Making an entity

[FlawlessHappiness]

So you want an enemy like Dark Room's Pedobear?
1) It's based on the Waterlurker.
2) You need to make a .mat of the image using the material editor.
3) Open the Waterlurker in Model Editor
4) Pick Billboards and find the material you made.
5) Position the billboard and attach it to the Waterlurker.
6) Save as a new .ent.

This is probably a stupid question but how do I actually use the material editor to make a .mat file? When I try to open the file it only lets me open .mat files D:

How about opening a .mat file, redoing it so it's what you want it to be, and save it as something else. Be careful not to overwrite anything