UNITED STATES


SECURITIES AND EXCHANGE COMMISSION


WASHINGTON, D.C.  20549


____________________





FORM 10-Q





(Mark One)





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





For quarterly period ended May 31, 2009





 ̈
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 333-146404


____________________





MICROCHANNEL TECHNOLOGIES CORPORATION


(Exact name of registrant as specified in its charter)





Nevada
98-0539775(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification Number)3905 National Drive, Suite 110
Burtonsville, MD
20866(Address of principal executive offices)
(Zip Code)





(888) 522-6422


(Registrant's telephone number, including area code)


___________________





Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90
days.  Yes T   No o.





Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.





Large accelerated filer
 ̈

Accelerated filer
 ̈Non-accelerated filer (Do not check if a smaller reporting company)
 ̈

Smaller reporting company
x





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





Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 53,864,600 shares of Common Stock, par value $0.0001, were outstanding on July 1, 2009.










MICROCHANNEL TECHNOLOGIES CORPORATION


FORM 10-Q





For the Quarterly Period Ended May 31, 2009





Table of Contents






PART I    FINANCIAL INFORMATIONItem 1.

Financial Statements (Unaudited)Balance Sheets (Unaudited)
3Statements of Operations (Unaudited)
4Statements of Stockholders’ Equity (Deficit) (Unaudited)
5Statements of Cash Flows (Unaudited)
6Notes to Financial Statements (Unaudited)
7Item 2.

Management's Discussion and Analysis of Financial Condition and Results of Operations.
11Item 4T.

Controls and Procedures.
15PART II   OTHER INFORMATIONItem 1.

Legal Proceedings.
16Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds.
16Item 3.

Defaults Upon Senior Securities.
16Item 4.

Submission of Matters to a Vote of Security Holders.
16Item 5.

Other Information.
16Item 6.

Exhibits.
16SignaturesCertifications


Table of Contents


PART I—FINANCIAL INFORMATION





Item 1. Financial Statements(Unaudited)





MICROCHANNEL TECHNOLOGIES CORPORATION


(A Development Stage Company)








BALANCE SHEETS


MAY 31, 2009 AND AUGUST 31, 2008


(Expressed in U.S. Dollars)


(Unaudited)








May 31,


August 31,2009


2008ASSETSCurrent assetsCash and cash equivalents

$
258,231


$
328,260Total current assets


258,231



328,260Total assets

$
258,231


$
328,260LIABILITIES AND STOCKHOLDERS' EQUITYCurrent liabilitiesAccounts payable

$
4,376


$
3,840Accrued payable


-



10,000Total current liabilities


4,376



13,840Commitments and ContingenciesStockholders' equityCommon stock: $0.0001 par value; 300,000,000 shares authorized, 53,864,600 issued and outstanding at May 31, 2009 and August 31, 2008


5,386



5,386Additional paid-in capital


556,711



556,711Deficit accumulated during the development stage


(308,242
)


(247,677
)Total stockholders' equity


253,855



314,420Total liabilities and stockholders' equity

$
258,231


$
328,260








(The accompanying notes are an integral part of these financial statements)


3
 Table of Contents


MICROCHANNEL TECHNOLOGIES CORPORATION


(A Development Stage Company)





STATEMENTS OF OPERATIONS


FOR THE THREE AND NINE MONTHS ENDED MAY 31, 2009 AND 2008


AND FOR THE PERIOD FROM INCEPTION (FEBRUARY 28, 2005) TO MAY 31, 2009


(Expressed in U.S. Dollars)


(Unaudited)








Three Months Ended


Nine Months Ended


Cumulative February 28, 2005May 31,


May 31,


(inception) to2009


2008


2009


2008


May 31, 2009Revenue

$
-


$
-


$
-


$
-


$
-Operating expenses (income)Option fee


-



-



-



-



2,000Research and development


-



20,000



(10,000
)


30,000



175,839Director and officer fees- related party


6,750



3,750



20,250



10,450



37,450Professional fees


9,338



3,777



43,804



25,117



79,771Other operating expenses


2,126



3,453



6,929



7,354



22,122Total operating expenses


18,214



30,980



60,983



72,921



317,182Loss from operations


(18,214
)


(30,980
)


(60,983
)


(72,921
)


(317,182
)Other incomeInterest income


-



1,176



418



7,582



8,940Total other income


-



1,176



418



7,582



8,940Net loss

$
(18,214
)

$
(29,804
)

$
(60,565
)

$
(65,339
)

$
(308,242
)Net loss per common share: basic

$
(0.00
)

$
(0.00
)

$
(0.00
)

$
(0.00
)Weighted average number of common shares outstanding: basic


53,864,600



53,864,600



53,864,600



53,864,600








(The accompanying notes are an integral part of these financial statements)


4
 Table of Contents


MICROCHANNEL TECHNOLOGIES CORPORATION


(A Development Stage Company)





STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)


FROM INCEPTION (FEBRUARY 28, 2005) TO MAY 31, 2009


(Expressed in U.S. Dollars)


(Unaudited)








Common Stock


Additional


Deficit accumulatedduring the


Total stockholders'Shares


Amount


paid-in capital


development stage


equity (deficit)Common stock issued at $0.0001 per share


53,864,600


$
5,386


$
(5,286
)

$
-


$
100Net loss for the period ended August 31, 2005


-



-



-



(52,898
)


(52,898
)Balance, August 31, 2005


53,864,600



5,386



(5,286
)


(52,898
)


(52,798
)Net loss for the year ended August 31, 2006


-



-



-



(82,739
)


(82,739
)Balance, August 31, 2006


53,864,600



5,386



(5,286
)


(135,637
)


(135,537
)Conversion of debt to equity on August 31, 2007


-



-



561,997



-



561,997Net loss for the year ended August 31, 2007


-



-



-



(27,405
)


(27,405
)Balance, August 31, 2007


53,864,600



5,386



556,711



(163,042
)


399,055Net loss for the year ended August 31, 2008


-



-



-



(84,635
)


(84,635
)Balance, August 31, 2008


53,864,600



5,386



556,711



(247,677
)


314,420Net loss for the nine months ended May 31, 2009


-



-



-



(60,565
)


(60,565
)Balance, May 31, 2009


53,864,600


$
5,386


$
556,711


$
(308,242
)

$
253,855








(The accompanying notes are an integral part of these financial statements)


5
 Table of Contents


MICROCHANNEL TECHNOLOGIES CORPORATION


(A Development Stage Company)





STATEMENTS OF CASH FLOWS


FOR THE NINE MONTHS ENDED MAY 31, 2009 AND 2008 AND FOR THE


PERIOD FROM INCEPTION (FEBRUARY 28, 2005) TO MAY 31, 2009


(Expressed in US Dollars)


(Unaudited)








Nine Months Ended


Cumulative February 28, 2005May 31,


(inception) to2009


2008


May 31, 2009Cash flows from operating activitiesNet loss

$
(60,565
)

$
(65,339
)

$
(308,242
)Adjustments to reconcile net loss to net cash used in operating activities:Changes in operating assets and liabilities:Increase in accounts payable


536



-



4,376Increase (decrease) in accrued payable


(10,000
)


11,500



-Net cash used in operating activities


(70,029
)


(53,839
)


(303,866
)Cash flows from financing activitiesIncrease in payable - related party


-



-



561,997Proceeds from the issuance of common stock


-



-



100Net cash provided by financing activities


-



-



562,097Increase (decrease) in cash and cash equivalents


(70,029
)


(53,839
)


258,231Cash and cash equivalents at beginning of period


328,260



399,055



-Cash and cash equivalents at end of period

$
258,231


$
345,216


$
258,231Supplemental disclosure of cash flow information:Interest paid in cash

$
-


$
-


$
-Income taxes paid in cash


-



-



-Supplemental disclosure of non-cash transaction:Conversion of debt to equity

$
-


$
-


$
561,997








(The accompanying notes are an integral part of these financial statements)


6
 Table of Contents


MICROCHANNEL TECHNOLOGIES CORPORATION


(A Development Stage Company)





NOTES TO FINANCIAL STATEMENTS





May 31, 2009


(Expressed in US Dollars)


(Unaudited)





Note 1.  Organization and Nature of Operations





MicroChannel Technologies Corporation (“the Company”) was formed as a wholly-owned subsidiary of Octillion Corp. Octillion Corp. spun off the Company’s issued and outstanding shares to Octillion’s shareholders on December 18, 2007, the date on which a registration statement was declared effective by the United States
Securities and Exchange Commission (“SEC”). The Company was incorporated under the name MultiChannel Technologies Corporation on February 28, 2005 in the State of Nevada, and changed to its existing name on April 4, 2005. On October 2, 2007, the Company executed a forward split of its issued and outstanding shares of common stock on the basis of 53.8646 for 1, resulting in 53,864,600 common shares to be issued and outstanding.  The effects of the stock split have been retroactively applied
to all periods presented.





On April 29, 2005, an Option Agreement (the “ISURF Agreement”) was executed between Iowa State University Research Foundation Inc., (“ISURF”) and the Company, pursuant to which the Company acquired an option to obtain a license to certain nerve regeneration technologies being developed by ISURF. On September 30,
2008, the ISURF Agreement expired, thereby concluding the Company’s research and development of technologies and products for peripheral and optic nerve damage and nerve regeneration.  Upon conclusion of the ISURF Agreement, researchers were unable to identify suitable, commercially-available cells for use in this technology.  The Company did not renew the ISURF Agreement or the Sponsored Project Agreement related to the ISURF Nerve Regeneration Technology.  The Company is
currently undertaking efforts to identify new commercial opportunities, including other innovative medical and health care technologies.





Note 2.  Going Concern Uncertainties





The Company is a development stage company, has not generated any revenues, has an accumulated deficit of $308,242 as of May 31, 2009, and does not have positive cash flows from operating activities.  The accompanying financial statements have been prepared in conformity with generally accepted accounting principles in the United
States of America, which contemplates continuation of the Company as a going concern, which is dependent upon the Company’s ability to establish itself as a profitable business.





Due to the start-up nature of the Company’s business, the Company expects to incur additional losses as it continues to identify and develop new technologies. To date, the Company’s cash flow requirements have been met by $400,000 received from Octillion Corp., its former parent company.  Management recognizes that
in order to meet the Company’s capital requirements, and continue to operate, additional financing will be necessary.  The Company expects to raise additional funds through private or public equity investments in order to expand the range and scope of its business operations. The Company will seek access to private or public equity but there is no assurance that such additional funds will be available for the Company to finance its operations on acceptable terms, if at all.  Furthermore,
there is no assurance that the net proceeds received from any successful financing arrangement will be sufficient to cover cash requirements during the initial stages of the Company’s operations.  If the Company is unable to raise additional capital or generate positive cash flow, it is unlikely that the Company will be able to continue as a going concern.





In view of these conditions, the ability of the Company to continue as a going concern is in substantial doubt and dependent upon achieving a profitable level of operations and on the ability of the Company to obtain necessary financing to fund ongoing operations. These financial statements do not give effect to any adjustments which will
be necessary should the Company be unable to continue as a going concern and therefore be required to realize its assets and discharge its liabilities in other than the normal course of business and at amounts different from those reflected in the accompanying financial statements.


7
 Table of Contents


Note 3.  Presentation of Interim Information





The accompanying unaudited interim financial statements have been prepared in accordance with Form 10-Q instructions and in the opinion of management of MicroChannel Technologies Corporation, include all adjustments (of a normal recurring nature) considered necessary to present fairly the financial position of the Company as of May 31,
2009 and August 31, 2008 and the related results of operations, stockholders’ equity (deficit), and cash flows for the three and nine months ended May 31, 2009 and 2008 and for the cumulative period from February 28, 2005 (inception), to May 31, 2009. These results have been determined on the basis of generally accepted accounting principles and practices in the United States and applied consistently with those used in the preparation of the Company’s 2008 Annual Report on Form 10-K.





Certain information and footnote disclosures normally included in the quarterly financial statements presented in accordance with generally accepted accounting principles in the United States have been condensed or omitted. It is suggested that the accompanying unaudited interim financial statements be read in conjunction with the financial
statements and notes thereto incorporated by reference in the Company’s 2008 Annual Report on Form 10-K.





Recently Issued Accounting Standards





In September 2006, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 157, “Fair Value Measurements” (SFAS 157), which establishes a framework for measuring fair value and requires expanded disclosures regarding fair value measurements. In February 2008, the FASB issued FASB Staff Position No. 157-2,
“Effective Date of FASB Statement 157” (FSP 157-2), which allows for the deferral of the adoption date of SFAS 157 for all nonfinancial assets and nonfinancial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis. The Company is required to adopt SFAS 157 for the assets and liabilities within the scope of FSP 157-2 on September 1, 2009, the beginning of its fiscal year 2010. The Company does not expect the adoption of SFAS 157 for
non-financial assets and liabilities to have a material impact on its financial statements.  In October 2008, the FASB issued FASB Staff Position No. 157-3, “Determining the Fair Value of a Financial Asset in a Market That Is Not Active” (FSP 157-3), which clarifies the application of SFAS 157 when the market for a financial asset is inactive.  The guidance in FSP 157-3 was effective immediately and did not have a material effect on the Company’s financial statements.  In
April 2009, the FASB issued FASB Staff Position No. 157-4, “Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly” (FSP 157-4), which provides additional guidance in determining when observable transaction prices or quoted prices in markets that have become less active require significant adjustments to estimate fair value.  FSP 157-4 supersedes FSP 157-3 and is to be applied
prospectively and is effective for interim and annual periods ending after June 15, 2009 with early adoption permitted for periods ending after March 15, 2009. The Company will adopt FSP 157-4 on June 1, 2009, the beginning of its fourth quarter ended August 31, 2009.  The Company does not expect the application of FSP 157-4 to have a material effect on its financial statements.





In April 2009, the FASB issued FSP 107-1 and Accounting Principles Board (APB) 28-1 "Interim Disclosures about Fair Value of Financial Instruments".  FSP 107-1 amends SFAS 107 "Disclosures about Fair Value of Financial Instruments" to require an entity to provide disclosures about fair value of financial instruments in interim
financial information. FSP 107-1 is to be applied prospectively and is effective for interim and annual periods ending after June 15, 2009 with early adoption permitted for periods ending after March 15, 2009. The Company will include the required disclosures in its Form 10-K for the year ending August 31, 2009.





In June 2008, the FASB issued Staff Position EITF 03-06-1, “Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities” (FSP EITF 03-06-1). FSP EITF 03-06-1 provides that unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents
(whether paid or unpaid) are participating securities and shall be included in the computation of earnings per share pursuant to the two-class method in SFAS No. 128, “Earnings per Share.”   FSP EITF 03-06-1 must be adopted for reporting periods beginning after December 15, 2008.  FSP EITF 03-06-1 did not have any impact on the Company’s financial statements.





In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements, an Amendment of Accounting Research Bulletin No 51” (SFAS 160). SFAS 160 establishes accounting and reporting standards for ownership interests in subsidiaries held by parties other than the parent, changes in a parent’s
ownership of a noncontrolling interest, calculation and disclosure of the consolidated net income attributable to the parent and the noncontrolling interest, changes in a parent’s ownership interest while the parent retains its controlling financial interest and fair value measurement of any retained noncontrolling equity investment. SFAS 160 is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. Early adoption is prohibited.
The Company must adopt SFAS 160 on September 1, 2009, the beginning of its fiscal year 2010.  The Company does not expect the application of SFAS No. 160 to have a material effect on its financial statements.


8
 Table of Contents


In December 2007, the FASB issued SFAS No. 141R, “Business Combinations” (SFAS 141R), which establishes principles and requirements for the reporting entity in a business combination, including recognition and measurement in the financial statements of the identifiable assets acquired, the liabilities assumed, and any noncontrolling
interest in the acquiree. SFAS 141R applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008, and interim periods within those fiscal years. The Company must adopt SFAS 141R on September 1, 2009, the beginning of its fiscal year 2010.  The Company does not expect the application of SFAS 141R to have a material effect on its financial statements.





Note 4.  Net Loss Per Share





Basic net loss per share is computed by dividing the net loss by the weighted average number of common shares outstanding during the period. The Company does not have any stock options or warrants outstanding that would be anti-dilutive.





For purposes of earnings per share computations, shares of common stock that are issuable at the end of a reporting period are included as outstanding.





Following is the computation of basic net loss per share for the three and nine months ended May 31, 2009 and 2008:








Three Months Ended


Nine Months EndedMay 31,


May 31,2009


2008


2009


2008Numerator - net loss

$
(18,214
)

$
(29,804
)

$
(60,565
)

$
(65,339
)Denominator - weighted average number of common shares outstanding - basic


53,864,600



53,864,600



53,864,600



53,864,600Basic net loss per common share

$
(0.00
)

$
(0.00
)

$
(0.00
)

$
(0.00
)








Note 5.  Option Interest in Nerve Regeneration Technologies





On April 29, 2005, an Option Agreement (the “ISURF Agreement”) was executed between Iowa State University Research Foundation Inc., (“ISURF”) and the Company, pursuant to which the Company acquired an option to obtain a license to certain nerve regeneration technologies being developed by ISURF. On October 13, 2005,
the ISURF Agreement was amended to modify the payment due dates.   On November 12, 2007, the ISURF Agreement was amended to extend the ISURF Agreement to September 30, 2008 and increase the total amount due pursuant to the ISURF Agreement by $50,000 (the “Amended ISURF Agreement”). On September 30, 2008, the Amended ISURF Agreement expired, thereby concluding the Company’s research and development of technologies and products for peripheral and optic nerve damage and nerve regeneration.  Upon
conclusion of the Amended ISURF Agreement, researchers were unable to identify suitable, commercially-available cells for use in this technology.  The Company did not renew the Amended ISURF Agreement or the Sponsored Project Agreement related to the ISURF Nerve Regeneration Technology.





The consideration payable pursuant to the Amended ISURF Agreement is summarized as follows:





-
Payment of $2,000 in option fees upon execution of the ISURF Agreement;





-
Payment of $155,839 to support the research project entitled “Conduits with Micropatterned Film for Peripheral Nerve   Regeneration” of which $50,000 was due within 90 days of execution of the ISURF Agreement, and four subsequent equal payments of $26,460 each due quarterly, beginning on January 31, 2006.  An additional $50,000 was payable in five equal installments of $10,000
each due every two months upon the execution of the Amended ISURF Agreement on November 12, 2007.  As of May 31, 2009, the Company had paid $155,839 pursuant to the original ISURF Agreement and $20,000 pursuant to the Amended ISURF Agreement.


9
 Table of Contents


-
Contingent upon satisfactory progress and success of the above project, provide an additional $73,166 for the project entitled “Conduits with Micropatterned Films for Optic Nerve Regeneration”.  The Company did not initiate the second research project.





Due to the inability of the researchers to identify suitable, commercially-available cells for use in the peripheral and optic nerve damage and nerve regeneration technologies it was determined that the Company was not obligated to make the remaining $30,000 in payments pursuant to the terms of the Amended ISURF Agreement.  Accordingly,
during the three months ended May 31, 2009, the Company did not record any research and development expense pursuant to the Amended ISURF Agreement.  During the nine months ended May 31, 2009, the Company recorded a reversal of $10,000 previously accrued during the quarter ended May 31, 2008 pursuant to the Amended ISURF Agreement.  During the three and nine months ended May 31, 2008 the Company recorded research and development expense of $20,000 and $30,000, respectively, pursuant to the
Amended ISURF Agreement. During the period from inception (February 28, 2005) to May 31, 2009, the Company recorded $175,839 as research and development expense and $2,000 as option fee expense pursuant to the Amended ISURF Agreement.





Note 6.  Related Party Transactions





Director and officer fees





During the three and nine months ended May 31, 2009, the Company incurred $6,000 and $18,000 as compensation for services that executive officers provided to the Company.  During the three and nine months ended May 31, 2008, the Company incurred $3,000 and $9,000 as compensation for services that executive officers provided to
the Company.





During the three and nine months ended May 31, 2009, the Company incurred $750 and $2,250 as compensation for services that a non-employee director provided to the Company.  During the three and nine months ended May 31, 2008, the Company incurred $750 and $1,450 as compensation for services that a non-employee director provided
to the Company.





As of May 31, 2009, the Company owed $2,250 to executive officers and a non-employee director for services rendered to the Company, which is included in accounts payable.





Related party transactions are in the normal course of operations and are recorded at amounts established and agreed between the related parties.


10
 Table of Contents


Item 2. Management'sDiscussion and Analysis of Financial Condition and Results of Operations.





Forward-Looking Statements





Except for the historical information presented in this document, the matters discussed in this Form 10-Q for the three and nine months ended May 31, 2009 and 2008, and specifically in the items entitled "Management’s Discussion and Analysis of Financial Condition and Results of Operations," or otherwise incorporated by reference
into this document, contain "forward-looking statements" (as such term is defined in the Private Securities Litigation Reform Act of 1995). These statements are identified by the use of forward-looking terminology such as "believes," "plans," "intend," "scheduled," "potential," "continue," "estimates," "hopes," "goal," "objective," expects," "may," "will," "should," or "anticipates" or the negative thereof or other variations thereon or comparable terminology, or by discussions of strategy that involve risks
and uncertainties.





The safe harbor provisions of Section 21E of the Securities Exchange Act of 1934, as amended, and Section 27A of the Securities Act of 1933, as amended, apply to forward-looking statements made by the Company. The reader is cautioned that no statements contained in this Form 10-Q should be construed as a guarantee or assurance of future
performance or results. These forward-looking statements involve risks and uncertainties, including those identified within this Form 10-Q. The actual results that the Company achieves may differ materially from any forward-looking statements due to such risks and uncertainties. These forward-looking statements are based on current expectations, and the Company assumes no obligation to update this information. Readers are urged to carefully review and consider the various disclosures made by the Company in this
Form 10-Q and in the Company's other reports filed with the Securities and Exchange Commission that attempt to advise interested parties of the risks and factors that may affect the Company's business.





Overview





MicroChannel Technologies Corporation (the “Company”) was formed as a wholly-owned subsidiary of Octillion Corp. Octillion Corp. spun off the Company’s issued and outstanding shares to Octillion’s shareholders on December 18, 2007.  The Company was incorporated under the name MultiChannel Technologies Corporation
on February 28, 2005 in the State of Nevada, and changed to its existing name on April 4, 2005.





The Company is a development stage technology company focused on the identification, acquisition, and development of technologies and products which it believes have the potential for commercialization. The Company’s strategy is to initially acquire rights to technologies and products that are being developed by third parties, primarily
universities and government agencies, through cooperative research and development agreements.  Until September 30, 2008, the Company’s research and development activities were focused on technologies and products for peripheral and optic nerve damage and nerve regeneration, specifically the development of the Iowa State University Research Foundation Inc. (“ISURF”) Nerve Regeneration Technology.  On September 30, 2008, the Option Agreement and Sponsored Project Agreement
between the Company and ISURF expired, thereby concluding the Company’s research and development of technologies and products for peripheral and optic nerve damage and nerve regeneration.  Upon conclusion of these agreements with ISURF, researchers were unable to identify suitable, commercially-available cells for use in this technology.  The Company did not renew these agreements with ISURF.





The Company is currently undertaking efforts to identify new commercial opportunities, including other innovative medical and health care technologies.




The ISURF Nerve Regeneration Technology





On April 29, 2005, the Company entered into an Option Agreement with ISURF (the “ISURF Agreement”), pertaining to ISURF Nerve Regeneration Technology.  The ISURF Agreement granted the Company an exclusive worldwide option to obtain a license to make, use, and sell nerve regeneration products developed from the ISURF
Nerve Regeneration Technology.  On October 13, 2005, the ISURF Agreement was amended to modify the payment due dates.   On November 12, 2007, the ISURF Agreement was amended to extend the ISURF Agreement to September 30, 2008 and increase the total amount due pursuant to the ISURF Agreement by $50,000 (the “Amended ISURF Agreement”). On September 30, 2008, the Amended ISURF Agreement expired, thereby concluding the Company’s research and development of technologies and
products for peripheral and optic nerve damage and nerve regeneration.  Upon conclusion of the Amended ISURF Agreement, researchers were unable to identify suitable, commercially-available cells for use in this technology.  The Company did not renew the Amended ISURF Agreement or the Sponsored Project Agreement related to the ISURF Nerve Regeneration Technology.


11
 Table of Contents


Pursuant to the terms of the Amended ISURF Agreement, the Company had the right to negotiate the terms of its license with ISURF upon payment of a flat fee of $2,000 (which was paid) and provide funding for two research projects that were being conducted at ISU through the Company’s Sponsored Project Agreement.





Under terms of the Amended ISURF Agreement, the Company agreed to fund two research projects at ISU, the first of which was titled “Conduits with Micropatterned Films for Peripheral Nerve Regeneration,” in the amount of $205,839.  As of September 30, 2008, the expiration date of the Amended ISURF Agreement, the Company
had paid $175,839 pursuant to the Amended ISURF Agreement.  Due to the inability of the researchers to identify suitable, commercially-available cells for use in the peripheral and optic nerve damage and nerve regeneration technologies it was determined that the Company was not obligated to make the remaining $30,000 in payments pursuant to the terms of the Amended ISURF Agreement.  Upon termination of the Amended ISURF Agreement, the Company recorded a reversal of $10,000 previously accrued
during the quarter ended May 31, 2008 pursuant to the Amended ISURF Agreement.





Contingent upon satisfactory progress of the above project, the Company also agreed to provide an additional $73,166 for the second project, titled “Conduits with Micropatterned Films for Optic Nerve Regeneration,” which would test the efficacy of biodegradable micropatterned conduits on optic nerve regeneration. The
Company did not initiate the second research project.





Results of Operation





A summary of the Company’s operating expense for the three and nine months ended May 31, 2009 and 2008 was as follows:





Three Months Ended





Nine Months EndedMay 31,


Percentage


May 31,


Percentage2009


2008


Change


2009


2008


ChangeOperating expenses (income)Research and development

$
-


$
20,000



(100
) %

$
(10,000
)

$
30,000



*
%Director and officer fees - related party


6,750



3,750



80



20,250



10,450



94Professional fees


9,338



3,777



147



43,804



25,117



74Other operating expenses


2,126



3,453



(38
)


6,929



7,354



(6
)Total operating expenses

$
18,214


$
30,980



(41
) %

$
60,983


$
72,921



(16
) %





* Not meaningful





Research and development





Research and development costs represent costs incurred to develop the Company’s technology incurred pursuant to its research agreement with ISURF. The ISURF Agreement includes salaries and benefits for research and development personnel, allocated overhead and facility occupancy costs, supplies, equipment purchase and repair and
other costs. The Company charges all research and development expenses to operations as they are incurred except for prepayments which are capitalized and amortized over the applicable period.





Research and development resulted in income during the nine months ended March 31, 2009, due to the reversal of $10,000 previously accrued during the quarter ended May 31, 2008 pursuant to the Amended ISURF Agreement.  Research and development for the three and nine months ended May 31, 2008 is comprised entirely of payments made
pursuant to the ISURF Research Agreement.





Director and officer fees – related party





The Chief Executive Officer receives $1,250 per month for his services as an executive officer. The Chief Financial Officer receives $750 per month for his services as an executive officer.





During the three and nine months ended May 31, 2009, the Company incurred $6,000 and $18,000 as compensation for services that executive officers provided to the Company.  During the three and nine months ended May 31, 2008, the Company incurred $3,000 and $9,000 as compensation for services that executive officers provided to
the Company.


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Non-employee directors receive $250 per month for their services as directors.





During the three and nine months ended May 31, 2009, the Company incurred $750 and $2,250 as compensation for services that a non-employee director provided to the Company.  During the three and nine months ended May 31, 2008, the Company incurred $750 and $1,450 as compensation for services that a non-employee director provided
to the Company.





Professional fees





Professional fees primarily consist of accounting, audit, tax, legal, and transfer agent fees.





Professional fees increased during the three and nine months ended May 31, 2009 compared to the same periods in 2008 substantially as a result of the Company closing its administrative office in Vancouver, British Columbia, Canada, effective August 31, 2008, terminating all of the employees in Vancouver, Canada.  Due to this downsizing,
as of September 1, 2008, the Company began outsourcing its accounting function to third parties resulting in an increase in accounting fees of approximately $2,700 and $13,300 for the three and nine months ended May 31, 2009 compared to the same periods in 2008.  Legal fees increased approximately $2,100 and $9,900 during the three and nine months ended May 31, 2009 compared to the same periods in 2008 due to the increased utilization of legal counsel for preparation and review of required filings with
the Securities and Exchange Commission.  The increase in professional fees for the nine months ended May 31, 2009 compared to the same period in 2008 was offset by a decrease in transfer agent fees of approximately $2,900.  Transfer agent fees incurred during the nine months ended May 31, 2008 were substantially due to fees incurred related to the spin off of MicroChannel from Octillion Corp. on December 18, 2007.





Other operating expenses





Other operating expenses includes travel and entertainment, rent, office supplies, information technology related fees and other administrative costs.





Other income





Interest income





Interest income was $0 and $418 for the three and nine months ended May 31, 2009 compared to $1,176 and $7,582 during the same periods in 2008.  The decrease in interest income is due to the Company closing its administrative office in Vancouver, British Columbia, Canada.  As of December 31, 2008, the Company transferred
all of the funds in its interest bearing cash account maintained at a Canadian owned financial institution to a non-interest bearing bank account at a U.S. financial institution.





Liquidity and Capital Resources





The accompanying financial statements have been prepared assuming the Company will continue as a going concern.  The Company incurred cumulative losses of $308,242 through May 31, 2009.  Due to the "start up" nature of the Company's business, the Company expects to incur losses as it continues to identify and develop
new technologies.  These conditions raise substantial doubt about the Company’s ability to continue as a going concern.  Management recognizes that in order to meet the Company’s capital requirements, and continue to operate, additional financing will be necessary.  The Company is evaluating alternative sources of financing to improve its cash position and is undertaking efforts to raise capital, but there is no assurance that such additional funds will be available for
the Company to finance its operations on acceptable terms, if at all.  If the Company is unable to raise additional capital or generate positive cash flow, it is unlikely that the Company will be able to continue as a going concern.  The financial statements do not include any adjustments that might result from the outcome of this uncertainty.





The Company's principal source of liquidity is cash in the bank.  At May 31, 2009, the Company had cash and cash equivalents balance of $258,231. The Company has financed its operations primarily from $400,000 received from Octillion Corp., its former parent company.  This amount was subsequently converted to equity
as part of the spin-off in December 2007.





Net cash used in operating activities was $70,029 for the nine months ended May 31, 2009 compared to net cash used of $53,839 for the same period in 2008.  The increase in cash used in operating activities is substantially attributable to the Company closing its administrative office in Vancouver, British Columbia, Canada, effective
August 31, 2008, terminating all of the employees in Vancouver, Canada.  Due to this downsizing, as of September 1, 2008, the Company began outsourcing its accounting function to third parties resulting in an increase in accounting fees.  In addition, there was an increase in legal fees as well as non-employee director and executive officer fees.  See “Related Party Transactions” below.


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Related Party Transactions





Director and officer fees





During the three and nine months ended May 31, 2009, the Company incurred $6,000 and $18,000 as compensation for services that executive officers provided to the Company.  During the three and nine months ended May 31, 2008, the Company incurred $3,000 and $9,000 as compensation for services that executive officers provided to
the Company.





During the three and nine months ended May 31, 2009, the Company incurred $750 and $2,250 as compensation for services that a non-employee director provided to the Company.  During the three and nine months ended May 31, 2008, the Company incurred $750 and $1,450 as compensation for services that a non-employee director provided
to the Company.





As of May 31, 2009, the Company owed $2,250 to executive officers and a non-employee director for services rendered to the Company, which is included in accounts payable.





Related party transactions are in the normal course of operations and are recorded at amounts established and agreed between the related parties.





Other Contractual Obligations





At May 31, 2009, the Company does not have any contractual obligations.




Off-Balance Sheet Arrangements





The Company has no off-balance sheet arrangements.





Recent Accounting Pronouncements





See Note 3.  “Presentation of Interim Information” to the Financial Statements in this Form 10-Q.


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Item 4T.   Controls and Procedures





(a) Evaluation of Disclosure Controls and Procedures





Under the supervision and with the participation of the Company’s management, including its Chief Executive Officer and Chief Financial Officer, the Company conducted an evaluation of the effectiveness of the design and operation of its disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities
Exchange Act of 1934 (the “Exchange Act”), as of the end of the period covered by this quarterly report. Based on this evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded as of May 31, 2009 that the Company’s disclosure controls and procedures were effective such that the information required to be disclosed in the Company’s United States Securities and Exchange Commission (the “SEC”) reports is recorded, processed, summarized and reported
within the time periods specified in SEC rules and forms, and is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.





(b) Changes in Internal Control over Financial Reporting





There were no changes in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial
reporting.


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PART II – OTHER INFORMATION





Item 1.   Legal Proceedings.





The Company is not aware of any legal proceedings contemplated by any governmental authority or any other party involving the Company or its properties. As of the date of this report, no director, officer or affiliate is a party adverse to the Company in any legal proceeding or has an adverse interest to the Company in any legal proceedings.
The Company is not aware of any other legal proceedings pending or that have been threatened against the Company or its properties.





Item 2.   Unregistered Sales of Equity Securities and Use of Proceeds.





None.





Item 3.  Defaults Upon Senior Securities





None.





Item 4.   Submission of Matters to a Vote of Security Holders





None.





Item 5.   Other Information





None.





Item 6.   Exhibits





31.1
Certification of Principal Executive Officer Pursuant to Rule 13a-14 of the Securities Exchange Act of 1934, As Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. *





31.2
Certification of Principal Financial Officer Pursuant to Rule 13a-14 of the Securities Exchange Act of 1934, As Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. *





32.1
Certification of Principal Executive Officer Pursuant to 18 USC. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *





32.2
Certification of Principal Financial Officer Pursuant to 18 USC. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *





____________________





*Filed herewith.


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SIGNATURES





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








MicroChannel Technologies Corporation(Registrant)July 14, 2009
By:/s/ Meetesh PatelMeetesh PatelPresident, Chief Executive Officer, DirectorJuly 14, 2009
/s/ David GamacheDavid GamacheChief Financial Officer, Treasurer, Secretary,Director






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