XNAS:MNGA MagneGas Corp Quarterly Report 10-Q Filing - 3/31/2012

Effective Date 3/31/2012

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

FORM 10-Q
______________
 
 
  x    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended March 31, 2012
 
or

  o   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from ______________ to ______________
 
Commission File Number: 000-51883

______________
 
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
 
 
34689
(Address of principal executive offices)
 
(Zip Code)
 
 (727) 934-3448
(Registrant’s telephone number, including area code)

N/A
(Former name, former address and former fiscal year, if changed since last report)
  
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x  No o
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes  x No o
  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
 
 Large accelerated filer o
 Accelerated filer o
   
 Non-accelerated filer  o   (do not check if smaller reporting company)
 Smaller reporting company x
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).Yes  o  No  x
 
As of May 7, 2012, there were 175,951,796 shares of common stock, $0.001 par value issued and outstanding.
 
 
 

 
  
TABLE OF CONTENTS
 
 
  Page Number
PART I - FINANCIAL INFORMATION
 
   
Item 1.  
Financial Statements.
  1
Item 2.  
Management’s Discussion and Analysis of Financial Condition and Results of Operations.
  17
Item 3.  
Quantitative and Qualitative Disclosures About Market Risk.
  21
Item 4.  
Controls and Procedures.
  21
     
PART II - OTHER INFORMATION
 
   
Item 1.  
Legal Proceedings.
  22
Item 1A.
Risk Factors.
  22
Item 2.  
Unregistered Sales of Equity Securities and Use of Proceeds.
  22
Item 3.  
Defaults Upon Senior Securities.
  22
Item 4.  
Mine Safety Disclosures
  22
Item 5.  
Other Information.
  22
Item 6.  
Exhibits.
  23
     
SIGNATURES
  24
 
 
 

 
PART I - FINANCIAL INFORMATION
Item 1.   Financial Statements
 
Financial Statements
 
MagneGas Corporation
 
As of March 31, 2012 (unaudited) and December 31, 2011 (audited)
And for the Three Months Ended March 31, 2012 (unaudited) and 2011 (unaudited)
 
Contents
 
Financial Statements:
  Page Number
   
Balance Sheets March 31, 2012 (unaudited) and December 31, 2011 (audited)
  2
   
Statements of Operations for the three months ended March 31, 2012 and 2010 (unaudited)
  3
   
Statements of Cash Flows for the three months ended March 31, 2012 and 2011 (unaudited)
  4
   
Notes to Financial Statements (unaudited)
  5 - 15
 
 
 
1

 
 
MagneGas Corporation
 
Balance Sheets
 
             
   
March 31,
   
December 31,
 
   
2012
   
2011
 
   
(unaudited)
   
(audited)
 
 Assets
           
 Current Assets
           
 Cash
  $ 3,507,634     $ 1,429,412  
 Accounts receivable, net of allowance for doubtful accounts of $0 and $0, respectively
    49,394       19,050  
 Inventory, at cost
    694,260       656,992  
 Prepaid and other current assets
    2,500       2,500  
 Total Current Assets
    4,253,788       2,107,954  
                 
 Property and equipment, net of accumulated depreciation of $103,936 and $44,538, respectively
    2,903,606       2,561,384  
 Deferred tax asset
    456,500       456,500  
 Intangible assets, net of accumulated amortization of $163,628 and $151,511, respectively
    563,372       575,489  
 Investment in joint ventures
    490,410       490,410  
 Total Assets
  $ 8,667,676     $ 6,191,737  
                 
                 
 Liabilities and Stockholders' Equity
               
 Current Liabilities
               
 Accounts payable
  $ 244,493     $ 291,249  
 Accrued expenses
    141,411       125,011  
 Deferred revenue and customer deposits
    303,329       326,662  
 Due to stockholder
    210,500       210,500  
 Due to related parties
    22       13,400  
 Total Current Liabilities
    899,755       966,822  
                 
 Total Liabilities
    899,755       966,822  
                 
 Stockholders' Equity
               
 Preferred stock: $0.001 par;  10,000,000 authorized; 1,000,000 issued and outstanding
    1,000       2  
 Common stock: $0.001 par;  900,000,000 authorized; 172,101,796 and 154,389,296 issued and outstanding, respectively
    172,102       154,389  
 Additional paid-in capital
    13,409,611       10,195,954  
 Issued and unearned stock compensation
    (23,333 )     (28,333 )
 Accumulated deficit
    (5,791,459 )     (5,097,097 )
 Total Stockholders' Equity
    7,767,921       5,224,915  
                 
 Total Liabilities and Stockholders' Equity
  $ 8,667,676     $ 6,191,737  
                 

The accompanying notes are an integral part of these financial statements.
 
 
2

 
MagneGas Corporation
 
Statements of Operation
 
Three Months Ended March 31, 2012 and 2011
 
(unaudited)
 
             
   
Three Months Ended March 31,
 
   
2012
   
2011
 
             
Revenue:
           
   Metal cutting
  $ 108,650     $ 25,655  
   License fees
    23,333       73,333  
      131,983       98,988  
                 
 Direct costs, metal cutting
    65,475       21,274  
      66,508       77,714  
                 
 Operating Expenses:
               
  Advertising
    26,662       13,513  
  Selling
    123,784       86,018  
  Professional: technical
    3,745       390  
  Professional: legal and accounting
    86,705       70,288  
  Rent and overhead
    40,780       28,235  
  Office and administration
    315,120       82,014  
  Investor relations
    35,282       8,510  
  Stock-based compensation
    5,998       101,240  
  Research and development
    49,657       17,059  
  Depreciation and amortization
    71,515       15,909  
 Total Operating Expenses
    759,248       423,176  
                 
 Operating Income (Loss)
    (692,740 )     (345,462 )
                 
 Other Income and (Expense)
               
  Interest
    (1,622 )     49  
 Total Other Income and (Expense)
    (1,622 )     49  
                 
 Net Income (Loss) before tax benefit
    (694,362 )     (345,413 )
 Provision for Income Taxes
    -       (130,000 )
 Net Income (Loss)
  $ (694,362 )   $ (215,413 )
                 
 Loss per share:
               
    Basic
  $ (0.00 )   $ (0.00 )
    Diluted
  $ (0.00 )   $ (0.00 )
 Weighted average common shares:
               
    Basic
    154,731,878       123,471,876  
    Diluted
    154,731,878       123,471,876  

The accompanying notes are an integral part of these financial statements.
 
 
3

 
 
MagneGas Corporation
 
Statement of Cash Flows
 
For the Three Months Ended March 31, 2012 and 2011
 
(unaudited)
 
       
   
March 31,
 
   
2012
   
2011
 
             
 Cash Flows from Operations
           
 Net loss
  $ (694,362 )   $ (215,413 )
                 
 Adjustments to reconcile net loss to cash used in operating activities:
               
 Depreciation and amortization
    71,515       15,909  
 Stock compensation
    5,998       101,240  
 Waiver of related party expenses
    -       5,610  
 Deferred income taxes
    -       (130,000 )
 Changes in operating assets:
               
 Accounts receivable
    (30,344 )     (2,268 )
 Inventory
    (37,268 )     (245,577 )
 Prepaid & other current assets
    -       30,000  
 Accounts payable
    (46,756 )     (52,841 )
 Accrued expenses
    16,400       1,302  
 Deferred revenue and customer deposits
    (23,333 )     (73,333 )
 Total adjustments to net income
    (43,788 )     (349,958 )
 Net cash (used in) operating activities
    (738,150 )     (565,371 )
                 
 Cash Flows from Investing Activities
               
 Acquisition of equipment
    (401,620 )     (14,567 )
 Net cash flows (used in) investing activities
    (401,620 )     (14,567 )
                 
 Cash Flows from Financing Activities
               
 Advances from related party
    (13,378 )     (41,866 )
 Proceeds from issuance of common stock
    3,231,370       -  
 Net cash flows provided by (used in) investing activities
    3,217,992       (41,866 )
                 
                 
 Net increase (decrease) in cash
    2,078,222       (621,804 )
                 
 Cash balance, beginning
    1,429,412       917,495  
                 
 Cash balance, ending
  $ 3,507,634     $ 295,691  
                 
                 
 Supplemental disclosure of cash flow information and non cash investing and financing activities:
               
      Interest paid
  $ -     $ -  
      Taxes paid
  $ -     $ -  

The accompanying notes are an integral part of these financial statements.
 
 
4

 
 
MagneGas Corporation
Notes to Financial Statements
(Unaudited)
For the Three Months Ended March 31, 2012 and 2011
 
  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.

MagneGas Corporation is an alternative energy company that creates and produces hydrogen based alternative fuel through the gasification of liquid waste. We have developed a process which transforms various types of liquid waste through a proprietary plasma arc machine. The result of the product is to carbonize the waste for normal disposal. A byproduct of this process is to produce an alternative to natural gas currently sold in the metalworking market. We produce gas bottled in cylinders for the purpose of distribution to the metalworking market as an alternative to acetylene. Additionally, we market, for sale or licensure, our proprietary plasma arc technology. Through the course of our business development, we have established a retail and wholesale platform to sell our fuel for use in the metalworking and manufacturing industries. In 2010, we recognized our initial sale of a Plasma Arc Flow unit and are continuing efforts to sell or lease additional equipment to end users.

2.         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 three month periods ended March 31, 2012 and 2011; (b) the financial position at March 31, 2012; and (c) cash flows for the three month periods ended March 31, 2012 and 2011, have been made.
  
The Company prepares its financial statements in conformity with generally accepted accounting principles in the United States of America. These principles 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.

Certain reclassifications have been made to prior year classifications for comparability purposes.

Use of Estimates
 
The Company prepares its financial statements in conformity with generally accepted accounting principles in the United States of America. These principles 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 financial statements presented include estimates for patent life, recoverability of deferred tax assets and collections on our receivables.  Our estimates include consideration of the useful lives of our intellectual property, allocations to research and development costs and recognition of deferred tax assets.
 
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.  
 
 
5

 
 
Fair Value of Financial Instruments
 
In September 2006, the Financial Accounting Standards Board (FASB) introduced a framework for measuring fair value and expanded required disclosure about fair value measurements of assets and liabilities.  The Company adopted the standard for those financial assets and liabilities as of the beginning of the 2008 fiscal year and the impact of adoption was not significant. FASB Accounting Standards Codification (ASC) 820 “ Fair Value Measurements and Disclosures ” (ASC 820) defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principle or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also establishes a fair value hierarchy that distinguishes between (1) market participant assumptions developed based on market data obtained from independent sources (observable inputs) and (2) an entity’s own assumptions about market participant assumptions developed based on the best information available in the circumstances (unobservable inputs). The fair value hierarchy consists of three broad levels, which gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy are described below:
  
·
Level 1 -
Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.
·
Level 2 -
Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly, including quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; inputs other than quoted prices that are observable for the asset or liability (e.g., interest rates); and inputs that are derived principally from or corroborated by observable market data by correlation or other means.
·
Level 3 -
Inputs that are both significant to the fair value measurement and unobservable.

Fair value estimates discussed herein are based upon certain market assumptions and pertinent information available to management as of March 31, 2012. The respective carrying value of certain on-balance-sheet financial instruments approximated their fair values due to the short-term nature of these instruments. These financial instruments include accounts receivable, inventory, other current assets, accounts payable, accrued compensation and accrued expenses. The fair value of the Company’s notes payable is estimated based on current rates that would be available for debt of similar terms which is not significantly different from its stated value.  The Company applied ASC 820 for all non-financial assets and liabilities measured at fair value on a non-recurring basis.

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 three months or less to be cash equivalents.
 
Accounts Receivable, Credit
 
Accounts receivable consist of amounts due for the delivery of MagneGas sales to customers. 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.
 
 
6

 
 
Revenue Recognition

The Company generates revenue through two processes: (1) Sale of MagneGas fuel for metal cutting and (2) Sale of its Plasma Arc Flow units.  Additionally we also recognize revenue from territorial license arrangements.
 
·
Revenue for metal-working 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.
·
Revenue generated from sales of its production unit is recognized on a percentage of completion, based on the progress during manufacturing of the unit.  Our machine is a significant investment and generally requires a 6 to 9 month production cycle.  During the course of building a unit the actual costs are tracked to our cost estimates and revenue is proportionately recognized during the process.   Significant deposits are required before production.  These deposits are classified as customer deposits.  During our production, costs and progress earnings are accumulated and included in “Costs and earnings” as an asset.
·
Licenses are issued, per contractual agreement, for distribution rights within certain geographic territories.  We recognize revenue ratably, based on the amounts paid or values received, over the term of the licensing agreement.
 
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 and accumulated costs incurred in the manufacturing process of units held for future sales.
 
Long-Lived Assets

Property and equipment is stated at cost.  Depreciation is computed by the straight-line method over estimated useful lives (3-7 years).  Intellectual property assets are stated at their fair value acquisition cost. Amortization of intellectual property assets is calculated by the straight line method over their specific life (15 years).  Historical costs are reviewed and evaluated for their net realizable value of the assets.  The carrying amount of all long-lived assets is evaluated periodically to determine if adjustment to the depreciation and amortization period or the unamortized balance is warranted. Based upon its most recent analysis, the Company believes that no impairment of property and equipment existed at March 31, 2012 and December 31, 2011.

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.
 
 
7

 
 
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 direct costs.
 
Advertising Costs
 
The costs of advertising are expensed as incurred.  Advertising expenses are included in the Company’s operating expenses.   Advertising expense was $26,662 and $13,513 for the three months ended March 31, 2012 and 2011, respectively.
 
Research and Development
 
The Company expenses research and development costs when incurred.  Research and development costs include engineering and laboratory testing of product and outputs.  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.  In periods of net loss, stock equivalents are excluded, as those shares would be anti-dilutive. The Company has issued options to several investors, upon their purchase of shares.  Options, whose strike price is less than the current market value, are considered common stock equivalents and are included in dilutive earnings per share.
 
   
March 31,
   
March 31,
 
   
2012
   
2011
 
 Net (Loss)
  $ (694,362 )   $ (215,413 )
                 
 Weighted Average Shares
               
    Common Stock
    154,731,878       123,471,876  
    Common stock equivalents (Options)
    - *     - *
      154,731,878       123,471,876  

 * Net loss for the period, options and other dilutive common stock equivalents are anti-dilutive and are excluded from computation.
 
3.         Recently Issued Accounting Pronouncements

Except for rules and interpretive releases of the SEC under authority of federal securities laws and a limited number of grandfathered standards, the FASB Accounting Standards Codification™ (“ASC”) is the sole source of authoritative GAAP literature recognized by the FASB and applicable to the Company.  Management has reviewed the aforementioned rules and releases and believes any effect will not have a material impact on the Company's present or future consolidated financial statements.
 
 
8

 
 
4.         Inventory

Inventory primarily consists of:   
 
March 31,
 
December 31,
 
  
2012
 
2011
 
Metal cutting fuel
  $ 10,097     $ 10,098  
Units, Construction in process
    684,163       646,894  
    $ 694,260     $ 656,992  

5.         Long Lived Assets
 
Property and equipment consists of:
 
   
March 31,
   
December 31,
 
  
 
2012
   
2011
 
 Machinery and equipment
  $ 125,577     $ 125,577  
 Furniture and office equipment
    37,001       20,381  
 Transportation
    27,050       27,050  
 Production units
    1,972,750       1,972,750  
 Cylinders
    845,164       460,164  
  
    3,007,542       2,605,922  
 Less accumulated depreciation
    103,936       44,538  
  
  $ 2,903,606     $ 2,561,384  
 
Depreciation of equipment was $59,398 and $3,793 for the three months ended March 31, 2012 and 2011, respectively.

Intellectual property:
 
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 March 31, 2012 and December 31, 2011 management concluded that there was no impairment to the intangible assets.
 
   
March 31,
   
December 31,
 
   
2012
   
2011
 
Intellectual property
  $ 727,000     $ 727,000  
Less accumulated amortization
    163,628       151,511  
    $ 563,372     $ 575,489  
                 
Future amortization through December 31,:
               
2012
  $ 36,350          
2013
    48,467          
2014
    48,467          
2015
    48,467          
2016
    48,467          
2017 and thereafter
    333,154          
    $ 563,372          

 
 
9

 
 
Amortization of the intangible assets was $12,117 and $12,116 for the three months ended March 31, 2012 and 2011, respectively.

Management periodically reviews the valuation of this asset for potential impairments.  Consideration of various risks to the valuation and potential impairment includes, but is not limited to:  (a) the technology’s acceptance in the marketplace and our ability to attain projected forecasts of revenue (discounted cash flow of projections); (b) competition of alternative solutions; and (c) federal and state laws which may prohibit the use of our production machinery as currently designed.   Management has not impaired this asset, to date, and does not anticipate any negative impact from known current business developments. Management continuously measures the marketplace, potential revenue developments and competitive developments in the scientific industry.

6.         Investment in Joint Ventures

On June 25, 2010, the Company entered into agreement with a Belgium company, whereby 250,000 shares of MagneGas Corporation’s common stock and territorial license rights were exchanged for a 20% interest in MagneGas Europe.  The Company valued the investment in the Joint Venture at the fair market value of the shares issued ($23,750).   The Company does not have effective or beneficial control over the European entity and is to account for the investment under the Equity Method.
 
On June 28, 2010, the Company entered into agreement with DDI Industries, a China company, in formation of MagneGas China.  The Company is to provide mechanical drawings (for complete construction), computer programs, license of patents (Greater China Region), trademarks, etc. of the Plasma Arc Flow Recyclers to the new entity in exchange for a $2 million investment in MagneGas Corporation (received as of September 30, 2010; subscription at a share price of $0.135 or 14,814,814 common shares) and 20% share in MagneGas China.  The Company’s investment has been valued at $466,660, a mutually agreed amount for the technology license.  The MagneGas China entity has been funded in cash for an amount which reflects the intellectual property’s value. The Company does not have effective or beneficial control over the China entity and is to account for the investment under the Equity Method.

Our investments in joint ventures are considered as Level 3, as defined in FASB Accounting Standards Codification (ASC) 820 “ Fair Value Measurements and Disclosures ” (ASC 820), and management considers alternative methods for valuing these investments to determine if there would be impairment to the current carrying value, currently our cost basis.   As of December 31, 2011, management does not believe any impairment exists with regard to the investments in joint ventures.

7.           Deferred Revenue and Customer Deposits

The Company has received deposits on production units and fees for exclusive territorial license.  We have deferred the associated revenues until such time that production order is placed and produced (recognition under percentage of completion method) or through the passage of time (recognition over the life of the license term).
 
   
March 31,
   
December 31,
 
   
2012
   
2011
 
Mexico territory license, non-refundable payment from a company for a six-month period ending February 28, 2011
  $ 150,000     $ 150,000  
China territory license, exclusive 5 year license, expiring June 28, 2015
    466,660       466,660  
Philippines, deposit on production unit
    100,000       100,000  
      716,660       716,660  
Portion recognized
    413,331       389,998  
Deferred revenue and customer deposits
  $ 303,329     $ 326,662  

The amount recognized as revenue under licensing arrangements was $23,333 and $73,333 for the three months ended March 31, 2012 and 2011, respectively.
 
 
10

 
 
8.         Income Tax

Provision (Benefit) for Income Taxes
 
The provision for income taxes consists of the following:
 
  
 
March 30,
2011
   
March 30,
2011
 
Current Tax Provision
 
$
-
   
$
-
 
Deferred Tax(Benefit) Provision
   
-
     
-
 
Total Tax (Benefit) Provision
 
$
-
   
$
-
 
 
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.
 
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, 2011, as it is satisfied the realization standard for the year ended December 31, 2011.  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, 2009 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.
 
 
11

 
 
The following is a schedule of the deferred tax assets and liabilities as of March 31, 2012 and 2011:
 
   
March 30,
   
December 31,
 
  
 
2011
   
2011
 
Deferred Tax Assets
           
Net Operating Loss Carry Forwards
 
$
456,500
   
$
456,500
 
                 
Deferred Tax Liabilities
               
Total Deferred Tax Assets (Liabilities)
 
$
-
   
$
-
 
                 
Net Deferred Tax Asset (Liabilities)
 
$
456,500
   
$
456,500
 

For balance sheet presentation the Company nets its current deferred tax assets and liabilities and non-current deferred tax assets and liabilities.
 
Management believes that the Company has matured and product acceptance will generate the revenues and achieve a level of profitability that would create taxable income of approximately $1.2 million 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, 2011 the Company has net operating loss carry forwards remaining from the following years:
 
   
Net
       
   
Operating
   
Year
 
Year Generated
 
Loss
   
Expires
 
2007
  $ 375,000       2027  
2008
    977,000       2028  
2009
    1,255,000       2029  
2011
    2,126,000       2031  
    $ 4,733,000          
 
 
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, 2006 through 2011. The Company state income tax returns are open to audit under the statute of limitations for the years ending December 31, 2006 through 2011.
 
The Company recognizes interest and penalties related to income taxes in income tax expense. The Company had incurred no penalties and interest for the three months ended March 31, 2012 and 2011.
 
9.          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 1,000,000 shares of Preferred Stock issued to an entity controlled by Dr. Ruggero Santilli and other members of the Board of Directors. 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 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.
 
 
12

 
Common Stock Issuances

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, 2009, 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 Consulting agreement was for a five year period, the unearned portion is ratably charged to operations with corresponding reduction to unearned stock compensation, reflected as a contra-equity.

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 rental values were based on the cost basis of the unit, which is approximately $210,500; the 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 $5,610 for the three months ended March 31, 2011 and $22,440 for the year ended December 31, 2011.  Due to production demand, on December 28, 2011, the Company and Dr. Santilli entered into an agreement to transfer the title of the unit to the Company in exchange for a demand note in the amount of $210,500 at an interest rate of 3%.

The Company issued 998,000 shares of preferred stock to the controlling members in January 2012, valued at par, $998.

On June 1, 2011 (the “Closing Date”), the Company executed agreements for two private offerings of its common stock (each an “Offering”).  In connection with the Offerings, the Company entered into two securities purchase agreements (each a “Securities Purchase Agreement”) with DDI Industry International (Beijing) Co., Ltd (the “Investor”).  Pursuant to the first Securities Purchase Agreement, the Company issued an aggregate of 3,846,254 shares of its common stock (the “Shares”) to the Investor for a purchase price of $500,000, at $0.13 per share.  Pursuant to the second Securities Purchase Agreement, the Company issued an aggregate of 3,333,333 Shares to the Investor for a purchase price of $561,248, at $0.168 per share.  The Company has received the proceeds from both offerings. The second offering, in the amount of $561,248 was received in August 2011.

Prior to this Offering, the Company and the Investor did have a material relationship.  In June 2010, the Company entered into an agreement with the Investor to form a Chinese joint venture (“MagneGas China”).  Pursuant to the agreement, the Investor acquired exclusive MagneGas™ Technology and manufacturing rights for the Greater China Market.  The Investor also acquired 14,814,815 shares of the Company’s common stock at a purchase price of $2 million and purchased a 300Kw Plasma Arc Refinery at a purchase price of $1.855 million.  The Company owns 20% of the equity in MagneGas China and the Company’s Chief Executive Officer, Dr. Ruggero Santilli, is a member of the board of directors.  Allen Feng, the President and Chief Executive Officer of the Investor, is also a member of the Board of Directors of the Company.

In the quarter ended March 31, 2012 the Company entered into a definitive agreement with investors to sell in a private placement an aggregate 19,412,500 shares of its common stock and warrants to purchase 9,706,250 shares of its common stock at a purchase price of $0.20 per unit, resulting in gross proceeds to the Company of approximately $3,882,500.00, before deducting placement agent fees and other offering expenses.  The warrants are exercisable at an exercise price of $0.40 per share and expire five years from the initial closing date. Pursuant to the terms of the definitive agreement, the Company conducted two closings with parties to the definitive agreement.  The initial closing occurred on March 29, 2012, for gross proceeds of $3,117,500 in exchange for 15,587,500 shares of common stock and warrants to purchase an additional 7,793,750 shares of common stock.  The second closing was completed on April 3, 2012 As of March 31, 2012, the second closing has received subscriptions of $425,000 has been subscribed for 2,125,000 common and warrants for an additional 1,062,500 shares of common.
 
 
13

 
 
Options and Warrants

In the period ending March 31, 2011, the Company issued 500,000 warrants to a consultant with an exercise term of 5 years and a strike price of $.15.  The Company calculated the value of these shares at $68,500, based on using Black Sholes model.  Assumptions used in the calculation were volatility of 151.7%, estimated life of 2.5 years, 0% forfeiture and risk free interest rate of 1.8%.  There were no options or warrants issued to employees and consultants during the year ended December 31, 2010.

During 2011, the Company also issued options attached to the purchase of shares at a 1:1 ratio, resulting in the issuance of 20,349,500 options.  Value for these attached options was included in the original capitalized transactions.  These options are exercisable within 3 years at a price of $.30 per share.

During the quarter ended March 31, 2012, in association with the private placement stated above, there were 10,768,750 options issued with the $3,882,500 raise.  These options are for a five year period with an exercise price of $.40 per share.

The following is a summary of outstanding options and warrants:

               
Weighted Average
   
Options
   
Options
   
Intrinsic
   
Exercise
 
Remaining
   
Outstanding
   
Vested
   
Value
   
Price
 
 Term
 Options, December 31, 2010
    1,194,763       1,194,763     $ 0.12     $ 0.12  
.1 years
    Granted
    20,999,500       20,999,500     $ 0.70     $ 0.70  
5.0 years
    Exercised
    -       -                    
    Forfeited
    (340,000 )     (340,000 )                  
 Options, December 31, 2011
    21,854,263       21,854,263                    
    Granted
    8,856,250       8,856,250     $ 0.40     $ 0.40  
5.0 years
    Exercised
    -       -                    
    Forfeited
    -       -                    
 Options, March 31, 2012
    30,710,513       30,710,513                    
 
10.         Related Party Transactions
 
The following are the related party transactions in which we have engaged since May 2007:

At various times we 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%. All notes have been paid in full

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 were no repayment terms to this advance and the amount was payable upon demand. This has been paid in full.

In February 2008, we 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. The board of directors has since determined that Dr. Santilli’s monthly accrued salary will be $15,000 per month.
 
 
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Beginning in April 2008, we 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. In January 2011, the Company expanded to occupy 5,000 square feet of the building and as a result, the rent was increased to $4,000 per month. The facility allows for expansion needs. The lease is held by a company that is effectively controlled by Dr. Santilli.

On December 28, 2009 we 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. We 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 and U.S. patents. We have no further transactions contemplated with HyFuels, Inc.

The use of an initial small production refinery has been contributed by Dr. Santilli. The value of the refinery is approximately $210,000; 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.  Due to production demand, on December 28, 2011 the Company entered into an agreement to transfer the title of the unit to Magnegas Corporation in exchange for a promissory note of $210,500. This note was paid in April 2012.

We entered into an agreement to acquire a 20% ownership of Magnegas Europe. MagneGas Europe is related by common management. The CEO of Magnegas Europe, Ermanno Santilli, is also the Vice President of the Company and is the son of Dr. Santilli. Dr. Santilli is also a shareholder of Magnegas Europe.

11.       Segment Information

The following information is the results of our operating revenue segments:
 
   
Revenue
   
Costs
   
Margin
 
                   
 March 31, 2012
                 
 Segments:
                 
    Metal Cutting
  $ 108,650     $ 65,475     $ 43,175  
    License Fees
    23,333       -       23,333  
    Unit Sales
    -       -       -  
    $ 131,983     $ 65,475     $ 66,508  
                         
 March 31, 2011
                       
 Segments:
                       
    Metal Cutting
  $ 25,655     $ 21,274     $ 4,381  
    License Fees
    73,333       -       73,333  
    Unit Sales
    -       -       -  
    $ 98,988     $ 21,274     $ 77,714  

 
15

 
 
12.       Contingencies
 
From time to time the Company may be a party to litigation matters involving claims against the Company.  The Company operates with waste, hazardous material and within a highly regulated industry, which may lend itself to legal matters.  Management believes that there are no current matters that would have a material effect on the Company’s financial position or results of operations.

13.       Subsequent Event

The Company has completed a second round of a private placement for total proceeds of $3,882,500, of which $3,542,500 was received on March 29, 2012.  On April 3, 2012 the remaining balance of $340,000 was received.  Investors received 1,700,000 shares of common stock upon final closing of funding.  The investors also received options to purchase an additional 850,000 shares of common at an exercise price of $0.40 per share, exercisable within five years of issuance.
 
On April 18, 2012, the Company issued 2,150,000 shares of its common stock to certain individuals as compensation for services rendered to the Company.

 
16

 
Item 2. 
Management’s Discussion and Analysis of Financial Condition and Results of Operations.
 
Cautionary Notice Regarding Forward Looking Statements
 
The information contained in Item 2 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.
 
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.

Overview
 
MagneGas Corporation is an alternative energy company that creates and produces hydrogen based alternative fuel through the gasification of liquid waste. We have developed a process which transforms various types of liquid waste through a proprietary plasma arc machine. The result of the product is to carbonize the waste for normal disposal. A byproduct of this process is to produce an alternative to natural gas currently sold in the metalworking market. We produce gas bottled in cylinders for the purpose of distribution to the metalworking market as an alternative to acetylene. Additionally, we market, for sale or licensure, our proprietary plasma arc technology. Through the course of our business development, we have established a retail and wholesale platform to sell our fuel for use in the metalworking and manufacturing industries.

Metal Working Market

We are seeking to expand sales in the metal working market through the use of established industry wholesalers, trade events and media coverage in trade journals. Our strategy is to sell Magnegas for metal cutting to retail, wholesale and large strategic companies. We are actively working with several independent sales representatives and distributors to support these efforts. The Company has completed the installation of its refinery in Michigan and has initiated operations in that location as we execute our strategy.  We have secured several large customers and are in the process of appointing additional distributors. In addition, as part of our execution strategy, we are actively seeking additional locations, sales support and manufacturing personnel in order to place our next refinery installations.

Magnegas fuel has undergone a one year analysis by a large automobile manufacturing company in Detroit and has received technical approval for use of the gas as a replacement to Acetylene.  We are now undergoing end user testing with this Company to further this relationship. In addition, the Company is in various stages of negotiation and introduction with other national companies and military contractors seeking to use Magnegas in their facilities. These large strategic relationships have an inherently long sales cycle with uncertain outcome and as such the Company is complimenting these efforts with an aggressive direct local retail and wholesale distribution strategy in Michigan and Florida.
 
Hydrogen Market

Our initial internal testing has demonstrated that Hydrogen can be effectively separated from Magnegas for industrial use.  It is the Company’s belief that the hydrogen created from Magnegas can be produced in large quantities and sold for commercial, industrial and military use.  We are exploring the infrastructure necessary to enter this market profitability and expect to begin sales in late 2012 or early 2013.
 
 
17

 

Municipal Market

Although the majority of our focus has shifted to establishing sales in the metalworking market, our long term plan is to still expand commercially into the municipal wastewater market. In order to pursue this market, a municipal plant scale demonstration center converting sludge or sewage to fuel and other byproducts is needed. We do not anticipate this will occur until 2013 or later as we are focusing our efforts on generating revenue in the metalworking market and converting existing equipment to produce gas for that market. Although we still plan to pursue the municipal wastewater market in the long term, we are relying on our partners in China and Europe to conduct the extensive testing needed to provide the empirical data to launch this market properly.

International Expansion

We are seeking to expand globally through the sale of equipment and the establishment of distribution and joint venture arrangements. We are currently in various stages of negotiation with representatives from various countries.

Business Continuation and Succession

We have developed and trained a team of engineers and consultants to become knowledgeable with the MagneGas technology.  Our team is comprised of academic and industrial consultants throughout Europe and China.
 
Results of Operations

For the three months ended March 31, 2012 and 2011
 
Revenues

For the three months ended March 31, 2012 and 2011 we generated revenues of $131,983 and $98,988, respectively. For the three months ended March 31, 2012 and 2011 we generated revenues from our metal cutting fuel of $108,650 and $25,655, respectively. We have recognized an increase in revenue through our sales efforts and increased our demand for future orders for our metal cutting fuel due to industry acceptance and sales focus. We anticipate sustained and increasing revenue growth as our operations develop in fulfilling our increasing backlog of orders.  Orders have increased due to our expanded locations and our products performance in initial sales testing with distributors and potential volume customers.  Sales and delivery has been slowed during the first quarter due to our attention to efforts in establishing our facilities in Michigan and Florida, which has been our focus, as we believe our return on investment will be immediately recognized in the near term.  We believe that there is a significant market share which we should attract due to our abilities to set up locations where there is immediate demand. We are experiencing increased interest from new and existing customers. We believe that our metal cutting fuel orders will increase significantly as the economy and the building market recovers.
 
 
18

 
 
During the second half of 2010 we received contracts for our technology licensing. We have recognized $23,333and $73,333 for the three month periods ended March 31, 2012 and 2011, respectively. These license fees are ratably earned over the terms of the licensing agreement.

Of our four available units, we have delivered two units for production and distribution at key locations for our metal fuel resellers.  Based on our volume projections, we anticipate that there will be cost recovery within a 3 – 4 year period.
 
Operating Expenses
 
Operating costs for the three months ended March 31, 2012 and 2011 were $759,248 and $423,176, respectively. The increase was primarily attributable to increases in: (a) technical sales support for production; (b) establishing two locations, as we increase our ability to serve our major customers; (c) stock-based compensation; (d) depreciation and amortization and (e) research and development efforts, due to environmental testing and efficiency design.  During the course of the last year we have executed our operating plan which included the hiring of personnel, primarily technical persons, thereby certain expenses are not comparable to prior year expenses, specifically expenses for technical professionals.
 
In the current quarter, as in prior quarters, we used common stock as a method of payment for certain services, primarily the advertising and promotion of the technology to increase investor awareness and as incentive to its key employees and consultants.   We expect to continue these arrangements, though due to a stronger operating position this method of payment may become limited to specific vendors.

Net Loss

Our operating results have recognized a losses in the, amount of $694,362 and $215,413 for the three months ended March 31, 2012 and 2011, respectively.  The increase in loss was for a general increases incurred for our general internal support for our increasing metal cutting segment.
 
Liquidity and Capital Resources
 
In March 2012 and 2011 we received investments of $3,542,500 and $0, respectively.  Additionally, on April 3, 2012 the Company completed the private placement, receiving an additional $340,000, inclusive of offering costs.  An aggregate of 19,412,500 shares of its common stock and warrants to purchase 9,706,250 shares of its common stock were issued at a purchase price of $0.20 per unit, resulting in gross proceeds to the Company of $3,882,500.  We believe we can currently satisfy our cash requirements for the next twelve months with our current cash and expected revenues.  Management plans to increase revenue to sustain future operational growth.

Completion of our plan of operation is subject to attaining adequate and continued revenue. We cannot assure investors that adequate revenues will be generated.  In the absence of our projected revenues, we believe that we will be able to proceed with limited plan of operation.  Even without significant revenues within the next twelve months, based on our current cash position, we anticipate being able to continue with our present activities.  Although we believe we currently are adequately financed for limited growth, we plan to complete a second round of funding through a fully registered offering in the next six months to allow the complete fulfillment of our long term strategic plan.
 
 
19

 
 
As reflected in the unaudited financial statements we have an accumulated a deficit of approximately $5.8 million dollars.  Our cash flow from operations used $738,150 of cash, primarily used in the manufacturing and completion of our refineries for future use and the installation of two units at locations.  Our investing activities used $401,620 of cash for the acquisition of equipment, primarily cylinders.  Our financing activities resulted in cash provided in the amount of $3,217,992 for the three months ended March 31, 2012, primarily due to the sale of our common shares for gross proceeds of $3,542,500, less $311,130 of offering costs.  
 
At March 31, 2012 we had $3,507,634 in cash to meet current obligations.  

Management believes that current revenue generated and recent proceeds from the sale of our common stock provides the opportunity for the Company to continue as a going concern and fund the-long term strategic plan.

Subsequent Events

The Company has completed a second round of a private placement for total proceeds of $3,882,500, of which $3,542,500 was received on March 29, 2012.  On April 3, 2012 the remaining balance of $340,000 was received.  Investors received 1,700,000 shares of common stock upon final closing of funding.  The investors also received options to purchase an additional 850,000 shares of common at an exercise price of $0.40 per share, exercisable within five years of issuance.

Proceeds from the private placement will be used primarily to expand our site locations and fund future site locations.  This includes developing these facilities with state of the art fulfillment centers.  Additionally we will allocate resources towards increased sales and marketing efforts.

Recent Accounting Pronouncements

We have reviewed accounting pronouncements and interpretations thereof that have effectiveness dates during the periods reported and in future periods. We have carefully considered the new pronouncements that alter previous generally accepted accounting principles and do 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 unaudited financial statement and in our Annual Report, filed on Form 10-K for the period ended December 31, 2011.
 
Critical Accounting Policies
 
The Company’s significant accounting policies are presented in the Company’s notes to financial statements for the period ended March 31, 2012 and fiscal year ended December 31, 2011, which are contained in the Company’s 2011 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 principles 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 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.  
 
 
20

 
 
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.

The Company generates revenue through three processes: (a) Sale of MagneGas fuel for metal cutting; (b) Sale of its Plasma Arc Flow units; and (c) licensing.
 
·
Revenue for metal-working 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.
·
Revenue generated from sales of its production unit is recognized on a percentage of completion, based on the progress during manufacturing of the unit.  Our machine is a significant investment and generally requires a 6 to 9 month production cycle.  During the course of building a unit the actual costs are tracked to our cost estimates and revenue is proportionately recognized during the process. Significant deposits are required before production.  These deposits are classified as customer deposits.  During our production, costs and progress earnings are accumulated and included in “Costs and earnings” as an asset.
·
Licenses are issued, per contractual agreement, for distribution rights within certain geographic territories.  We recognize revenue ratably, based on the amounts paid or values received, over the term of the licensing agreement.
 
Off-Balance Sheet Arrangements
 
We have no off-balance sheet arrangements.
 
Item 3. 
Quantitative and Qualitative Disclosures About Market Risk.

We are a Smaller Reporting Company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.
   
Item 4. 
Controls and Procedures.
 
Disclosure of controls and procedures.
 
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports, filed under the Securities Exchange Act of 1934, 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 our management, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable and not absolute assurance of achieving the desired control objectives. In reaching a reasonable level of assurance, management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. In addition, the design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, a control may become inadequate because of changes in conditions or the degree of compliance with policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
 
 
21

 
 
As required by the SEC Rule 13a-15(b), we carried out an evaluation under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report. Based on the foregoing, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level.
 
Changes in internal controls over financial reporting.
 
There has been no change in our internal control over financial reporting that occurred during the fiscal quarter covered by the Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
 
PART II - OTHER INFORMATION
Item 1.      Legal Proceedings.
 
We are not currently involved in any litigation that we believe could have a material adverse effect on our financial condition or results of operations. There is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the executive officers of our company or any of our subsidiaries, threatened against or affecting our company, our common stock, any of our subsidiaries or of our companies or our subsidiaries’ officers or directors in their capacities as such, in which an adverse decision could have a material adverse effect.
 
Item 1A.   Risk Factors.
 
We believe there are no changes that constitute material changes from the risk factors previously disclosed in the Company’s 2011 Annual Report filed on Form 10-K.   
 
Item 2.      Unregistered Sales of Equity Securities and Use of Proceeds.
 
None 
 
Item 3.      Defaults Upon Senior Securities.
 
None
 
Item 4.      Mine Safety Disclosures.
 
Not applicable

Item 5.      Other Information
 
None
 
 
22

 
Item 6.      Exhibits
 
Exhibit Number
Exhibit Title
   
31.1
Certification of Principal Executive Officer, 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 Principal Financial Officer, 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 Principal Executive Officer, 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 Principal Financial Officer, pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
101.INS *
XBRL Instance Document
   
101.SCH *
XBRL Taxonomy Schema
   
101.CAL *
XBRL Taxonomy Calculation Linkbase
   
101.DEF *
XBRL Taxonomy Definition Linkbase
   
101.LAB *
XBRL Taxonomy Label Linkbase
   
101.PRE *
XBRL Taxonomy Presentation Linkbase
 
In accordance with SEC Release 33-8238, Exhibit 32.1 and 32.2 are being furnished and not filed.

* Furnished herewith. XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.

 
23

 
  
SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
 
MagneGas Corporation
 
     
 
By:
/s/  Dr. Ruggero Maria Santilli
 
   
Dr. Ruggero Maria Santilli
 
   
Chief Executive Officer
(Duly Authorized Officer and Principal Executive Officer)
 
       
 
Dated:
 May 14, 2012
 
 
 
By:
/s/  Luisa Ingargiola
 
   
Luisa Ingargiola
 
   
Chief Financial Officer
(Duly Authorized Officer and Principal Financial Officer)
 
       
 
Dated:
 May 14, 2012
 
 
 
 
 
24

XNAS:MNGA MagneGas Corp Quarterly Report 10-Q Filling

MagneGas Corp XNAS:MNGA Stock - Get Quarterly Report SEC Filing of MagneGas Corp XNAS:MNGA stocks, including company profile, shares outstanding, strategy, business segments, operations, officers, consolidated financial statements, financial notes and ownership information.

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XNAS:MNGA MagneGas Corp Quarterly Report 10-Q Filing - 3/31/2012
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