S-1 1 fs12012_magnegas.htm REGISTRATION STATEMENT fs12012_magnegas.htm
As filed with the Securities and Exchange Commission on May 18, 2012
 
Registration No. 333 -

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________________________

FORM S-1
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933
_________________________________
 
MagneGas Corporation
(Exact name of registrant as specified in its charter)
 
Delaware
 
3559
 
26-0250418
(State or other jurisdiction of incorporation or organization)
 
(Primary Standard Industrial Classification Code Number)
 
(I.R.S. Employer Identification Number)
 
150 Rainville Road
Tarpon Springs, FL 34689
(727) 934-3448
(Address, including zip code, and telephone number, including area code, of registrant’s principal
executive offices)
 
Corporation Service Company
2711 Centerville Road, Suite 400
Wilmington, DE 19808
(800) 927-9801
(Name, address, including zip code, and telephone number, including area code, of agent for service)
 
Copies of communications, including communications sent to agent for service, should be sent to:
 
 
Gregg E. Jaclin, Esq.
Anslow & Jaclin LLP
195 Route 9 South, Suite 204
Manalapan, New Jersey 07726
Tel No.: (732) 409-1212
Fax No.: (732) 577-1188
 
 
Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective.
 
If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 check the following box:þ
 
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o
 
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o
 
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. 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 12b2 of the Exchange Act.
 
Large accelerated filer
o
Accelerated filer
o
Non-accelerated filer
o
Smaller reporting company
þ
 
 
 

 
 
CALCULATION OF REGISTRATION FEE
 
Title of Each Class Of Securities to be Registered
 
Amount to be
Registered (1)
   
Proposed Maximum Offering Price
per share (2)
   
Proposed Maximum Aggregate Offering Price
   
Amount of
Registration Fee
 
Common stock, $0.001 par value per share
   
19,412,500
   
$
0.655
   
$
  12,715,187.50
   
$
1,457.17
 
                                 
Warrants to purchase common stock
   
10,676,875
(3)
  $ 0.40 (4)  
$
 4,270,750    
$
   
                                 
Common stock, $0.001 par value per share, issuable upon exercise of the Warrants
   
10,676,875
(5)
 
$
0.655
   
$
6,993,353.13
   
$
801.44
 
                                 
Total
                         
$
2,258.61
 
 
(1)  
This registration statement includes an indeterminate number of additional shares of common stock issuable for no additional consideration pursuant to any stock dividend, stock split, recapitalization or other similar transaction effected without the receipt of consideration, which results in an increase in the number of outstanding shares of our common stock. In the event of a stock split, stock dividend or similar transaction involving our common stock, in order to prevent dilution, the number of shares registered shall be automatically increased to cover the additional shares in accordance with Rule 416(a) under the Securities Act of 1933, as amended.
(2)  
Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(c) under the Securities Act of 1933, as amended, using the average of the high and low prices as reported on the OTC Bulletin Board on May 14, 2012 which was $0.655 per share.
(3)  
No fee pursuant to Rule 457(g).
(4)  
The warrants will be sold at this fixed price, which is based on the exercise price of the warrants.
(5)  
Represents shares of the registrant’s common stock issuable upon exercise of warrants to purchase shares of common stock being registered for resale. Such warrants have been issued to certain selling stockholders named in this registration statement.
 
The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the registration statement shall become effective on such date as the commission, acting pursuant to said Section 8(a), may determine.
 
 
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The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.
 
PRELIMINARY PROSPECTUS
SUBJECT TO COMPLETION
DATED May 18 , 2012
 
30,089,375 Shares of Common Stock
10,676,875 Warrants to Purchase Common Stock
 
 
MAGNEGAS CORPORATION
 
This prospectus covers the sale by the selling stockholders of up to (i) 19,412,500 shares of common stock, par value $0.001 per share, (ii) 10,676,875 warrants to purchase common stock, and (iii) 10,676,875 shares issuable upon exercise of the warrants at an exercise price of $0.40 per share. The shares being sold by the selling stockholders were issued to them in a private placement transaction which was exempt from the registration and prospectus delivery requirements of the Securities Act of 1933, as amended (the “Securities Act”). Our common stock and warrants are more fully described in “Description of Securities.”
 
These shares will be offered for sale by the selling shareholders in accordance with the “Plan of Distribution.” We will not receive any proceeds from the sales of shares of our common stock or warrants by the selling stockholders. However, to the extent the warrants are exercised for cash, if at all, we will receive up to $4,270,750. We will pay the expenses incurred in connection with the offering described in this prospectus, with the exception of brokerage expenses, fees, discounts and commissions, which will be paid by selling stockholders.
 
Our common stock is presently traded on the OTC Bulletin Board (the “OTCBB”) under the symbol MNGA. On May 14, 2012, the last sale price of our shares as reported by the OTCBB was $0.67 per share. The prices at which the selling stockholders may sell the shares of common stock that are part of this offering may be market prices prevailing at the time of sale, at negotiated prices, at fixed prices, or at varying prices determined at the time of sale. See “Plan of Distribution.”

There is presently no public market for our warrants and they will be sold at a fixed price of $0.40, which is based on the exercise price of the warrants. If and when our warrants are quoted on the OTCBB, they will be sold at prevailing market prices or at privately negotiated prices. See “Plan of Distribution.”
 
Investing in our common stock involves a high degree of risk. See “Risk Factors” beginning on page 4 to read about factors you should consider before investing in shares of our common stock.
 
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
 
The date of this prospectus is May             , 2012
 
 
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TABLE OF CONTENTS
 
 
 
4

 
 
 
PROSPECTUS SUMMARY
 
This summary highlights selected information contained elsewhere in this prospectus. This summary does not contain all the information that you should consider before investing in the common stock. You should carefully read the entire prospectus, including “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements, before making an investment decision. All references to “we,” “us,” “our,” and the “company” mean MagneGas Corporation.
 
Our Company
 
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 process 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. We reported a net loss of $2,937,062 for the fiscal year ended December 31, 2011 as compared to a net income of $23,600 for the fiscal year ended December 31, 2010 and a net loss of $694,362 for the three months ended March 31, 2012 compared to a net loss of $215,413 for the three months ended March 31, 2011. We use $250,000 per month to fund our operations.
 
Our Industry
 
We focus our efforts on producing and selling fuel and equipment for the metalworking fuel market. This market is currently dominated by acetylene gas. Acetylene gas is considered toxic, emits soot when it burns and can be volatile. In recent months, several acetylene production plants have exploded, causing a shortage of acetylene and raising prices. MagneGas fuel on the other hand, emits oxygen when it burns and independent users have rated MagneGas as a cleaner alternative to acetylene.
 
According to a recent report on the global market for metalworking gasses by the Freedonia Group, it was reported that “demand for industrial gases in metal welding and fabrication markets is projected to increase 8.6 percent per year to $5.6 billion in 2014. Gains will be driven primarily by expanding industrial production and construction activity. As a result, the greatest opportunities for growth will emerge in China, India and other developing economies, where industrialization is proceeding most rapidly and where further infrastructural development is key to sustained economic growth. Western Europe, North America and Japan will remain the largest consumers of industrial gases for welding and fabrication markets, although growth opportunities will not equal those of developing economies.”
 
Our Competitive Strengths
 
Patented, sustainable, disruptive technology and fuel source – Our patented Plasma Arc Flow technology recycles liquid waste through a patented process, producing a hydrogen-based fuel called MagneGasTM, which the we believe can become, among other things, a replacement for acetylene.
 
World class technology team We are led by our CEO and Chief Scientist Dr. Santilli, who has been nominated for Nobel Prizes in Physics and Chemistry. He is a former professor at both Harvard and MIT. He has received numerous Department of Energy research grants for the development of chemically unique clean fuel.
 
Immediate commercial applications – Our MagneGas fuel and Plasma Flow Arc technology are now both selling in the United States and globally. We expect our disruptive technology to displace current fuel gases such as acetylene.
 
Multiple revenue channels – We earn revenue from both clean fuel sales (domestic) and big-ticket sales of equipment (international).
 
Rapid growth potential – We expect to grow revenue through rapid growth in production and sales of MagneGas in the acetylene and natural gas markets, as well as through our international licensing agreement in China.
 
Our Growth Strategies
 
Our current focus is to continue the penetration achieved to date by MagneGas fuel, primarily as an alternative for acetylene, into the global market for metalworking and fabrication gasses; a market which is projected to grow more than 8% annually to $5.6 billion by 2014. 
 
 
 
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Our top priority is to grow sales of MagneGas primarily through an expanding network of established industrial gas distributors and strategic customers. We have distributors in Pennsylvania, Michigan and Florida. We also have a retail operation in Florida selling fuel directly to end users. We have obtained approval from the Department of Transportation to deliver fuel in Florida and currently have several customers purchasing fuel directly.
 
Even at current, early stage, modest production rates, we believe we can sell MagneGas fuel for 20% to 30% less than acetylene. We project that this economic advantage over acetylene will become greater as production scales up to meet the demand that is already in the pipeline.
 
And while MagneGas fuel costs are expected to decrease with scaling, some welding industry participants project that the cost of acetylene will rise due to the increasing costs of the calcium carbide from which acetylene is derived. Furthermore, increasingly stringent health and safety regulations will further constrain the production and use of acetylene. In short, we believe the negative economic and regulatory forces acting on acetylene contribute to the beneficial conditions and timing for the adoption of MagneGas fuel as a substitute product.
 
We plan to expand through the use of direct marketing, exhibiting at trade events and networking opportunities. We plan to expand retail operations in Florida by leveraging existing customers for industry introductions. In the remainder of the United States, we plan to install filling stations in various geographically favorable locations and sell fuel to existing welding fuel distributors for quicker market penetration. In countries outside of the United States, we plan to conduct web-based marketing campaigns and attend industry events to attract potential equipment buyers. Those buyers are expected to purchase or lease equipment from us to produce fuel and sell that fuel to market while paying a royalty to us.
 
Our Products
 
We currently have two products: the fuel called MagneGas™ and the machines that produce that gas known as Plasma Arc Flow refineries.
 
Fuel
 
We currently produce MagneGas™ for the metalworking market from a feedstock of virgin ethylene glycol (automotive anti-freeze) which is purchased in bulk from outside suppliers. This is a temporary measure while we secure the permits required to process and handle post-consumer waste feedstock such as ethylene glycol and eventually municipal streams such as sewage and sludge.
 
The fuel is hydrogen based and can be used to replace natural gas. It is currently sold as a replacement for acetylene in the metalworking market.
 
The fuel is comprised of approximately 65% hydrogen, carbon monoxide, carbon dioxide and other trace gases. It is stored in hydrogen cylinders which are then sold to market. We believe we can sell the cylinders at a 20% to 30% lower price than acetylene.
 
Equipment
 
The Plasma Arc Flow technology can gasify many forms of liquid waste such as ethylene glycol, sewage and sludge.
 
Plasma Arc Flow refineries have been configured in various sizes ranging from 50kw to 500kw depending on the application. Plasma Arc Flow refineries range in price from $1 Million to $3 Million. A 200Kw refinery was sold in 2010 to a customer in China for $1.855 Million.
 
The patented Plasma Arc Flow process is based on the flow of a carbon-rich, liquid feedstock through an electric arc between two electrodes submerged in the feedstock. The arc decomposes the liquid molecules into atoms and forms an ultra-high temperature plasma around the tips of the electrodes which sterilizes any waste matter. The Plasma Arc Flow also controls the formation of MagneGas™, a hydrogen-rich fuel, which bubbles to the surface of the refining vessel for easy collection and subsequent compression. In this way, liquid waste streams or oils are converted into MagneGas™ with minimal by-products such as sterilized water (if using sewage as feedstock) and only a small amount of carbonaceous precipitates or other inert solids which are strained out for periodic removal and disposal.
 
 
 
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Recent Developments
 
On March 28, 2012 we entered into a purchase agreement with certain investors for the sale of shares of our common stock at a purchase price of $0.20 per unit and five-year warrants to purchase shares of our common stock at an exercise price of $0.40 per share (the “Private Placement”). Closings for the sale of such shares took place on March 29, 2012 and April 3, 2012, at which an aggregate of 19,412,500 shares and warrants to purchase 9,706,250 shares were issued. The estimated gross proceeds from the sale of these shares and warrants, before deducting the placement agent fees and estimated expenses, was approximately $3,882,500. The holders of the shares purchased in the private placement are entitled to weighted-average antidilution protection, with certain exceptions, until the 12-month anniversary of the initial closing in the event of sales and issuances of securities by us at less than the purchase price under the purchase agreement.
 
Northland Securities served as placement agent (the “Placement Agent”) for the Private Placement and received as compensation for its services $271,775 and five-year warrants to purchase 970,625 shares of our common stock at an exercise price of $0.40 per share.
 
The Offering
 
In connection with the Private Placement as described above under “Recent Developments,” we agreed to register under the Securities Act, the shares of common stock, the warrants issued to investors, and the shares of common stock issuable on exercise of the warrants issued to the investors. We also agreed to register under the Securities Act the warrants issued to the Placement Agent and the shares of common stock issuable on exercise of the warrants issued to the Placement Agent.
 
We are registering shares of our common stock and warrants to purchase shares of common stock for sale by the selling stockholders identified in “Selling Stockholders,” which consist of:
 
19,412,500 shares of common stock issued to the investors in the Private Placement;
 
10,676,875 five-year warrants issued in the Private Placement to purchase common stock; and
 
10,676,875 shares of common stock underlying warrants issued in the Private Placement.
 
The shares of common stock and warrants to purchase common stock offered under this prospectus may be sold by the selling stockholders in the manner described in “Plan of Distribution.” Information regarding the selling stockholders, the shares and warrants they are offering to sell under this prospectus, and the times and manner in which they may offer and sell those shares and warrants is set forth in “Selling Stockholders” and “Plan of Distribution.” We will not receive any of the proceeds from those sales. However, we may receive up to $4,270,750 upon the exercise of the warrants if the holders exercise them for cash. The registration of common stock pursuant to this prospectus does not necessarily mean that any of those shares will ultimately be offered or sold by the selling stockholders.
 
 
 
Shares of common stock outstanding after the offering (assuming full exercise of all of the outstanding warrants registered in this offering)
 
186,628,671 shares of common stock.
 
 
 
Risk Factors
 
 
The common stock and warrants offered hereby involves a high degree of risk and should not be purchased by investors who cannot afford the loss of their entire investment. See “Risk Factors” below.
 
         
 
OTCBB Symbol
 
“MNGA”
 
 
 
The number of shares of our common stock outstanding after this offering is based on 175,951,796 shares outstanding as of May 15, 2012, and excludes:
 
·           Warrants to purchase up to 1,354,763 shares of common stock for exercise prices of between $0.08 and $0.21.
·           Warrants to purchase up to 20,795,625 shares of common stock for exercise prices of between $0.25 and $0.30.
·   Warrants to purchase up to 10,676,875 shares of common stock for an exercise price of $0.40.
 
Corporate Information
 
Our principal executive offices are located at 150 Rainville Road, Tarpon Springs, FL 34689 and our telephone number is (727) 934-3448. Our website address is www.magnegas.com. The information contained therein or connected thereto shall not be deemed to be incorporated into this prospectus or the registration statement of which it forms a part. The information on our website is not part of this prospectus.
 
 
 
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An investment in our common stock involves a high degree of risk. You should carefully consider the risks described below, together with all of the other information included in this report, before making an investment decision. If any of the following risks actually occurs, our business, financial condition or results of operations could suffer. In that case, the trading price of our shares of common stock could decline, and you may lose all or part of your investment. You should read the section entitled “Special Note Regarding Forward Looking Statements” above for a discussion of what types of statements are forward-looking statements, as well as the significance of such statements in the context of this report.
 
Risks Relating to the Company’s Business
 
We have a limited operating history and there can be no assurance that we can achieve or maintain profitability.
 
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:
 
Management’s ability to maintain the technology and skills necessary for our fuel conversion services;
Our ability to keep abreast of the changes by the government agencies and law particularly in the areas of intellectual property and environmental regulation;
Our ability to attract customers who require the products and services we offer;
Our ability to generate revenues through the sale of our products and services to potential clients; and
Our ability to manage the logistics and operations of the Company and the distribution of our products and services.
 
We have had operating losses since formation and expect to incur net losses for the near term.
 
We reported a net income of $23,600 for the fiscal year ended December 31, 2010 and a net loss of $2,907,062 for the fiscal year ended December 31, 2011. We anticipate that we will lose money in the near term and we may not be able to achieve profitable operations. In order to achieve profitable operations we need to secure sales of fuel and Plasma Arc Flow refinery systems. We cannot be certain that our business will be successful or that we will generate significant revenues and become profitable.
 
The growth of our business depends upon the development and successful commercial acceptance of our products.
 
We depend upon a variety of factors to ensure that our MagneGas fuel and Plasma Arc Flow system are successfully commercialized, including timely and efficient completion of design and development, implementation of manufacturing processes, and effective sales, marketing, and customer service. Because of the complexity of our products, significant delays may occur between development, introduction to the market and volume production phases.
 
The development and commercialization of the MagneGas fuel and Plasma Arc Flow system involves many difficulties, including:
 
retention and hiring of appropriate operational, research and development personnel;
determination of the products’ technical specifications;
successful completion of the development process;
successful marketing of the MagneGas fuel and Plasma Arc Flow system and achieving customer acceptance;
managing inventory levels, logistics and operations; and
additional customer service and warranty costs associated with supporting product modifications and/or subsequent potential field upgrades.

 
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We must expend significant financial and management resources to develop and market our MagneGas fuel and Plasma Arc Flow system. We cannot assure that we will receive meaningful revenue from these investments. If we are unable to continue to successfully develop or modify our products in response to customer requirements or technological changes, or our products are not commercially successful, our business may be harmed.
 
The possibility of a global financial crisis may significantly impact our business and financial condition and our ability to attract customers to our relatively new technology for the foreseeable future.
 
The turmoil in the global financial system may adversely impact our ability to raise capital, invest in the development and refinement of our technology and to successfully market it to new customers. We may face increasing challenges if conditions in the financial markets do not improve over time. Our ability to access the capital markets may be restricted at a time when we would like, or need, to raise financing, which could have a material negative impact on our flexibility to react to changing economic and business conditions. The economic situation could have a material negative impact on our ability to attract new customers willing to try our alternative fuel products or purchase our technology.
 
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 MagneGas fuel and the Plasma Arc Flow system and could have a material adverse affect on our business and operations.
 
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 Plasma Arc Flow system internationally, we will be required to comply with laws and regulations and, when applicable, obtain permits in those other countries.
 
We cannot be certain that we will be able to obtain or maintain, required permits and approvals, that new or more stringent environmental regulations will not be enacted or that if they are, that we will be able to meet the stricter standards.
 
Our technology is unproven on a large-scale industrial basis and could fail to perform in an industrial production environment.
 
The Plasma Arc Flow System has never been utilized on a large-scale industrial basis. All of the tests that we have conducted to date with respect to our technology have been performed on limited quantities of liquid waste, and we cannot assure you that the same or similar results could be obtained on a large-scale industrial basis. We cannot predict all of the difficulties that may arise when the technology is utilized on a large-scale industrial basis. In addition, our technology has never operated at a volume level required to be profitable. As our product is an alternative to acetylene, the unstable price of acetylene will impact our ability to become profitable and to sell cost competitive fuel. It is possible that the technology may require further research, development, design and testing prior to implementation of a larger-scale commercial application. Accordingly, we cannot assure you that this technology will perform successfully on a large-scale commercial basis, that it will be profitable to us or that our MagneGas fuel will be cost competitive in the market.
 
Our future success is dependent, in part, on the performance and continued service of Scott Wainwright, our President, and Dr. Ruggero Maria Santilli, our CEO. Without their continued service, we may be forced to interrupt our operations.
 
We are presently dependent to a great extent upon the experience, abilities and continued services of Scott Wainwright, our President and Dr. Ruggero Maria Santilli, our CEO. Scott Wainwright has developed strategic relationships in our industry that are critical to our success and has obtained knowledge of our product that will take substantial time to replace. Dr. Santilli is the inventor of the technology and the chief scientist at our Company and as such his knowledge of the intellectual property associated with the development and implementation of our technology is critical to our success. The loss of either of their services would delay our business operations substantially.
 
Our related party transactions may cause conflicts of interests that may adversely affect our business.
 
Our intellectual property was purchased through a related party transaction with HyFuels, Inc, who through the transaction became a shareholder of the Company. We currently lease our building through a related party transaction with a company wholly owned by Dr. and Mrs. Santilli. We own a 20% interest in Magnegas Europe, a Company whose CEO and major shareholder is Ermanno Santilli, our Executive Vice President of International Relations and the son of Dr. Santilli. In addition, Dr. Santilli has personally contributed a small refinery for our use and we have received various small notes and loans from related parties, all of which have been paid in full.
 
 
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We believe that these transactions and agreements that we have entered into with these affiliates are on terms that are at least as favorable as could reasonably have been obtained at such time from third parties. However, these relationships could create, or appear to create, potential conflicts of interest when our board of directors is faced with decisions that could have different implications for us and these affiliates. The appearance of conflicts, even if such conflicts do not materialize, might adversely affect the public’s perception of us, as well as our relationship with other companies and our ability to enter into new relationships in the future, which could have a material adverse effect on our ability to raise capital or to do business.
 
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 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. 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 use, or to contest the validity of, issued or pending patents. 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 Plasma Arc Flow system may be utilized in a variety of industrial and other settings, and may be used to handle materials resulting from the user's generation of liquid waste and the creation of a compressed hydrogen based fuel for distribution to end customers. The equipment, cylinders and gas will therefore be subject to risks of breakdowns and malfunctions. There is also inherent risk in the compression, transportation and use of the MagneGas fuel. It is possible that claims for personal injury and business losses arising out of these risks, breakdowns and malfunctions will occur. 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 fuel 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 compete economically. 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.
 
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 may suffer.
 
Liquid waste disposal and fuel production involves the discharge of potential contaminants into the water and air and is subject to various regulatory and safety requirements. 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. 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 resulting therefrom could significantly increase our operating costs.

 
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As MagneGas fuel is new to the metalworking market, it may take time for the industry to adapt to it. In addition, the economy may adversely impact consumption of fuel in the metalworking market making it more difficult for us to sell our product.
 
MagneGas fuel is a replacement for acetylene for the metalworking market. As this is a new product in the industry, it may take time for end users to consider changing from acetylene to MagneGas and as such this may adversely impact our sales. In addition, consumption for fuel in the metalworking market is highly dependent on the economic conditions of the manufacturing industry and as such adverse conditions in the economy may also negatively impact our ability to sell our fuel to market.
 
Risks Related to our Common Stock:
 
Our common stock is quoted only on the OTC Bulletin Board (“OTCBB”), which may have an unfavorable impact on our stock price and liquidity.
 
Our common stock is quoted on the OTCBB. The OTCBB is a significantly more limited market than the New York Stock Exchange or the NASDAQ Stock Market. The quotation of our shares on the OTCBB may result in a less liquid market available for existing and potential stockholders to trade shares of our common stock, could depress the trading price of our common stock and could have a long-term adverse impact on our ability to raise capital in the future.
 
There can be no assurance that there will be an active market for our shares of common stock either now or in the future. Market liquidity will depend on the perception of our operating business and any steps that our management might take to bring us to the awareness of investors. There can be no assurance given that there will be any awareness generated. Consequently, investors may not be able to liquidate their investment or liquidate it at a price that reflects the value of the business. As a result holders of our securities may not find purchasers for our securities should they to desire to sell them. Consequently, our securities should be purchased only by investors having no need for liquidity in their investment and who can hold our securities for an indefinite period of time.
 
The market price for our common shares is particularly volatile given our status as a relatively unknown company with a small and thinly traded public float, limited operating history and lack of profits, which could lead to wide fluctuations in our share price. You may be unable to sell your common shares at or above your purchase price, which may result in substantial losses to you.
 
The market for our common shares is characterized by significant price volatility when compared to the shares of larger, more established companies that trade on a national securities exchange and have large public floats, and we expect that our share price will continue to be more volatile than the shares of such larger, more established companies for the indefinite future. The volatility in our share price is attributable to a number of factors. First, as noted above, our common shares are, compared to the shares of such larger, more established companies, sporadically and thinly traded. As a consequence, the trading of relatively small quantities of shares by our shareholders may disproportionately influence the price of those shares in either direction. The price for our shares could, for example, decline precipitously in the event that a large number of our common shares are sold on the market without commensurate demand. Secondly, we are a speculative or “risky” investment due to our limited operating history, lack of profits to date, and uncertainty of future market acceptance for our potential products. As a consequence of this enhanced risk, more risk-adverse investors may, under the fear of losing all or most of their investment in the event of negative news or lack of progress, be more inclined to sell their shares on the market more quickly and at greater discounts than would be the case with the stock of a larger, more established company that trades on a national securities exchange and has a large public float. Many of these factors are beyond our control and may decrease the market price of our common shares, regardless of our operating performance.
 
Future sales of our common stock in the public market by management or our large stockholders could lower our stock price.
 
Our largest stockholders (each of whom has a representative on our Board of Directors or is on the Board of Directors themselves), together with the other members of our Board of Directors and our executive officers, collectively beneficially own 65.7% of our outstanding common stock. If our officers, directors and current stockholders sell, or indicate intent to sell, substantial amounts of our common stock in the public market, the trading price of our common stock may decline significantly.

Our Shares of common stock are very thinly traded, and the price may not reflect our value and there can be no assurance that there will be an active market for our shares of common stock now or in the future.
 
 
11

 
 
Although our common stock is quoted on the OTCBB, our shares of common stock are very thinly traded, and the price of our common stock, if traded, may not reflect our value. There can be no assurance that there will be an active market for our shares of common stock either now or in the future. Market liquidity will depend on the perception of our operating business and any steps that our management might take to bring us to the awareness of investors. There can be no assurance given that there will be any awareness generated. Consequently, investors may not be able to liquidate their investment or liquidate it at a price that reflects the value of the business. As a result holders of our securities may not find purchasers our securities should they to sell securities held by them. Consequently, our securities should be purchased only by investors having no need for liquidity in their investment and who can hold our securities for an indefinite period of time. 
 
If a more active market should develop, the price of our shares of common stock may be highly volatile. Because there may be a low price for our shares of common stock, many brokerage firms may not be willing to effect transactions in our securities. Even if an investor finds a broker willing to effect a transaction in the shares of our common stock, the combination of brokerage commissions, transfer fees, taxes, if any, and any other selling costs may exceed the selling price. Further, many lending institutions will not permit the use of such shares of common stock as collateral for any loans.
 
We expect to apply for listing of our common stock on a senior exchange, however, there can be no guarantee that such listing shall be achieved at any time.
 
The members of our Board of Directors, their affiliates and our executive officers, as stockholders, control our company.
 
Our largest stockholders (each of whom has a representative on our Board of Directors or is on the Board of Directors themselves) together with the other members of our Board of Directors and our executive officers, as stockholders, collectively beneficially own 58.4% of our outstanding common stock. As a result of this ownership, they have the ability to significantly influence all matters requiring approval by stockholders of our company, including the election of directors. In particular, Dr. Ruggero Maria Santilli, Chairman of the Board of Directors, beneficially owns 38.5% of our outstanding common stock and Allen Feng, a director of our company, beneficially owns 12.5% of our outstanding common stock. As a result, Messrs. Santilli and Feng beneficially own an aggregate of 51.0% of our outstanding stock and have the ability to significantly influence all matters requiring approval by stockholders of our company. This concentration of ownership also may have the effect of delaying or preventing a change in control of our company that may be favored by other stockholders. This could prevent transactions in which stockholders might otherwise receive a premium for their shares over current market prices.
 
If securities or industry analysts do not publish research or reports about us, or publish negative reports about our business, our share price could decline.
 
Securities analysts currently do not cover our common stock and may not do so in the future. Our lack of analyst coverage might depress the price of our common stock and result in limited trading volume. If we do receive analyst coverage in the future, any negative reports published by such analysts could have similar effects.
 
Future issuance of our common stock could dilute the interests of existing stockholders.
 
We may issue additional shares of our common stock in the future. The issuance of a substantial amount of common stock could have the effect of substantially diluting the interests of our current stockholders. In addition, the sale of a substantial amount of common stock in the public market, either in the initial issuance or in a subsequent resale by the target company in an acquisition which received such common stock as consideration or by investors who acquired such common stock in a private placement could have an adverse affect on the market price of our common stock.
 
The application of the SEC’s “penny stock” rules to our common stock could limit trading activity in the market, and our stockholders may find it more difficult to sell their stock.
 
Our common stock is currently trading at less than $5.00 per share and is therefore subject to the SEC’s penny stock rules. Before a broker-dealer can sell a penny stock, these rules require that it first approve the customer for the transaction and receive from the customer a written agreement to the transaction. It must furnish the customer a document describing the risks of investing in penny stocks. The broker-dealer must also tell the customer the current market quotation, if any, for the penny stock and the compensation the firm and its broker will receive for the trade. Finally, it must send monthly account statements showing the market value of each penny stock held in the customer’s account. These disclosure requirements tend to make it more difficult for a broker-dealer to make a market in penny stocks, and could, therefore, reduce the level of trading activity in a stock that is subject to the penny stock rules. Consequently, our stockholders may find it more difficult to sell their stock as compared to other securities.
 
We do not intend to pay dividends for the foreseeable future, and you must rely on increases in the market prices of our common stock for returns on your investment.
 
For the foreseeable future, we intend to retain any earnings to finance the development and expansion of our business, and we do not anticipate paying any cash dividends on our common stock. Accordingly, investors must be prepared to rely on sales of their common stock after price appreciation to earn an investment return, which may never occur. Investors seeking cash dividends should not purchase our common stock. Any determination to pay dividends in the future will be made at the discretion of our board of directors and will depend on our results of operations, financial condition, contractual restrictions, restrictions imposed by applicable law and other factors our board of directors deems relevant.

 
12

 
 
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
 
This prospectus contains forward looking statements that involve risks and uncertainties, principally in the sections entitled “Description of Business,” “Risk Factors,” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” All statements other than statements of historical fact contained in this prospectus, including statements regarding future events, our future financial performance, business strategy and plans and objectives of management for future operations, are forward-looking statements. We have attempted to identify forward-looking statements by terminology including “anticipates,” “believes,” “can,” “continue,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “should,” or “will” or the negative of these terms or other comparable terminology. Although we do not make forward looking statements unless we believe we have a reasonable basis for doing so, we cannot guarantee their accuracy. These statements are only predictions and involve known and unknown risks, uncertainties and other factors, including the risks outlined under “Risk Factors” or elsewhere in this Report, which may cause our or our industry’s actual results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time and it is not possible for us to predict all risk factors, nor can we address the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause our actual results to differ materially from those contained in any forward-looking statements. All forward-looking statements included in this document are based on information available to us on the date hereof, and we assumes no obligation to update any such forward-looking statements.

You should not place undue reliance on any forward-looking statement, each of which applies only as of the date of this prospectus. Before you invest in our securities, you should be aware that the occurrence of the events described in the section entitled “Risk Factors” and elsewhere in this Report could negatively affect our business, operating results, financial condition and stock price. Except as required by law, we undertake no obligation to update or revise publicly any of the forward-looking statements after the date of this Report to conform our statements to actual results or changed expectations.
 
 
We plan to retain any earnings for the foreseeable future for our operations. We have never paid any dividends on our common stock and do not anticipate paying any cash dividends in the foreseeable future. Any future determination to pay cash dividends will be at the discretion of our Board of Directors and will depend on our financial condition, operating results, capital requirements and such other factors as our Board of Directors deems relevant. In addition, our credit facility restricts our ability to pay dividends.
 
USE OF PROCEEDS
 
We will not receive any of the proceeds from the sale of the shares and warrants described in this prospectus. However, we may receive up to $4,270,750 upon the exercise of the warrants if the holders exercise them for cash. If some or all of the warrants are exercised, the money we receive will be used for general corporate purposes, including working capital requirements.
 
PENNY STOCK CONSIDERATIONS
 
Our common stock will be a penny stock, therefore, trading in our securities is subject to penny stock considerations. Broker-dealer practices in connection with transactions in “penny stocks” are regulated by certain penny stock rules adopted by the SEC.
 
Penny stocks generally are equity securities with a price of less than $5.00 (other than securities registered on certain national securities exchanges or quoted on the NASDAQ system). Penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document that provides information about penny stocks and the risks in the penny stock market. The broker-dealer also must provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction, and monthly account statements showing the market value of each penny stock held in the customer’s account. The broker-dealer must also make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction. These requirements may have the effect of reducing the level of trading activity, if any, in the secondary market for a security that becomes subject to the penny stock rules. The additional burdens imposed upon broker-dealers by such requirements may discourage broker-dealers from effecting transactions in our securities, which could severely limit their market price and liquidity of our securities. These requirements may restrict the ability of broker-dealers to sell our common stock and may affect your ability to resell our common stock.
 
 
13

 
 
SELLING STOCKHOLDERS
 
The common shares and warrants held by selling stockholders being registered for resale consist of: (i) 19,412,500 shares of our common stock that are issued and outstanding; (ii) warrants to purchase 10,676,875 shares of our common stock; and (iii) 10,676,875 shares of our common stock issuable upon exercise of the warrants held by the selling stockholders. These selling stockholders include the certain investors in our Private Placement that closed on March 29, 2012 and April 3, 2012 and the Placement Agent in our Private Placement.
 
The following table provides certain information with respect to the selling stockholders’ beneficial ownership of our common stock as of May 15, 2012, the total number of shares they may sell under this prospectus from time to time, and the number of shares they will own thereafter assuming no other acquisitions or dispositions of our common stock. For the table below, beneficial ownership of our common stock is determined in accordance with the rules of the Securities and Exchange Commission and includes any shares of common stock over which a selling stockholder exercises sole or shared voting or investment power, or of which a selling stockholder has a right to acquire ownership at any time within 60 days of May 15, 2012. The selling stockholders can offer all, some or none of their shares, thus we have no way of determining the number they will hold after this offering. We have therefore prepared the table below on the assumption that the selling stockholders will sell all shares covered by this prospectus.
 
Name of Selling Stockholder
 
Shares Beneficially
Owned prior to Offering
   
Percentage
Beneficially Owned
prior to Offering
 
Shares to Offer (1)
   
Shares Beneficially
Owned after Offering
   
Percentage
Beneficially Owned
After Offering
 
Clinton Magnolea Master Fund Ltd (2)
    3,750,000        
2.1%
    3,750,000       -       -  
Robert L Dingess & Sherry L Dingess
    3,000,000        
1.7%
    3,000,000       -       -  
Manchester Explorer, LP (3)
    2,625,000        
1.5%
    2,625,000       -       -  
Frank Family 1996 Trust (4)
    1,500,000         *     1,500,000       -       -  
Brio Capital LP (5)
    1,125,000         *     1,125,000       -       -  
Jeb Partners, L.P. (6)
    1,125,000         *     1,125,000       -       -  
Northland Securities, Inc. (7)
    970,625         *     970,625                  
Hubert G Phipps
    937,500         *     937,500       -       -  
H. David Warner Trust
    750,000         *     750,000       -       -  
Larry R Zilverberg & Susan E Zilverberg
    750,000         *     750,000       -       -  
Robert J. Evans
    750,000         *     750,000       -       -  
Richard B. O'Neil
    750,000         *     750,000       -       -  
Micro PIPE Fund I, LLC (8)
    750,000         *     750,000       -       -  
Cranshire Capital Master Fund Ltd. (9)
    712,500         *     712,500       -       -  
Mark Weinzierl
    450,000         *     450,000       -       -  
Craig L Sauey
    375,000         *     375,000       -       -  
David M Pote & Linda Ann Engster
    375,000         *     375,000       -       -  
Lawrence Rayner & Sally G Rayner
    375,000         *     375,000       -       -  
Nickolas Priadka
    375,000         *     375,000       -       -  
Nicholson Boys LP  (10)
    375,000         *     375,000       -       -  
Shanna D. Cullen
    375,000         *     375,000       -       -  
Patricia Vogelpohl
    375,000         *     375,000       -       -  
Stephanie K Stanton Revocable Living Trust (11)
    375,000         *     375,000       -       -  
Ritzenthaler Family Revocable Living Trust (12)
    375,000         *     375,000       -       -  
Robert L Dingess II and Sherry L Dingess
    375,000         *     375,000       -       -  
Perkins Trust (13)
    300,000         *     300,000       -       -  
Pershing LLC as Custodian FBO Mark J Hoel
    300,000         *     300,000       -       -  
Gustav Hoffmann & Helen Hoffmann
    300,000         *     300,000       -       -  
A. David Flor
    281,250         *     281,250       -       -  
Kraig Lungstrom
    281,250         *     281,250       -       -  
Sabrina Stevens
    225,000         *     225,000       -       -  
Associated Oral & Maxillofacial Surgeons PA PSP FBO Robert Gillum (14)
    187,500         *     187,500       -       -  
Brian Paul Schiele Revocable Trust (15)
    187,500         *     187,500       -       -  
Melinda D Borum Revocable Trust  (16)
    187,500         *     187,500       -       -  
Bryce K Wilkes
    187,500         *     187,500       -       -  
Murray I Mills Revocable Trust uad (17)
    187,500         *     187,500       -       -  
Crowley Trust (18)
    187,500         *     187,500       -       -  
 
 
14

 
 
Donald R. Minor
    187,500         *     187,500       -       -  
Larry & Beverly Kastenschmidt Revocable Living Trust (19)
    187,500         *     187,500       -       -  
Pershing LLC as Custodian FBO Gary L Hofer IRA
    187,500         *     187,500       -       -  
Fred W Klokonos
    187,500         *     187,500       -       -  
Peggy A Mischkot & Ramon T Mischkot
    187,500         *     187,500       -       -  
Gladstone M Stenson
    187,500         *     187,500       -       -  
Stanford M Baratz Revocable Trust (20)
    187,500         *     187,500       -       -  
James J. Tiampo Money Purchase Plan & Trust (21)
    187,500         *     187,500       -       -  
Joan M Wealing
    187,500         *     187,500       -       -  
John G. Bowlsby
    187,500         *     187,500       -       -  
Josephine E Sullivan
    187,500         *     187,500       -       -  
Pershing LLC as Custodian FBO Peggy A Mischkot IRA
    187,500         *     187,500       -       -  
Pershing LLC as Custodian FBO Stan R Hildestad IRA
    187,500         *     187,500       -       -  
Robert Leff
    187,500         *     187,500       -       -  
Ronald J & Beverly M Minor Living Trust (22)
    187,500         *     187,500       -       -  
Sylvester H Van Hove & Wanda L Van Hove
    187,500         *     187,500       -       -  
Thomas L Young & Mary J Young
    187,500         *     187,500       -       -  
David W Andreas Trust
    140,625         *     140,625       -       -  
Donna J Andreas Trust
    140,625         *     140,625       -       -  
Freestone Advantage Partners II, LP (23)
    37,500         *     37,500       -       -  
TOTAL
    30,149,375               30,149,375                  
________________________________
* Less than 1%
 
(1)
Includes the shares of common stock and the shares underlying the warrants issued to investors in the Private Placement that closed March 29, 2012 and April 3, 2012 as well as the shares underlying the warrants issued to the Placement Agent.
(2)
This stockholder has represented to us that George Hall is the natural person with voting and investment control over these shares.
(3)
This stockholder has represented to us that James Besser and Morgan Frank are the natural persons with shared voting and investment control over these shares.
(4)
This stockholder has represented to us that Harold J. Frank and Virginia J. Frank are the natural persons with shared voting and investment control over these shares.
(5)
This stockholder has represented to us that Shaye Hirsch is the natural person with voting and investment control over these shares.
(6)
This stockholder has represented to us that James Besser is the natural person with voting and investment control over these shares.
(7)
Northland Securities, Inc. served as Placement Agent for the Private Placement and is a registered broker-dealer. Northland Securities, Inc. also served as a placement agent for us in a prior private placement and may, from time to time in the future provide us with other advisory, placement agent or underwriter services.
(8)
This stockholder has represented to us that David Mickelson is the natural person with voting and investment control over these shares.
(9)
This stockholder has represented to us that Mitchell P. Kopin is the natural person with voting and investment control over these shares.
(10)
This stockholder has represented to us that David Nicholson, Richard Nicholson, Ford Nicholson and Todd Nicholson are the natural persons with shared voting and investment control over these shares.
(11)
This stockholder has represented to us that Stephanie K. Stanton and Gerald L. Stanton are the natural persons with shared voting and investment control over these shares.
(12)
This stockholder has represented to us that Larry J. Ritzenthaler and Barbara G. Ritzenthaler are the natural persons with shared voting and investment control over these shares.
(13)
This stockholder has represented to us that John O. Perkins and Verna J. Perkinsare the natural persons with shared voting and investment control over these shares.
(14)
This stockholder has represented to us that Robert Gillum is the natural person with voting and investment control over these shares.
(15)
This stockholder has represented to us that Brian Paul Schiele is the natural person with voting and investment control over these shares.
(16)
This stockholder has represented to us that Melinda D. Borum and Carl K. Towley are the natural persons with shared voting and investment control over these shares.
(17)
This stockholder has represented to us that Murray I. Mills and Carol J. Mills are the natural persons with shared voting and investment control over these shares.
(18)
This stockholder has represented to us that Lionel L. Crowley and Marilyn L. Crowley are the natural persons with shared voting and investment control over these shares.
(19)
This stockholder has represented to us that Larry E. Kastenschmidt and Beverly J. Kastenschmidt are the natural persons with shared voting and investment control over these shares.
(20)
This stockholder has represented to us that Stanford Baratz and Amy Baratz are the natural persons with shared voting and investment control over these shares.
(21)
This stockholder has represented to us that James J. Tiampo is the natural person with voting and investment control over these shares.
(22)
This stockholder has represented to us that Ronald J. Minor and Beverly M. Minor are the natural persons with shared voting and investment control over these shares.
(23)
This stockholder has represented to us that Mitchell P. Kopin is the natural person with voting and investment control over these shares.
 
Except as disclosed in the table above, to our knowledge, none of the selling stockholders or beneficial owners:
 
has had a material relationship with us other than as a stockholder at any time within the past three years;

has ever been one of our officers or directors or an officer or director of our affiliates; or

are broker-dealers or affiliated with broker-dealers.
 
With respect to those selling stockholders noted below who are or were affiliated with registered broker-dealers, each has represented to us that the shares being registered for resale were purchased in the ordinary course of business and, at the time of purchase, such selling stockholder had no agreements or understandings, directly or indirectly, with any person to distribute the shares.
 
 
15

 
 
DESCRIPTION OF BUSINESS
Our Company
 
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.
 
History
 
MagneGas Corporation was organized in the state of Delaware on December 9, 2005. We were 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 by Clean Energies Tech Co., a private company owned by Dr. Santilli. Following this stock purchase, our name was changed to MagneGas Corporation.
 
Our Industry
 
We focus our efforts on producing and selling fuel and equipment for the metalworking fuel market. This market is currently dominated by acetylene gas. Acetylene gas is considered toxic, emits soot when it burns and can be very volatile. In recent months, several acetylene production plants have exploded, causing a shortage of acetylene and raising prices. MagneGas fuel on the other hand, emits oxygen when it burns and independent users have rated MagneGas as a cleaner alternative to acetylene.
 
According to a recent report on the global market for metalworking gasses by the Freedonia Group, “demand for industrial gases in metal welding and fabrication markets is projected to increase 8.6 percent per year to $5.6 billion in 2014. Gains will be driven primarily by expanding industrial production and construction activity. As a result, the greatest opportunities for growth will emerge in China, India and other developing economies, where industrialization is proceeding most rapidly and where further infrastructural development is key to sustained economic growth. Western Europe, North America and Japan will remain the largest consumers of industrial gases for welding and fabrication markets, although growth opportunities will not equal those of developing economies.”
 
Our Competitive Strengths
 
Patented, sustainable, disruptive technology and fuel source – Our patented Plasma Arc Flow technology recycles liquid waste through a patented process, producing a hydrogen-based fuel called MagneGasTM, which the we believe can become, among other things, a replacement for acetylene. In some cases, main by-product is sterilized water fit for irrigation.
 
World class technology team – We are led by our CEO and Chief Scientist Dr. Santilli, who has been nominated for Nobel Prizes in Physics and Chemistry. He is a former professor at both Harvard and MIT. He has received numerous Department of Energy research grants for the development of chemically unique clean fuel.
 
Immediate commercial applications – Our MagneGas fuel and Plasma Flow Arc technology are now both selling in the United States and globally. We expect our disruptive technology to displace current fuel gases such as acetylene.
 
Multiple revenue channels – We earn revenue from both clean fuel sales (domestic) and big-ticket sales of equipment (international).
 
Rapid growth potential – We expect to grow revenue through rapid growth in production and sales of MagneGas in the acetylene and natural gas markets, as well as through our international licensing agreement in China.
 
Our Growth Strategies
 
Our current focus is to continue the penetration achieved to date by MagneGas fuel, primarily as an alternative for acetylene, into the global market for metalworking and fabrication gasses; a market which is projected to grow more than 8% annually to $5.6 billion by 2014.
 
 
16

 
 
Our top priority is to grow sales of MagneGas primarily through an expanding network of established industrial gas distributors and strategic customers. We have distributors in Pennsylvania, Alabama, Michigan and Florida. We also have a retail operation in Florida selling fuel directly to end users. We have obtained approval from the Department of Transportation to deliver fuel in Florida and currently have several customers purchasing fuel directly.
 
Even at current, early stage, modest production rates, we believe we can sell MagneGas fuel for 20% to 30% less than acetylene. We project that this economic advantage over acetylene will become greater as production scales up to meet the demand that is already in the pipeline.
 
And while MagneGas fuel costs are expected to decrease with scaling, some welding industry participants project that the cost of acetylene will rise due to the increasing costs of the calcium carbide from which acetylene is derived. Furthermore, increasingly stringent health and safety regulations will further constrain the production and use of acetylene. In short, we believe the negative economic and regulatory forces acting on acetylene contribute to the beneficial conditions and timing for the adoption of MagneGas fuel as a substitute product.

We plan to expand through the use of direct marketing, exhibiting at trade events and networking opportunities. We plan to expand retail operations in Florida by leveraging existing customers for industry introductions. In the remainder of the United States, we plan to install filling stations in various geographically favorable locations and sell fuel to existing welding fuel distributors for quicker market penetration. In countries outside of the United States, we plan to conduct web-based marketing campaigns and attend industry events to attract potential equipment buyers. Those buyers are expected to purchase or lease equipment from us to produce fuel and sell that fuel to market while paying a royalty to us.

Our Products
 
We currently have two products: the fuel called MagneGas™ and the machines that produce that gas known as Plasma Arc Flow refineries.
 
Fuel
 
We currently produce MagneGas™ for the metalworking market from a feedstock of virgin ethylene glycol (automotive anti-freeze) which is purchased in bulk from outside suppliers. This is a temporary measure while we secure the permits required to process and handle post-consumer waste feedstock such as ethylene glycol, and eventually municipal streams such as sewage and sludge.
 
The fuel is hydrogen based and can be used to replace natural gas. It is currently sold as a replacement for acetylene in the metalworking market.
 
The fuel is comprised of approximately 65% hydrogen, carbon monoxide, carbon dioxide and other trace gases. It is stored in hydrogen cylinders which are then sold to market. We believe we can sell the cylinders at a 20% to 30% lower price than acetylene.
 
Equipment
 
The Plasma Arc Flow technology can gasify many forms of liquid waste such as ethylene glycol, sewage and sludge.
 
Plasma Arc Flow refineries have been configured in various sizes ranging from 50kw to 500kw depending on the application. Plasma Arc Flow refineries range in price from $1 Million to $3 Million. A 200Kw refinery was sold in 2010 to a customer in China for $1.855 Million.
 
The patented Plasma Arc Flow process is based on the flow of a carbon-rich, liquid feedstock through an electric arc between two electrodes submerged in the feedstock. The arc decomposes the liquid molecules into atoms and forms an ultra-high temperature plasma around the tips of the electrodes which sterilizes any waste matter. The Plasma Arc Flow also controls the formation of MagneGas™, a hydrogen-rich fuel, which bubbles to the surface of the refining vessel for easy collection and subsequent compression. In this way, liquid waste streams or oils are converted into MagneGas™ with minimal by-products such as sterilized water (if using sewage as feedstock) and only a small amount of carbonaceous precipitates or other inert solids which are strained out for periodic removal and disposal.
 
Sales and Marketing
 
We currently employ one employee focused on developing strategic relationships, one employee focused on marketing, one employee focused on business development and one employee focused on sales. Through the use of industry events, networking opportunities, web based marketing and direct sales, we are launching the market for metalworking fuel sales. The sales strategy is through hands on demonstration of the benefits of the fuel versus acetylene at customer locations. Our personnel bring the fuel onsite to the customer and demonstrate its use in real time as a cutting fuel. We also developed marketing material, videos and feature articles regarding the MagneGas fuel product and its uses in the metalworking industry. We distribute this material via direct mail and through the use of press releases.
 
 
17

 
 
Research and Development
 
We are currently pursuing several near-term R&D objectives, including:
 
Liquifaction of MagneGas™ – MagneGas is currently a gaseous fuel stored in hydrogen cylinders. We are planning research and development surrounding the liquefaction of the fuel. As a liquid, the fuel will have many additional uses. We believe the gas can be liquefied by locating the proper catalyst. Some research has been completed in this area, however the proper catalyst has not been located at this time and we plan to test various catalysts for this purpose.
 
Separation of Hydrogen from MagneGas™ – MagneGas contains 65% hydrogen. The hydrogen can be separated via the use of a pressure swing vacuum station. We have already successfully separated hydrogen from MagneGas fuel. However, further research and development is needed to purify the hydrogen and find industrial equipment that can produce large volumes of hydrogen fuel.
 
Increased productivity – We are exploring methods to increase fuel production via the use of different power units. The goal is to increase the voltage delivered to the arc, thereby increasing fuel production and productivity. We have purchased a new Amatek power unit and are currently developing new electronic controls for use with this unit.
 
Manufacturing
 
Equipment
 
The proprietary components of the MagneGas system are manufactured on location in our headquarters in Tarpon Springs, Florida and commercially available components such as generators and compressors are purchased from existing suppliers. The equipment is assembled and tested in Tarpon Springs and installed on location by MagneGas personnel.
 
Fuel
 
We have two facilities producing MagneGas™ fuel which is currently sold to market, our headquarters in Tarpon Springs and our new satellite location in Detroit, Michigan. Currently, MagneGas™ is produced and bottled into standard industrial gas cylinders in those facilities and then trucked to regional distributors or delivered directly to local retail customers.. We have developed a plan to significantly expand and diversify MagneGas™ production and simplify distribution logistics by installing Plasma Arc Flow refineries at key locations around the country to be closer to regional distributors. We also plan to install refineries onsite at large end users such as demolition projects and steel recycling centers. We expect planned scale-up of production and reduction in shipping distances will further enhance the cost advantage MagneGas™ already has over acetylene. MagneGas™ cylinders and valves are slightly different from those used for acetylene primarily owing to the high hydrogen content of MagneGas™. We intend to bring thousands of additional cylinders into rotation shortly.
 
Current MagneGas™ production is temporarily from a feedstock of virgin ethylene glycol (anti-freeze) as we secure the permits required to process and handle post-consumer waste streams such as anti-freeze. Our capital expansion plan includes provisions to secure the feedstock supplies, relationships and logistical abilities to process post-consumer waste oils such as used motor oils and/or anti freeze. We estimate that the cost of using post-consumer waste steam feedstock, including related costs such as permitting and waste disposal, will be least 50% lower than using virgin feedstock furthering MagneGas’s™ advantage over acetylene.
 
Customers
 
Some of our major customers and distributors are listed below:
 
Blue Water Industrial Products – Blue Water Industrial Products, based in New Baltimore, Michigan near Detroit is a leading supplier of metalworking and welding gases in the upper mid-west. Blue Water already has customers for MagneGas™ and is planning to make MagneGas™ one of its leading fuel products.
 
 
18

 
 
J&M Cylinder Gases – J&M is one of the largest independent manufacturers of acetylene in the southeastern United States and has an established sales platform serving eight distributors with 22 retail outlets, as well as three retail stores of its own, across Alabama and Tennessee. As with Blue Water, J&M's goal is to eventually make MagneGas™ a leading component of its fuel product offering. J&M is a distributor for MagneGas™ for the state of Alabama and the 250-mile radius around its Decatur, Alabama facility.

York Welding Supply – York Welding Supply is a metal fabrication gas distributor located in York, Pennsylvania. They sell several products related to the welding and welding fuel industry and have been actively distributing MagneGas fuel for metalworking.
 
in Florida:
 
·
Garden Street Iron & Metal – Garden Street is a scrap metal processor and recycler with six facilities in Ohio and Florida.

·
CTL Transportation – CTL is a Florida-based trucking company that hauls chemicals nationwide from eleven terminals in six states. CTL is using MagneGas™ at its Mulberry, Florida terminal in the repair and maintenance of the location's 150 trucks. We believe it will have the opportunity to expand and extend MagneGas™ use to all eleven CTL locations.
 
Strategic Relationships
 
We recently entered into commercial testing and discussions with a select group of leading U.S. strategic industrial companies and military contractors which, after conducting preliminary reviews of MagneGas™, are now seeking further testing. This includes a major United States automotive company that is considering eliminating acetylene in favor of MagneGas™ for its manufacturing.
 
In late May 2011, we announced that Edison Welding Supply, a testing contractor for the U.S. Navy is testing MagneGas™ as an environmentally-friendly alternative for major metal cutting projects, particularly to reduce emissions during the breakup and recycling of retiring vessels. We have received preliminary positive laboratory test results and we received verbal confirmation that we will move to the next stage of hands on testing. However, this second level of testing has not yet been initiated and we have not received an estimated date for the next steps. 
 
Competition
 
The main competition for the metalworking market is acetylene fuel. It is distributed through large multinational companies such as Airgas, and also through small regional independent distributors. The primary use of this fuel is for metal cutting and fabrication. It is produced from calcium carbide and is considered toxic and volatile.
 
MagneGas™ vs. Acetylene
 
The heat energy in the MagneGas™ flame is concentrated in the primary cones and the secondary flame producing outstanding results with a thermal density in the flame. This improved energy density permits smaller, faster and cleaner cuts. Independent tests have established that MagneGas™ is fast, precise and an efficient cutting fuel.  The Welding Journal reported that MagneGas does have advantages as a welding fuel including high quality, clean cuts with less slag and smaller heat-affected zones.
 
For more than 100 years acetylene (C2H2) has been the world's leading welding and metalworking fuel primarily due to its high flame temperature. But acetylene has many drawbacks:
 
it is toxic, emitting heavy carbon soot and noxious fumes when burned;
it produces a wide, sloppy cut with a great deal of slag and top edge roll-over; and

it is a very unstable and volatile gas and can spontaneously detonate.
 
Metal-Working attributes
MagneGas™
Acetylene
Slag
little or none
significant
Top edge rollover
none
significant
Soot
none
significant
Noxious & harmful fumes
minimal ( yields 12% O2 )
significant hazard
Pooling if leaked
none (lighter than air)
significant hazard
Porous filler/stabilizer
none
20% by volume
Useable gas in cylinder
100%
80%
Oxygen use per cf
1:1
2:1
 
 
19

 
 
MagneGasTM can be a replacement to acetylene and independent users have confirmed that it has a similar cutting speed, no slag and no soot.
 
Regulation
 
We are subject to several state, federal and local laws and oversight by several agencies, including the Department of Transportation, Department of Environmental Protection (“DEP”) and the Occupational Safety and Health Act in addition to local city and state zoning, fire and other regulations.
 
We have obtained a hazardous material transportation permit from the Department of Transportation to allow the transport of MagneGas fuel throughout the state of Florida. We use licensed hazardous waste transporters to deliver fuel to the rest of the country.
 
We currently use virgin ethylene glycol to produce fuel and thereby are not subject to the DEP permit required to process liquid waste. However, we are currently exploring the application process to obtain a hazardous and non hazardous liquid waste processing permit.
 
Internationally, we recently obtained a compliance certification that confirms that the manufacturing and operation of our equipment is in conformance with the mechanical and electrical safety requirements of the European Community laws.
 
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 Plasma Arc Flow system internationally, we will be required to comply with laws and regulations and, when applicable, obtain permits in those other countries.
 
We cannot 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.
 
Facilities
 
We presently lease 5,000 square feet for our principal offices at 150 Rainville Rd, Tarpon Springs, FL 34689 on a month-to-month basis. The property is a commercial property for our production facility with an attached office. In addition, we have leased a one acre parcel of gated land for storage located adjacent to our facility and a 6,000 square foot gas manufacturing facility in Detroit, Michigan.
 
Intellectual Property
 
The Plasma Arc Flow refinery forces a high volume flow of liquid waste through an electric arc between carbon electrodes. The benefit of this from a competitive perspective is that it sterilizes the bio-contaminants within the waste without the need to add any chemical disinfecting agents. In addition, while sterilizing the liquid, a clean burning fuel is produced.

MagneGas Corporation has patent ownership on the technology in the United States and is exploring filing patents under the Patent Cooperation Treaty in other areas of the world as needed with the exclusion of India, Africa, Europe and China. MagneGas Corporation has a 20% ownership interest in MagneGas entities that control the intellectual property in Europe, Africa and China. MagneGas Corporation owns the following U.S. 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. Patent No. 7,780,924 – issued August 24, 2010 entitled Operating Under High Power, Pressure and Temperature
Conditions to Produce A Combustible Gas.
 
We also own the United States Trademark for "MAGNEGAS."
 
Employees
 
We presently have sixteen full-time employees. We have leased employees and independent technicians perform production and other duties, as required. We consider our relationship with our employees to be excellent.
 
Legal Proceedings
 
We are currently not involved in any litigation that we believe could have a materially 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 company’s or our company’s subsidiaries’ officers or directors in their capacities as such, in which an adverse decision could have a material adverse effect 
 
 
20

 
 
MARKET PRICE OF AND DIVIDENDS ON OUR COMMON STOCK AND RELATED STOCKHOLDER MATTERS
 
Price Range of Common Stock

Our common stock trades on the OTCBB under the symbol MNGA. The OTCBB is a quotation service that displays real-time quotes, last-sale prices, and volume information in over-the-counter (“OTC”) equity securities. An OTCBB equity security generally is any equity that is not listed or traded on a national securities exchange. The following table shows, for the periods indicated, the high and low bid prices per share of our common stock as reported by the OTCBB quotation service. These bid prices represent prices quoted by broker-dealers on the OTCBB quotation service. The quotations reflect inter-dealer prices, without retail mark-up, mark-down or commissions, and may not represent actual transactions.
   
Fiscal 2012
   
Fiscal 2011
   
Fiscal 2010
 
   
High
   
Low
   
High
   
Low
   
High
   
Low
 
                                     
First Quarter (January 1 - March 31)
 
$
0.30
   
$
0.19
   
$
0.15
   
$
0.12
   
$
0.22
   
$
0.065
 
Second Quarter (April 1 - June 30)
 
$
-
   
$
-
   
$
0.21
   
$
0.125
   
$
0.20
   
$
0.07
 
Third Quarter (July 1 - September 30)
 
$
-
   
$
-
   
$
0.28
   
$
0.20
   
$
0.28
   
$
0.075
 
Fourth Quarter (October 1 - December 31)
 
$
-
   
$
-
   
$
0.27
   
$
0.18
   
$
0.28
   
$
0.11
 

Holders of Common Stock

As of May 15, 2012, there were approximately 324 stockholders of record. Because shares of our common stock are held by depositaries, brokers and other nominees, the number of beneficial holders of our shares is substantially larger than the number of stockholders of record. On May 14, 2012, the last reported sale price per share for our common stock as reported by the OTCBB quotation service was $0.67 per share.
 
Dividends

We have not declared or paid any cash dividends on our common stock, and we do not anticipate declaring or paying cash dividends for the foreseeable future. We are not subject to any legal restrictions respecting the payment of dividends, except that we may not pay dividends if the payment would render us insolvent. Any future determination as to the payment of cash dividends on our common stock will be at our board of directors’ discretion and will depend on our financial condition, operating results, capital requirements and other factors that our board of directors considers to be relevant.
 
 
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
 
The following discussion and analysis of the results of operations and financial condition for the fiscal years ended December 31, 2011 and 2010, as well as for the three month period ended March 31, 2012, and should be read in conjunction with our financial statements, and the notes to those financial statements that are included elsewhere in this Registration Statement.
 
Our discussion includes forward-looking statements based upon current expectations that involve risks and uncertainties, such as our plans, objectives, expectations and intentions. Actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of a number of factors, including those set forth under the Risk Factors, Cautionary Notice Regarding Forward-Looking Statements and Business sections in this Registration Statement. We use words such as “anticipate,” “estimate,” “plan,” “project,” “continuing,” “ongoing,” “expect,” “believe,” “intend,” “may,” “will,” “should,” “could,” and similar expressions to identify forward-looking statements.
 
Overview
 
Our operating plan and mission is to create a hydrogen based fuel through the gasification of liquid waste. A process has been developed 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. The patented proprietary technology is owned by our company. We are putting the majority of our efforts in launching fuel sales to the metalworking market as we feel this is the best opportunity to generate revenue in the near term.
 
The majority of our revenue in 2010 was the result of a one-time sale of a refinery to our partner in China for the Municipal Wastewater market. However, since that time, we determined that better opportunities exist in the metalworking market to generate revenue in the immediate term. As a result, we have shifted our focus from selling refineries for sewage treatment to generating recurring revenue in metalworking fuel sales. This has resulted in a drop in revenue from 2010 to 2011 as we ramp up sales in this new market.

Offering with DDI Industry International (Beijing) Co., Ltd

On June 1, 2011, the Company executed agreements for two private offerings (each an “Offering”) of its common stock with DDI Industry International (Beijing) Co., Ltd (the “Investor”).  In the first Offering 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.  In the second Offering, 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 intends to use the proceeds received from the Investor in the Offerings for an investment in the metal working market, cylinders and related matters.

Prior to this Offering, the Company and the Investor had 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.

2011 Private Placement

On October 28, 2011 and November 8, 2011, we entered into definitive agreements with investors to sell in a private placement an aggregate of 19,662,500 shares of its common stock and warrants to purchase 19,662,500 shares of its common stock at a purchase price of $0.16 per unit, resulting in gross proceeds to us of $3,146,000, before deducting placement agent fees and other offering expenses. The warrants are exercisable at an exercise price of $0.30 per share and expire five years from the initial closing date.
 
Proceeds from the private placement will be used primarily to launch in full to the national metalworking market by installing refinery filling stations in Detroit, wholly owned and operated by our company, and to significantly expand our fuel cylinder inventory to fill more and larger orders.
 
2012 Private Placement
 
On March 28, 2012, we entered into a definitive agreement with investors to sell in a private placement an aggregate of 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 us of $3,882,500, 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.
 
 
22

 
 
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 metalworking market through the use of established industry wholesalers, trade events and media coverage in trade journals. Our strategy is to sell Magnegas for metalcutting 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.  Wehave 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.

The Company has finished a one year analysis by a large automobile manufacturing company in Detroit and has received formal approval for use of the gas as a replacement to Acetylene.  We are in the process of introducing the fuel at various locations in Michigan to further this relationship. In addition, the Company is in various stages of negotiation 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.

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 fuel product and the Plasma Arc Flow technology.  In addition, Ermanno Santilli, son of Dr. Santilli has been appointed as CEO effective June 15, 2012.
 
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.
 
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.
 
 
23

 
 
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 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.
 
Comparison of the year ended December 31, 2011 and 2010

Revenues

For the years ended December 31, 2011 and 2010 we generated revenues of $381,892 and $2,036,238, respectively.  We generated revenues of $138,560 and $34,572 from our metal cutting fuel sales operations for the years ended December 31, 2011 and 2010, respectively. 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.

The majority of our revenue in 2010 was the result of a one-time sale of a refinery to our partner in China for the municipal wastewater market, for a net sales price of $1,855,000. However, since that time, we determined better opportunities exist in the metalworking market to generate revenue in the immediate term. As a result, we shifted our focus from selling refineries to generating recurring revenue in metalworking fuel sales. This has resulted in a drop in revenue from $1,855,000 in 2010 to $0 in 2011 as we ramp up sales in this new market.
 
During the second half of 2010 we received a contract for our technology licensing. We have recognized in the amount of $243,332 and $146,666 for the years ended December 31, 2011 and 2010, respectively. These license fees are ratably earned over the terms of the licensing agreement.
 
For the years ended December 31, 2011 and 2010, we recognized $0 and $1,855,000, respectively, from our contract for the sale of our Plasma Arc Flow production unit. Our only contract to date was completed in the third quarter of 2010. We have completed the manufacturing of four units for sale or fuel production, currently in our inventory (1) and fixed assets (3). Three units have been reclassified as fixed assets, as they have been deployed to locations for the purposes of producing metal cutting fuel, as described earlier as a shift in our marketing efforts towards production.
 
During the last quarter of 2011 we reached agreements with key distributors to place our units at locations as production refineries.  We anticipate revenue generation to commence in the first quarter of 2012 from these locations.  Based on our volume projections, we anticipate that there will be cost recovery within a 3 – 4 year period.
 
Operating Expenses

Operating costs were incurred in the amount of $3,275,665 and $1,264,745 for the years ended December 31, 2011 and 2010, respectively.  The operating expenses increased significantly as our operations expanded.  During 2011 we completed the manufacturing of four units, resulting in increases in our wage compensation of approximately $600,000, included in office and administration, as compared to the prior year.   Professional expenses increased over $500,000 in 2011 due to costs associated with closings on our funding, as well as legal efforts of several contractual agreements.  Selling costs increased approximately $100,000 in 2011 as compared to 2010, resulting from our increased efforts to expand our metal cutting business as well as our unit sale efforts. There was a significant increase in the issuance of common stock for services valued in the amount of $787,990 in 2011 compared to $262,251 in 2010.  Public and investor relations costs increased approximately $30,000 for the increase in regulatory compliance and the promotion of the public awareness.
 
 
24

 

We use common stock as a method of payment for certain services, primarily the advertising and promotion of the technology to increase awareness and as incentive to our 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 Income and Loss before Provision for Income Taxes

The Company had a net loss, before taxes, in the amount of $2,937,062 for the year ended December 31, 2011, compared to a net income before income taxes of $40,000 for the year ended December 31, 2010.  The decrease in the year over year results was primarily due from the sale of a recycling unit that was recognized in 2010, which created positive earnings in that year.  Margin on the 2010 sale of the unit resulted in a profit.  Our general and administrative expenses and stock based compensation, as described above in the operating expense discussion, increased, resulting in the 2011 loss.   Investments through sales of common stock ($2 million investment by DDI industries, a China company in 2010 and $1 million in 2011) and private placements in excess of $3 million has allowed our expansion of infrastructure and the manufacturing of additional units available for sale and available for production.  We believe that our investment in our infrastructure will have future benefits, as potential sales will be fulfilled and expanded metal cutting fuel fulfillments will generate consistent revenue streams.

Comparison of the year ended December 31, 2010 and 2009
 
Revenues
 
For the twelve months ended December 31, 2010 and 2009 we generated revenues of $2,036,238 and $18,564 respectively. Our first unit sale in 2010 was for a net sales price of $1,855,000, compared to $0 for 2009. License fees were recognized in the amount of $146,666 and $0 for the years ended December 31, 2010 and 2009, respectively. We generated revenues of $34,572 and $18,564 from our metal cutting fuel sales operations for the years ended December 31, 2010 and 2009, respectively. The increase was due to the continued expansion of customer relationships. We secured new channels for the distribution of our metal cutting fuel. We fulfilled initial orders and received repeat orders from multiple customers. To attract and attain new customers we performed demonstrations and sent samples to prospective accounts. Our facility was set up to fulfill future anticipated orders.
 
We entered into a six month agreement with a potential licenser for the Mexico territory and received a non-refundable payment of $150,000. The payment was for six month consideration period.
 
Operating Expenses
 
Operating costs were incurred in the amount of $1,264,745 and $1,260,073 for the years ended December 31, 2010 and 2009, respectively. The operating expenses remained relatively stable; however, there was a decrease in the issuance of common stock for services valued in the amount of $262,251 in 2010 compared to $822,714 in 2009. This decrease was offset by increases in general administrative expenses. Specifically, due to public filing requirements, there was an increase in investor relations of approximately $20,000 for the promotion of the public awareness. Professional expenses, which included legal, accounting and consulting increased approximately $34,000 to $115,287 in 2010 from $81,265 in 2009, primarily due to increased costs of legal and technical matters involving the engineering of the Plasma Arc Flow unit sold. Selling and advertising increased approximately $250,000 to $319,681 in 2010 from $69,619 in 2009, for efforts in product promotion and trade shows. Office administration increased approximately $219,000 to $293,258 in 2010 from $74,277 in 2009; increase was due to an increase in infrastructure for the support of our unit sale, as well as projected increases in our metal cutting fuel.
 
Net Income and Loss before Provision for Income Taxes
 
Our net income, before taxes, was $40,000 for the year ended December 31, 2010, compared to a net loss of $1,256,683 for the year ended December 31, 2009. The increase in the year over year results was primarily due from the sale of a recycling unit. Our margin on the sale of the unit resulted in a profit, although our general and administrative expenses, as described above in the operating expense discussion, increased as this revenue and the subsequent investments through sales of common stock ($2 million investment by DDI industries, a China company) allowed our expansion of infrastructure.
 
 
25

 
 
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.  
 
In both June 2011 and August 2011, we received investments of $500,000. Additionally, on October 28, 2011 and November 8, 2011, we entered into definitive agreements with investors to sell in a private placement an aggregate of 19,662,500 shares of its common stock and warrants to purchase 19,662,500 shares of our common stock at a purchase price of $0.16 per unit, resulting in gross proceeds to us of $3,146,000. 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.
 
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.

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.

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, 2011 which are contained in this filing, 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 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 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.  
 
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.

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 this, our Annual Report, filed on Form 10-K for the period ended December 31, 2011.

 
26

 
 
 
Our directors, executive officers and key employees are listed below. The number of directors is determined by our board of directors. All directors hold office until the next annual meeting of the board or until their successors have been duly elected and qualified. Officers are elected by the board of directors and their terms of office are, except to the extent governed by employment contract, at the discretion of the board of directors.
 
Directors and Executive Officers
 
NAME
 
AGE
 
POSITION
         
Dr. Ruggero Maria Santilli
 
75
 
Chairman of the Board, Chief Executive Officer
Scott Wainwright
 
40
 
President, Director
Luisa Ingargiola
 
45
 
Chief Financial Officer, Secretary, Director
Ermanno P. Santilli
 
42
 
Executive Vice President of International Relations
Carla Santilli
 
72
 
Director
Allen Feng
 
44
 
Director
 
Effective June 15, 2012 Dr. Santilli will step down as CEO. Ermanno Santilli has been appointed as the new CEO. Dr. Santilli will remain as the Chairman of the Board.
 
Dr. Ruggero Maria Santilli has been our Chairman of the Board, Chief Executive Officer since May 2007. 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 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 medals for scientific merits; the listing as "Santilli Hall" of a classroom 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.
 
Scott Wainwright has served as our President and Director since December 2010. Prior to joining MagneGas, Mr. Wainwright founded and served as CEO of First Chance Properties and Investment, a real estate development company from 2003-2009 where he honed his financial, transactional and management skills, growing the business to 30 employees and implementing various development and consulting projects. He previously founded and served as CEO of Future Marketing, Inc., a marketing company from 2001 to 2003 providing advertising, marketing and promotional services for such industry leaders as Land Rover, Ford and Chrysler.

Luisa Ingargiola has serves as our Chief Financial Officer, Secretary and Director since May 2007 and is the daughter of Dr. 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.
 
 
27

 
 
Ermanno P. Santilli has been our Executive Vice President of International Relations since March 2010 and is the son of Dr. Santilli. Mr. Santilli was employed by Ingersoll Rand Company from March 2008 to April 2009 where he served as Vice President of Climate Control Business, Global Rail and Aftermarket. In this capacity he oversaw a department that generated over $270 million in sales and $80 million in operating income. He managed sales, business development, product management, and warehousing and dealer development with indirect procurement, manufacturing and engineering. Mr. Santilli also drove development of new business and rail markets in Australia and India.
 
From March 2006 to February 2008 Mr. Santilli served as Vice-President of Climate Control Aftermarket EMEA, he led a department that generated total sale of $150 million and operating income of $50 million. He was responsible for business development, product management, warehousing, procurement, engineering and dealer development with indirect sales. From December 2003 to February 2006 Mr. Santilli served as Vice-President of Customer Relations for Climate Control EMEA. He had operational responsibility for customer satisfaction for customers with total sales aggregating over 1 billion dollars. Mr. Santilli had direct responsibility for order management, credit and collections, warranty, business intelligence and dealer development.
 
Carla Santilli has been a Director since May 2007 and is the spouse of Dr. Santilli and mother of Luisa Inargiola and Emanno 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.
 
Allen Feng has been a Director since June 2010. Mr. Feng received a Bachelor’s degree in Chemical Engineering from Taiyuan University of Technology in July 1989. Mr. Feng has been the CEO and President of DDI Industry International Inc. (“DDI”), since January of 2005. DDI is a Beijing-based engineering company with 10 years of involvement in the environment protection field and related engineering projects. Allen Feng has successfully led his team made a 35% sales growth each year from 2005 to 2009. Up to date, under Mr. Feng's management, DDI have accomplished 159 municipal waste water and 56 industry projects in total for equipment supply and installation. DDI now has been one of leading company in China environmental area.
 
Employment Agreements
 
We have an employment agreement with Scott Wainwright, our President. His employment agreement calls for a salary of $10,000 per month plus 3.75% of all gross fuel sales and 1% of all equipment sales depending on circumstances. The Company will also issue options to Mr. Wainwright in the amount of 4,500,000 shares at an exercise price of $0.15 per share. The options will vest over a three year period at 375,000 shares per quarter. The employment agreement has a one year term limit and can be renewed by mutual agreement. Should Mr. Wainwright be terminated without cause, as defined in his employment agreement he would receive a severance benefit of one year's total salary plus one year of options.
 
We also have an employment agreement with Ermanno Santilli, who will be our CEO as of June 15, 2012. His employment agreement calls for a salary of $12,000 per month plus 3% of gross fuel sales and 2% of equipment sales. The Company will also issue options to Mr. Santilli in the amount of 4,500,000 shares at an exercise price of $0.15 per share. The options will vest over a three year period at 375,000 shares per quarter. The employment agreement has a two year term and can be renewed by mutual agreement. Should Mr. Santilli be terminated without cause, as defined in his employment agreement, or if there is a change in control, as defined in her employment agreement, he would receive a severance benefit of two years total salary plus benefits payable within 30 days and all options will vest automatically.
 
We have a consulting agreement with Dr. Santilli which is $15,000 per month. The agreement has no term limit; however it can be terminated without cause with 30 days notice and one month salary as severance.
 
Involvement in Certain Legal Proceedings
 
To the best of our knowledge, none of our directors or executive officers has, during the past ten years:
 
been convicted in a criminal proceeding or been subject to a pending criminal proceeding (excluding traffic violations and other minor offenses);
had any bankruptcy petition filed by or against the business or property of the person, or of any partnership, corporation or business association of which he was a general partner or executive officer, either at the time of the bankruptcy filing or within two years prior to that time;

been subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction or federal or state authority, permanently or temporarily enjoining, barring, suspending or otherwise limiting, his involvement in any type of business, securities, futures, commodities, investment, banking, savings and loan, or insurance activities, or to be associated with persons engaged in any such activity;
been found by a court of competent jurisdiction in a civil action or by the Securities and Exchange Commission or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated;
been the subject of, or a party to, any federal or state judicial or administrative order, judgment, decree, or finding, not subsequently reversed, suspended or vacated (not including any settlement of a civil proceeding among private litigants), relating to an alleged violation of any federal or state securities or commodities law or regulation, any law or regulation respecting financial institutions or insurance companies including, but not limited to, a temporary or permanent injunction, order of disgorgement or restitution, civil money penalty or temporary or permanent cease-and-desist order, or removal or prohibition order, or any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; or
been the subject of, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory organization (as defined in Section 3(a)(26) of the Exchange Act), any registered entity (as defined in Section 1(a)(29) of the Commodity Exchange Act), or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member.
 
 
28

 
 
Except as set forth in our discussion below in “Certain Relationships and Related Transactions,” none of our directors or executive officers has been involved in any transactions with us or any of our directors, executive officers, affiliates or associates which are required to be disclosed pursuant to the rules and regulations of the Commission.
 
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.
  
Corporate Governance
 
We are a smaller 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 do not currently have a separately designated audit, nominating or compensation committee. In addition to the contact information in this prospectus, 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.
 
Director Independence
 
Because our common stock is not currently listed on a national securities exchange, we have used the definition of “independence” of The NASDAQ Stock Market to make this determination. NASDAQ Listing Rule 5605(a)(2) provides that an “independent director” is a person other than an officer or employee of the Company or any other individual having a relationship which, in the opinion of the Company’s board of directors, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. The NASDAQ listing rules provide that a director cannot be considered independent if:
 
the director is, or at any time during the past three years was, an employee of the company;
the director or a family member of the director accepted any compensation from the company in excess of $120,000 during any period of 12 consecutive months within the three years preceding the independence determination (subject to certain exclusions, including, among other things, compensation for board or board committee service);
a family member of the director is, or at any time during the past three years was, an executive officer of the company;
the director or a family member of the director is a partner in, controlling stockholder of, or an executive officer of an entity to which the company made, or from which the company received, payments in the current or any of the past three fiscal years that exceed 5% of the recipient’s consolidated gross revenue for that year or $200,000, whichever is greater (subject to certain exclusions);
the director or a family member of the director is employed as an executive officer of an entity where, at any time during the past three years, any of the executive officers of the company served on the compensation committee of such other entity; or the director or a family member of the director is a current partner of the company’s outside auditor, or at any time during the past three years was a partner or employee of the company’s outside auditor, and who worked on the company’s audit.

We do not have any independent directors. We do not have an audit committee, compensation committee or nominating committee.
 
Board Leadership Structure and Role in Risk Oversight
 
Although we have not adopted a formal policy on whether the Chairman and Chief Executive Officer positions should be separate or combined, we have traditionally determined that it is in the best interests of the Company and its shareholders to combine these roles. Dr. Santilli has served as our Chief Executive Officer and Chairman since April 2, 2007. Due to the small size and early stage of the Company, we believe it is currently most effective to have the Chairman and Chief Executive Officer positions combined.
 
Our board of directors is primarily responsible for overseeing our risk management processes. The board of directors receives and reviews periodic reports from management, auditors, legal counsel, and others, as considered appropriate regarding our company’s assessment of risks. The board of directors focuses on the most significant risks facing our company and our company’s general risk management strategy, and also ensures that risks undertaken by our Company are consistent with the board’s appetite for risk. While the board oversees our company’s risk management, management is responsible for day-to-day risk management processes. We believe this division of responsibilities is the most effective approach for addressing the risks facing our company and that our board leadership structure supports this approach.

 
29

 

EXECUTIVE COMPENSATION
 
Summary Compensation Table
 
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, 2011, and 2010 in all capacities for the accounts of our executives, including the Chief Executive Officer (CEO) and Chief Financial Officer (CFO). The board of directors determined that the services of Richard Connelly were no longer needed and he is no longer a consultant with the Company effective March 7, 2011. Effective June 15, 2012 Dr. Santilli will step down as CEO. Ermanno Santilli, has been appointed as the new CEO. Dr. Santilli will remain as the Chairman of the Board.
 
 
Name and Principal Position
 
Year
   
Salary
   
Bonus
   
Stock
Awards
($)
   
Option
Awards
   
Non-Qualified Deferred Compensation Earnings
   
All Other Compensation
   
Totals
($)
 
                                                 
Dr. Ruggero Maria Santilli,
Chairman of the Board
   
2011
2010
   
$
 
180,000
0
   
$
 
0
0
   
$
 
0
0
   
$
 
0
0
   
$
 
0
0
   
$
 
0
205,000
 
(1)
 
$
 
180,000
205,000
 
                                                                 
T. Scott Wainwright,
President (2)
   
2011
2010
   
$
 
73,838
15,500
   
$
 
0
0
   
$
 
0
12,500
   
$
 
0
0
   
$
 
0
0
   
$
 
0
0
   
$
 
73,838
28,000
 
                                                                 
Luisa Ingargiola,
CFO
   
2011
 2010
   
$
 
67,000
0
   
$
 
0
0
   
$
 
0
0
   
$
 
0
0
   
$
 
0
0
   
$
 
0
116,500
(3)
 
$
 
67,000
116,500
 
                                                                 
Ermanno Santilli,
Executive Vice President of International Relations 
   
2011
2010
 
   
$
 
 
60,000
0
 
   
$
 
 
0
0
 
   
$
 
 
0
0
 
   
$
 
 
0
0
 
   
$
 
 
0
0
 
   
 $
 
 
0
95,000
 
 
(4)
 
 
$
 
 
60,000
95,000
 
 
                                                                 
Carla Santilli,
Director 
   
2011
2010
   
$
 
60,000
0
   
$
 
0
0
   
$
 
0
0
   
$
 
0
0
   
$
 
0
0
   
$
 
0
105,000
 
(5)
 
$
 
60,000
105,000
 
                                                                 
Richard Connelly,
Vice President (6)
   
2011
2010
   
$
 
0
20,000
   
$
 
0
0
   
$
 
0
0
   
$
 
0
0
   
$
 
0
0
   
$
 
0
105,000
(7)
 
$
 
0
170,000
 
                                                                 
Allen Feng,
Director (8)
   
2011
2010
   
$
 
0
0
   
$
 
0
0
   
$
 
0
0
   
$
 
0
0
   
$
 
0
0
   
$
 
0
0
   
$
 
0
0
 
 
(1)  
Dr. Ruggero Maria Santilli received a performance bonus of $205,000 in 2010.
(2)  
T. Scott Wainwright was appointed as President on December 20, 2010.
(3)  
Luisa Ingargiola received a performance bonus of $116,500 in 2010.
(4)  
Ermanno Santilli received a performance bonus of $95,000 in 2010 due to his work as an employee of the Company.
(5)  
Carla Santilli received a performance bonus of $105,000 in 2010 due to her work as an employee of the Company.
(6)  
Richard Connelly resigned as President and Director on December 20, 2010 and accepted the new position of Executive Vice President of Global Industrial Fuels. On March 7, 2011, the Company determined that the services of Richard Connelly were no longer needed.
(7)  
Richard Connelly received a performance bonus of $116,500 in 2010.
(8)  
Allen Feng was appointed as Director on August 5, 2010.
 
Director Compensation
 
We have provided no compensation to our directors for their services provided as directors.
 
Employment Agreements
 
Currently, we have no employment agreements with any of our directors or officers other than an employment agreement with President Scott Wainwright and Ermanno Santilli and a consulting agreement with Dr.Ruggero Santilli. Scott Wainwright’s employment agreement calls for a salary of $10,000 per month plus 3.75% of all gross fuel sales, 1% of all equipment sales depending on circumstances. The employment agreement has a one year term limit and can be renewed by mutual agreement. The employment agreement with Ermanno Santilli calls for a $12,000 per month salary, 3% of gross fuel sales, 2% of equipment sales and a has two year term that can be renewed by mutual agreement. Dr. Santilli’s original consulting agreement was for $5,000 per month in salary, which has since been increased to $15,000 per month. The agreement have no term limit however can be terminated without cause with 30 days notice and one month salary as severance. On March 7, 2011 we terminated our employment agreement with Richard Connelly.

Options
 
Pursuant to his employment agreement, the Company will issue options to Mr. Santilli in the amount of 4,500,000 shares at an exercise price of $0.15 per share. The options will vest over a three year period at 375,000 shares per quarter.

Pursuant to his employment agreement, the Company will issue options to Mr. Wainwright in the amount of 4,500,000 shares at an exercise price of $0.15 per share. The options will vest over a three year period at 375,000 shares per quarter.
 
 
30

 
 
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
 
The following table sets forth certain information regarding our shares of common stock beneficially owned as of May 18, 2012, for (i) each stockholder known to be the beneficial owner of 5% or more of our outstanding shares of common stock, (ii) each named executive officer and director, and (iii) all executive officers and directors as a group. A person is considered to beneficially own any shares: (i) over which such person, directly or indirectly, exercises sole or shared voting or investment power, or (ii) of which such person has the right to acquire beneficial ownership at any time within 60 days through an exercise of stock options or warrants. Unless otherwise indicated, voting and investment power relating to the shares shown in the table for our directors and executive officers is exercised solely by the beneficial owner or shared by the owner and the owner’s spouse or children.
 
For purposes of this table, a person or group of persons is deemed to have “beneficial ownership” of any shares of common stock that such person has the right to acquire within 60 days of May 18, 2012. For purposes of computing the percentage of outstanding shares of our common stock held by each person or group of persons named above, any shares that such person or persons has the right to acquire within 60 days of May 18, 2012 is deemed to be outstanding, but is not deemed to be outstanding for the purpose of computing the percentage ownership of any other person. The inclusion herein of any shares listed as beneficially owned does not constitute an admission of beneficial ownership.
 
Name of Beneficial Owner and Address
 
Amount and Nature of Beneficial Ownership  of Common Stock
   
Percent of Common Stock (1)
   
Amount and Nature of Beneficial Ownership of Preferred Stock
   
  Percent of Preferred Stock (2)
 
5% Shareholders
 
 
   
 
   
 
   
   
 
Hy Fuels, Inc. (3)
35246 US 19 #215
Palm Harbor, FL 34684
      30,100,000         17.1 %  
 
   
   
 
Global Alpha, LLC (4)
35246 US 19 #311
Palm Harbor, FL 34684
      22,676,100         12.9 %       1,000,000           100 %
DDI Industry International
Rm.B-1613 Peking Times Square, Huizhongli #103, Chaoyang Dis.
Beijing China 100101
      21,994,401         12.5 %                
James Besser
      9,465,600 (5)         5.4 %                
                                 
Global Beta, LLC (6)
35246 US 19 #311
Palm Harbor, FL 34684
      9,010,000         5.1 %                
Directors and
Executive Officers
                               
Dr. Ruggero Maria Santilli (7)
90 Eastwinds Ct
Palm Harbor FL 34683
      67,716,100 (8)         38.5 %       1,000,000 (9)         100 %
Carla Santilli
90 Eastwinds Ct
Palm Harbor FL 34683
      67,716,100 (10)         38.5 %       1,000,000 (11)       100 %
Luisa Ingargiola
4826 Blue Jay Circle
Palm Harbor FL 34683
      44,630,000 (12)       25.4 %                
Ermanno Santilli (13)
90 Eastwinds Ct.
Palm Harbor, FL 34683
      41,270,500 (14)       23.5 %                
Allen Feng
DDI Industry International
Rm.B-1613 Peking Times Square, Huizhongli #103, Chaoyang Dis.
Beijing China 100101
      21,994,401 (15)       12.5 %                
Scott Wainwright
6070 Gulfport Blvd.
St. Petersburg, FL 33707
      2,100,000         1.2 %                
All directors and officers as a group (6 people)
      102,671,001         58.4 %       1,000,000           100 %
 
 
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1)  
Based on 175,951,796 shares of common stock issued and outstanding as of May 15, 2012. Shares of common stock subject to options or warrants currently exercisable or exercisable within 60 days, are deemed outstanding for purposes of computing the percentage of the person holding such options or warrants, but are not deemed outstanding for purposes of computing the percentage of any other person.
2)  
Based on 1,000,000 shares of Series A Preferred Stock issued and outstanding as of May 15, 2012. Each share of Series A Preferred Stock has voting rights of 100,000 votes per share. The total aggregate number of votes for the Series A Preferred Stock is 100 billion.
3)  
Hy Fuels, Inc. is a is a privately owned company in which Dr. Ruggero Maria Santilli and Carla Santilli each own 45% of the company, and Luisa Ingargiola and Ermanno Santilli each own 4% of the company.
4)  
Global Alpha, LLC is a privately owned company in which Dr. Ruggero Maria Santilli and Carla Santilli each own 50% of the company.
5)  
Includes 3,915,600 shares held Manchester Explorer, L.P., of which James Besser is the managing member of the general partner and also a limited partner, and 3,675,000 shares held by Jeb Partners, L.P., of which James Besser is the managing member of the general partner and also a limited partner. The principal address of Manchester Explorer, L.P. is 131 Charles Street, Boston, MA 02114. The principal address of Jeb Partners, L.P. is Charles Street, Boston, MA 02114.
James Besser also beneficially owns 9,562,500 warrants, which are exercisable into 9,562,500 shares of the Company’s Common Stock, including 3,687,500 warrants held by Manchester Explorers, L.P. and 3,500,000 warrants held by Jeb Partners, L.P. The warrants are not exercisable, however, to the extent that the number of shares of Common Stock to be issued pursuant to such exercise would exceed, when aggregated with all other shares of Common Stock owned by Mr. Besser at such time, the number of shares of Common Stock which would result in Mr. Besser beneficially owning in excess of 4.99% of the then issued and outstanding shares of our Common Stock. Mr. Besser may waive this ownership cap on 61 days’ prior notice to us, provided that pursuant to such waiver Mr. Besser shall not exercise an amount of warrants that would result in him beneficially owning more than 9.99% of the then issued and outstanding shares of our Common Stock. As a result of the 4.99% ownership cap, Mr. Besser beneficially owns 9,465,600 shares of our Common Stock. If Besser waived this ownership cap, he would beneficially own 17,585,500 shares of our Common Stock or approximately 9.99% of our outstanding Common Stock.
6)  
Global Beta, LLC is a privately owned company in which Luisa Ingargiola owns 95% and Dr. Ruggero Maria Santilli and Carla Santilli each own 2.5% of the company.
7)  
Effective June 15, 2012 Dr. Santilli will step down as CEO. Dr. Santilli will remain as the Chairman of the Board.
8)  
Includes 30,100,000 shares held by Hy Fuels, Inc., of which Dr. Ruggero Maria Santilli and his wife, Carla Santilli, each own 45% of the company; 22,676,100 held by Global Alpha, LLC, in which Dr. Ruggero Maria Santilli and his wife, Carla Santilli, each own 50% of the company; 9,010,000 shares held by Global Beta, LLC, in which Dr. Ruggero Maria Santilli and his wife, Carla Santilli, each own 2.5% of the company; 3,130,000 shares held by Clean Energies Tech, in which Dr. Ruggero Maria Santilli owns 50% of the company; and 2,700,000 shares held by RM Santilli Foundation in which Dr. Ruggero Maria Santilli beneficially, through his wife Carla Santilli, owns 50% of the company. The principal address of Clean Energies Tech is 90 Eastwinds Ct., Palm Harbor, FL, 34683. The principal address of RM Santilli Foundation is 90 Eastwinds Ct., Palm Harbor, FL, 34683. 
9)  
Includes 2,000 shares held by Global Alpha, LLC, in which Dr. Ruggero Maria Santilli and his wife, Carla Santilli, each own 50% of the company.
10)  
Includes 30,100,000 shares held by Hy Fuels, Inc., of which Carla Santilli and her husband, Dr. Ruggero Maria Santilli, each own 45% of the company; 22,676,100 held by Global Alpha, LLC, in which Carla Santilli and her husband, Dr. Ruggero Maria Santilli, each own 50% of the company; 9,010,000 shares held by Global Beta, LLC, in which Carla Santilli and her husband, Dr. Ruggero Maria Santilli, each own 2.5% of the company; 3,130,000 shares held by Clean Energies Tech, in which Carla Santilli beneficially through her husband, Dr. Ruggero Maria Santilli, owns 50% of the company; 2,700,000 shares held by RM Santilli Foundation in which Carla Santilli, owns 50% of the company; and 100,000 shares which Carla Santilli beneficially, through her husband Dr. Ruggero Maria Santilli, holds. The principal address of Clean Energies Tech is 90 Eastwinds Ct., Palm Harbor, FL, 34683. The principal address of RM Santilli Foundation is 90 Eastwinds Ct., Palm Harbor, FL, 34683.
11)  
Includes 2,000 shares held by Global Alpha, LLC, in which Carla Santilli and her husband, Dr. Ruggero Maria Santilli, each own 50% of the company.
12)  
Includes 30,100,000 shares held by Hy Fuels, Inc., in which Luisa Ingargiola owns 4% of the company; 9,010,000 shares held by Global Beta, LLC, in which Luisa Ingargiola owns 95% of the company; and 20,000 shares which Luisa Ingargiola beneficially owns through related family members.
13)  
Ermanno Santilli, has been appointed as the new CEO, effective June 15, 2012.
14)  
Includes 30,100,000 shares held by Hy Fuels, Inc., in which Ermanno Santilli owns 4% of the company; 3,130,000 shares held by Clean Energies Tech, in which Ermanno Santilli owns 50% of the company; and 2,700,000 shares held by RM Santilli Foundation in which Ermanno Santilli owns 50% of the company. The principal address of Clean Energies Tech is 90 Eastwinds Ct., Palm Harbor, FL, 34683. The principal address of RM Santilli Foundation is 90 Eastwinds Ct., Palm Harbor, FL, 34683.
15)  
Includes 21,994,401 shares held by DDI Industrial International of which Allen Feng is the CEO and majority shareholder.
 
 
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CERTAIN RELATIONSHIPS AND RELATED 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.
 
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.
 
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.
 
DESCRIPTION OF SECURITIES
 
Introduction
 
In the discussion that follows, we have summarized selected provisions of our certificate of incorporation, bylaws and the Delaware General Corporation Law (the “DGCL”) relating to our capital stock. This summary is not complete. This discussion is subject to the relevant provisions of Delaware law and is qualified in its entirety by reference to our certificate of incorporation and our bylaws. You should read the provisions of our certificate of incorporation and our bylaws as currently in effect for provisions that may be important to you.
 
Authorized Capital Stock
 
Our authorized capital stock consists of 900,000,000 shares of common stock at a par value of $0.001 per share and 10,000,000 shares of preferred stock at a par value of $0.001 per share, of which 1,000,000 is designated as Series A Preferred stock. As of May 15, 2012, 175,951,796 shares of our common stock and 1,000,000 shares of our Series A Preferred Stock were issued and outstanding.
 
 
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Common Stock
 
Holders of our common stock are entitled to one vote for each share on all matters submitted to a stockholder vote. Our common stock does not have cumulative voting rights. Therefore, holders of a majority of the shares of common stock voting for the election of directors can elect all of the directors. Holders of our common stock representing a majority of the voting power of our capital stock issued and outstanding and entitled to vote, represented in person or by proxy, are necessary to constitute a quorum at any meeting of our stockholders. A vote by the holders of a majority of our outstanding shares is required to effectuate certain fundamental corporate changes such as liquidation, merger or an amendment to our certificate of incorporation. Although there are no provisions in our charter or by-laws that may delay, defer or prevent a change in control, the board of directors is authorized, without shareholder approval, to issue shares of preferred stock that may contain rights or restrictions that could have this effect. Holders of common stock are entitled to share in all dividends that the board of directors, in its discretion, declares from legally available funds. In the event of liquidation, dissolution or winding up, each outstanding share entitles its holder to participate pro rata in all assets that remain after payment of liabilities and after providing for each class of stock, if any, having preference over the common stock. Holders of our common stock have no pre-emptive rights, no conversion rights and there are no redemption provisions applicable to our common stock.
 
Preferred Stock
 
Our certificate of incorporation provides that we are authorized to issue up to 10,000,000 shares of preferred stock with a par value of $.001 per share. Our board of directors has the authority, without further action by the stockholders, to issue from time to time the preferred stock in one or more series for such consideration and with such relative rights, privileges, preferences and restrictions that the board may determine. The preferences, powers, rights and restrictions of different series of preferred stock may differ with respect to dividend rates, amounts payable on liquidation, voting rights, conversion rights, redemption provisions, sinking fund provisions and purchase funds and other matters. The issuance of preferred stock could adversely affect the voting power or other rights of the holders of common stock.
 
Our Series A Preferred Stock has liquidation and dividend rights over common stock, which are not in excess of its par value. It has no conversion rights or mandatory redemption features. Holders of our Series A Preferred stock are entitled to 100,000 votes for each share on all matters submitted to a stockholder vote.
 
Dividends
 
Since inception we have not paid any dividends on our common stock. We currently do not anticipate paying any cash dividends in the foreseeable future on our common stock. Although we intend to retain our earnings, if any, to finance the exploration and growth of our business, our board of directors will have the discretion to declare and pay dividends in the future. Payment of dividends in the future will depend upon our earnings, capital requirements, and other factors, which our board of directors may deem relevant.
 
Warrants
 
As of May 15, 2012, we had 20,645,625 warrants to purchase 20,645,625 shares of our common stock at an exercise price of $0.30 outstanding. 17,162,500 of these warrants are exercisable through October 28, 2016 and 3,483,125 of these warrants are exercisable through November 8, 2016. We also have outstanding warrants to purchase 150,000 shares of our common stock at an exercise price of $0.25, exercisable through August 4, 2016. The exercise price of the warrants are subject to adjustment upon certain events, such as stock splits, combinations, dividends, distributions, reclassifications, mergers or other corporate change and dilutive issuances.
 
We also have 1,200,000 warrants to purchase 1,200,000 shares of our common stock at an exercise price of $0.15 outstanding. 700,000 of these warrants are exercisable through May 17, 2012 and 500,000 of these warrants are exercisable through January 3, 2016. Additionally, we have outstanding warrants to purchase 50,000 shares of our common stock at an exercise price of $0.08, exercisable through May 17, 2012 and warrants to purchase 104,763 shares of our common stock at an exercise price of $0.21, exercisable through June 4, 2012. The exercise price of the warrants are subject to adjustment upon certain events, such as stock splits, combinations, dividends, distributions, reclassifications, mergers or other corporate change and dilutive issuances.
 
We also have 10,676,875 warrants to purchase 10,676,875 shares of our common stock at an exercise price of $0.40 outstanding. 7,793,750 of these warrants are exercisable through March 29, 2017 and 2,883,125 of these warrants are exercisable through April 3, 2017. The exercise price of the warrants are subject to adjustment upon certain events, such as stock splits, combinations, dividends, distributions, reclassifications, mergers or other corporate change and dilutive issuances.
 
 
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Options
 
We have no formalized stock option plan. We may in the future establish an incentive stock option plan for our directors, employees and consultants.
 
Pursuant to his employment agreement, the Company will issue options to Mr. Santilli in the amount of 4,500,000 shares at an exercise price of $0.15 per share. The options will vest over a three year period at 375,000 shares per quarter.
 
Pursuant to his employment agreement, the Company will issue options to Mr. Wainwright in the amount of 4,500,000 shares at an exercise price of $0.15 per share. The options will vest over a three year period at 375,000 shares per quarter.
  
Limitation on Directors’ Liability
 
Delaware law authorizes Delaware corporations to limit or eliminate the personal liability of their directors to them and their stockholders for monetary damages for breach of a director’s fiduciary duty of care. The duty of care requires that, when acting on behalf of the corporation, directors must exercise an informed business judgment based on all material information reasonably available to them. Absent the limitations Delaware law authorizes, directors of Delaware corporations are accountable to those corporations and their stockholders for monetary damages for conduct constituting gross negligence in the exercise of their duty of care. Delaware law enables Delaware corporations to limit available relief to equitable remedies such as injunction or rescission. Our certificate of incorporation limits the liability of our directors to us and our stockholders to the fullest extent Delaware law permits. Specifically, no director will be personally liable for monetary damages for any breach of the director’s fiduciary duty as a director, except for liability:
 
for any breach of the director’s duty of loyalty to us or our stockholders;
for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law;
for unlawful payments of dividends or unlawful stock repurchases or redemptions as provided in Section 174 of the DGCL; and
for any transaction from which the director derived an improper personal benefit.
 
This provision could have the effect of reducing the likelihood of derivative litigation against our directors and may discourage or deter our stockholders or management from bringing a lawsuit against our directors for breach of their duty of care, even though such an action, if successful, might otherwise have benefited us and our stockholders. Our bylaws provide indemnification to our officers and directors and other specified persons with respect to their conduct in various capacities. See “Indemnification of Directors and Officers.”
 
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers or person controlling the Company pursuant to the foregoing provisions, the Company has been informed that in the opinion of the SEC such indemnification is against public policy as expressed in the Act and is therefore unenforceable.
 
Anti-Takeover Effects of Provisions of the DGCL and our Certificate of Incorporation and Bylaws
 
Provisions of the DGCL and our certificate of incorporation and bylaws could make it more difficult to acquire us by means of a tender offer, a proxy contest or otherwise, or to remove incumbent officers and directors. These provisions, summarized below, are expected to discourage certain types of coercive takeover practices and takeover bids that our board of directors may consider inadequate and to encourage persons seeking to acquire control of us to first negotiate with our board of directors. We believe that the benefits of increased protection of our ability to negotiate with the proponent of an unfriendly or unsolicited proposal to acquire or restructure us outweigh the disadvantages of discouraging takeover or acquisition proposals because, among other things, negotiation of these proposals could result in improved terms for our stockholders.
 
Delaware Anti-Takeover Statute. We were subject to Section 203 of the DGCL, an anti-takeover statute. In general, Section 203 of the DGCL prohibits a publicly-held Delaware corporation from engaging in a “business combination” with an “interested stockholder” for a period of three years following the time the person became an interested stockholder, unless the business combination or the acquisition of shares that resulted in a stockholder becoming an interested stockholder is approved in a prescribed manner. Generally, a “business combination” includes a merger, asset or stock sale, or other transaction resulting in a financial benefit to the interested stockholder. Generally, an “interested stockholder” is a person who, together with affiliates and associates, owns (or within three years prior to the determination of interested stockholder status did own) 15% or more of a corporation’s voting stock. The existence of this provision would be expected to have an anti-takeover effect with respect to transactions not approved in advance by the board of directors, including discouraging attempts that might result in a premium over the market price for the shares of common stock held by stockholders.
 
As of May 18, 2012, we are not subject to Section 203 of the DGCL because we do not have a class of voting stock that is listed on a national securities exchange or held of record by more than 2,000 stockholders and we have not elected by a provision in our original certificate of incorporation to be governed by Section 203. Unless we adopt an amendment of our certificate of incorporation by action of our stockholders expressly electing not to be governed by Section 203, we would generally become subject to Section 203 of the DGCL at such time that we have a class of voting stock that is either listed on a national securities exchange or held of record by more than 2,000 stockholders, except that the restrictions contained in Section 203 would not apply if the business combination is with an interested stockholder who became an interested stockholder before the time that we have a class of voting stock that is either listed on a national securities exchange or held of record by more than 2,000 stockholders.
 
 
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Amendments to Our Certificate of Incorporation. Under the DGCL, the affirmative vote of a majority of the outstanding shares entitled to vote thereon and a majority of the outstanding stock of each class entitled to vote thereon is required to amend a corporation’s certificate of incorporation. Under the DGCL, the holders of the outstanding shares of a class of our capital stock shall be entitled to vote as a class upon a proposed amendment, whether or not entitled to vote thereon by the certificate of incorporation, if the amendment would:
 
increase or decrease the aggregate number of authorized shares of such class;
increase or decrease the par value of the shares of such class; or
alter or change the powers, preferences or special rights of the shares of such class so as to affect them adversely.
 
If any proposed amendment would alter or change the powers, preferences or special rights of one or more series of any class of our capital stock so as to affect them adversely, but shall not so affect the entire class, then only the shares of the series so affected by the amendment shall be considered a separate class for the purposes of this provision.
 
Vacancies in the Board of Directors. Our bylaws provide that, subject to limitations, any vacancy occurring in our board of directors for any reason may be filled by a majority of the remaining members of our board of directors then in office, even if such majority is less than a quorum. Each director so elected shall hold office until the expiration of the term of the other directors. Each such directors shall hold office until his or her successor is elected and qualified, or until the earlier of his or her death, resignation or removal.
 
Special Meetings of Stockholders. Under our bylaws, special meetings of stockholders may be called at any time by our President whenever so directed in writing by a majority of the entire board of directors. Special meetings can also be called whenever one-third of the number of shares of our capital stock entitled to vote at such meeting shall, in writing, request one. Under the DGCL, written notice of any special meeting must be given not less than 10 nor more than 60 days before the date of the special meeting to each stockholder entitled to vote at such meeting.
 
No Cumulative Voting. The DGCL provides that stockholders are denied the right to cumulate votes in the election of directors unless our certificate of incorporation provides otherwise. Our amended and restated certificate of incorporation will not provide for cumulative voting.
 
Listing
 
Our common stock is listed on the OTCBB under the symbol “MNGA.”
 
Transfer Agent
 
The transfer agent and registrar for our common stock is Global Transfer, LLC. The transfer agent’s address is 780 Deltona Blvd., Suite 202, Deltona, FL 32725, and its telephone number is (386) 206-1133.
 
 
We are registering for resale by the selling stockholders (i) 19,412,500 shares of common stock, par value $0.001 per share, which are currently issued and outstanding, (ii) 10,676,875 warrants to purchase common stock, and (iii) 10,676,875 shares issuable upon exercise of the warrants at an exercise price of $0.40 per share. We will not receive any proceeds from the sales of shares of our common stock or warrants by the selling stockholders. However, to the extent the warrants are exercised for cash, if at all, we will receive up to $4,270,750. We will pay the expenses incurred in connection with the offering described in this prospectus, with the exception of brokerage expenses, fees, discounts and commissions, which will be paid by selling stockholders.
 
The selling stockholders may pledge or grant a security interest in some or all of the shares of common stock or warrants owned by them and, if they default in the performance of their secured obligations, the pledgees or secured parties may offer and sell the shares of common stock or warrants from time to time pursuant to this prospectus.
 
The selling stockholders also may transfer and donate the shares of common stock or warrants in other circumstances, in which case the transferees, donees, pledgees or other successors in interest will be the selling beneficial owners for purposes of this prospectus.
 
The selling stockholders will sell their shares of common stock or warrants subject to the following:
 
 
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all of a portion of the shares of common stock or warrants beneficially owned by the selling stockholders or their perspective pledgees, donees, transferees or successors in interest, may be sold on the OTC Bulletin Board market, any national securities exchange or quotation service on which the shares of our common stock may be listed or quoted at the time of sale, in the over-the counter market, in privately negotiated transactions, through the writing of options, whether such options are listed on an options exchange or otherwise, short sales or in a combination of such transactions;

  
each sale may be made at market prices prevailing at the time of such sale, at negotiated prices, at fixed prices or at varying prices determined at the time of sale;

  
some or all of the shares of common stock or warrants may be sold through one or more broker-dealers or agents and may involve crosses, block transactions or hedging transactions. The selling stockholders may enter into hedging transactions with broker-dealers or agents, which may in turn engage in short sales in the course of hedging in positions they assume. The selling stockholders may also sell shares of common stock or warrants short and deliver shares of common stock or warrants to close out short positions or loan or pledge shares of common stock or warrants to broker-dealers or agents that in turn may sell such shares or warrants; and

  
in connection with such sales through one or more broker-dealers or agents, such broker-dealers or agents may receive compensation in the form of discounts, concessions or commissions from the selling stockholders and may receive commissions from the purchasers of the shares of common stock or warrants for whom they act as broker-dealer or agent or to whom they sell as principal (which discounts, concessions or commissions as to particular broker-dealers or agents may be in excess of those customary in the types of transaction involved). Any broker-dealer or agent participating in any such sale may be deemed to be an “underwriter” within the meaning of the Securities Act and will be required to deliver a copy of this prospectus to any person who purchases any shares of common stock or warrants from or through such broker-dealer or agent. We have been advised that, as of the date hereof, none of the selling stockholders have made any arrangements with any broker-dealer or agent for the sale of their shares of common stock or warrants.
 
The selling stockholder and any broker-dealer participating in the distribution of the shares of common stock or warrants may be deemed to be “underwriters” within the meaning of the Securities Act, and any profits realized by the selling stockholders and any commissions paid, or any discounts or concessions allowed to any such broker-dealer may be deemed to be underwriting commissions or discounts under the Securities Act. In addition, any shares of common stock or warrants covered by this prospectus which qualify for sale pursuant to Rule 144 may be sold under Rule 144 rather than pursuant to this prospectus. A selling stockholder may also transfer, devise or gift the shares of common stock or warrants by other means not covered in this prospectus in which case the transferee, devisee or giftee will be the selling stockholder under this prospectus.
 
If required at the time a particular offering of the shares of common stock or warrants are made, a prospectus supplement or, if appropriate, a post-effective amendment to the registration statements of which this prospectus is a part, will be distributed which will set forth the aggregate amount of shares of common stock or warrants being offered and the terms of the offering, including the name or names of any broker-dealers or agents, any discounts, commissions or concessions allowed or reallowed or paid to broker-dealers.
 
Under the securities laws of some states, the shares of common stock or warrants may be sold in such states only through registered or licensed brokers or dealers. In addition, in some states the shares of common stock or warrants may not be sold unless such shares or warrants have been registered or qualified for sale in such state or an exemption from registration or qualification is available and is complied with. There can be no assurance that any selling stockholder will sell any or all of the shares of common stock or warrants registered pursuant to the registration statement of which this prospectus forms a part.
 
The selling stockholders and any other person participating in such distribution will be subject to applicable provisions of the Exchange Act and the rules and regulations thereunder, including, without limitation, Regulation M under the Exchange Act, which may limit the timing of purchases and sales of any of the securities by the selling stockholders and any other participating person. Regulation M may also restrict the ability of any person engaged in the distribution of the securities to engage in market-making activities with respect to the securities. All of the foregoing may affect the marketability of the securities and the ability of any person or entity to engage in market-making activities with respect to the securities.
 
 
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The selling stockholders will pay all underwriting discounts and selling commissions and expenses, brokerage fees and transfer taxes, as well as the fees and disbursements of counsel to and experts for the selling stockholders, if any. In no event shall any broker-dealer receive fees, commissions and markups which, in the aggregate, would exceed 8% of the proceeds from the sale of such securities. We have agreed pursuant to the purchase agreement in the private placement where these securities were issued, the agreement with the placement agents, and the warrants to indemnify those selling stockholders against liabilities, including certain liabilities under the Securities Act, or that the selling stockholders will be entitled to contribution. We will be indemnified by the selling stockholders against certain liabilities, including liabilities under the Securities Act of 1933 that may arise from any written information furnished to us by the selling stockholders for use in this prospectus, in accordance with the purchase agreement or will be entitled to contribution. Once sold under this registration statement, of which this prospectus forms a part, the shares of common stock will be freely tradable in the hands of persons other than our affiliates.

SHARES ELIGIBLE FOR FUTURE SALE
 
As of May 15, 2012, we had 175,951,796 shares of common stock outstanding, not including shares issuable upon exercise of our warrants. All shares sold in this offering will be freely tradable without restriction or further registration under the Securities Act, unless they are purchased by our “affiliates,” as that term is defined in Rule 144 promulgated under the Securities Act.
 
The outstanding shares of our common stock not included in this prospectus will be available for sale in the public market as follows:
 
Public Float
 
Of our outstanding shares, as of May 15, 2012 approximately 102,671,001 shares are beneficially owned by executive officers, directors and affiliates (excluding shares of our common stock which may be acquired upon exercise of stock options and warrants which are currently exercisable or which become exercisable within 60 days of May 15, 2012). The approximately 73,280,795 remaining shares constitute our public float.
  
Rule 144
 
In general, under Rule 144 as currently in effect, once we have been subject to public company reporting requirements for 90 days, a person (or persons whose shares are aggregated) who is not deemed to have been an affiliate of ours at any time during the three months preceding a sale, and who has beneficially owned restricted securities within the meaning of Rule 144 for a least six months (including any period of consecutive ownership of preceding non-affiliated holders) would be entitled to sell those shares, subject only to the availability of current public information about us. A non-affiliated person who has beneficially owned restricted securities within the meaning of Rule 144 for at least one year would be entitled to sell those shares without regard to the provisions of Rule 144.
 
In general, under Rule 144 as currently in effect, once we have been subject to public company reporting requirements for 90 days, our affiliates or persons selling shares on behalf of our affiliates who own shares that were acquired from us or an affiliate of ours at least six months prior to the proposed sale are entitled to sell upon expiration of the lock-up agreements described above, within any three-month period beginning 90 days after the date of this prospectus, a number of shares that does not exceed the greater of:
 
1% of the number of shares of common stock then outstanding, which will equal approximately shares immediately after this offering; or
 
The average weekly trading volume of the common stock during the four calendar weeks preceding the filing of a notice on Form 144 with respect to such sale.
 
Sales under Rule 144 by our affiliates or persons selling shares on behalf of our affiliates are also subject to certain manner of sale provisions and notice requirements and to the availability of current public information about us.
 
 
The validity of the shares of common stock offered by this prospectus and certain other legal matters as to Delaware law will be passed upon for us by Anslow & Jaclin LLP.
 
 
Our audited consolidated financial statements appearing in this prospectus and registration statement have been audited by Drake & Klein CPAs, an independent registered public accounting firm, as set forth in their report thereon appearing elsewhere herein and in the registration statement, and are included in reliance upon such report given on the authority of such firm as experts in accounting and auditing.

On January 1, 2012, the audit firm of Randall N. Drake CPA, P.A. changed its name to Drake & Klein CPAs. The change was reported to the PCAOB as a change of name. This is not a change of auditors for the Company.
 
WHERE YOU CAN FIND MORE INFORMATION
 
We filed with the SEC a registration statement under the Securities Act for the common stock in this offering. This prospectus does not contain all of the information in the registration statement and the exhibits and schedule that were filed with the registration statement. For further information with respect to us and our common stock, we refer you to the registration statement and the exhibits that were filed with the registration statement. Statements contained in this prospectus about the contents of any contract or any other document that is filed as an exhibit to the registration statement are not necessarily complete, and we refer you to the full text of the contract or other document filed as an exhibit to the registration statement.
 
We file annual, quarterly, and current reports and other information with the SEC. Our filings with the SEC are available to the public on the SEC’s website at www.sec.gov. Those filings are also available to the public on our corporate website at www.magnegas.com. The information we file with the SEC or contained on, or linked to through, our corporate website or any other website that we may maintain is not part of this prospectus or the registration statement of which this prospectus is a part. You may also read and copy, at the SEC’s prescribed rates, any document we file with the SEC, including the registration statement (and its exhibits) of which this prospectus is a part, at the SEC’s Public Reference Room located at 100 F Street, N.E., Washington, D.C. 20549. You can call the SEC at 1-800-SEC-0330 to obtain information on the operation of the Public Reference Room.

 
38

 
 
Drake & Klein CPAs
A PCAOB Registered Accounting Firm

 
To the Board of Directors and
Stockholders of MagneGas Corporation.
 
We have reviewed the accompanying balance sheets of MagneGas Corporation as of March 31, 2012 and December 31, 2011, and the related statements of operations, stockholders’ equity, and cash flows for the three-month March 31, 2012 and the three months ended March 31, 2011.  These financial statements are the responsibility of the company’s management.
 
We conducted our review in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with standards of the Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.
 
Based on our review, we are not aware of any material modifications that should be made to the accompanying interim financial statements for them to be in conformity with accounting principles generally accepted in the United States of America.
 
/s/ Drake & Klein CPAs

Clearwater, Florida
May 14, 2012

 
 
F-1

 
 
 

MagneGas Corporation
(Previously a Development Stage Enterprise)

As of December 31, 2011 and 2010
And for the Years Ended December 31, 2011 and 2010
 
Contents
 
Financial Statements:
 
Report of Independent Registered Public Accounting Firm
F-3
Balance Sheets
F-4
Statements of Operations
F-5
Statements of Changes in Stockholders’ Equity
F-6
Statements of Cash Flows
F-7
Notes to Financial Statements
F-8 through F-17
 
 
F-2

 
 
Drake & Klein CPAs
A PCAOB Registered Accounting Firm

Report of Independent Registered Public Accounting Firm


Board of Directors
MagneGas Corporation
Tarpon Springs, Florida

We have audited the accompanying balance sheets of MagneGas Corporation as of December 31, 2011 and 2010 and the related statements of operations, stockholders’ equity, and cash flows for the year ended December 31, 2011 and 2010.  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, 2011 and 2010 and the results of its operations and its cash flows for the year ended December 31, 2011 and 2010 in conformity with accounting principles generally accepted in the United States of America  
 
/s/ Drake & Klein CPAs
Drake & Klein CPAs
March 14, 2012
 
PO Box 2493  2451 McMullen Booth Rd.
Dunedin, FL  34697-2493  Suite 210
727-512-2743   Clearwater, FL  33759-1362
 
 
F-3

 
 
MagneGas Corporation
 
Balance Sheets
 
             
   
December 31,
 
   
2011
   
2010
 
 Assets
           
 Current Assets
           
 Cash
  $ 1,429,412     $ 917,495  
 Accounts receivable, net of allowance for doubtful accounts of $0 and $0, respectively
    19,050       8,159  
 Inventory, at cost
    656,992       1,554,807  
 Prepaid and other current assets
    2,500       30,000  
     Total Current Assets
    2,107,954       2,510,461  
                 
 Property and equipment, net of accumulated depreciation of $44,538 and $8,839, respectively
    2,561,384       50,616  
                 
 Deferred tax asset
    456,500       456,500  
 Intangible assets, net of accumulated amortization of $151,511 and $103,044, respectively
    575,489       623,956  
 Investment in joint ventures
    490,410       490,410  
 Total Assets
  $ 6,191,737     $ 4,131,943  
                 
 Liabilities and Stockholders' Equity
               
 Current Liabilities
               
 Accounts payable
  $ 291,249     $ 378,215  
 Accrued expenses
    125,011       31,495  
 Deferred revenue and customer deposits
    326,662       569,994  
 Due to stockholder
    210,500       10,000  
 Due to related parties
    13,400       46,692  
     Total Current Liabilities
    966,822       1,036,396  
                 
 Stockholders' Equity
               
 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; 154,389,296 and 123,445,209 issued and outstanding, respectively
    154,389       123,445  
 Additional paid-in capital
    10,195,954       5,180,468  
 Issued and unearned stock compensation
    (28,333 )     (48,333 )
 Accumulated deficit
    (5,097,097 )     (2,160,035 )
 Total Stockholders' Equity
    5,224,915       3,095,547  
                 
 Total Liabilities and Stockholders' Equity
  $ 6,191,737     $ 4,131,943  
                 
The audit report and accompanying notes are an integral part of these financial statements.
 

 
F-4

 
 
MagneGas Corporation
 
Statements of Operations
 
   
       
   
Year Ended December 31,
 
   
2011
   
2010
 
             
 Revenue
  $ 381,892     $ 2,036,238  
 Direct Costs
    42,946       729,945  
      338,946       1,306,293  
                 
 Operating Expenses:
               
  Advertising
    63,747       74,017  
  Selling
    338,572       245,664  
  Professional: technical
    8,709       7,735  
  Professional: legal and accounting
    655,314       115,287  
  Rent and overhead
    126,738       79,478  
  Office and administration
    1,031,690       293,258  
  Investor relations
    94,435       64,551  
  Stock-based compensation
    787,990       262,251  
  Research and development
    84,304       65,574  
  Depreciation and amortization
    84,166       56,930  
 Total Operating Expenses
    3,275,665       1,264,745  
                 
 Operating Income (Loss)
    (2,936,719 )     41,548  
                 
 Other Income and (Expense)
               
  Interest
    (343 )     (1,548 )
 Total Other (Income) Expense
    (343 )     (1,548 )
                 
 Net Income (Loss) before tax benefit
    (2,937,062 )     40,000  
 Provision for Income Taxes
    -       16,400  
 Net Income (Loss)
  $ (2,937,062 )   $ 23,600  
                 
 Loss per share:
               
    Basic
  $ (0.02 )   $ 0.00  
    Diluted
  $ (0.02 )   $ 0.00  
 Weighted average common shares:
               
    Basic
    131,434,806       113,697,283  
    Diluted
    131,434,806       114,276,571  
                 
The audit report and accompanying notes are an integral part of these financial statements.
 
 
 
F-5

 
 
MagneGas Corporation
 
Statement of Changes in Stockholders' Equity
 
                                                 
                           
Additional
   
Unearned
             
   
Preferred
   
Common
   
Paid in
   
Stock
   
Accumulated
   
Total