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EX-31.1 - CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 - MAGNEGAS CORPf10k2009ex31i_magnegas.htm
EX-32.1 - CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 - MAGNEGAS CORPf10k2009ex32i_magnegas.htm
EX-31.2 - CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 - MAGNEGAS CORPf10k2009ex31ii_magnegas.htm
EX-32.2 - CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 - MAGNEGAS CORPf10k2009ex32ii_magnegas.htm


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
______________

FORM 10-K
______________
 
x ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the fiscal year ended December 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 No.000-51883
 
MagneGas Corporation
(Exact name of Registrant as specified in its charter)
 
 
Delaware
 
26-0250418
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer Identification No.)
 
 150 Rainville Rd Tarpon Springs, FL
 
34689
(Address of principal executive offices)
 
(Zip Code)
 
 
(Former name, former address, if changed since last report)
 
Tel:  (727) 934-3448
(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 during the preceding 12 months (or for such shorter period that the issuer was required to file such reports), and (2)has been subject to such filing requirements for the past 90 days. Yes þ No o
 
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.    þ

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.              o
Accelerated filer.                              o
Non-accelerated filer.                o
(Do not check if a smaller reporting company)
Smaller reporting company.            þ
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).  Yes  o  No þ

State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter, June 30, 2008: N/A.

Number of the issuer’s Common Stock outstanding as of March 29, 2010:  106,054,395

Documents incorporated by reference: None.

Transitional Small Business Disclosure Format (Check One): Yes  o  No þ
 
 
 

 
 
TABLE OF CONTENTS
 
   
Page
Part I
 
     
Item 1
Business
1
Item 1A
Risk Factors
1
Item 1B
Unresolved Staff Comments
4
Item 2
Properties
4
Item 3
Legal Proceedings
4
Item 4
Submission of Matters to a Vote of Security Holders
4
     
Part II
 
   
Item 5
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
5
Item 6
Selected Financial Data.
5
Item 7
Management’s Discussion and Analysis of Financial Condition and Results of Operation
6
Item 7A
Quantitative and Qualitative Disclosures about Market Risk
11
Item 8
Financial Statements and Supplementary Data
12
Item 9
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
13
Item 9A
Controls and Procedures
13
Item 9B
Other Information
13
     
Part III
 
     
Item 10
Directors and Executive Officers and Corporate Governance.
14
Item 11
Executive Compensation
15
Item 12
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
16
Item 13
Certain Relationships and Related Transactions, and Director Independence.
17
Item 14
Principal Accounting Fees and Services
18
     
Part IV
 
   
Item 15
Exhibits, Financial Statement Schedules
19
Signatures 
 
20
 
 
 

 
 
PART I
 
ITEM 1. BUSINESS

Background Information
 
MagneGas Corporation (the “Company”) was organized in the state of Delaware on December 9, 2005. The Company was originally organized under the name 4307, Inc, for the purpose of locating and negotiating with a business entity for a combination. On April 2, 2007 all the issued and outstanding shares of 4307, Inc. were purchased and the Company name was changed to Magnegas Corporation. MagneGas Corporation.
 
On December 28, 2008 the Company acquired all  relevant patent and intellectual  property rights including domain names, manufacturing drawings and trademarks for the MagneGas technology for the United States and continues to operate under a license for North, South and Central America and the Carribean.  The Company is seeking to expand to various regions of the world (with the exception of the European Continent and Africa) through Joint Venture partnerships for manufacturing and distribution of the Magnegas equipment and fuel.
 
Business Operations

The Company’s operating plan and mission is to provide services in cleaning and converting contaminated liquid waste. A process has been developed which transforms contaminated waste through a proprietary incandescent machine. The result of the product is to carbonize waste for normal disposal. A byproduct of this process is to produce a green fuel alternative to natural gas. The patented proprietary technology is owned by the Company.

Business Development  

Through the course of our business development, we have acquired contracts with regional suppliers for our metal cutting biogas.  Additionally, we are in various stages of negotiation with several companies with interest in purchasing our Plasma ArcFlow equipment and licenses for their use and  have received two deposits towards the purchase of equipment

Employees

We presently have no full-time employees and one part-time employee.   We currently have leased employees and independent technicians perform production and other duties, as required.

Dr. Santilli, our Chief Scientist and key employee, has provided services in exchange for stock. Dr. Santilli declined to receive payments for salary until the Company generated meaningful revenue and profits. At the current time, we believe that the Company has past the business development stage; therefore we have commenced accruing salaries for Dr. Santilli at $120,000 per annum.

Richard Connolly, our President, has provided services under consulting contract.  Additionally, he has received compensation in the form of stock.

We currently have no other key employees.

ITEM 1A.   RISK FACTORS
 
We have a limited operating history that can be used to evaluate us, and the likelihood of our success must be considered in light of the problems, expenses, difficulties, complications and delays that we may encounter because we are a small business. As a result, we may not be profitable and we may not be able to generate sufficient revenue to develop as we have planned.
 
Our ability to achieve and maintain profitability and positive cash flow will be dependent upon:
 
 
1

 

Ø  
Management’s ability to maintain the technology skills for our conversion services;
Ø  
The Company’s ability to keep abreast of the changes by the government agencies and law;
Ø  
Our ability to attract customers who require the services we offer; and
Ø  
Our ability to generate revenues through the sale of our services to potential clients who need our services.

Based upon current plans, we expect to incur operating losses in future periods because we will be incurring expenses and not generating sufficient revenues to cover our expenses.  We cannot be sure that we will be successful in generating revenues in the future.  Failure to generate sufficient revenues will cause us to go out of business and any investment in our Company would be lost.
 
Managing a small public company involves a high degree of risk. Few small public companies ever reach market stability and we will be subject to oversight from governing bodies and regulations that will be costly to meet.  Our present officers and directors do not have any experience in managing a fully reporting public company so we may be forced to obtain outside consultants to assist with our meeting these requirements.  These outside consultants are expensive and can have a direct impact on our ability to be profitable. This will make an investment in our Company a highly speculative and risky investment.
 
While the Company is attempting to disclose all of the potential risks associated with an investment in the Company, there can be no assurance that all of the risks are visible to management.  Events occurring in the future may be additional risks to an investment in the Company which are currently unforeseen.

We will require financing to achieve our current business strategy and our inability to obtain such financing could prohibit us from executing our business plan and cause us to slow down our expansion of operations.
 
We will need to raise additional funds through public or private debt or sale of equity to achieve our current plan of operations. Such financing may not be available when needed. Even if such financing is available, it may be on terms that are materially adverse to your interests with respect to dilution of book value, dividend preferences, liquidation preferences, or other terms. We will require additional funds estimated at approximately $10,000,000 in order to significantly expand our business as set forth in our plan of operations. These funds may not be available or, if available, will be on commercially reasonable terms satisfactory to us. We may not be able to obtain financing if and when it is needed on terms we deem acceptable. The additional funds would be utilized for the manufacturing of additional PlasmaArcFlow processors, which byproducts would be marketed to the target market end users.
 
If we are unable to obtain financing on reasonable terms, we could be forced to delay or scale back our plans for expansion. In addition, such inability to obtain financing on reasonable terms may delay the execution of our plan to expand our operations. 
 
We have a limited operating history that you can use to evaluate us, and the likelihood of our success must be considered in light of the problems, expenses, difficulties, complications and delays that we may encounter because we are a small company. As a result, we may not be profitable and we may not be able to generate sufficient revenue to develop as we have planned.
 
We were incorporated in Delaware in December of 2005. We have no significant assets or financial resources. The likelihood of our success must be considered in light of the expenses and difficulties in converting liquid wastes into a clean biogas, recruiting and keeping clients and obtaining financing to meet the needs of our plan of operations. Since we have a limited operating history we may not be profitable and we may not be able to generate sufficient revenues to meet our expenses and support our anticipated activities.
 
Failure to comply with government regulations will severely limit our sales opportunities and future revenue
 
Failure to obtain operating permits, or otherwise to comply with federal and state regulatory and environmental requirements, could affect our abilities to market and sell the PlasmaArcFlow system and could substantially reduce the value of your investment and the market price of our common stock.
 
We and our customers may be required to comply with a number of federal, state and local laws and regulations in the areas of safety, health and environmental controls.  In as much as we intend to market the PlasmaArcFlow system internationally, we will be required to comply with laws and regulations and, when applicable, obtain permits in those other countries.
 
We can not be certain that required permits and approvals will be obtained; that new environmental regulations will not be enacted or that if they are our customers and we can meet stricter standards of operation or obtain additional operating permits or approvals.
 
 
2

 
 
Our patented technology is unproven on a large-scale industrial basis and could fail to perform in an industrial production environment.
 
The technologies which we are pursuing for MagneGas production from liquid waste have never been utilized on a large-scale industrial basis. All of the tests which we have conducted to date with respect to our technologies have been performed on limited quantities, and we cannot assure you that the same or similar results could be obtained on a large-scale industrial basis. We have never utilized these MagneGas technologies under the conditions or in the volumes that will be required on a large scale and cannot predict all of the difficulties that may arise.  In addition, our technology has never operated at a volume level required to be profitable.  As our product is an alternative to Natural Gas, the unstable price of Natural Gas will impact our ability to become profitable and to sell cost competitive fuel.  It is possible that the technologies, when used, may require further research, development, design and testing prior to implementation of a larger-scale commercial application. Accordingly, we cannot assure you that these technologies will perform successfully on a large-scale commercial basis or that they will be profitable to us or that our fuel will be cost competitive in the market.
 
Our future success is dependent, in part, on the performance and continued service of Rich Connelly, our President, and Dr. Ruggero Maria Santilli, our CEO. Without their continued service, we may be forced to interrupt or eventually cease our operations.
 
We are presently dependent to a great extent upon the experience, abilities and continued services of Rich Connelly, our President and Dr. Ruggero Maria Santilli, our CEO. We currently only have an employment agreement with Dr. Santilli and do not have an employment agreement with other officers and directors. The loss of either of their services would delay our business operations substantially.
 
The success of our business depends, in part, upon proprietary technologies and information which may be difficult to protect and may be perceived to infringe on the intellectual property rights of third parties.
 
We believe that the identification, acquisition and development of proprietary technologies are key drivers of our business. Our success depends, in part, on our ability to obtain patents, maintain the secrecy of our proprietary technology and information, and operate without infringing on the proprietary rights of third parties. We cannot assure you that the patents of others will not have an adverse effect on our ability to conduct our business, that the patents that provide us with competitive advantages or will not be challenged by third parties, that we will develop additional proprietary technology that is patentable or that any patents issued to us will provide us with competitive advantages or will not be challenged by third parties. Further, we cannot assure you that others will not independently develop similar or superior technologies, duplicate elements of our biomass technology or design around it.
 
In order to successfully commercialize our proprietary technologies, it is possible that we may need to acquire licenses to, or to contest the validity of, issued or pending patents or claims of third parties. We cannot assure you that any license acquired under such patents would be made available to us on acceptable terms, if at all, or that we would prevail in any such contest. In addition, we could incur substantial costs in defending ourselves in suits brought against us for alleged infringement of another party's patents or in defending the validity or enforceability of our patents, or in bringing patent infringement suits against other parties based on our patents.
 
In addition to the protection afforded by patents, we also rely on trade secrets, proprietary know-how and technology that we seek to protect, in part, by confidentiality agreements with our prospective joint venture partners, employees and consultants. We cannot assure you that these agreements will not be breached, that we will have adequate remedies for any such breach, or that our trade secrets and proprietary know-how will not otherwise become known or be independently discovered by others.
 
We have the potential risk of product liability which may subject us to litigation and related costs
 
Our PlasmaArcFlow system will be utilized in a variety of industrial and other settings, and will be used to handle materials resulting from the user's generation of liquid waste. The equipment will therefore be subject to risks of breakdowns and malfunctions, and it is possible that claims for personal injury and business losses arising out of these breakdowns and malfunctions will be made against us.  Our insurance may be insufficient to provide coverage against all claims, and claims may be made against us even if covered by our insurance policy for amounts substantially in excess of applicable policy limits. Such an event could have a material adverse effect on our business, financial condition and results of operations.
 
Because we are smaller and have fewer financial and other resources than many alternative fuel companies, we may not be able to successfully compete in the very competitive alternative fuel industry.
 
Fuel is a commodity. There is significant competition among existing fuel producers. Our business faces competition from a number of producers that can produce significantly greater volumes of fuel than we can or expect to produce, producers that can produce a wider range of products than we can, and producers that have the financial and other resources that would enable them to expand their production rapidly if they chose to. These producers may be able to achieve substantial economies of scale and scope, thereby substantially reducing their fixed production costs and their marginal productions costs. If these producers are able to substantially reduce their marginal production costs, the market price of fuel may decline and we may be not be able to produce biogas at a cost that allows us to operate profitably. Even if we are able to operate profitably, these other producers may be substantially more profitable than us, which may make it more difficult for us to raise any financing necessary for us to achieve our business plan and may have a materially adverse effect on the market price of our common stock.
 
 
3

 
 
Costs of compliance with burdensome or changing environmental and operational safety regulations could cause our focus to be diverted away from our business and our results of operations to suffer.
 
Liquid waste disposal and fuel production involves the discharge of potential contaminants into the water and air.  As a result, we are subject to complicated environmental regulations of the U.S. Environmental Protection Agency and regulations and permitting requirements of the various states. These regulations are subject to change and such changes may require additional capital expenditures or increased operating costs. Consequently, considerable resources may be required to comply with future environmental regulations. We did not incur any capital expenditures for environmental control in 2008 or 2009 and we do not currently expect to incur material capital expenditures for environmental controls in this or the succeeding fiscal year  In addition, our production plants could be subject to environmental nuisance or related claims by employees, property owners or residents near the plants arising from air or water discharges Environmental and public nuisance claims, or tort claims based on emissions, or increased environmental compliance costs could significantly increase our operating costs.
 
ITEM 1B.   UNRESOLVED STAFF COMMENTS

Not Applicable
 
ITEM 2.      PROPERTIES
 
We presently lease on a month-to-month basis our principal offices at 150 Rainville Rd, Tarpon Springs, FL 34689 and the telephone number is (727) 934-3448.   The property is a commercial property for our production facility with attached office.  
 
ITEM 3.      LEGAL PROCEEDINGS

We are not engaged in any litigation, and we are unaware of any claims or complaints that could result in future litigation.  We will seek to minimize disputes with our customers but recognize the inevitability of legal action in today’s business environment as an unfortunate price of conducting business.
 
ITEM 4.      SUBMISSIONS OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.
 
 
4

 
 
PART II

ITEM 5.         MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDERS MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
 
Price Range of Common Stock
 
The Company’s common stock is listed on the Over the Counter Bulletin Board ("OTC: BB") under the symbol “MNGA”.   The Company received its "Notice of Effectiveness" on October 1, 2008.    The Company's stock has commenced trading on the exchange in the fourth quarter of 2008.

   
High
   
Low
 
Fiscal Year 2009
           
   First quarter ended March 31, 2009
  $ .15     $ .04  
   Second quarter ended June 30, 2009
  $ .51     $ .06  
   Third quarter ended September 30, 2009
  $ .45     $ .09  
   Fourth quarter ended December 31, 2009
  $ .35     $ .05  
Fiscal Year 2008
               
   Fourth quarter ended December 31, 2008
  $ 1.01     $ .001  
 
Approximate Number of Equity Security Holders
 
On March 29, 2010 the Company's common stock had a closing price quotation of $.22. As of March 29, 2010 there were approximately 211 certificate holders of record of the Company’s common stock.
 
Dividends
 
We have not declared or paid cash dividends on our common stock.
 
Stock Option Grants

We have issued 854,763 warrants to investors as an investment incentive.  These warrants have an exercise price range of $.08 to $.21 per common share.

We have issued 340,000 warrants to consultants, exercisable for $ .05 within three years from issuance.

Registration Rights

We have not granted registration rights to the selling shareholders or to any other persons.
 
ITEM 6.      SELECTED FINANCIAL DATA
 
The following financial data is derived from, and should be read in conjunction with, the “Financial Statements” and notes thereto. Information concerning significant trends in the financial condition and results of operations is contained in “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
 
Selected Historical Data
           
             
   
December 31,
   
December 31,
 
   
2009
   
2008
 
   
(audited)
   
(audited)
 
Total Assets
    1,185,565       728,307  
Total Liabilities
    422,059       224,717  
Total Stockholders' Equity
    763,506       503,590  
Net Working Capital
    (403,941 )     (217,299 )
                 
 
 
 
5

 
 
   
Years Ended
 
   
December 31,
 
   
2009
(audited)
   
2008
(audited)
 
Revenues
    18,564       12,225  
Gross Profit
    9,338       1,878  
Operating Expenses
    1,260,073       974,856  
Net Loss
    (783,738 )     (977,426 )
 
ITEM 7.      MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

Cautionary Notice Regarding Forward Looking Statements

The information contained in Item 7 contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Actual results may materially differ from those projected in the forward-looking statements as a result of certain risks and uncertainties set forth in this report. Although management believes that the assumptions made and expectations reflected in the forward-looking statements are reasonable, there is no assurance that the underlying assumptions will, in fact, prove to be correct or that actual results will not be different from expectations expressed in this report.
 
We desire to take advantage of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. This filing contains a number of forward-looking statements which reflect management’s current views and expectations with respect to our business, strategies, products, future results and events, and financial performance. All statements made in this filing other than statements of historical fact, including statements addressing operating performance, events, or developments which management expects or anticipates will or may occur in the future, including statements related to distributor channels, volume growth, revenues, profitability, new products, adequacy of funds from operations, statements expressing general optimism about future operating results, and non-historical information, are forward looking statements. In particular, the words “believe,” “expect,” “intend,” “anticipate,” “estimate,” “may,” variations of such words, and similar expressions identify forward-looking statements, but are not the exclusive means of identifying such statements, and their absence does not mean that the statement is not forward-looking. These forward-looking statements are subject to certain risks and uncertainties, including those discussed below. Our actual results, performance or achievements could differ materially from historical results as well as those expressed in, anticipated, or implied by these forward-looking statements. We do not undertake any obligation to revise these forward-looking statements to reflect any future events or circumstances.

Readers should not place undue reliance on these forward-looking statements, which are based on management’s current expectations and projections about future events, are not guarantees of future performance, are subject to risks, uncertainties and assumptions (including those described below), and apply only as of the date of this filing. Our actual results, performance or achievements could differ materially from the results expressed in, or implied by, these forward-looking statements. Factors which could cause or contribute to such differences include, but are not limited to, the risks to be discussed in our Annual Report on form 10-K and in the press releases and other communications to shareholders issued by us from time to time which attempt to advise interested parties of the risks and factors which may affect our business. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.
 
Plan of Operations
 
Due to the current state of the economy and financial markets it is been difficult for the Company to achieve its Plan of Operation, primarily due to lack of capital to finance the Plan.  During the next twenty four months, we intend to pursue private equity financing in combination with federal and state grant funding, for up to $10 million in various phases using our shares of common stock and through federal and state funds available for renewable energy as part of the Stimulus program.  
 
Our overall plan of operation is to seek revenue through the sale of Magnegas fuel for use in metal working and various industrial and vehicle applications. In addition, we will seek revenue through the sale of Plasma Arc Flow equipment and services to end users for the purpose of recycling liquid waste and creating a green natural gas alternative. We will conduct research and development for the catalytic liquefaction of MagneGas, the industrial membrane separation of hydrogen and the use of MagneGas as an additive to clean coal exhaust. We plan to manufacture and install pilot refineries to demonstrate the various applications of the technology. These centers will be strategically located throughout our market area and be used to produce fuel and to promote equipment sales. In addition, we will seek world-wide joint venture partnerships for the manufacturing and distribution of Magnegas equipment and fuel. We will also pursue all needed federal, state and local regulatory permits necessary to implement our operational plan.
 
 
6

 
  
The current state of the economy and financial markets has made it difficult for us to achieve our past operational plans and the Company can make no assurance that we will achieve our operational plan in the future.

The foregoing represents our best estimate of our current planning, and is based on a reasonable assessment of funds we expect to become available.  However, our plans may vary significantly depending upon the amount of funds raised and status of our business plan. In the event we are not successful in reaching our initial revenue targets, additional funds will be required and we would then not be able to proceed with our business plan as anticipated. Should this occur, we would likely seek additional financing to support the continued operation of our business.

The Company has financed its operations primarily through cash generated by the sale of stock through a private offering, the sale of equipment and loans from a majority shareholder.  We believe we have sufficient cash to sustain minimal operations for the next twelve months.  However, to achieve our operational plan, additional cash will be required.  Management plans to increase revenue and obtain additional financing in order to achieve the operational plan outlined above. We have already sold shares to support our continued operations and have received two deposits towards equipment sales. However, completion of our plan of operation is subject to attaining adequate revenue and financing. We cannot assure investors that adequate revenues will be generated.
 
In the absence of our projected revenues, we may be unable to proceed with our plan of operations. Even without significant revenues within the next twelve months, we still anticipate being able to continue with our present activities, but we will require financing to potentially achieve our goal of profit, revenue and growth.

In the event we are not successful in reaching our initial revenue targets, additional funds will be required, and we would then not be able to proceed with our business plan for the development and marketing of our core services. Should this occur, we would likely seek additional financing to support the continued operation of our business. We anticipate that depending on market conditions and our plan of operations, we would incur operating losses in the foreseeable future. We base this expectation, in part, on the fact that we may not be able to generate enough gross profit from our services to cover our operating expenses. Consequently, there is doubt about the Company’s ability to continue to operate as a going concern.
 
As reflected in the audited financial statements, we have an accumulated deficit and have negative cash flows from operations. This raises doubt about its ability to continue as a going concern. The ability of the Company to continue as a going concern is dependent on the Company's ability to raise additional capital and implement its business plan. The audited financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

At December 31, 2009 the Company had minimal cash resources to meet current obligations.  The Company may rely upon the issuance of common stock and additional capital contributions from shareholders to fund administrative expenses until operations generate cash flows sufficient to support the on-going business.

Management believes that actions presently being taken to obtain additional funding and implement its strategic plans provide the opportunity for the Company to continue as a going concern. We anticipate that we will require approximately $10,000,000 to fund our plan of operations.
 
In effort to achieve revenue plans we have been concentrating on selling MagneGas as a metal cutting fuel. We have received firm orders from several entities for the MagneGas produced from non-hazardous waste. We have an additional non-binding letter of intent to process liquid waste based on proposals and our demonstrations. The non-binding letter of intent includes the installation of a plant scale test at a local sewage treatment facility processing sludge. To fund operations, the Company has raised $395,500 in cash proceeds via sales of common stock to date and raised an additional $223,200 in cash proceeds from a shareholder loans since inception. Additionally, to deliver on the metal cutting gas orders we have the commitment of six persons dedicated to the fulfillment of orders and it is headed by a well known industry consultant, whom we have named as president to help develop operating guidelines as well as being instrumental in the marketing and development of our brand offering.
 
To expand understanding of our efforts and progress in generating revenue:
 
Metal Working MagneGas Sales:   Marketing efforts are being concentrated on industry wholesalers to utilize their established customer base and distribution channels.  Our current operations in new facilities (previously disclosed month to month agreement) have been set up for expansion.  We estimate current facilities have capacity for 400-500 bottles to be processed per week.  Our new facilities allow us the flexibility to ramp up for greater volume, as market interest is anticipated to increase.  
 
In 2009, the Company established relationships with several fuel distributors for the sale of MagneGas in the metal working market.  The company has indentified two independent sales representatives to support these relationships.  In addition, in February of 2010, the Company received an order for 294 cylinders of MagneGas from a company in Dubai that plans to sell the fuel in the Metal Working market for the surrounding Middle East area  We are also negotiating with potential fuel distributors from several countries of the world and regions of the United States. At the time of the filing of this document the Company can make no assurance as to the final outcome of these negotiations.
 
 
 
8

 
 
Letter of Intent: A non-binding letter of intent was agreed, in principal with a local municipality's water treatment facility.  Our existing prototype equipment is being modified for the specifics required for this project.    At this time we are unable to accurately estimate the volume that will be processed.   Upon completion of the 12 month test the contract will be evaluated and subject to renegotiation. No date has been determined when this project is to commence and funding will be required to implement this project as per our plan of operations.
 
Purchase Order– China
On March 8, 2010, MagneGas Corporation received $950,000 toward a $1,900,000 purchase of a Plasma Arc Flow Refinery from DDI Industries (“DDI”), based in Bejing, China. In addition, DDI signed a Letter of Intent (“LOI”) to acquire the exclusive MagneGasTM Technology and manufacturing rights for the Greater China market.. As compensation DDI would directly invest $2,000,000 in the Company.  DDI would create a new China-based Joint Venture company (“MagneGas China”) to house and administer the rights; DDI would seek to take this Joint Venture company public in the Asian market in the future. DDI would grant to MagneGas Corp. 20% of MagneGas China.  MagneGas CEO Dr. Ruggero Santilli would receive a full voting seat on the MagneGas China Board of Directors.
 
Per the terms of the purchase agreement, DDI must inspect and approve the refinery before DDI is obligated to pay the remaining $950,000. However, it may not take possession of the refinery until MagneGas has received this final one-time payment.
 
Per the terms of the LOI, DDI has until June 30, 2010, with an option to extend the deadline for additional 6 months, to complete at-once and in-full its intended $2,000,000 investment in the Company; if it does not do so before that date the LOI is rendered void and the Company retains exclusive MagneGas Technology and manufacturing rights to the Greater China market (i.e. Mainland China, Taiwan, Hong Kong, Singapore and Macao). Should DDI complete this investment it would also receive a seat on the Company’s Board of Directors.
 
Results of Operations

For the year ended December 31, 2009 and 2008

Revenues

For the twelve months ended December 31, 2009 and 2008 we generated revenues of $18,564 and $12,225 respectively from our metal cutting fuel sales operations. The increase was due to the continued expansion of customer relationships. We have secured new channels for the distribution of our metal cutting fuel. We have fulfilled initial orders and are receiving repeat orders from multiple customers. To attract and attain new customers we have performed demonstrations and sent samples to prospective accounts. Our facility has been set up to fulfill future anticipated orders.
 
We have contracted with a company based in the Philippines for the sale of a Plasma Arc Flow unit. We have received the signed contract with a $100,000 deposit. Due to natural weather disasters in the Philippines, the purchasing company has delayed the order. We had not commenced any significant work on the project and therefore have not recognized any revenue associated with the $100,000 deposit. Negotiation has commenced with this company in the Philippines for the restructuring of the sale to included a smaller, less expensive refinery. However, no assurance can be made as to the final outcome of this negotiation.
 
Operating Expenses

Operating costs were incurred in the amount of $1,260,073 and $968,224 for the twelve months ended December 31, 2009 and 2008, respectively. The increase was attributable to the issuance of common stock for services valued in the amount of $822,714 in 2009 compared to $613,167 in 2008. Additionally, due to public filing requirements, there was an increase in investor relations, advertising fees, and office administration, which was partially off-set by a reduction in accounting and audit fees for 2009.

Net Loss before Provision for Income Taxes

Net losses incurred in all periods presented have been primarily due to the operating costs. The Company incurred net losses of $783,738and $977,426 for the twelve months ended December 31, 2009 and 2008, respectively. The increase in the year over year net loss was due primarily from general and administrative expenses, described above in the operating expense discussion, particularly stock-based compensation. At this time, normal costs of public filing will continue and it is not known when significant revenues will occur to off-set these expenses.

Based on management’s review of current and subsequent events, the Company has recognized probable future tax benefit attributable to the current year loss. During 2009 and the subsequent period, the Company has received payments for commitment to build two Plasma Arc Flow units. Management has determined that the operations have matured from a development stage enterprise to an operating entity. Therefore, the Company has recognized a deferred tax asset (tax benefit) against future income taxes.
 
Liquidity and Capital Resources
 
The Company previously financed its operations primarily through cash generated by the sale of stock through a private offering. Subsequent to year end we received deposit, amounting to $950,000, for a Plasma Arc Flow unit. We now believe we can currently satisfy our cash requirements for the next twelve months with our current cash and expected revenues from our sales. However, management plans to raise additional capital through private placement offerings of its stock, in an effort to capitalize on the revenue it has generated, furthering sales and marketing efforts. We cannot assure investors that adequate future revenues will be generated without a constant sales and marketing effort.
 
We anticipate that, depending on market conditions and our plan of operations, we may incur operating losses in the future. We base this expectation, in part, on the fact that we may not be able to generate enough gross profit from our sales and services to cover our operating expenses and increased sales and marketing efforts. Consequently, there remains doubt about the Company’s future and sustained profitability.
 
 
9

 
 
As reflected in the financial statements, the Company was previously considered a development stage and has incurred an accumulated deficit of $2,183,635 and also has a negative cash flow from operations of $219,396 for the current period. Our recent contract, and realization of cash from the contract, gives management belief that future earnings are probable.
 
At December 31, 2009 the Company had minimal cash and negative working capital resources to meet current obligations.  Subsequent receipt of $950,000 from a contract for unit gives the Company adequate financing, through this sale, to sustain operations through the current year.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements.

Management Consideration of Alternative Business Strategies

In order to continue to protect and increase shareholder value management believes that it may, from time to time, consider alternative management strategies to create value for the company or additional revenues.  Strategies to be reviewed may include acquisitions; roll-ups; strategic alliances; joint ventures on large projects; and/or mergers.

Management will only consider these options where it believes the result would be to increase shareholder value while continuing the viability of the company.

Recent Accounting Pronouncements

We have reviewed accounting pronouncements and interpretations thereof that have effectiveness dates during the periods reported and in future periods. The Company has carefully considered the new pronouncements that alter previous generally accepted accounting principles and does not believe that any new or modified principles will have a material impact on the corporation’s reported financial position or operations in the near term.  The applicability of any standard is subject to the formal review of our financial management and certain standards are under consideration.  Those standards have been addressed in the notes to the audited financial statement and in our Annual Report, filed on Form 10-K for the period ended December 31, 2008.
 
Critical Accounting Policies
 
The Company’s significant accounting policies are presented in the Company’s notes to financial statements for the period ended December 31, 2009 and 2008, which are contained in this filing, the Company’s 2009 Annual Report on Form 10-K. The significant accounting policies that are most critical and aid in fully understanding and evaluating the reported financial results include the following:

The Company prepares its financial statements in conformity with generally accepted accounting principles in the United States of America. These principals require management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Management believes that these estimates are reasonable and have been discussed with the Board of Directors; however, actual results could differ from those estimates.
 
The Company issues restricted stock to consultants for various services.  Cost for these transactions are measured at the fair value of the consideration received or the fair value of the equity instruments issued, whichever is measurable more reliably.  The value of the common stock is measured at the earlier of (i) the date at which a firm commitment for performance by the counterparty to earn the equity instruments is reached or (ii) the date at which the counterparty's performance is complete.  
 
Long-lived assets such as property, equipment and identifiable intangibles are reviewed for impairment whenever facts and circumstances indicate that the carrying value may not be recoverable.  When required impairment losses on assets to be held and used are recognized based on the fair value of the asset.  The fair value is determined based on estimates of future cash flows, market value of similar assets, if available, or independent appraisals, if required.  If the carrying amount of the long-lived asset is not recoverable from its undiscounted cash flows, an impairment loss is recognized for the difference between the carrying amount and fair value of the asset.  When fair values are not available, the Company estimates fair value using the expected future cash flows discounted at a rate commensurate with the risk associated with the recovery of the assets.  We did not recognize any impairment losses for any periods presented.
   
 
10

 

Off-Balance Sheet Arrangements
 
We have no off-balance sheet arrangements.
 
ITEM 7A.   QUANTITATIVE AND QUALITIATIVE DISCLOSURES ABOUT MARKET RISK

We do not hold any derivative instruments and do not engage in any hedging activities.
 
 
11

 
 
ITEM 8.      FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

 
 
 
Financial Statements

MagneGas Corporation
(Previously a Development Stage Enterprise)

As of December 31, 2009 and 2008
And for the Years Ended December 31, 2009 and 2008
 
 
 
 
 
 
 

 
12

 
 
Contents
 
Financial Statements:
 
Report of Independent Registered Public Accounting Firm
F-2
   
Balance Sheets
F-3
   
Statements of Operations
F-4
   
Statements of Changes in Stockholders’ Equity
F-5
   
Statements of Cash Flows
F-6/F-7
   
Notes to Financial Statements
F-8 through F-14
 
 
F-1

 
 
Randall N. Drake, C.P.A., P.A.
1981 Promenade Way
Clearwater, FL  33760
727.536.4863
Randall@RDrakeCPA.com

Report of Independent Registered Public Accounting Firm

Board of Directors
MagneGas Corporation
Palm Harbor, Florida

We have audited the accompanying balance sheets of MagneGas Corporation (previously a development stage enterprise) as of December 31, 2009 and 2008 and the related statements of operations, stockholders’ equity, and cash flows for the year ended December 31, 2009 and 2008.  These financial statements are the responsibility of the Company’s management.  Our responsibility is to express an opinion on these financial statements based on our audit.  

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.  The Company is not required at this time, to have, nor were we engaged to perform, an audit of its internal control over financial reporting.  Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal controls over financial reporting.   Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.  An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.  We believe that our audit provided a reasonable basis for our opinion.

In our opinion, based on our audit, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2009 and 2008 and the results of its operations and its cash flows for the year ended December 31, 2009 and 2008 in conformity with accounting principles generally accepted in the United States of America  

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern.  As discussed in footnote 3 to the financial statements, the Company has generated nominal revenue and has negative cash flows from operations which raise substantial doubt about its ability to continue as a going concern.  Management’s plans concerning these matters are also described in Note 3.  These conditions raise substantial doubt about the Company’s ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.


/s/ Randall N. Drake, CPA PA
Clearwater, Florida
March 29, 2010
 
 
F-2

 
 
 
MagneGas Corporation
 
(Previously A Development Stage Enterprise)
 
Balance Sheets
 
             
   
December 31,
 
   
2009
   
2008
 
 ASSETS
 Current Assets
           
 Cash
  $ 7,338     $ 160  
 Accounts receivable, net of allowance of $0
    2,399       2,398  
 Inventory, at cost
    8,381       4,860  
                 
     Total Current Assets
    18,118       7,418  
                 
 Property and equipment, net of accumulated
depreciation of $375
    22,125       -  
                 
 Deferred Tax Asset
    472,900       -  
 Intangible assets, net of accumulated amortization
    672,422       720,889  
 TOTAL ASSETS
  $ 1,185,565     $ 728,307  
                 
                 
 LIABILITIES AND STOCKHOLDER'S DEFICIT
 Current Liabilities
               
 Accounts payable
    94,577     $ 109,739  
 Accrued expenses
    77,395       15,000  
 Deferred revenue
    100,000       -  
 Due to affiliate
    10,000       10,000  
 Note payable to related party
    140,087       89,978  
 TOTAL LIABILITIES
    422,059       224,717  
                 
                 
 Stockholders' Deficit
               
 Preferred stock: $0.001 par;  10,000,000 authorized; 2,000
issued and outstanding
    2       2  
 Common stock: $0.001 par;  900,000,000 authorized;
105,954,395 and 99,444,833 issued and outstanding
    105,954       99,445  
 Additional paid-in capital
    2,909,518       1,892,373  
 Unearned stock compensation
    (68,333 )     (88,333 )
 Accumulated deficit
    (2,183,635 )     (1,399,897 )
 TOTAL STOCKHOLDERS' EQUITY
    763,506       503,590  
                 
 TOTAL LIABILITIES AND EQUITY
  $ 1,185,565     $ 728,307  
                 
                 
The accompanying notes are an integral part of these financial statements.
         
 
 
F-3

 
  
MagneGas Corporation
 
(Previously A Development Stage Enterprise)
 
STATEMENTS OF OPERATIONS
 
For the Years Ended December 31, 2009 and 2008
 
 
 
             
             
   
Years Ended months ended
 
   
December 31,
 
   
2009
   
2008
 
             
             
 Revenue
  $ 18,564     $ 12,225  
                 
 Cost of Sales
    9,226       10,347  
                 
 Gross Profit
    9,338       1,878  
                 
 Operating Expenses:
               
  Advertising
    31,214       8,003  
  Selling
    38,405       31,296  
  Professional: technical
    22,958       64,765  
  Professional: legal and accounting
    81,265       195,636  
  Rent and overhead
    66,904       46,051  
  Office and administration
    74,277       1,501  
  Investor Relations
    44,536       4,415  
  Stock-based compensation
    822,714       613,167  
  Research and development
    28,958       3,391  
  Depreciation and Amortization
    48,842       6,631  
 Total Operating Expenses
    1,260,073       974,856  
                 
 Operating Loss
    (1,250,735 )     (972,978 )
                 
 Other (Income) and Expense
               
  Interest expense
    5,903       1,691  
  Sale of Asset(s)
    -       2,757  
 Total Other (Income) Expenses
    5,903       4,448  
                 
 Net Loss before tax benefit
    (1,256,638 )     (977,426 )
 Provision for Income Taxes
    (472,900 )     -  
 Net Loss
  $ (783,738 )   $ (977,426 )
                 
                 
 Loss per share, basic and diluted
  $ (0.01 )   $ (0.01 )
 Weighted average number of common shares
    102,423,380       68,457,040  
                 
The accompanying notes are an integral part of these financial statements.
 
 
 
F-4

 
 
MagneGas Corporation
 
(Previously A Development Stage Enterprise)
 
Statement of Changes in Stockholders' Equity
For the Years Ended December 31, 2009 and 2008
 
   
                                                 
                           
Additional
   
Unearned
             
   
Preferred
   
Common
   
Paid in
   
Stock
   
Accumulated
   
Total
 
   
Shares
   
Amount
   
Shares
   
Amount
   
Capital
   
Comp
   
Deficit
   
Equity
 
                                                 
 Balance at December 31, 2007
    2,000       2       67,639,500       67,640       422,458       -       (422,471 )     67,629  
                                                                 
 Issuance of stock for license, valued at $1 per share; February 15, 2008
                    100,000       100       99,900                       100,000  
                                                                 
 Issuance of stock under 5 year consulting agreement, valued at $1 per share, May, 2008
                    100,000       100       99,900       (100,000 )             -  
                                                                 
 Recognized for period
                                            11,667               11,667  
                                                                 
 Waiver of related party expense
                                    11,220                       11,220  
                                                                 
 Common shares issued for services
                    31,543,333       31,543       1,196,957                       1,228,500  
                                                                 
 Common shares issued for cash
                    62,000       62       61,938                       62,000  
                                                                 
 Net loss
                                                    (977,426 )     (977,426 )
                                                                 
 Balance at December 31, 2008
    2,000       2       99,444,833       99,445       1,892,373       (88,333 )     (1,399,897 )     503,590  
                                                                 
 Compensation recognized under consulting agreement (May 31, 2008)
                                            20,000               20,000  
                                                                 
 Waiver of related party expense
                                    22,440                       22,440  
                                                                 
 Options issued for services
                                    6,324                       6,324  
                                                                 
 Common shares issued for services
                    4,517,500       4,517       791,873                       796,390  
                                                                 
 Common shares issued for purchase of assets
                    150,000       150       22,350                       22,500  
                                                                 
 Common shares issued for cash
                    1,842,062       1,842       174,158                       176,000  
                                                                 
 Net Loss
                                                    (783,738 )     (783,738 )
                                                                 
 Balance at December 31, 2009
    2,000     $ 2       105,954,395     $ 105,954     $ 2,909,518     $ (68,333 )   $ (2,183,635 )   $ 763,506  
                                                                 
The accompanying notes are an integral part of these financial statements.
   
 
 
 
F-5

 
 
 
MagneGas Corporation
 
(Previously A Development Stage Enterprise)
 
STATEMENTS OF CASH FLOWS
 
   
   
Years Ended
 
   
December 31,
 
   
2009
   
2008
 
 CASH FLOWS FROM OPERATING ACTIVITIES
           
             
 Net loss
 
$
(783,738
)
 
$
(977,426
)
                 
 Adjustments to reconcile net loss to cash used in operating activities:
               
 Depreciation and amortization
   
48,842
     
6,611
 
 Stock based compensation
   
822,714
     
613,167
 
 Waiver of related party expenses
   
22,440
     
11,220
 
 Loss on sale of asset
   
-
     
2,757
 
 Bad debts
   
501
     
-
 
 Deferred income taxes
   
(472,900
)
   
-
 
  Changes in operating assets:
               
 Accounts Receivable
   
(502
)
   
(2,398
)
 Inventory
   
(3,521
)
   
(4,860
)
 Prepaid & other current assets
   
-
     
2,000
 
 Accounts Payable
   
(15,162
)
   
109,739
 
 Accrued Expenses
   
62,395
     
9,370
 
 Deferred revenue
   
100,000
     
-
 
 Total adjustments to net income
   
564,807
     
747,626
 
 Net cash (used in) operating activities
   
(218,931
)
   
(229,800
)
                 
 CASH FLOWS FROM INVESTING ACTIVITIES
               
 Proceeds from sale of asset
   
 -
     
1,750
 
 Net cash flows (used in) investing activities
   
-
     
1,750
 
                 
 CASH FLOWS FROM FINANCING ACTIVITIES
               
 Advances from related party
   
5,903
     
-
 
 Proceeds from note payable to related party
   
137,100
     
88,287
 
 Repayments on notes payable from related party
   
(85,300
)
   
-
 
 Interest accrued on affiliate notes and advances
   
(7,594
)
   
1,691
 
 Proceeds from issuance of common stock
   
176,000
     
62,000
 
 Net cash flows provided by investing activities
   
226,109
     
151,978
 
 Net increase (decrease) in cash
   
7,178
     
(76,072
)
                 
 Cash - beginning balance
   
160
     
76,232
 
                 
 CASH BALANCE - END OF PERIOD
 
$
7,338
   
$
160
 
                 
                 
Supplemental disclosure of cash flow information and non cash investing and financing activities:
               
      Interest paid
 
$
-
   
$
-
 
      Taxes paid
 
$
-
   
$
-
 
                 
 
 
Non-cash transaction: The Company received property and equipment, with a fair value of $22,500 in exchange for the issuance of 150,000 common shares.
 
                 
The accompanying notes are an integral part of these financial statements.
 
 
 
F-6

 
 
MagneGas Corporation
(Previously a Development Stage Enterprise)

Notes to Financial Statements
For the Years Ended December 31, 2009 and 2008
 
 1.        Background Information
 
MagneGas Corporation (the “Company”) was organized in the state of Delaware on December 9, 2005. The Company was originally organized under the name 4307, Inc, for the purpose of locating and negotiating with a business entity for a combination. On April 2, 2007 all the issued and outstanding shares of 4307, Inc. were purchased and the Company name was changed to MagneGas Corporation.

The Company’s operating plan and mission is to provide services in cleaning and converting contaminated waste. A process has been developed which transforms contaminated waste through a proprietary incandescent machine. The result of the product is to carbonize waste for normal disposal. A byproduct of this process is to produce a green alternative to natural gas.. The patented proprietary technology is owned by the Company.
 
2.         Development Stage Enterprise

The Company, in prior periods, presented financial statements as a development stage enterprise.   In the initial years the Company, devoted substantially all of its efforts to raising capital, planning and implementing the principal operations.   The Company may continue to incur significant operating losses and to generate negative cash flow from operating activities.  The Company's ability to eliminate operating losses and to generate positive cash flow from operations in the future will depend upon a variety of factors, many of which it is unable to control.   However, based on current and subsequent events, management believes that the Company has established the primary business development plan.

3.         Going Concern

The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplate continuation of the Company as a going concern.

The Company incurred a net loss of $783,738 and $977,426 for the year ended December 31, 2009 and 2008, respectively. As of December 31, 2009 the Company had $7,388 of cash with which to satisfy any future cash requirements. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. The Company depends upon capital to be derived from future financing activities such as subsequent offerings of its common stock or debt financing in order to operate and grow the business. There can be no assurance that the Company will be successful in raising such capital. The key factors that are not within the Company's control and that may have a direct bearing on operating results include, but are not limited to, acceptance of the Company's business plan, the ability to raise capital in the future, the ability to expand its customer base, and the ability to hire key employees to build and manufacture such proprietary machines to provide services. There may be other risks and circumstances that management may be unable to predict. Subsequent to the year end the Company received advance payment, in the amount of $950,000 for the order of manufacturing and delivery of a Plasma Arc Flow unit. This payment represents a significant cash flow event, which management believes will support the Company’s on-going plans.
 
The financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the possible inability of the Company to continue as a going concern.
 
 
F-7

 
 
4.         Summary of Significant Accounting Policies
 
The significant accounting policies followed are:
 
Basis of Presentation
 
In the opinion of management, all adjustments consisting of normal recurring adjustments necessary for a fair statement of (a) the result of operations for the twelve month periods ended December 31, 2009 and 2008; (b) the financial position at December 31, 2009, and (c) cash flows for the twelve month periods ended December 31, 2009 and 2008, have been made.
  
The Company prepares its financial statements in conformity with generally accepted accounting principles in the United States of America. These principals require management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Management believes that these estimates are reasonable and have been discussed with the Board of Directors; however, actual results could differ from those estimates.

Use of Estimates
 
The Company prepares its financial statements in conformity with generally accepted accounting principles in the United States of America. These principals require management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Management believes that these estimates are reasonable and have been discussed with the Board of Directors; however, actual results could differ from those estimates.
 
Variable Interest Entities
 
The Company considers the consolidation of entities to which the usual condition (ownership of a majority voting interest) of consolidation does not apply, focusing on controlling financial interests that may be achieved through arrangements that do not involve voting interest.  If an enterprise holds a majority of the variable interests of an entity, it would be considered the primary beneficiary.  The primary beneficiary is generally required to consolidate assets, liabilities and non-controlling interests at fair value (or at historical cost if the entity is a related party) and subsequently account for the variable interest as if it were consolidated based on a majority voting interest.   The Company has investments in joint ventures that are in development of the MagneGas technology, however the Company is not identified as a primary beneficiary; therefore no consolidation is required and the investments are listed at their cost.
 
Financial Instruments
 
The Company’s balance sheets include the following financial instruments: cash, accounts receivable, inventory, accounts payable and note payable to stockholder. The carrying amounts of current assets and current liabilities approximate their fair value because of the relatively short period of time between the origination of these instruments and their expected realization. The carrying values of the note payable to stockholder  approximates fair value based on borrowing rates currently available to the Company for instruments with similar terms and remaining maturities.
 
Cash and Cash Equivalents
 
The majority of cash is maintained with a major financial institution in the United States.  Deposits with this bank may exceed the amount of insurance provided on such deposits.  Generally, these deposits may be redeemed on demand and, therefore, bear minimal risk.  The Company considers all highly liquid investments purchased with an original maturity of six months or less to be cash equivalents.
 
Accounts Receivable, Credit and Revenue Recognition
 
Accounts receivable consist of amounts due for the delivery of MagneGas sales to customers. Revenue for metal-cutting fuel is recognized when shipments are made to customers. The Company recognizes a sale when the product has been shipped and risk of loss has passed to the customer. An allowance for doubtful accounts is considered to be established for any amounts that may not be recoverable, which is based on an analysis of the Company’s customer credit worthiness, and current economic trends. Based on management’s review of accounts receivable, no allowance for doubtful accounts was considered necessary. Receivables are determined to be past due, based on payment terms of original invoices. The Company does not typically charge interest on past due receivables.
 
Inventories
 
Inventories are stated at the lower of standard cost or market, which approximates actual cost. Cost is determined using the first-in, first-out method.  Inventory is comprised of filled cylinders of MagneGas and accessories (regulators and tips) available for sale.
 
 
F-8

 

Stock Based Compensation

The Company issues restricted stock to consultants for various services Cost for these transactions are measured at the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable.  The value of the common stock is measured at the earlier of (i) the date at which a firm commitment for performance by the counterparty to earn the equity instruments is reached or (ii) the date at which the counterparty's performance is complete.   The Company recognized consulting expenses and a corresponding increase to additional paid-in-capital related to stock issued for services.  Stock compensation for the periods presented were issued to consultants for past services provided, accordingly, all shares issued are fully vested, and there is no unrecognized compensation associated with these transactions.  In May 2008 the Company entered into a consulting agreement for services to be rendered over a five year period.  The consulting expense is to be recognized ratably over the requisite service period.
 
Shipping Costs
 
The Company includes shipping costs and freight-in costs in cost of goods sold.  Total freight-in included in cost of goods sold expense was $714 and $649 for the years ended December 31, 2009 and 2008, respectively.
 
Advertising Costs
 
The costs of advertising are expensed as incurred.  Advertising expenses are included in the Company’s operating expenses.   Advertising expense was $31,214 and $8,003 for the years ended December 31, 2009 and 2008, respectively
 
Research and Development
 
The Company expenses research and development costs when incurred.  Indirect costs related to research and developments are allocated based on percentage usage to the research and development.
 
Income Taxes
 
The Company accounts for income taxes under the liability method. Deferred tax assets and liabilities are recorded based on the differences between the tax bases of assets and liabilities and their carrying amounts for financial reporting purpose, referred to as temporary differences. Deferred tax assets and liabilities at the end of each period are determined using the currently enacted tax rates applied to taxable income in the periods in which the deferred tax assets and liabilities are expected to be settled or realized.
 
Earnings (Loss) Per Share
 
Basic earnings (loss) per share calculations are determined by dividing net income (loss) by the weighted average number of shares outstanding during the year. Diluted earnings (loss) per share calculations are determined by dividing net income (loss) by the weighted average number of shares. There are no share equivalents and, thus, anti-dilution issues are not applicable.

 
  
 
F-9

 

 
5.         Recently Issued Accounting Pronouncements
In August 2009, the FASB issued Accounting Standards Update (“ASU”) No. 2009-03, SEC Update — Amendments to Various Topics Containing SEC Staff Accounting Bulletins. This ASU updated cross-references to Codification text. The adoption of ASU 2009-03 will not have a material impact on our financial statements.

In August 2009, the FASB issued Accounting Standards Update (“ASU”) No. 2009-05, Fair Value Measurements and Disclosures (Topic 820) — Measuring Liabilities at Fair Value. This Accounting Standards Update amends Subtopic 820-10, Fair Value Measurements and Disclosures - Overall, to provide guidance on the fair value measurement of liabilities. The adoption of ASU 2009-05 is not expected to have a material impact on our financial statements.

In September 2009, the FASB issued Accounting Standards Update (“ASU”) No. 2009-08, Earnings Per Share Amendments to Section 260-10-S99. This Codification Update represents technical corrections to Topic 260-10-S99, Earnings per Share, based on EITF Topic D-53, Computation of Earnings Per Share for a Period that Includes a Redemption or an Induced Conversion of a Portion of a Class of Preferred Stock and EITF Topic D-42, The Effect of the Calculation of Earnings per Share for the Redemption or Induced Conversion of Preferred Stock. The adoption of ASU 2009-08 will not have material impact on our financial statements

In September 2009, the FASB issued Accounting Standards Update (“ASU”) No. 2009-09, Accounting for Investments-Equity Method and Joint Ventures and Accounting for Equity-Based Payments to Non-Employees. This Accounting Standards Update represents a correction to Section 323-10-S99-4, Accounting by an Investor for Stock-Based Compensation Granted to Employees of an Equity Method Investee. Section 323-10-S99-4 was originally entered into the Codification incorrectly. The adoption of ASU 2009-09 will not have material impact on our financial statements.

In September 2009, the FASB issued Accounting Standards Update (“ASU”) No. 2009-12, Fair Value Measurements and Disclosures (Topic 820), Investments in Certain Entities that Calculate Net Asset Value per Share (or Its Equivalent) . This Accounting Standards Update amends Subtopic 820-10, Fair Value Measurements and Disclosures > Overall, to provide guidance on the fair value measurement of investments in certain entities that calculate net asset value per share (or its equivalent). The adoption of ASU 2009-12 will not have material impact on our financial statements.


 
 
F-10

 

 
6.        Long-Lived Assets

Equipment consists of: 
   
2009
   
2008
 
Equipment
  $ 18,125     $ -  
Truck
    4,375          
      22,500       -  
Less accumulated depreciation
    375       -  
    $ 22,125     $ -  
 
Depreciation of equipment was $375 and $0 for the years ended December 31, 2009 and 2008, respectively.

Intellectual property:
Additionally, the Company owns intellectual property, which it is amortizing on a straight-line basis over the assets useful life.  The Company assesses fair market value for any impairment to the carrying values.  As of December 31, 2009 management concluded that there is no impairment to the intangible assets.

   
2009
   
2008
 
Intellectual property
  $ 727,000     $ 727,000  
Less accumulated amortization
    54,578       6,111  
    $ 672,422     $ 720,889  
Future amortization:
               
       2010
  $ 48,467          
       2011
    48,467          
       2012
    48,467          
       2013
    48,467          
       2014
    48,467          
       2015 and thereafter
    430,087          
    $ 672,422          
 
Amortization of the intangible assets was $48,467 and $6,111 for the years ended December 31, 2009 and 2008, respectively.
 
7.         Income Tax

Provision (Benefit) for Income Taxes
 
The provision for income taxes consists of the following:
  
 
2009
   
2008
 
Current Tax Provision
  $ -     $ -  
Deferred Tax(Benefit) Provision
    (472,900 )     -  
Total Tax (Benefit) Provision
  $ (472,900 )   $ -  
 
A reconciliation of the expected Federal statutory rate of 34% to the Company’s actual rate as reported for each of the periods presented is as follows:
 
  
 
2009
   
2008
 
Expected statutory rate
   
(34.0
)%
   
(34.0
)%
State Income tax rate, net of federal benefit
   
(3.6
)%
   
(3.6
)%
Permanent Differences
   
0.0
%
   
0.0
%
Temporary Differences
   
0.0
%
   
0.0
%
Valuation Allowance
   
0.0
%
   
37.6
%
  
   
37.6
%
   
0.0
%

Deferred Income Taxes
 
Deferred income taxes are the result of timing differences between book and tax basis of certain assets and liabilities, timing of income and expense recognition of certain items and net operating loss carry-forwards.
 
 
 
F-11

 
 
 
The Company assesses temporary differences resulting from different treatments of items for tax and accounting purposes. These differences result in deferred tax assets and liabilities, which are recorded in our balance sheets. The Company evaluates the realizability of its deferred tax assets and assesses the need for a valuation allowance on an ongoing basis. In evaluating its deferred tax assets, the Company considers whether it is more likely than not that the deferred income tax assets will be realized. The ultimate realization of deferred tax assets depends upon generating sufficient future taxable income prior to the expiration of the tax attributes.  In assessing the need for a valuation allowance the Company must project future levels of taxable income. This assessment requires significant judgment. The Company examined the evidence related to a recent history of tax losses, the economic conditions in which it operates recent organizational changes, its forecasts and projections. The Company therefore has recorded deferred tax assets as of December 31, 2009, as it is satisfied the realization standard for the year ended December 31, 2009.  The Company will continue to evaluate its deferred tax assets to determine whether any changes in circumstances could affect the realization of their future benefit.

The Company had not previously recognized an income tax benefit for its operating losses generated since inception through December 31, 2008 based on uncertainties concerning its ability to generate taxable income in future periods of which, at the time, the realization could not be considered more likely than not. Based on events subsequent to the balance sheet date, management has re-assessed the valuation allowance and the recognition of its deferred tax losses, however, based on the Company’s history of losses and other negative evidence resulting in the allowance, no income tax benefit will be recognized for prior periods. The tax benefit for the prior periods, in the amount of $348,800, arising from operating losses as a start-up company and other temporary differences, has been off-set by an equal valuation allowance.
 
 The following is a schedule of the deferred tax assets and liabilities as of December 31, 2009 and 2008:
 
  
 
2009
   
2008
 
Deferred Tax Assets
           
Net Operating Loss Carry Forwards
 
$
472,900
   
$
 
                 
Deferred Tax Liabilities
               
Total Deferred Tax Assets (Liabilities)
 
$
 
 
$
 
                 
Net Deferred Tax Asset (Liabilities)
 
$
472,900
   
$
 
 
For balance sheet presentation the Company nets its current deferred tax assets and liabilities and non-current deferred tax assets and liabilities. The following table summarizes the presentation:
 
Balance Sheet Presentation
  
 
2009
   
2008
 
Net current deferred tax assets (liabilities)
 
$
   
$
 
  
               
Net long-term deferred tax assets (liabilities)
 
$
472,900
   
$
 
 
Management believes that the Company has matured and product acceptance will generate the revenues and achieve a level of profitability creating taxable income of approximately $1,255,000 which would utilize the recognized deferred tax assets.
 
Under the Internal Revenue Code of 1986, as amended, these losses can be carried forward twenty years. As of December 31, 2009 the Company has net operating loss carry forwards remaining from the following years:
 
Year
 
Net Operating
       
Generated
 
Loss
   
Expires
 
2007
    415,000       2027  
2008
    977,000       2028  
2009
    1,255,000       2029  
    $ 2,647,000          
 
The adoption of provisions, required by Accounting Standard Codification (“ASC”) No. 740, did not result in any adjustments.
 
The Company is currently open to audit under the statute of limitations by the Internal Revenue Service for the years ending December 31, 2005 through 2008. The Company state income tax returns are open to audit under the statute of limitations for the years ending December 31, 2005 through 2008.
 
The Company recognizes interest and penalties related to income taxes in income tax expense. The Company had incurred no penalties and interest for the years ended December 31, 2009 and 2008.
 
 
 
F-12

 
 
 
8          Equity

The company has two classifications of stock:
 
Preferred Stock includes 10,000,000 shares authorized at a par value of $0.001. Preferred Stock has been issued as Series A Preferred Stock. Preferred Stock has liquidation and dividend rights over Common Stock, which is not in excess of its par value. The preferred stock has no conversion rights or mandatory redemption features. There have been 2,000 shares of Common Stock issued to an entity controlled by Dr. Ruggero Santilli and other members of the Board of Director. Each share of Preferred Stock is entitled to 100,000 votes.
 
Common Stock includes 900,000,000 shares authorized at a par value of $0.001. The number of authorized shares reflects an amendment to the Articles of Incorporation, increasing the authorized shares from 100,000,000 to 900,000,000. The holders of Common Stock and the equivalent Preferred Stock, voting together, shall appoint the members of the Board of the Directors. Each share of Common Stock is entitled to one vote.
 
Founding contributors were issued 67,052,000 shares during 2007.   As management determined that the Company had negligible value, no value was attributed to the founders’ shares.   

During year ended December 31, 2008, the company issued 30,000,000 common shares, valued at $727,000 to secure intellectual property rights and 100,000 common shares under a consulting agreement (see Related Party Transactions).  

The use of an initial small production refinery has been contributed by Dr. Ruggero Santilli, Chief Executive Officer, Chief Scientist, and Chairman of the Board. The computed fair value of this month to month rental agreement is $1,870 per month and has been charged to equipment rental expense in the operating expenses. To reflect the contributed value, the corresponding entry has been charged to additional paid in capital, and is included in the statement of stockholders’ equity. Total contributed value was $11,220 for the year ended December 31, 2009 and for the period December 9, 2005 (date of inception) through December 31, 2009.
 
 
F-13

 
 
9.         Related Party Transactions
 
On December 28, 2008 the Company acquired all  relevant patents and intellectual  property for the MagneGas technology from a company, Hyfuels, Inc. related by common management, that originally secured an intellectual property license. The Company issued 30,000,000 shares of common stock, valued at the fair market trading value of the stock at the time of purchase, in exchange for the intellectual property.   Significant terms of the agreement were:
 
·  
Territories defined as: North, South, Central America and all Caribbean Islands ("the Territories"), in perpetuity;

·  
The Company acquired  the all MagneGas domain names and trademarks and the following patents:

·  
U.S. Patent No. 6,926,872, issued on August 9, 2005 entitled Apparatus and Method for Producing a Clean Burning Combustible Gas With Long Life Electrodes and Multiple Plasma-Arc-Flows;

·  
U.S. Patent No. 6,972,118, issued on December 6, 2005 entitled Apparatus and Method for Processing Hydrogen, Oxygen and Other Gases;

·  
U.S. application no. 11/474,687, filed on June 26, 2006 entitled Operating Under High Power, Pressure and Temperature Conditions to Produce A Combustible Gas.

The Company is seeking to expand to various regions of the world (with the exception of the European Continent and Africa) through Joint Venture partnerships for manufacturing and distribution of the Magnegas technology and fuel.  The intellectual property rights for the European Continent and Africa are owned by HyFuels, Inc. and are in the process of being transferred to a company in Europe. Magnegas Corporation is seeking minority interest in the European company.  However, management can make no assurances as to the outcome of these negotiations.
 
In February 2008, the Company entered into a 5 year consulting agreement with Dr. Santilli, whose knowledge and expertise of the technology is essential in the development of the MagneGas product.   The terms of the consulting agreement consist of issuance of common stock (100,000 shares) and payment of $5,000 per month to Dr. Santilli, upon the determination by the Board of Directors of MagneGas Corporation of achieving adequate funding.  
 
In 2008 an advance in the amount of $10,000 was made by a company owned by a shareholder, for initial deposit for services. There are no repayment terms to this advance and the amount is payable upon demand.
 
At various times the Company received advances from a shareholder for an unsecured promissory note. All funds are at the same terms of the original shareholder note. These promissory notes have no repayment date; however it is payable within 30 days of written demand. Payment is to include accrued simple interest at 4%. The balance on the promissory note is $140,087, which includes accrued interest.
 
Beginning April 2008 the Company entered into a month-to-month lease, at a monthly rate of $2,500 per month for facilities to occupy approximately 3,000 square feet of a 6,000 square foot building and the use of certain equipment and utilities, as needed. The facility allows for expansion needs. The lease is held by a Company that is effectively controlled by Dr. Santilli.
 
The use of an initial small production refinery has been contributed by Dr. Ruggero Santilli, Chief Executive Officer, Chief Scientist, and Chairman of the Board. The computed fair value of this month to month rental agreement is $1,870 per month and has been charged to equipment rental expense in the operating expenses, beginning in July 2008. To reflect the contributed value, the corresponding entry has been charged to additional paid in capital, and is included in the statement of stockholders’ equity. Total contributed value was $22,440 and $11,220 for the year ended December 31, 2009 and 2008, respectively.

The amounts and terms of the above transactions may not necessarily be indicative of the amounts and terms that would have been incurred had comparable transactions been entered into with independent third parties.
 
10.       Contingencies
 
From time to time the Company may be a party to litigation matters involving claims against the Company.  Management believes that there are no current matters that would have a material effect on the Company’s financial position or results of operations.
 
11.       Subsequent Events

Subsequent to year end, the Company received payment for its first international sales of MagneGas for the metal cutting market.

In March 2010 the Company announced the order for an Plasma Arc Flow production model to China. The Company has received a US $1,900,000 order for the manufacturing and delivery of a tested production unit. MagneGas has received $950,000 as a deposit on the purchase.
 
 
F-14

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

There have been no disagreements with our auditor regarding accounting and financial disclosure.

ITEM 9A.   CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures
 
Pursuant to Rule 13a-15(b) under the Securities Exchange Act of 1934 (“Exchange Act”), the Company carried out an evaluation, with the participation of the Company’s management, including the Company’s Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”) (the Company’s principal financial and accounting officer), of the effectiveness of the Company’s disclosure controls and procedures (as defined under Rule 13a-15(e) under the Exchange Act) as of the end of the period covered by this report. Based upon that evaluation, the Company’s CEO and CFO concluded that the Company’s disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in the reports that the Company files or submits under the Exchange Act, is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including the Company’s CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure.

Management's Annual Report on Internal Control Over Financial Reporting.

The management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting for the Company.  Our internal control system was designed to, in general, provide reasonable assurance to the Company’s management and board regarding the preparation and fair presentation of published financial statements, but because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.  Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Our management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2009.  The framework used by management in making that assessment was the criteria set forth in the document entitled “ Internal Control – Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on that assessment, our management has determined that as of December 31, 2009, the Company’s internal control over financial reporting was effective for the purposes for which it is intended.

This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management's report was not subject to attestation by the Company's registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Company to provide only management's report in this annual report.
 
Changes in Internal Control over Financial Reporting

No change in our system of internal control over financial reporting occurred during the period covered by this report, fourth quarter of the fiscal year ended December 31, 2009 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

ITEM 9B.    OTHER INFORMATION

None.
 
 
13

 
 
PART III

ITEM 10.     DIRECTORS AND EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Our executive officers and directors and their ages as of March 13, 2009 is as follows:
 
 NAME
 
AGE
 
POSITION
         
Dr. Ruggero Maria Santilli
  74  
Chairman Of the Board, Chief Executive Officer
Richard Connelly
  63  
President, Director
Luisa Ingargiola
  42  
Chief Financial Officer, Secretary, Director
Carla Santilli
  69  
Director
 
Set forth below is a brief description of the background and business experience of our executive officers and directors for the past five years.

Dr. Ruggero Maria Santilli, Chairman of the Board, Chief Executive Officer.  Dr. Santilli was born and educated in Italy where he achieved his Ph.D., in mathematics and physics, as well as a chair in nuclear physics at the Avogadro Institute in Turin, Italy. In 1967 Santilli was invited by the University of Miami in Florida to conduct research for NASA and he moved with his family to the U.S.A. where he subsequently became a U.S. citizen. In 1968 he joined the faculty of Boston University, under partial support from the U.S. Air Force, where he taught physics and applied mathematics from prep courses to seminar post-PhD. courses. In 1975-1977 he went to MIT and from 1978 to 1983 he was a member of Harvard University faculty where he received five grants from the U. S. Department of Energy to study a generalization of quantum mechanics and chemistry needed for new clean energies and fuels. Since 1984 he has been the President of the Institute for Basic Research, originally located in a Victorian inside Harvard University grounds and moved to Florida in 1990.  Since his time at Harvard University he studied new clean energies and related chemistry.

Dr. Santilli is the author of over 250 technical articles and 18 post Ph.D. level monographs in mathematics, physics, cosmology, superconductivity, chemistry and biology published the world over. He is the founding editor of three journals in mathematics and physics and editor of several others. 
 
Dr. Santilli is also internationally known for the discovery of the basic science and for the industrial development of the "Santilli MagneGas Technology" of which he remains the chief scientist with associate scientists from some developed nations.

Dr. Santilli is the recipient of various honors, including: his nomination by the Estonia Academy of Sciences among the most illustrious applied mathematicians of all times; two gold metals for scientific merits; the listing as "Santilli Hall" of a class room at an Australian research center; and nominations for the Nobel Prize in physics as well as in chemistry from scientists the world over. A scientific meeting was organized in June 2005 at the University of Karlstad, Sweden, to honor Prof. Santilli on his 70th birthday with participation of scientists from 50 countries.

Richard Connelly, President.  Proven experience in the management, distribution, sales and marketing of specialty gases including welding gas, medical/specialty gases and industrial products. Additionally, Richard has expertise in the heavy metal working industrial sector and related engineering and process management.

Primary corporate experience includes the position of President and CEO of Connelly and Becker, Inc an industrial, welding and specialty gas distribution company from 2001-2008. Experience also includes National Sales Manager for ABICOR Binzel Corporation from 1987-2001 where responsibility included the management of profit centers in 16 regions in 50 states with a $16.5 million budget and $19 million in sales revenue.  Responsibilities included managing Regional Sales Managers, Customer Service Staff and the Engineering Department. Richard has directed the CBI network for the Distribution of Specialty Welding Process and Products managing up to 25 Independent Sales Reps.  Mr. Connelly received numerous awards including Man of the Year for exceeding a 25% sales increase in 5 consecutive years and is a lifetime AWS Member.

Richard holds a Bachelors of Business Management, graduating from Bridgeport University in 1993.  Richard’s is also an AWS Certified Welding Instructor.
 
Luisa Ingargiola, Chief Financial Officer, Secretary and Director and daughter of Dr. Ruggero Maria Santilli. Luisa Ingargiola graduated in 1989 from Boston University with a Bachelor Degree in Business Administration and a concentration in Finance. In 1996 she received her MBA in Health Administration from the University of South Florida. In 1990 she joined Boston Capital Partners as an Investment Advisor in their Limited Partnership Division. In this capacity, she worked with investors and partners to report investment results, file tax forms, and recommend investments.

In 1992 she joined MetLife Insurance Company as a Budget and Expense Manager. In this capacity she managed a $30 million dollar annual budget. Her responsibilities included budget implementation, expense and variance analysis and financial reporting. In 2008 she began work on the MagneGas Corporation business plan in preparation for her new role as CFO.
 
 
14

 

Carla Santilli, Director and spouse of Dr. Ruggero Maria Santilli.  Carla Santilli holds a Master Degree in Human Services Administration from the School of Social Work of Boston University. She held positions of Clinical Social Worker and Community Programs Coordinator for the State of Massachusetts.  Since the late 1980's Mrs. Santilli has been employed as the President and Chief Executive Officer of Hadronic Press, Inc, a physics and mathematics academic publishing company.  In this capacity, Mrs. Santilli has directed the growth of this company from start-up to become one of the world's leading physics and mathematics publishing companies. Books and journals published by Hadronic Press can be found in all of the leading University libraries across the world.  Mrs. Santilli has been involved in the private sector as grant administrator and public relations specialist in the fields of academic publishing and environmental sciences.
 
Term of Office
 
Our directors are appointed for a one-year term to hold office until the next annual general meeting of our shareholders or until removed from office in accordance with our bylaws. Our officers are appointed by our board of directors and hold office until removed by the board.
 
Code of Ethics
  
We have adopted a code of ethics as of April 4, 2008 that applies to our principal executive officer, principal financial officer, and principal accounting officer as well as our employees.  Our standards are in writing and are to be posted on our website at a future time.   The following is a summation of the key points of the Code of Ethics we adopted:
 
Honest and ethical conduct, including ethical handling of actual or apparent conflicts of interest between personal and professional relationships;
Full, fair, accurate, timely, and understandable disclosure reports and documents that a small business issuer files with, or submits to, the Commission and in other public communications made by our Company;
Full compliance with applicable government laws, rules and regulations;
The prompt internal reporting of violations of the code to an appropriate person or persons identified in the code; and
Accountability for adherence to the code.

Corporate Governance
 
We are a small reporting company, not subject to the reporting requirements of Section 13(a) or 15(d) of the Exchange Act respecting any director.  We have conducted special Board of Director meetings almost every month since inception.  Each of our directors has attended all meetings either in person or via telephone conference. We have no standing committees regarding audit, compensation or other nominating committees.   In addition to the contact information in private placement memorandum, each shareholder will be given specific information on how he/she can direct communications to the officers and directors of the corporation at our annual shareholders meetings.  All communications from shareholders are relayed to the members of the Board of Directors.
 
Section 16(a) Beneficial Ownership Reporting Compliance

Under Section 16(a) of the Exchange Act, our directors and certain of our officers, and persons holding more than 10 percent of our common stock are required to file forms reporting their beneficial ownership of our common stock and subsequent changes in that ownership with the United States Securities and Exchange Commission.  Such persons are also required to furnish Coastline Corporate Services, Inc. with copies of all forms so filed.

Based solely upon a review of copies of such forms filed on Forms 3, 4, and 5, and amendments thereto furnished to us, we believe that as of the date of this report, our executive officers, directors and greater than 10 percent beneficial owners complied on a timely basis with all Section 16(a) filing requirements.
 
ITEM 11.     EXECUTIVE COMPENSATION
 
The table below summarizes all compensation awarded to, earned by, or paid to our executive officers by any person for all services rendered in all capacities to us from the date of our inception until the fiscal year ended December 31, 2009 and 2008.
 
 The following summary compensation table sets forth all compensation awarded to, earned by, or paid to the named executive officers paid by us during the years ended December 31, 2009, and 2008 in all capacities for the accounts of our executives, including the Chief Executive Officer (CEO) and Chief Financial Officer (CFO):
 
 
15

 

SUMMARY COMPENSATION TABLE
 
Annual Compensation
 
 
Name and Principal Position
 
Year
     
Salary
     
Bonus
     
Stock
 Awards
($)
     
Option Awards
     
Non-Equity Incentive Plan Compensation ($)
     
Non-Qualified Deferred Compensation Earnings
     
All Other Compensation
     
Totals
($)
 
                                                                       
Dr. Ruggero Maria Santilli,
  2009     $ 0     $ 0     $ 0     $ 0     $ 0     $ 0     $ 0     $ 0  
Chairman of the   2008     $ 0     $ 0     $ 100,000     $ 0     $ 0     $ 0     $ 0     $ 100,000  
 Board(1)   2007     $ 0     $ 0     $ 0     $ 0     $ 0     $ 0     $ 0     $ 0  
                                                                       
                                                                       
 Richard Connelly,   2009     $ 8,000     $ 0     $ 431,250     $ 0     $ 0     $ 0     $ 0     $ 439,250  
President (2)
   2008     $  29,000     $ 0     $ 364,250     $ 0     $ 0     $ 0     $ 0     $ 393,250  
    2007     $ 0     $ 0     $ 0     $ 0     $ 0     $ 0     $ 0     $ 0  
                                                                       
Luisa Ingargiola,   2009     $ 0     $ 0     $ 0     $ 0     $ 0     $ 0     $ 0     $ 0  
CFO (3)
  2008     $ 0     $ 0     $ 0     $ 0     $ 0     $ 0     $ 0     $ 0  
 
   2007     $ 0     $ 0     $ 0     $ 0     $ 0     $ 0     $ 0     $ 0  
                                                                       
                                                                       
 Carla Santilli,   2009      $ 0     $ 0     $ 0     $ 0     $ 0     $ 0     $ 0     $ 0  
 Director   2008     $ 0     $ 0     $ 0     $ 0     $ 0     $ 0     $ 0     $ 0  
 
  2007     $ 0     $ 0     $ 0     $ 0     $ 0     $ 0     $ 0     $ 0  
 
(1)  
Dr. Santilli was appointed as CEO and Chairman of the Board on April 2, 2007.
(2)  
Richard Connolly was appointed as President on July 3, 2008.
(3)  
Luisa Ingargiola was appointed CFO and Director on May 4, 2007.
 
Additional Compensation of Directors
 
All of our directors are unpaid. Compensation for the future will be determined when and if additional funding is obtained.
 
Board of Directors and Committees
 
Currently, our Board of Directors consists of Dr. Ruggero Maria Santilli, Carla Santilli, Richard Connelly and Luisa Ingargiola.  We are actively seeking additional board members.
 
Employment Agreements
 
Currently, we have no employment agreements with any of our Directors or Officers.
 
Director Compensation
 
We have provided no compensation to our directors for services provided as directors.
 
Stock Option Grants
 
We have not granted any stock options to our executive officers since our incorporation. 
 
 
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ITEM 12.     SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The following table provides the names and addresses of each person known to us to own more than 5% of our outstanding common stock as of December 31, 2009, and by the officers and directors, individually and as a group. Except as otherwise indicated, all shares are owned directly.
 
Title of Class
 
Name and Address of Beneficial Owner
 
Amount and Nature of Beneficial Owner
 
Percent of Class
             
Common Stock
 
Ermanno Santilli
90 Eastwinds Ct
Palm Harbor, FL 34683
 
5,000,000
 
5%
             
 Common Stock
 
Luisa Ingargiola (1)
4826 Blue Jay Circle
Palm Harbor FL 34683
 
15,178,432
 
14%
             
Common Stock
 
Dr. Ruggero Maria Santilli (2)
90 Eastwinds Ct
Palm Harbor FL 34683
 
41,682,712
 
38%
             
Common Stock
 
Carla Santilli (3)
90 Eastwinds Ct
Palm Harbor FL 34683
 
39,082,712
 
36%
             
Common Stock
 
Richard Connelly (4)
170 Countrytyme Lane
Iron Station, NC 28080
 
2,210,000
 
2%
             
Common Stock
 
All executive officers and directors as a group (4 in number)
 
49,071,144
 
46%

*   Less than one (1%) percent.
 
The percent of class is based on 106,054,395 shares of common stock issued and outstanding as of March 29, 2010.

The following table sets forth all individuals known by the Company to beneficially own 5% or more of the Company’s common stock, and all officers and directors of the registrant, with the amount and percentage of stock beneficially owned, as of December 31, 2009.

ITEM 13.    CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS, AND DIRECTOR INDEPENDENCE.

At various times the Company received advances from a shareholder for an unsecured promissory note.  All funds are at the same terms of the original shareholder note.  These promissory notes have no repayment date; however it is payable within 30 days of written demand.  Payment is to include accrued simple interest at 4%.
 
Beginning April 2008 the Company entered into a month-to-month lease, at a monthly rate of $2,500 per month for facilities to occupy approximately 3,000 square feet of a 6,000 square foot building and the use of certain equipment and utilities, as needed.   The facility allows for expansion needs.  The lease is held by a Company that is effectively controlled by Dr. Santilli.  

The footnotes to the financial statement, included in this filing are conclusive to material related party transactions.
 
ITEM 14.     PRINCIPAL ACCOUNTING FEES AND SERVICES

Audit Fees
 
The aggregate fees billed by Randall N. Drake, CPA, PA for professional services rendered for the audit of the Company’s financial statements for the fiscal years ended December 31, 2009 and for the review of the Company’s financial statements for the periods ended March 31, 2009, June 30, 2009 and September 30, 2009 was $19,500. Audit for the year ended December 31, 2008 was $6,000.
 
 
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Audit Related Fees

There were no fees for audit related services for the years ended December 31, 2009 and 2008.
  
Tax Fees
 
For the Company’s fiscal years ended December 31, 2009 and 2008, we were not billed for professional services rendered for tax compliance, tax advice, and tax planning.
 
All Other Fees
 
The Company did not incur any other fees related to services rendered by our principal accountant for the fiscal years ended December 31, 2009 and 2008.
 
Pursuant to the requirements of Section 13 or 15(d) 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.

Effective May 6, 2003, the Securities and Exchange Commission adopted rules that require that before our auditor is engaged by us to render any auditing or permitted non-audit related service, the engagement be:

-approved by our audit committee; or

-entered into pursuant to pre-approval policies and procedures established by the audit committee, provided the policies and procedures are detailed as to the particular service, the audit committee is informed of each service, and such policies and procedures do not include delegation of the audit committee's responsibilities to management.

We do not have an audit committee.  Our entire board of directors pre-approves all services provided by our independent auditors.

The pre-approval process has just been implemented in response to the new rules. Therefore, our board of directors does not have records of what percentage of the above fees were pre-approved. However, all of the above services and fees were reviewed and approved by the entire board of directors either before or after the respective services were rendered.
 
 
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PART IV

ITEM 15.     EXHIBITS, FINANCIAL STATEMENT SCHEDULES
 
(a) During the quarter ending December 31, 2009, the Company filed the following Exhibits and Form 8Ks:
   
   · October 9, 2009, the Company filed a form 8K for a definitive material agreement.
   · October 16, 2009, the Company filed an 8K for a definitive material agreement.
   · November 9, 2009, the Company filed an 8K for a definitive material agreement.
   · November 18, 2009, the Company filed an 8K for a definitive material agreement.
   · November 23, 2009, the Company filed an 8K for a definitive material agreement.
     
 (b)
Exhibits
 
Exhibit
Number
 
 
Exhibit Title
     
31.1
 
Certification of Dr. Ruggero Santilli pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2
 
Certification of Luisa Ingargiola, pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1
 
Certification of Dr. Rugerro Maria Santilli pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2
 
Certification of Luisa Ingargiola, pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
 
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SIGNATURES
 
 
 
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, there unto duly authorized.
 
 
MagneGas Corporation
 
       
 
By:
/s/ Dr. Ruggero Maria Santilli
 
   
Dr. Ruggero Maria Santilli
 
   
Chief Executive Officer
 
       
Dated:
March 29, 2010
 
In accordance with the requirements of the Securities Act of 1933, this registration statement was signed by the following persons in the capacities and on the dates stated.
 
Name
 
Title
 
Date
         
/s/Ruggero Maria Santilli
 
Chief Executive Officer, Chairman of the Board
 
March 29, 2010
Ruggero Maria Santilli
       
         
/s/ Luisa Ingargiola
 
Treasurer, Chief Financial Officer
 
March 29, 2010
Luisa Ingargiola
       
         
/s/ Carla Santilli
 
Director 
 
March 29, 2010
Carla Santilli
       
         
/s/ Richard Connolly
 
President,
 
March 29, 2010
Richard Connolly
       

 
20