  
                                                                  
                                                                  176,345
                                                                  
                                                                  
                                                                  
                                                                  -Cash
      and cash equivalents, end of period
                                                                  
                                                                  $
                                                                  533,373
                                                                  
                                                                  
                                                                  $
                                                                  219,810
                                                                  
                                                                  
                                                                  $
                                                                  219,810Supplemental
      disclosure of cash flow information:Interest
      paid during the period
                                                                  
                                                                  $
                                                                  281
                                                                  
                                                                  
                                                                  $
                                                                  -Income
      taxes paid during the period
                                                                  
                                                                  $
                                                                  800
                                                                  
                                                                  
                                                                  $
                                                                  -




Supplemental
      disclosures of non-cash investing and financing
activities:2009In
      January 2009, the Company issued its President 274,000 shares of its
      common stock in a cashlessexercise
      of 274,347 options.In
      February 2009, the Company issued 6,000,000 shares of its common stock in
      a  conversion of$600,000
      of convertible debt.2008During
      the three months ended March 31, 2008, the Company issued 4,229 shares of
      its Class A common stock inthe
      conversion of $491,132 of convertible debt.During
      the three months ended March 31, 2008, the Company issued 8,208 shares of
      its Class A common stockfor
      consulting  services valued at $3,580,400.During
      the three months ended March 31, 2008, the Company issued 378 shares of
      its Class A common stockpursuant
      to the anti-dilution provisions of a settlement agreement.During
      the three months ended March 31, 2008. a former employee returned 450
      shares of the Company's Class Acommon
      stock to treasury which were subsequently cancelled.During
      the three months ended March 31, 2008, the Company issued 34,500 shares of
      its Class A common stockin
      consideration of the exercise of cashless warrants. The Company accrued
      derivative liability in connection with thegranting
      of the warrants, which had a balance of $1,151,900 on the date of
      exercise. The liability balance was credited o equity.During
      the three months ended March 31, 2008, the Company's contingent obligation
      to Mr. Beck under a settlement agreementwas
      reduced to $0, therefore the Company reduced its legal settlement
      liability by the remaining accrued provision of
  $230,000,which
      was credited to equity.




See notes
to consolidated financial statements.


5
 Table of Contents
 MATECH
CORP
 (A
DEVELOPMENT STAGE COMPANY)
 
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
 For
the three months ended March 31, 2009 and
2008
  NOTE 1 - BASIS
OF PRESENTATION
  1.
BASIS OF PRESENTATION
  The
accompanying unaudited financial statements contain all adjustments (consisting
only of normal recurring adjustments) which, in the opinion of management, are
necessary to present fairly the financial position of the Company as of March
31, 2009, and the results of its operations for the three months ended March 31,
2009 and 2008, and for the period from October 21, 1983 (inception) to March 31,
2009, and its cash flows for the three months ended March 31, 2009 and 2008, and
for the period from October 21, 1983 (inception) to March 31, 2009. Certain
information and footnote disclosures normally included in financial statements
have been condensed or omitted pursuant to rules and regulations of the U.S.
Securities and Exchange Commission (the “Commission”). The Company believes that
the disclosures in the financial statements are adequate to make the information
presented not misleading. However, the financial statements included herein
should be read in conjunction with the financial statements and notes thereto
included in the Company’s Annual Report on Form 10-K for the year ended December
31, 2008 filed with the Commission on April 15, 2009.
 
 The
accompanying financial statements have been prepared on a going concern basis,
which contemplates the realization of assets and the satisfaction of liabilities
in the normal course of business. As shown in the accompanying financial
statements, the Company is in the development stage and, at March 31, 2009, has
an accumulated deficit of $702,316,656, continues to sustain operating losses on
a monthly basis, and expects to incur operating losses for the foreseeable
future.  Management of the Company will need to raise additional debt
and/or equity capital to finance future activities.  However, no
assurances can be made that current or anticipated future sources of funds will
enable the Company to finance future periods’ operations.  In light of
these circumstances, substantial doubt exists about the Company’s ability to
continue as a going concern. These condensed consolidated financial statements
do not include any adjustments relating to the recoverability and classification
of recorded assets or liabilities that might be necessary should the Company be
unable to continue as a going concern.
 
 NOTE 2 – RECENT ACCOUNTING
PRONOUNCEMENTS
 
 RECENTLY
ADOPTED ACCOUNTING PRONOUNCEMENTS
 
 SFAS No. 161 - In
March 2008, the FASB issued Statement No. 161, Disclosures about Derivative
Instruments and Hedging Activities—an amendment of FASB Statement No. 133. This
Statement changes the disclosure requirements for derivative instruments and
hedging activities. Entities are required to provide enhanced disclosures about
(a) how and why an entity uses derivative instruments, (b) how derivative
instruments and related hedged items are accounted for under Statement 133 and
its
  6
 Table of Contents
 MATECH
CORP
 (A
DEVELOPMENT STAGE COMPANY)
 
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
 For
the three months ended March 31, 2009 and
2008
  related
interpretations, and (c) how derivative instruments and related hedged items
affect an entity’s financial position, financial performance, and cash
flows.
  This
Statement is intended to enhance the current disclosure framework in Statement
133. The Statement requires that objectives for using derivative instruments be
disclosed in terms of underlying risk and accounting designation. This
disclosure better conveys the purpose of derivative use in terms of the risks
that the entity is intending to manage. Disclosing the fair values of derivative
instruments and their gains and losses in a tabular format should provide a more
complete picture of the location in an entity’s financial statements of both the
derivative positions existing at period end and the effect of using derivatives
during the reporting period. Disclosing information about credit-risk-related
contingent features should provide information on the potential effect on an
entity’s liquidity from using derivatives. Finally, this Statement requires
cross-referencing within the footnotes, which should help users of financial
statements locate important information about derivative
instruments.
 
 This
Statement is effective for financial statements issued for fiscal years and
interim periods beginning after November 15, 2008, with early application
encouraged. This Statement encourages, but does not require, comparative
disclosures for earlier periods at initial adoption.
 
 The
adoption of SFAS No 160 has not had a significant impact on our financial
statements.
 
 FASB issued Staff Position
No. 142-3 - In April 2008, the FASB issued Staff Position
No. 142-3, “Determination of the Useful Life of Intangible Assets” (“FSP
142-3”). FSP 142-3 amends the factors that should be considered in developing
renewal or extension assumptions used to determine the useful life of a
recognized intangible asset under FASB Statement of Financial Accounting
Standards No. 142, “Goodwill and Other Intangible Assets”. FSP 142-3 is
effective for the Company in the first quarter of 2009. The adoption of FSP
142-3 has not had a significant impact on our financial statements.
  FASB issued Staff Position
No. EITF 03-6-1 - In June 2008, the FASB issued Staff Position
No. EITF 03-6-1, “Determining Whether Instruments Granted in Share-Based
Payment Transactions Are Participating Securities” (“EITF 03-6-1”). EITF 03-6-1
addresses whether instruments granted in share-based payment transactions are
participating securities prior to vesting, and therefore, need to be included in
the earnings allocation in calculating earnings per share under the two-class
method described in FASB Statement of Financial Accounting Standards
No. 128, “Earnings per Share.” EITF 03-6-1 requires companies to treat
unvested share-based payment awards that have non-forfeitable rights to dividend
or dividend equivalents as a separate class of securities in calculating
earnings per share. EITF 03-6-1 is effective for fiscal years beginning after
December 15, 2008. EITF 03-6-1 is effective for the Company in the first
quarter of 2009. The adoption of EITF 03-6-1 has not had a significant impact on
our financial statements
 
 SFAS No. 157 - The
Company adopted in the first quarter of fiscal 2009, the Statement of Financial
Accounting Standards No. 157, Fair Value Measurements, (“SFAS
No. 157”) for all financial assets and financial liabilities and for all
non-financial assets and non-financial liabilities recognized or disclosed at
fair value in the financial statements on a recurring basis (at least annually).
SFAS No. 157 defines fair value, establishes a framework for measuring fair
value, and enhances fair value measurement disclosure.
  7
 Table of Contents
 MATECH
CORP
 (A
DEVELOPMENT STAGE COMPANY)
 
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
 For
the three months ended March 31, 2009 and
2008
  The
effect on the Company’s periodic fair value measurements for financial and
non-financial assets and liabilities was not material.
 
 In
October 2008, the Financial Accounting Standards Board (“FASB”) issued
Financial Staff Position 157-3, Determining the Fair Value of a Financial Asset
When the Market for That Asset Is Not Active, (“FSP 157-3”). FSP 157-3 clarifies
the application of SFAS No. 157 in a market that is not active, and
addresses application issues such as the use of internal assumptions when
relevant observable data does not exist, the use of observable market
information when the market is not active, and the use of market quotes when
assessing the relevance of observable and unobservable data. FSP 157-3 is
effective for all periods presented in accordance with SFAS No. 157. The
adoption of FSP 157-3 did not have a significant impact on our financial
statements or the fair values of our financial assets and
liabilities.
  In
December 2008, the FASB issued Financial Staff Position (“FSP”) Financial
Accounting Standard No. 140-4 and FASB Interpretation 46(R)-8, Disclosures
by Public Entities (Enterprises) about Transfers of Financial Assets and
Interests in Variable Interest Entities (“FSP FAS 140-4” and “FIN
46(R)-8”). The document increases disclosure requirements for public companies
and is effective for reporting periods (interim and annual) that end after
December 15, 2008. FSP FAS 140-4 and FIN 46(R)-8 became effective
for us on December 31, 2008. The adoption of FSP FAS 140-4 and
FIN 46(R)-8 did not have a significant impact on our financial
statements.
 
 December
2007, the Financial Accounting Standards Board issued Emerging Issues Task Force
(EITF) Issue No. 07-1, Accounting for Collaborative Arrangements, which
applies to collaborative arrangements that are conducted by the participants
without the creation of a separate legal entity for the arrangement and
clarifies, among other things, how to determine whether a collaborative
arrangement is within the scope of this issue. EITF Issue No. 07-1 is
effective for financial statements issued for fiscal years beginning after
December 15, 2008. The adoption of EITF Issue No. 07-1 did not have a
significant impact on our financial statements.
 
 NOTE
3 – ACCOUNTS RECEIVABLE
 
 Accounts
receivable as of March 31, 2009, consist of the following:
 
 Trade
      receivables
                            
                            $
                            97,977
 
 NOTE
4 - INVENTORIES
 
 Inventories
at March 31, 2009 consist of the following:
 
 Finished
      goods
                          
                          $
                          74,943
 
 Inventories
consist of sensors and other parts used in the Company’s bridge testing
operations.
  8
 Table of Contents
 MATECH
CORP
 (A
DEVELOPMENT STAGE COMPANY)
 
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
 For
the three months ended March 31, 2009 and 2008
  NOTE 5 – PROPERTY AND
EQUIPMENT
 
 Property
and equipment at March 31, 2009 consisted of the following:
 
 Office
      and computer equipment
                                    
                                    $
                                    27,645Manufacturing
      equipment
                                    
                                    
                                    243,121270,766Less
      accumulated depreciation
                                    
                                    
                                    (199,214
                                    )$
                                    71,552
 
 Depreciation
charged to operations for the three months ended March 31, 2009 and 2008 amount
to $19,650 and $5,041, respectively.
 
 NOTE 6 – INTANGIBLE
ASSETS
 
 Intangible
assets consist of the following at March 31, 2009:
  Period
      of

                                    AmortizationPatent
      costs
                                  17
      years
                                  
                                  $
                                  28,494License
      agreement (see Note 7)
                                  17
      years
                                  
                                  
                                  6,250Website
                                  5
      years
                                  
                                  
                                  5,20039,944Less
      accumulated amortization
                                  
                                  
                                  
                                  (38,449
                                  )$
                                  1,495
 
 Amortization
charged to operations for the three months ended March 31, 2009 and 2008 was
$269, and $269, respectively.
 
 Estimated
amortization expense for remaining life of the intangible
assets is as follows:
 
 2009
                      
                      $
                      1,0762010
                      
                      $
                      419
 
 
  9
 Table of Contents
 MATECH
CORP
 (A
DEVELOPMENT STAGE COMPANY)
 
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
 For
the three months ended March 31, 2009 and 2008
  NOTE 7 – LICENSE
AGREEMENTS
 
 University of
Pennsylvania
 
 In 1993,
the Company has entered into a license agreement with the University of
Pennsylvania (the “University”) for the development and marketing of
EFS.
 
 Under the
terms of the agreement, the Company issued to the University 1 share of its
common stock, and a 5% royalty on sales of the product.  The Company valued
the license agreement at $6,250.  The license terminates upon the
expiration of the underlying patents, unless sooner terminated as provided in
the agreement.  The Company is amortizing the license over 17
years.
 
 In
addition to the license agreement, the Company also agreed under a modified
workout agreement relating to a prior sponsorship agreement to pay the
University, retroactive to January 1, 2005, the balance of $760,831, which
accrues interest at a monthly rate of 0.5% simple interest.  The Company is
obligated to pay $25,000 annually due on the anniversary date of the Workout
Agreement.  Further, the Company is also obligated to pay within ten days
following the filing of the Company’s Forms 10-QSB or 10-KSB an amount equal to
10% of the Company’s operating income (as defined) as reflected in the quarterly
and annual filings.  Under the revised terms of the Workout Agreement, the
Company’s CEO’s annual cash salary is capped at $250,000.  The Company
agreed to pay the University an amount equal to any cash salary paid to Mr.
Bernstein in excess of the $250,000, which will be credited against the balance
of the amounts due under the agreement.
 
 Interest
expense charged to operations during the three months ended March 31, 2009 and
2008 amounted $9,407 and $3,679, respectively.  The balance of the
obligation (including accrued interest) at March 31, 2009 was $$812,956and is
reflected in research and development sponsorship payable in the accompanying
condensed consolidated balance sheet.  The current portion represents the
minimum annual payment under the Workout Agreement, while the remaining balance
is reflected as non-current as the Company does not expect to be required to
make additional payments during the next twelve months.
  North Carolina Agricultural
and Technical State University (“NCAT”)
 
 The
Company acquired this sublicense in its purchaseof Monitoring.
 The license allows the Company to utilize technology covered through two
patents licensed to NCAT.  Under the license, the Company is required to
support collaborative research under the direction of the actual inventor of the
patented processes and to deliver to NCAT within three months of the effective
date of the license a report indicating the Company’s plans for commercializing
the subject technology.
  10
 Table of Contents
 MATECH
CORP
 (A
DEVELOPMENT STAGE COMPANY)
 
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
 For
the three months ended March 31, 2009 and 2008
  In
partial consideration for the license, the Company must pay to NCAT a royalty
equal to 3.5% of net sales of licensed products sold by the Company, its
affiliates and from sublicensees.  In the case of sub-licensees, the
Company must pay NCAT 25% of any income, revenue, or other financial
consideration received on any sublicense including but not limited to, advance
payments, license issue fees, license maintenance fees, and option fees. 
Minimum royalties are due as follows:
  Year
beginning
 
 August
      2, 2009
                    
                    $
                    30,000August
      2, 2010
                    
                    $
                    30,000August
      2, 2011 and each year thereafter
                    
                    $
                    50,000
 
 The
license remains in full force for the life of the last-to-expire patent.
 The license can be terminated by the Company by giving 90-day written
notice and thereupon stop the manufacturing, use, or sale of any
product developed under the license.  In addition, the license
terminates if the Company defaults under the royalty provisions of the license
or files for bankruptcy protection.
 
 The
Company abandoned the license in early 2009 and dissolved Monitoring in March
2009.
 
 ISIS Innovation Limited
(“ISIS”)
 
 In the
2007 acquisition of SATI, the Company acquired a license to develop and market
the patented process known as “X-Ray diffraction method”. Under the terms of the
exclusive license with ISIS Innovation Limited, the licensor was granted back
the right to utilize the process on a perpetual, royalty-free basis. The
licensee is responsible for all costs associated with maintaining and protecting
the patent. In the case of sub-licensees, the Company must pay ISIS 25% of any
income, revenue, or other financial consideration received on any sublicense
including but not limited to, advance payments, license issue fees, license
maintenance fees, and option fees. In
addition, a 2.5% royalty on net sales is due with minimum royalties as
follows:
  Year
beginning
 
 January
      29, 2010
                    
                    $
                    21,000January
      29, 2011
                    
                    $
                    32,000January
      29, 2012
                    
                    $
                    42,000
  The
Company abandoned the license in early 2009 and dissolved SATI in March
2009.
 
 11
 Table of Contents
 MATECH
CORP
 (A
DEVELOPMENT STAGE COMPANY)
 
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
 For
the three months ended March 31, 2009 and
2008
  Iowa State University
Research Foundation (“ISURF”)
 
 In the
2007 acquisition of NATI, the Company acquired a license to develop and market
the patented process known as “Nondestructive evaluation and stimulate
industrial innovation”. Under the terms of the non-exclusive license with ISURF,
the Company is required to develop products for sale in the commercial market
and to provide ISURF with a development plan and bi-annual development report
until the first commercial product sale. The Company has the right to sublicense
the patented process to third companies, but is required to pay a royalty fee of
25% of amounts earned by the Company under the sublicenses. For each product
sold under the license, the Company is required to pay ISURF a royalty equal to
3% of the selling price with the following minimum royalty
payments:
  Year
beginning
  January
      1, 2009
                    
                    $
                    10,000January
      1, 2010
                    
                    $
                    20,000January
      1, 2011 and each year thereafter
                    
                    $
                    30,000
 
 The
Company abandoned the license in October 2008 and dissolved NATI in March
2009.
  NOTE 8 – NOTES
PAYABLE
 
 On May
27, 1994, the Company borrowed $25,000 from a shareholder.  The loan is
evidenced by a promissory note bearing interest at 6.5 percent.  The note
is secured by the Company’s patents and matured on May 31, 2002.  The loan
has not been paid and is now in default.  As additional consideration for
the loan, the Company granted to the shareholder a 1% royalty interest in the
Fatigue Fuse and a 0.5% royalty interest in EFS (see Note 10).  The balance
due on this loan as of March 31, 2009 was $58,790.  Interest charged to
operations during the three months ended March 31, 2009 and 2008 was $406 and
$406, respectively.
 
 On April
28, 2003, the Company borrowed $10,000 from an unrelated third party.  The
loan is unsecured, non-interest bearing and due on demand.
 
 On March
5, 2007, the Company borrowed $200,000 from a shareholder. The loan is evidenced
by an unsecured promissory note which is assessed interest at an annual rate of
8%. The note
  12
 Table of Contents
 MATECH
CORP
 (A
DEVELOPMENT STAGE COMPANY)
 
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
 For
the three months ended March 31, 2009 and
2008
  matured
on March 5, 2009 when the principal and accrued interest became fully due and
payable. The loan and accrued interest was not paid by the due date and the
Company is in default under the terms of the note. The balance of the loan
including accrued interest at March 31, 2009 is $235,718.  Interest
charged to operations during the three months ended March 31, 2009 and 2008 was
$4,560 and $4,258, respectively.
 
 NOTE 9 – CONVERTIBLE
DEBENTURES
 
 Palisades
 
 On
September 23, 2003, the Company entered into a Class A Secured Convertible
Debenture (the “Debentures”) with Palisades, pursuant to which Palisades agreed
to loan the Company up to $1,500,000.  On December 1, 2003, after Palisades
had funded $240,000 of the original Debentures, the Company entered into
additional Class A Secured Convertible Debentures with two additional investors,
pursuant to which such investors would loan the Company up to $650,000 each, and
the Company agreed that Palisades would not make additional advances under the
Debentures.  The Company received a total of $1,125,000 under the
Debentures. The debentures and accrued interest were fully due and payable in
November 2008.
 
 Effective
June 16, 2008, the Company and Investor Group (“Palisades’) entered into
Settlement Agreement and General Release whereby Palisades agreed to extend the
maturity date of the convertible debentures to December 31, 2009. Under the
modified terms of the underlying Notes, the Company is required to make minimum
monthly interest payments totaling $10,000, the first payment being made in
August 2008.  Under the settlement and related escrow agreement, the
Company is required to deposit a number of shares equal to 9.99% of its issued
and outstanding Class A Common Stock into a brokerage account in the name of
Agent at a firm to be determined from time to time by Agent.  The
Company also agreed to modify the terms of the notes to include the following
restrictions:
 
 ·
              If
      an Event of Default occurs under the Notes, and, if such Event of Default
      is curable, such Event of Default continues for a period of 30 days
      without being cured, then the 10% interest rate set forth in the Notes
      will be increased to a Default Interest Rate of 18% per annum, and the
      total balance of principal and accrued interest of the debentures shall
      bear interest at the Default Interest Rate from the date of the occurrence
      of such Event of Default.
 
 ·
              In
      addition, the entry of any judgment against the Company in excess of
      $150,000, regardless of where, how, to whom or under what agreement such
      liability arises, shall be an Event of Default under the Debentures,
      unless (i) the Company pays such judgment within 60 days, or (ii) the
      Company duly files an appeal of such judgment and execution of such
      judgment is stayed.  Finally, the entry of any order or judgment
      in favor of any judgment
      creditor or other creditor attaching the assets of the Company shall be an
      Event of Default under these debentures.  The conversion price
      of the debentures shall not be at any time more than $0.10 per share,
      regardless of any combination of shares of the Common Stock of the Company
      by reverse split or
otherwise.
  13
 Table of Contents
 MATECH
CORP
 (A
DEVELOPMENT STAGE COMPANY)
 
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
 For
the three months ended March 31, 2009 and 2008
  ·
              If
      an Event of Default occurs which is not cured within its applicable cure
      period, if it is curable, the conversion price of these debentures after
      such cure period has expired shall be reduced to half of the pre-Event of
      Default conversion price.  For clarification, if the conversion
      price before an Event of Default were the lesser of 50% of market price or
      $0.10, then the new conversion price would be the lesser of 25% of market
      price or $0.05.
 
 ·
              The
      Company shall not issue any shares of its Class A Common Stock without a
      legend stating that such shares may not be sold, transferred, pledged,
      assigned or alienated for a period of at least one year following the date
      of the issuance of such certificate, other than shares issued to or with
      the written consent of the Holder.  Notwithstanding the
      foregoing, this provision shall not apply to (i) any shares issued to
      purchasers in a financing where the Company receives net proceeds of at
      least Five Hundred Thousand Dollars ($500,000) and the shares are sold for
      not less than fifty percent (50%) of the closing price of the Company’s
      common stock reported as of the closing date of such financing, and (ii)
      any shares issued in connection with an acquisition of assets by the
      Company where (a) the Company provides to the Holder a fairness opinion as
      to the value of the acquired assets, and (b) the Company receives assets
      that are worth at least fifty percent (50%) of the closing price per share
      of the Company’s common stock as of the closing date of the
      acquisition.
 
 ·
              The
      Company shall not enter into any agreement pursuant to which any party
      other than the Holder has pre-emptive rights, the right to receive shares
      of any class of securities of the Company for no additional consideration,
      the right to receive a set, pre-determined percentage of the outstanding
      shares of the Company for any period of time, or any other similar right
      that has the effect of maintaining a set percentage of the issued and/or
      outstanding shares of any class or classes of the capital stock of the
      Company.
 
 ·
              The
      Company shall not enter into any agreement giving another party
      anti-dilution protection unless (1) all shares received pursuant to such
      provision are subject to a two-year lock-up from the date of issuance, and
      (2) all such shares received are subject to a “dribble-out,” following the
      two-year lock-up, restricting their sale to not more than 1/20th
      of 5% of the previous month’s total trading volume in any single trading
      day.
 
 ·
              The Company will not
      file any Registration Statement on Form S-8 nor issue any shares
      registered on Form S-8, exclusive of shares currently registered on Form
      S-8.  However, when the total capital in the Company’s cash
      account drops below $500,000, the Company may issue up to $30,000 worth of
      securities registered on Form S-8, valued at
  14
 Table of Contents
 MATECH
CORP
 (A
DEVELOPMENT STAGE COMPANY)
 
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
 For
the three months ended March 31, 2009 and
2008
  ·
              the
      market price of the common stock on the date of issuance, per month,
      non-cumulative.  Any issuance of S-8 shares will be supported by
      an opinion of the Company’s counsel that such issuance complies in all
      respects with federal securities laws.  This opinion will be
      provided to the legal representative of the Holder upon
      request.  Further, the Company will ensure that every entity or
      individual that receives S-8 shares will be subject to a “dribble-out”
      restricting their sale to not more than 1/20th
      of 2% of the previous month’s total trading volume in any single trading
      day, non-cumulative.  The above described dribble-out is not an
      aggregate sale restriction for all entities and individuals receiving S-8
      shares.
 
 ·
              The
      Company acknowledges that the conversion price of the Debenture shall not
      be effected by any such reverse split, and that after giving effect to
      such reverse split, the conversion price shall remain the lesser of (i)
      50% of the averaged ten closing prices for the Company’s Common Stock for
      the ten trading days immediately preceding the Conversion Date or (ii)
      $0.10.  The Holder consents to this action.  The
      parties acknowledge that the Company is not obligated to complete this
      reverse-split, or any reverse
split.
 
 ·
              The
      shareholder lockup provisions will not apply to up to any shares held by
      Mr. Robert Bernstein, and sold by him personally in a bona-fide sale to an
      unrelated, unaffiliated third party; provided, that (i) the number of
      shares sold shall not exceed Two Million Five Hundred Thousand Dollars
      ($2,500,000) worth of stock, calculated based on the number of shares sold
      multiplied by the closing price of the stock on the date such shares are
      sold (if a market trade) or transferred on the books of the transfer agent
      (if a private transfer).  Once Two Million Five Hundred Thousand
      Dollars ($2,500,000) worth of stock has been sold as calculated above, the
      lockup on whatever remains of the shares owned by Mr. Bernstein (if
      any) goes back into effect.  In this regard, if Mr. Bernstein
      sells any of his shares without legend, then he may only sell up to 1/20th
      of 5% of the previous month’s total trading volume in any single trading
      day, and he may not sell more than 1% of the issued and outstanding shares
      of Matech during any 90 day period.  Further, if Mr. Bernstein sells
      any of his shares, he must have such shares transferred on the books of
      the transfer agent within five business days of the sale.  Mr.
      Bernstein shall comply with all reporting requirements under Section 16 of
      the Securities Exchange Act of 1934, as
amended.
 
 As
further consideration for the Note Holders to extend the maturity date of the
debentures and to enter into the Settlement Agreement, the Company agreed to pay
an extension fee and a settlement fee totaling $554,910, which was added to the
outstanding balance of the debentures
  15
 Table of Contents
 MATECH
CORP
 (A
DEVELOPMENT STAGE COMPANY)
 
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
 For
the three months ended March 31, 2009 and
2008
  as of
June 16, 2008 and grant the holders warrants to purchase 35,000,000 shares of
the Company’s Class A common stock at an exercise price of the lesser of (i)
$0.001 per share, or (ii) 50% of market price   The warrants
expire on October 16, 2016. Payment of the warrant price may be in cash or
cashless, at the option of the warrant holder.
 
 The Company accounted for
the modification of the convertible debt pursuant to EITF 96-19 “Debtor's
Accounting for a Modification or Exchange of Debt Instruments” and recognized a
loss on the modification of $964,730 that was charged to
operations.
 
 Further,Per EITF
00-19, paragraph 4, these convertible debentures do not meet the definition of a
“conventional convertible debt instrument” since the debt is not convertible
into a fixed number of shares.  The debt can be converted into common stock
at a conversion price that is a percentage of the market price; therefore, the
number of shares that could be required to be delivered upon “net-share
settlement” is essentially indeterminate.  Therefore, the convertible
debenture is considered “non-conventional,” which means that the conversion
feature must be bifurcated from the debt and shown as a separate derivative
liability. The Company recognized a derivative liability of $4,254,301 on June
16, 2008, with an offset to debt discount in the same amount.
 
 In
addition, since the convertible debenture is convertible into an indeterminate
number of shares of common stock, it is assumed that the Company could never
have enough authorized and unissued shares to settle the conversion of the
warrants into common stock.  Therefore, the warrants issued in connection
with this transaction are also shown as a derivative liability.
 
 In
connection with the settlement agreement, the Company entered into a consulting
agreement with an affiliate of the debenture holders for a term commencing on
May 1, 2008 and terminating no earlier than May 1, 2010. For the duration of the
agreement, the Consultant agrees to assist the Company with implementing the
Company’s business plan, assist it in identifying, analyzing, structuring and
negotiating acquisitions and related activities. Under the terms of the
consulting agreement, the Company agreed to pay a fee of $20,000 per month and
reimburse the Consultant for reasonable expenses it incurred relating to the
Company’s business. As further consideration, the Company granted warrants to
the consultant to purchase 5,000,000 shares of the Company’s Class A common
stock at an exercise price of the lesser of (i) $0.10 per share, or (ii) 50% of
market price   The warrants expire on October 16, 2013. Payment
of the warrant price may be in cash or cashless, at the option of the warrant
holder. The warrant shares are stated after giving effect to a one for
one-thousand reverse stock split completed in October 2008.
 
 During
the three months ended March 31, 2009, the holders advanced an additional
$150,000 that was added to principal and increased principal for monthly
consulting fees totaling $60,000. Also during the three months period, the
Company issued 6,000,000 shares of its Class A common stock
through the conversion of $600,000 of indebtedness. The Company failed to pay
the required interest payments due for the three months ended March 31,
2009.
  16
 Table of Contents
 MATECH
CORP
 (A
DEVELOPMENT STAGE COMPANY)
 
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
 For
the three months ended March 31, 2009 and 2008
  The
balance of the Debenture, including accrued interest, at March 31, 2009 was
$2,301,803 (net of unamortized discount of $1,684,078). Interest charged to
operations on
the face amount of the debentures for the three months ended March 31,
2009 and 2008 was $99,264 and $71,717. Amortization expense of the discount also
charged to operations as interest expense for the three months ended March 31,
2009 and 2008 amounted to $903,214 and $326,392, respectively.
 
 At March
31, 2009, the fair value of the derivative liabilities relating to the above
indicated convertible debt amounted to $91,675,264.
 
 Mitchell
 
 On April
25, 2008, the Company borrowed $55,000 from an individual in exchange for
issuing a convertible promissory note. The note is assessed interest at an
annual rate of 4.71%. Principal and accrued interest is fully due and payable on
April 25, 2011. Until the note and accrued interest are fully paid, the lender
has the right to convert the amount due him into shares of the Company’s Class A
common stock equaling 3.5% of the shares outstanding on date of
conversion.
 
 As the
number of shares that could be required to be delivered upon “net-share
settlement” is essentially indeterminate, the convertible debenture must be
bifurcated from the debt and shown as a separate derivative liability. The
Company recognized a beneficial conversion feature of $28,140 and a derivative
liability of $31,658 at June 30, 2008.
 
 The
balance of the Debenture, including accrued interest, at March 31, 2009 was
$38,051(net of unamortized discount of $19,402).  Interest charged to
operations for the three months ended March 31, 2009 and 2008 amounted to $660
and $0, respectively. The beneficial conversion feature is treated as a discount
against the face amount of the debt and is amortized into interest expense over
the term of note. Amortization expense on the discount charged to operations for
the three months ended March 31, 2009 and 2008 amounted to $2,313and $0,
respectively
 
 At March
31, 2009, the fair value of the derivative liabilities relating to the above
indicated convertible debt amounted to $2,742,019.
  Kruetzfield
 
 In July 2008, the Company
entered into a financing agreement to borrow a total of $1,000,000 through the
issuance of a convertible note. Interest accrues on the outstanding loan balance
at an annual rate of 10% per annum. Principal is due on the maturity date with
accrued interest due quarter; however,  the Company has the right to
defer interest payments until the maturity date so long as it does not have
positive
  17
 Table of Contents
 MATECH
CORP
 (A
DEVELOPMENT STAGE COMPANY)
 
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
 For
the three months ended March 31, 2009 and 2008
  earnings  before
interest, taxes, depreciation and amortization (“EBITDA”).  The
maturity date of the note is December 31, 2011.  The balance owed on
the note, including accrued interest, is convertible at the election of the
holder into so many free trading shares of the Company’s common stock based upon
a conversion price of the lesser of (i) 50% of the averaged ten closing prices
for the Company’s common stock for the ten (10) trading days immediately
preceding the conversion date or (ii) $0.10.  The Company is required
to reserve the number of  free trading shares of Common Stock required
pursuant to and upon the terms set forth in the Subscription Agreement
(approximately 100,000,000 shares), to permit the conversion of this Debenture.
The Company has pledged significantly all of its assets as collateral on this
loan.
 
 As the
number of shares that could be required to be delivered upon “net-share
settlement” is essentially indeterminate, the convertible debenture must be
bifurcated from the debt and shown as a separate derivative liability. The
Company recognized a beneficial conversion feature of $715,266 and a derivative
liability of the same amount upon receipt of the loan.
 
 The
balance of the Debenture, including accrued interest, at March 31, 2009 was
$524,716 (net of unamortized discount of $540,075).  Interest charged to
operations on the debenture for the three months ended March 31, 2009 and 2008
amounted to $25,345 and $0, respectively. The beneficial conversion feature is
treated as a discount against the face amount of the debt and is amortized into
interest expense over the term of note. Amortization expense on the discount
charged to operations for the three months ended March 31, 2009 and 2008
amounted to $28,615 and $0, respectively.
 
 The
Company incurred loan fees in connection with obtaining the loan totaling
$180,000 that is being amortized into interest expense over the term of the
note. The amount charged to interest expense during the three months ended March
31, 2009 and 2008 amounted to $89,389 and $0. The unamortized balance of
deferred loan fees is reflected on the balance sheet as an asset and its balance
as of March 31, 2009 amounted to $144,880.
 
 At March
31, 2009, the fair value of the derivative liability was
$24,490,192.
  NOTE
10 – COMMITMENTS AND CONTINGENCIES
 
 Royalties
 
 A summary
of royalty interests that the Company has granted and are outstanding as of
March 31, 2009 follows:
  18
 Table of Contents
 MATECH
CORP
 (A
DEVELOPMENT STAGE COMPANY)
 
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
 For
the three months ended March 31, 2009 and
2008
  Fatigue Fuse
                          
                          EFSUniversity
      of Pennsylvania (see Note 7)Net
      sales of licensed products
                          -
                          
                          7.00%Net
      sales of services
                          -
                          
                          2.50%Shareholder
                          1.00%
                          
                          0.50%
 
 Litigation
 
 GEM
 
 The
Company has also been named as a defendant in a lawsuit alleging breach of
contract due to the Company’s failure to pay certain amounts due to a consultant
for services.  The Company settled with the plaintiff in October 2008.
Under the terms of the settlement, the Company agreed to pay $250,000 with a
down payment of $15,000 due by November 30, 2008. The remaining balance is
payable in monthly installments of $5,000. In addition, the Company is required
to pay the Plaintiff a percentage of any net sums/dollars received by the
Company for any equity or debt instrument, including sale by Robert Bernstein of
his stock, as follows to reduce the $250,000 settlement amount:
 
 5% up to
the first 2 million dollars
 4% for
$2,000,001 to $4,000,000
 3% over
$4,000,000
 
 In the
event the Company is determined to be in default under the settlement agreement,
it is required to pay the plaintiff $250,000 less any amounts already paid, plus
10% interest on the remaining amount of the $250,000 settlement (commencing
October 7, 2008 to the date of default), plus $36,000 as a penalty. At September
30, 2008, the Company valued the obligation at its fair value of $222,852, based
upon the present value of the required future cash flows using an annual
interest rate of 6%. The balance of the obligation at March 31, 2009 amounted to
$198,026. Interest charged to operations during the three months ended March 31,
2009 and 2008 relating to this obligation amounted to $3,015 and $0,
respectively.
  Maturities
of the obligation are as follows:
  19
 Table of Contents
 MATECH
CORP
 (A
DEVELOPMENT STAGE COMPANY)
 
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
 For
the three months ended March 31, 2009 and 2008
  2010
                          
                          $
                          54,7722011
                          
                          
                          52,8422012
                          
                          
                          56,1012013
                          
                          
                          34,311$
                          198,026
 
 In the
ordinary course of business, the Company may from time to time be involved in
other various pending or threatened legal actions.  The litigation process
is inherently uncertain and it is possible that the resolution of such matters
might have a material adverse effect upon its financial condition and/or results
of operations.  However, in the opinion of its management, matters
currently pending or threatened against the Company are not expected to have a
material adverse effect on its financial position or results of
operations.
 
 Indemnities and
Guarantees
 
 During
the normal course of business, the Company has made certain indemnities and
guarantees under which it may be required to make payments in relation to
certain transactions.  These indemnities include certain agreements with
the Company’s officers under which the Company may be required to indemnify such
person for liabilities arising out of their employment relationship.  They
also include indemnities made to the holders of the convertible debentures, Mr.
Beck, with regards to his settlement with the Company, and the sellers of
investments in securities.  The duration of these indemnities and
guarantees varies, and in certain cases, is indefinite.  The majority of
these indemnities and guarantees do not provide for any limitation of the
maximum potential future payments the Company would be obligated to make. 
Historically, the Company has not been obligated to make significant payments
for these obligations and no liability has been recorded for these indemnities
and guarantees in the accompanying consolidated balance sheet.
 
 NOTE 11 – EMPLOYEE BENEFIT
PLAN
 
 On
December 14, 2007, the Company adopted a 401k retirement plan for its employees.
To be eligible to participate in the plan, an employee must be at least 21 years
for age and work for the Company for six consecutive months. Company
contributions and employee match are discretionary. During the three months
ended March 31, 2009, the Company did not contribute to the plan.
    20
 Table of Contents
 MATECH
CORP
 (A
DEVELOPMENT STAGE COMPANY)
 
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
 For
the three months ended March 31, 2009 and
2008
  NOTE 12–STOCKHOLDERS' EQUITY
 
 Class A Preferred
Stock
  The
holders of the Class A convertible preferred stock have a liquidation preference
of $720 per share.  Such amounts shall be paid on all outstanding Class A
preferred shares before any payment shall be made or any assets distributed to
the holders of the common stock or any other stock of any other series or class
ranking junior to the shares as to dividends or assets.
  These
shares are convertible to shares of the Company's common stock at a conversion
price of $0.72 (“initial conversion price”) per share of Class A preferred stock
that will be adjusted depending upon the occurrence of certain events.  The
holders of these preferred shares shall have the right to vote and cast that
number of votes which the holder would have been entitled to cast had such
holder converted the shares immediately prior to the record date for such
vote.  The holders of these shares shall participate in all dividends
declared and paid with respect to the common stock to the same extent had such
holder converted the shares immediately prior to the record date for such
dividend.
 
 Class B Preferred
Stock
 
 The
Company has designated 15 shares of Class B preferred stock, of which no shares
have been issued.  The holders of Class B preferred shares are entitled to
a liquidation preference of $10,000 per share.  Such amounts shall be paid
on all outstanding Class B preferred shares before any payment shall be made or
any assets distributed to the holders of common stock or of any other stock of
any series or class junior to the shares as to dividends or assets, but junior
to Class A preferred shareholders.  Holders of Class B preferred shares are
not entitled to any liquidation distributions in excess of $10,000 per
share.
 
 The
shares are redeemable by the holder or the Company at $10,000 per share. 
The holders of these shares shall have the right to vote at one vote per Class B
preferred share and shall participate in all common stock dividends declared and
paid according to a formula as defined in the series designation.
 
 Class
C Preferred Stock
  Each shareholder of Class
C preferred stock is entitled to receive a cumulative dividend of 8% per annum
for a period of two years.  Dividends do not accrue or are payable except
out of earnings before interest, taxes, depreciation and amortization.  At
March 31, 2009, no dividends are payable to Class C preferred
shareholders.  Holders of the Class C preferred stock are junior to holders
of the Company’s Class A and B preferred stock, but hold a higher
  21
 Table of Contents
 MATECH
CORP
 (A
DEVELOPMENT STAGE COMPANY)
 
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
 For
the three months ended March 31, 2009 and
2008
  position
than common shareholders in terms of liquidation rights.  Holders of Class
C preferred stock have no voting rights.  Holders of Class C preferred
stock have the right to convert their shares to common stock on a 300-to-1
basis.
 
 The
Company requires an approval of at least two-thirds of the holders of Class C
preferred shareholders to alter or change their rights or privileges by way of a
reverse stock split, reclassification, merger, consolidation or otherwise, so as
to adversely affect the manner by which the shares of Class C preferred stock
are converted into common shares. As of March 31, 2009, there were 1,517 shares
of Class C Preferred Stock outstanding.
 
 Class D Preferred
Stock
 
 Holders
of Class D preferred stock have a $0.001 liquidation preference, no voting
rights and are junior to holders of all classes of preferred stock but senior to
common shareholders in terms of liquidation rights.  Class D preferred
stockholders are entitled to dividends as declared by the Company’s Board of
Directors, which have not been declared as of March 31, 2009.  Holders of
Class D preferred stock have the right to convert their shares to common stock
on a 300-to-1 basis. As of March 31, 2009, there were no Class D Preferred
shares outstanding.
 
 Class E Convertible
Preferred Stock
 
 On
January 26, 2007, the Company amended its certificate of incorporation by filing
a certificate of designation of rights, preferences, privilege and restrictions
of the Company’s new created Class E convertible preferred stock.  The
Company has authorized 60,000 shares, each with an original issue price of
$19.50 per share.  In each calendar quarter, the holders of the then
outstanding Class E Convertible Preferred Stock shall be entitled to receive
non-cumulative dividends in an amount equal to 5% of the original purchase price
per annum. All dividends may be accrued by the Corporation until converted into
common shares. After one year from the issuance date, the holders of Class E
convertible preferred stock have the right to convert the preferred shares held
into shares of the Company’s common stock at the average closing bid price of
the ten days prior to the date of conversion. Class E Preferred Shares have no
liquidation preference, and has ten votes per share.
 
 In connection with the
acquisition of SATI, the Company issued 50,000 shares of Class E convertible
preferred which were valued at the shares original purchase price of $19.50 per
share. The Company also issued an additional 5,000 shares to a consultant in
connection with the SATI acquisition, which were valued at $97,500 and charged
to equity as costs of the offering. As of March 31, 2009, there were 49,250
shares of Class E Preferred Stock outstanding.
  22
 Table of Contents
 MATECH
CORP
 (A
DEVELOPMENT STAGE COMPANY)
 
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
 For
the three months ended March 31, 2009 and 2008
  Class A Common
Stock
 
 The
holders of the Company's Class A common stock are entitled to one vote per share
of common stock held.
 
 During
the three months ended March 31, 2009, the Company issued 8,007,327 shares of
its common stock.
 
 From time
to time, the Company issues its common shares and holds the shares in escrow on
behalf of another party until consummation of certain transactions.  The
following is a reconciliation of shares issued and outstanding as of March 31,
2009:
  Issued
      shares
                          
                          
                          107,416,290Less
      shares held in escrow:Shares
      issued to the Company and held in escrow
                          
                          
                          (76,569,169
                          )Outstanding
      shares
                          
                          
                          30,847,121
 
 Class B Common
Stock
 
 The
holders of the Company's Class B common stock are not entitled to dividends, nor
are they entitled to participate in any proceeds in the event of a liquidation
of the Company.  However, the holders are entitled to 600,000 votes for
each share of Class B common stock held. As of March 31, 2009, there were
600,000 shares of Class B Common Stock outstanding
 
 Common Shares Issued for Non
Cash Consideration
 
 The value
assigned to shares issued for services were charged to operations in the period
issued.
 
 During the three months
ended March 31, 2009, the Company issued 8,007,327 shares of its Class A common
stock of which 1,550,000 were placed in escrow and considered issued but not
outstanding.. Of the remaining 6,457,327, 6,000,000 shares were issued in the
conversion of $600,000
convertible debt, 183,327 shares for consulting and other services valued at
$568,317, and 274,000 shares issued to its President on the cashless exercise of
274,347 options. 
 Stock
Options
  During 2008, the Company
granted options to two consultants to purchase 15,390,546 shares of the
Company’s common stock at  an exercise price of $0.025 per share. The
Consultants’ option agreement allow for cashless exercises. Also in 2008, the
Company granted options to its President to purchase 30,000,000 shares at an
exercise price of $.011 per share. The President’s option agreement also allows
for cashless exercises and in 2009, the President
  23
 Table of Contents
 MATECH
CORP
 (A
DEVELOPMENT STAGE COMPANY)
 
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
 For
the three months ended March 31, 2009 and
2008
  exercised
274,347 options for the purchase of 270,000 shares. The Company deemed these
options to purchase the remaining 45,116,199 shares to be derivatives based upon
their terms pursuant to EITF 00-19 “Accounting for Derivative Financial
Instruments Indexed to, and Potentially Settled in, a Company's Own Stock”. At
March 31, 2009, the Company recorded a derivative liability on these options
totaling $111,585,059.
 
 Stock
Warrants
 
 As
discussed in Note 9. the Company issued warrants to purchase 35,000,000 shares
of its common stock to Palisades at $0.001 per share and warrants to a
consultant to purchase 5,000,000 shares a $0.10 per share. Warrant agreements on
both grants allow for cashless exercises. The Company deemed these warrants to
purchase the 40,000,000 shares to be derivatives based upon their terms pursuant
to EITF 00-19 “Accounting for Derivative Financial Instruments Indexed to, and
Potentially Settled in, a Company's Own Stock”. At March 31, 2009, the Company
recorded a derivative liability on these options totaling
$98,950,014.
 
 The
following table summarizes the warrants and options outstanding at March 31,
2009:
 
 WeighedOptions/
                                    
                                    
                                    AverageWarrants
                                    
                                    
                                    ExerciseOutstanding
                                    
                                    
                                    PriceBalance
      – December 31, 2008
                                    
                                    
                                    112,640,746
                                    
                                    
                                    $
                                    0.05Granted
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -Exercised
                                    
                                    
                                    (274,347
                                    )
                                    
                                    $
                                    (.011
                                    )Forfeited
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -Balance
      – March 31, 2009
                                    
                                    
                                    112,366,399
                                    
                                    
                                    $
                                    0.05
  NOTE
13 – RELATED PARTY TRANSACTIONS
  During the three months
ended March 31, 2009, the Company’s President advanced the Company $50,000. The
Company adjusted the President’s loan account for expenses incurred by
  24
 Table of Contents
 MATECH
CORP
 (A
DEVELOPMENT STAGE COMPANY)
 
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
 For
the three months ended March 31, 2009 and
2008
  the
Company on behalf of the President totaling $27,820. As of March 31, 2009, the
Company owed $12,768 to its President.
 
 As
indicated in Note 12, during the three months ended March 31, 2009, the Company
issued 274,000 shares of its common stock to its President on the cashless
exercise of 274,347 options.
 
 On
November 21, 2006, the Company entered into a stock grant and general release
agreement with the Company’s CEO, for the purpose of showing the Company’s
appreciation for the CEO’s work over the past several years.  Under
the agreement, the CEO was issued 30,000,000 shares of the Company’s Class A
common stock, restricted in accordance with Rule 144, and subject to forfeiture
back to the Company in accordance with the terms of the agreement, if he is not
employed by the Company for 3 years from the date of the
agreement.  Additionally under the terms of the agreement, the CEO has
released the Company from any and all claims he may have against the Company for
any monies owed to him as of the date of the agreement.  The value
assigned to the shares issued to the CEO has been determined to be $180,000,000
based on the Company’s trading price of the shares on date of
issuance.  The value will be recorded as additional compensation
expense over the 36 month term of the agreement.  During the three
months ended March 31, 2008, the Company charged to operations $15,000,000. The
30,000,000 shares were returned to the Company for cancelation in April
2008.
  NOTE 14 – FAIR
VALUE
  The
Company adopted Statement of Financial Accounting Standard No. 157, Fair Value
Measurements (“SFAS 157”), to measure the fair value of certain of its financial
assets required to be measured on a recurring basis. The adoption of SFAS 157 did
not impact the Company’s consolidated financial position or results of
operations.  SFAS 157 establishes a fair value hierarchy that
prioritizes the inputs to valuation techniques used to measure fair value. The
hierarchy gives the highest priority to unadjusted quoted prices in active
markets for identical assets or liabilities (Level 1 measurements) and the
lowest priority to unobservable inputs (Level 3 measurements).  SFAS
157 defines fair value as the price that would be received to sell an asset or
paid to transfer a liability in an orderly transaction between market
participants on the measurement date. A fair value measurement assumes that the
transaction to sell the asset or
transfer the liability occurs in the principal market for the asset or
liability. The three levels of the fair value hierarchy under SFAS 157 are
described below:  Level
1. Valuations based on quoted prices in active markets for identical assets
or liabilities that an entity has the ability to access.
  The
Company’s Level 1 assets include cash accounts payable and accrued expenses. Due
to the short term maturity of these liabilities, the Company valued them at net
book value.
  Level
2. Valuations based on quoted prices for similar assets or liabilities,
quoted prices for identical assets or liabilities in markets that are not
active, or other inputs that are observable or can be corroborated by observable
data for substantially the full term of the assets or
liabilities.
  25
 Table of Contents
 MATECH
CORP
 (A
DEVELOPMENT STAGE COMPANY)
 
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
 For
the three months ended March 31, 2009 and 2008
  The
Company’s Level 2 assets consist of a derivative and warrant liability. The
Company determines the fair value of its Level 2 assets based upon the trading
prices of its common stock on the date of issuance and when applicable, on the
last day of the quarter. The Company uses the Black-Sholes Option Model in
valuing the fair value of level 2 assets.
  Level 3.
Valuations based on inputs that are supported by little or no market activity
and that are significant to the fair value of the assets or
liabilities.
  The table
below presents a reconciliation for all assets and liabilities measured at fair
value on a recurring basis.
  March 31, 2009

                          Fair
      Value Measurements*Level
      1
                        
                        
                        Level
      2
                        
                        
                        Level
      3
                        
                        
                        Fair
      ValueAssetsCash
                        
                        $
                        219,810
                        
                        
                        $
                        -
                        
                        
                        $
                        -
                        
                        
                        $
                        219,810LiabilitiesAccounts
      payable and accrued expenses
                        
                        $
                        924,170
                        
                        
                        $
                        -
                        
                        
                        $
                        -
                        
                        
                        $
                        924,170Derivative
      and warrant liability
                        
                        $
                        -
                        
                        
                        $
                        329,442,548
                        
                        
                        $
                        -
                        
                        
                        $
                        329,442,548
 
 
   Derivative
      andWarrant
      LiabilityBalance
      – January 1, 2009
                                      
                                      $
                                      210,497,575Total
      realized and unrealized losses included in
      operations
                                      
                                      
                                      118,944,973Balance
      – March 31, 2009
                                      
                                      $
                                      329,442,548
      
  26
 Table of Contents




Item 2.   Management’s Discussion and Analysis of Financial
Condition and Results of Operations


Disclaimer
Regarding Forward Looking Statements
 
 Our
Management’s Discussion and Analysis contains not only statements that are
historical facts, but also statements that are forward-looking (within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934).  Forward-looking statements are, by
their very nature, uncertain and risky.  These risks and uncertainties
include international, national and local general economic and market
conditions; demographic changes; our ability to sustain, manage, or forecast
growth; our ability to successfully make and integrate acquisitions; raw
material costs and availability; new product development and introduction;
existing government regulations and changes in, or the failure to comply with,
government regulations; adverse publicity; competition; the loss of significant
customers or suppliers; fluctuations and difficulty in forecasting operating
results; changes in business strategy or development plans; business
disruptions; the ability to attract and retain qualified personnel; the ability
to protect technology; and other risks that might be detailed from time to time
in our filings with the Securities and Exchange Commission.
 
 Although
the forward-looking statements in this report reflect the good faith judgment of
our management, such statements can only be based on facts and factors currently
known by them.  Consequently, and because forward-looking statements
are inherently subject to risks and uncertainties, the actual results and
outcomes may differ materially from the results and outcomes discussed in the
forward-looking statements.  You are urged to carefully review and consider
the various disclosures made by us in this report and in our other reports as we
attempt to advise interested parties of the risks and factors that may affect
our business, financial condition, and results of operations and
prospects.
 
 Overview
 
 We
research and develop technologies that detect and measure metal
fatigue.  We have developed two products: (1) the Fatigue Fuse; and
(2) the Electrochemical Fatigue Sensor.  We generate very little
revenue from the sale and licensing of our products, and thus we are a
development stage company.
 
 Our
biggest challenge is funding the commercialization of our products until we can
generate sufficient revenue to support our operations.  We try to keep our
overhead low and utilize outside consultants as much as possible in order to
reduce expenses, and thus far we have been successful in raising enough capital
through loans and financing to fund operations.  For the foreseeable
future, we plan to continue to raise capital in this manner.
 
 Our
condensed consolidated financial statements are prepared using the accrual
method of accounting in accordance with accounting principles generally accepted
in the United States of America and have been prepared on a going concern basis,
which contemplates the realization of assets and the settlement of liabilities
in the normal course of business.  We have sustained operating losses since
our inception (October 21, 1983).  In addition, we have used substantial
amounts of working capital in our operations.  Further, at March 31, 2009,
the deficit accumulated during the development stage amounted to approximately
$702,316,656.
 
 In view
of these matters, realization of a major portion of the assets in the
accompanying condensed consolidated balance sheet is dependent upon our ability
to meet our financing requirements and the
  27
 Table of Contents
  success
of our future operations.  During 2007, we received approximately
$4,000,000 in private financing, primarily from the sale of equity and debt
securities.  In 2008, we received approximately $1,055,000 in private
financing, also primarily from the sale of equity and debt
securities.  We plan to continue to raise funds through the sale of
our securities for the foreseeable future.  We have begun marketing
our current technologies while continuing to develop new methods and
applications.  We will need to raise additional capital to finance future
activities and no assurances can be made that current or anticipated future
sources of funds will enable us to finance future operations.  In light of
these circumstances, substantial doubt exists about our ability to continue as a
going concern.  The condensed consolidated financial statements do not
include any adjustments relating to the recoverability and classification of
recorded assets or liabilities that might be necessary should we be unable to
continue as a going concern.
 
 Results
of Operations for the three months ended March 31, 2009 as compared to the Three
Months Ended March 31, 2008 (Unaudited)
 
 Revenues
increased from $1,090 during  2008 to $154,181 during
2009.  This increase was due primarily to an increase of $63,091 in
bridge testing revenues and $90,000 in services fees earned on a contract with a
related party. Management anticipates bridge testing revenues to continue to
increase due to an existing agreement with the Pennsylvania Department of
Transportation, our strategic alignment with Smith Energy Company and our
expanding client base.
 
 Bridge
testing costs of $108,626 were incurred in 2009.   These costs
are associated with the bridge testing revenues totaling $64,181.  No
bride testing costs were incurred in 2008.  The gross loss from bridge
testing was due to the Company providing discounts to its current customers and
higher than projected testing costs. In the past, the Company’s marketing
strategy was to focus on increasing its customer base to have a portfolio of
successful tests to show to new customers. The proceeds received on each
contract was secondary to the Company’s ability to prove its technology at a
commercial level. Further, Management expects and has seen a reduction in the
cost of testing, in part due to better methodology used in manufacturing sensors
and other parts used in the testing process and from past experience in applying
its technology.
 
 Research
and development costs decreased by $74,427 or 46% from $158,993 in 2008 to
$84,566 in 2009.  This decrease was due primarily due to our nearing
the end of the research and development stage on the Electrochemical Fatigue
Sensor
 
 General
and administrative expenses decreased by $19,282,250  to $1,046,075 in
2009 as compared to $20,328,325 in 2008.  This decrease is due
primarily to the following factors: (1) Officer salaries decreased by $15,051,
084 to $74,197 in 2009 as compared to $15,126,000 in 2008.  This
decrease was due primarily to $15,000,000 in stock compensation granted to
officers in 2008. (2) Consulting fees decreased by $4,031,092 to $711,566 in
2009 as compared to $$4,742,670 in 2008.  This was due primarily to
stock valued at $4,480,400 granted to consultants during  2008 as
compared to stock valued at $568,317 granted to consultants in 2009. (3)
Marketing and promotion expense decreased from by $52,839 to $8,231 in 2009
compared to $61,070 in 2008.  This was due to a decrease in marketing
activities in 2009 (4) Legal and accounting expenses decreased by $181,531 to
$61,729 in 2009 as compared to $244,260 incurred in 2008.  This
decrease was due to decreased audit and accounting fees incurred in the first
quarter of 2009 compared to fees incurred during the same three months in
2008.
  28
 Table of Contents
  Interest
expense increased by $795,197 to $1,166,188 in 2009 as compared to $370,991 in
2008.  This  increase was due primarily to amortization of
discounts on convertible debt of $934,142 in 2009 as compared to $339,725 in
2008.
 
 The
change in fair value of derivative and warrant liability resulted in loss of
$118,944,973 in 2009 as compared to a gain of $8,559,576 in 2008.  The
derivative instruments were incurred in connection the issuance of convertible
debt and warrants as described in more detail in Note 9 to the financial
statements.  Since the convertible debt can be converted into common
stock at a conversion price that is a percentage of market price, the number of
shares that could be required to be delivered upon “net-share settlement” is
essentially indeterminate.  Therefore, the convertible debt was
considered to be “non conventional” requiring the conversion feature to be
bifurcated from the debt and shown as a separate liability.   The
warrants issued in connection with settlement agreement with the convertible
debt holders can be exercised at the lesser of $.10 per share or 50% of market
value and are thus considered to be derivative liabilities as
well.  The change in fair values is a result of changes in the market
value of the Company’s common stock during the first quarter of each
year.
 
 Liquidity
and Capital Resources
 
 During
the quarter ended March 31, 2009 the company used $207,761 in operations as
compared to $851.250 used in operations during the first quarter of
2008.  Operating during the first quarter of 2009 were funding
primarily by $295,000 in loan proceeds.
 
 We used
$12,600 in investing activates in 2009 as compared to $576,577 provided by
investing activates during 2008.  The cash provided by investing
activates in 2008 was primarily due to proceeds from the sale of marketable
securities and redemptions of certificates of deposit and commercial
paper.
 
 At March
31, 2009 we had $219,810 in cash, $97,977 in accounts receivable, $74,943 in
inventory, and $3,673,021 in current Liabilities.  We do not have
sufficient assets to continue operations and will be dependent on some
combination of our ability to refinance existing debt obligations, raise
additional funds through debt or equity financing, and obtain a profitable level
of operations to sustain operations on an ongoing basis.  There is no
assurance that we will be able to achieve any of these objectives.
 
 At March
31, 2009 we had a derivative liability of $329,442,548 which we expect to settle
by the issuance of common stock.
  Critical
Accounting Policies
 
 The
discussion and analysis of our financial condition and results of operations are
based upon our consolidated financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United States of
America.  The preparation of these financial statements requires us to make
estimates and judgments that affect the reported amounts of assets, liabilities,
revenues and expenses.  In consultation with our Board of Directors, we
have identified the following accounting policies that we believe are key to an
understanding of our financial statements.  These are important accounting
policies that require management’s most difficult, subjective
judgments.
 
 The first
critical accounting policy relates to revenue recognition.  Income from our
research is recognized at the time services are rendered and
billed.
  29
 Table of Contents
  The
second critical accounting policy relates to research and development
expense.  Costs incurred in the development of our products are expensed as
incurred.
 
 The third
critical accounting policy relates to the valuation of non-monetary
consideration issued for services rendered. We value all services rendered in
exchange for our common stock at the quoted price of the shares issued at date
of issuance or at the fair value of the services rendered, which ever is more
readily determinable.  All other services provided in exchange for other
non-monetary consideration is valued at either the fair value of the services
received or the fair value of the consideration relinquished, whichever is more
readily determinable.
 
 Our
accounting policy for equity instruments issued to consultants and vendors in
exchange for goods and services follows the provisions of EITF 96-18, Accounting for Equity Instruments
That are Issued to Other Than Employees for Acquiring, or in Conjunction with
Selling, Goods or Services ” and EITF 00-18, Accounting Recognition for Certain
Transactions Involving Equity Instruments Granted to Other Than
Employees.”  The measurement date for the fair value of the equity
instruments issued is determined at the earlier of (i) the date at which a
commitment for performance by the consultant or vendor is reached or (ii) the
date at which the consultant or vendor’s performance is complete.  In the
case of equity instruments issued to consultants, the fair value of the equity
instrument is recognized over the term of the consulting
agreement.  In accordance to EITF 00-18, an asset acquired in exchange
for the issuance of fully vested, nonforfeitable equity instruments should not
be presented or classified as an offset to equity on the grantor’s balance sheet
once the equity instrument is granted for accounting
purposes.  Accordingly, we record the fair value of nonforfeitable
common stock issued for future consulting services as prepaid services in our
consolidated balance sheet.
 
 The
fourth critical accounting policy is our accounting for conventional convertible
debt.  When the convertible feature of the conventional convertible debt
provides for a rate of conversion that is below market value, this feature is
characterized as a beneficial conversion feature (BCF”).  We record a BCF
as a debt discount pursuant to EITF Issue No. 98-5 (EITF 98-05),Accounting for Convertible
Securities with Beneficial Conversion Features or Contingency Adjustable
Conversion Ratio,” and EITF Issue No. 00-27, Application of EITF Issue No. 98-5
to Certain Convertible Instrument(s).”   In those
circumstances, the convertible debt will be recorded net of the discount related
to the BCF.  We amortize the discount to interest expense over the life of
the debt using the effective interest method.
 
 The fifth
critical account policy relates to the accounting for non-conventional
convertible debt and the related stock purchase warrants.  In the case of
non-conventional convertible debt, we bifurcate our embedded derivative
instruments and record them under the provisions of SFAS No. 133,Accounting for Derivative
Instruments and Hedging Activities,” as amended, and
EITF Issue No. 00-19,Accounting for Derivative Financial Instruments Indexed to, and Potentially
Settled in, a Company’s Own Stock.”  These embedded derivatives
include the conversion feature, liquidated damages related to registration
rights and default provisions.  The accounting treatment of derivative
financial instruments requires that we record the derivatives and related
warrants at their fair values as of the inception date of the agreement and at
fair value as of each subsequent balance sheet date.  In addition, under
the provisions of EITF Issue No. 00-19, as a result of entering into the
non-conventional convertible debenture, we are required to value and classify
all other non-employee stock options and warrants as derivative liabilities at
that date and mark them to market at each reporting date thereafter.  Any
change in fair value will be recorded as non-operating, non-cash income or
expense at each reporting date.  If the fair value of the derivatives is
higher at the subsequent balance sheet date, we will record a non-operating,
non-cash charge.  If the fair value of
  30
 Table of Contents
  the
derivatives is lower at the subsequent balance sheet date, we will record
non-operating, non-cash income.  We value our derivatives primarily using
the Black-Scholes Option Pricing Model.  The derivatives are classified as
long-term liabilities.
 
 The sixth
critical accounting policy relates to the recording of marketable securities
held for trading and available-for-sale.  Marketable securities purchased
with the intent of selling them in the near term are classified as trading
securities.  Trading securities are initially recorded at cost and are
adjusted to their fair value, with the change in fair value during the period
included in earnings as unrealized gains or losses.  Realized gains or
losses on dispositions are based upon the net proceeds and the adjusted book
value of the securities sold, using the specific identification method, and are
recorded as realized gains or losses in the consolidated statements of
operations.  Marketable securities that are not classified as trading
securities are classified as available-for-sale securities. 
Available-for-sale securities are initially recorded at cost. 
Available-for-sale securities with quoted market prices are adjusted to their
fair value, subject to an impairment analysis (see below).  Any change in
fair value during the period is excluded from earnings and recorded, net of tax,
as a component of accumulated other comprehensive income (loss).  Any
decline in value of available-for-sale securities below cost that is considered
to be other than temporary is recorded as a reduction of the cost basis of the
security and is included in the statement of operations as a write down of the
market value (see below).
 
 The
seventh critical accounting policy is our accounting for the fair market value
of non-marketable securities we have acquired.  Non-marketable securities
are originally recorded at cost.   In the case of non-marketable
securities we acquired with our common stock, we value the securities at a
significant discount to the stated per share cost based upon our historical
experience with similar transactions as to the amount ultimately realized from
the sale of the shares.  Such investments are reduced when we have
indications that a permanent decline in value has occurred.  At such time
as quoted market prices become available, the net cost basis of these securities
will be reclassified to the appropriate category of marketable securities. 
Until that time, the securities will be recorded at their net cost basis,
subject to an impairment analysis (see below).
 
 In
accordance with the guidance of EITF 03-1, The Meaning of Other-Than-Temporary
Impairment and Its Application to Certain Investments, we assess any
decline in value of available-for-sale securities and non-marketable securities
below cost as to whether such decline is other than temporary.  If a
decline is determined to be other than temporary, the decline is recorded as a
reduction of the cost basis of the security and is included in the statement of
operations as an impairment write down of the investment.
  Item 3.   Quantitative and
Qualitative Disclosures about Market Risk
  We are a
smaller reporting company as defined by Rule 12b-2 of the Securities Exchange
Act of 1934 and are not required to provide the information under this
item.
  Item 4.   Controls and
Procedures
  Evaluation
of Disclosure Controls and Procedures
  Our
President and Chief Financial Officer (the “Certifying Officers”) have evaluated
the effectiveness of our disclosure controls and procedures (as defined in Rules
13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934) as of the end of
period covered by this report. Based upon such evaluation, the Certifying
Officers concluded that our disclosure controls and procedures were not
effective to ensure that the information required to be disclosed by us in the
reports that we file or submit under the Securities Exchange Act of 1934 is
recorded, processed, summarized and reported within the time periods specified
in the Securities and Exchange Commission’s rules and forms, and is accumulated
and communicated to our management, including the Certifying Officers, as
appropriate to allow timely decisions regarding required disclosure, due to the
material weaknesses described below.
  31
 Table of Contents
  In light
of the material weaknesses described below, the Certifying Officers performed
additional analysis and other post-closing procedures to ensure our consolidated
financial statements were prepared in accordance with generally accepted
accounting principles. Accordingly, we believe that the consolidated financial
statements included in this report fairly present, in all material respects, our
financial condition, results of operations and cash flows for the periods
presented.
  A
material weakness is a control deficiency (within the meaning of the Public
Company Accounting Oversight Board (“PCAOB”) Auditing Standard No. 2) or
combination of control deficiencies, that result in more than a remote
likelihood that a material misstatement of the annual or interim financial
statements will not be prevented or detected. The Certifying Officers have
identified the following three material weaknesses which have caused the
Certifying Officers to conclude that our disclosure controls and procedures were
not effective at the reasonable assurance level:
  1.    
We do not yet have written documentation of our internal control policies and
procedures. Written documentation of key internal controls over financial
reporting is a requirement of Section 404 of the Sarbanes-Oxley Act and will be
applicable to us for the year ending December 31, 2009. The
Certifying Officers evaluated the impact of our failure to have written
documentation of our internal controls and procedures on our assessment of our
disclosure controls and procedures and have concluded that the control
deficiency that resulted represented a material weakness.
  2.    
We do not have sufficient segregation of duties within accounting functions,
which is a basic internal control. Due to our size and nature, segregation of
all conflicting duties may not always be possible and may not be economically
feasible. However, to the extent possible, the initiation of transactions, the
custody of assets and the recording of transactions should be performed by
separate individuals. The Certifying Officers evaluated the impact of our
failure to have segregation of duties on our assessment of our disclosure
controls and procedures and has concluded that the control deficiency that
resulted represented a material weakness.
  To
remediate the material weaknesses in our disclosure controls and procedures
identified above, in addition to working with our independent auditors, we have
continued to refine our internal procedures to begin to implement segregation of
duties and to reduce the number of audit adjustments.
  Changes
in Internal Control Over Financial Reporting
  There
were no changes in our internal control over financial reporting during the
period covered by this report that have materially affected, or are reasonably
likely to materially affect, our internal control over financial
reporting.
  Item 4T.   Controls and
Procedures
  We are a
smaller reporting company as defined by Rule 12b-2 of the Securities Exchange
Act of 1934 and are not required to provide the information under this
item.
   32
 Table of Contents
  PART II – OTHER
INFORMATION
  Item 1.   Legal
Proceedings
  None.
  Item 1A.   Risk
Factors
  We are a
smaller reporting company as defined by Rule 12b-2 of the Securities Exchange
Act of 1934 and are not required to provide the information under this
item.
  Item 2.  
Unregistered Sales of Equity Securities and Use of
Proceeds
  In
January 2009, 274,000 shares of the Company’s common stock was issued to its
President on a cashless exercise of 274,347 options.
  In
January 2009, 183,327 shares of the Company’s common stock were issued for
consulting and other services valued at $568,317.
  In
February 2009, 6,000,000 shares of the Company’s common stock issued in the
conversion of $600,000 of convertible debt.
      33
 Table of Contents
  Item 3.   Defaults Upon Senior
Securities.
  There
have been no events which are required to be reported under this
item.
  Item 4.   Submission of Matters
to a Vote of Security Holders.
  None.
  Item 5.   Other
Information.
  None.
  Item 6.  
Exhibits.


Matech
Corp. includes by reference the following exhibits:
 
 10.1
                    Settlement
      agreement with Stephen Beck Filed March 4, 2009, as exhibit 10.1 with the
      registrant’s Current Report on Form 8-K (SEC File No. 333-22617; which
      exhibit is incorporated herein by reference.31.1
                    Certification of Chief Executive Officer Pursuant
      to the Securities Exchange Act of 1934, Rules 13a-14 and 15d-14, as
      adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
      200231.2
                    Certification of Chief Financial Officer Pursuant
      to the Securities Exchange Act of 1934, Rules 13a-14 and 15d-14, as
      adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
      200232
                    Certification Pursuant to 18 U.S.C., Section 1350,
      as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
      2002
 
 34
 Table of Contents
  SIGNATURES
 
 In
accordance with the requirements of the Exchange Act, the registrant has caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
 
 /s/
      Robert
      M. BernsteinDated:
      May 19, 2009
                    By:
                    Robert
      M. BernsteinIts:
                    President,
      Chief ExecutiveOfficer,
      and Chief Financial
                      Officer
      (Principal Executive Officer, Principal Financial
                      Officer
      and Principal Accounting Officer)


























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