BBHC, INC. - Quarter Report: 2008 March (Form 10-Q)
UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
______________
FORM
10-Q
______________
|
x
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For
the quarterly period ended March 31, 2008
|
o
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For
the transition period from ______________ to ______________
Commission File No. 000-51883
______________
MagneGas
Corporation
(Exact
name of small business issuer as specified in its charter)
______________
|
Delaware
|
26-0250418
|
|
(State
or other jurisdiction of
incorporation
or organization)
|
(I.R.S.
Employer Identification No.)
|
|
35246 US Highway 19 North,
#311
Palm
Harbor, Florida
|
34684
|
|
(Address
of principal executive offices)
|
(Zip
Code)
|
|
(Former name, former address, if
changed since last report)
|
|
Tel:
(727) 934-9593
|
|
(Issuer’s
telephone number)
|
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act during the preceding
12 months (or for such shorter period that the issuer was required to file such
reports), and (2)has been subject to such filing requirements for the past 90
days. Yes x No
o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of "large accelerated filer",
"accelerated filer" and "smaller reporting company" in Rule 12b-2 of the
Exchange Act.
| Large accelerated filer o | Non-accelerated filer o |
| Accelerated filer o (do not check if smaller reporting company) | Smaller reporting company x |
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
Yes x No o
APPLICABLE
ONLY TO CORPORATE ISSUERS
State the
number of shares outstanding of each of the issuer’s classes of common equity,
as of May 8, 2008: 67,884,500 shares of common stock.
TABLE
OF CONTENTS
|
PART
I - FINANCIAL INFORMATION
|
||
|
Item
1.
|
Unaudited
financial statements
|
|
|
Item
2.
|
Management’s
Discussion and Analysis of Financial Condition and Results of Operation or
Plan of Operation
|
|
|
Item
3.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
|
|
Item
4T.
|
Controls
and Procedures
|
|
|
PART
II -OTHER INFORMATION
|
||
|
Item
1.
|
Legal
Proceedings.
|
|
|
Item
1A.
|
Risk
Factors
|
|
|
Item
2.
|
Unregistered
Sales of Equity Securities and Use of Proceeds.
|
|
|
Item
3.
|
Defaults
Upon Senior Securities.
|
|
|
Item
4.
|
Submission
of Matters to a Vote of Security Holders.
|
|
|
Item
5.
|
Other
Information.
|
|
|
Item
6.
|
Exhibits
|
|
|
SIGNATURES
|
||
PART
I - FINANCIAL INFORMATION
Item
1. Financial Statements
Financial
Statements
MagneGas
Corporation
(A
Development Stage Enterprise)
As
of March 31, 2008 (unaudited) and December 31, 2007
And
for the Three Months Ended March 31, 2008 (unaudited), 2007(unaudited)
and
for
the period December 9, 2005 (date of inception) through March 31, 2008
(unaudited)
Contents
|
Financial
Statements:
|
|
|
Balance
Sheets (unaudited)
|
F-1
|
|
Statements
of Operations (unaudited)
|
F-2
|
|
Statements
of Changes in Stockholders’ Equity (unaudited)
|
F-3
|
|
Statements
of Cash Flows (unaudited)
|
F-4
|
|
Notes
to Financial Statements (unaudited)
|
F-5
through F-11
|
|
MagneGas
Corporation
|
||||||||
|
(A
Development Stage Enterprise)
|
||||||||
|
BALANCE
SHEET
|
||||||||
|
March
31,
2008
(unaudited)
|
December
31, 2007
|
|||||||
|
ASSETS
|
||||||||
|
Current
Assets:
|
||||||||
|
Cash
|
$ | 61,305 | $ | 76,232 | ||||
|
Accounts
Receivable
|
787 | |||||||
|
Prepaid
Expenses
|
2,000 | 2,000 | ||||||
|
Total
current assets
|
64,092 | 78,232 | ||||||
|
Equipment,
net of accumulated depreciation of $433 and $173
respectively
|
4,767 | 5,027 | ||||||
|
Intangible
license
|
100,000 | - | ||||||
|
TOTAL
ASSETS
|
$ | 168,859 | $ | 83,259 | ||||
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
||||||||
|
CURRENT
LIABILITIES
|
||||||||
|
Accounts
Payable
|
$ | 5,834 | $ | - | ||||
|
Accrued Expense
|
33,771 | 5,630 | ||||||
|
Advances from Related Party
|
10,000 | 10,000 | ||||||
|
Note
Payable, Related Party
|
30,210 | - | ||||||
|
TOTAL
CURRENT LIABILITIES
|
$ | 79,815 | $ | 15,630 | ||||
|
STOCKHOLDERS’
EQUITY
|
||||||||
|
Preferred
Stock - Par value $0.001;
|
||||||||
|
Authorized: 10,000,000
|
||||||||
|
2,000 issued and outstanding
|
$ | 2 | $ | 2 | ||||
|
Common
Stock - Par value $0.001;
|
||||||||
|
Authorized: 100,000,000
|
||||||||
|
Issued and Outstanding: 67,884,500 and 67,639,500 at March 31,
2008
and
December 31, 2007, respectively
|
67,885 | 67,640 | ||||||
|
Additional
Paid-In Capital
|
667,213 | 422,458 | ||||||
|
Accumulated
Deficit during development stage
|
$ | (646,056 | ) | (422,471 | ) | |||
|
Total
Stockholders’ Equity
|
89,044 | $ | 67,629 | |||||
|
TOTAL
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
$ | 168,859 | $ | 83,259 | ||||
The
accompanying notes are an integral part of these unaudited financial
statements.
F-1
|
MagneGas
Corporation.
|
||||||||||||
|
(A
Development Stage Enterprise)
|
||||||||||||
|
STATEMENT
OF OPERATIONS
|
||||||||||||
|
For
the three months ended March 31, 2008 and 2007
|
||||||||||||
|
And
for the period December 9, 2005 (date of inception) to March 31,
2008
|
||||||||||||
|
(unaudited)
|
||||||||||||
|
Three
Months Ended
March
31,
|
Inception
Date to
March
31,
|
|||||||||||
|
2008
|
2007
|
2008
|
||||||||||
|
REVENUE
|
$
|
782
|
$
|
-
|
$
|
782
|
||||||
|
COST
OF SERVICES
|
725
|
-
|
725
|
|||||||||
|
GROSS
PROFIT OR (LOSS)
|
57
|
-
|
57
|
|||||||||
|
GENERAL
AND ADMINISTRATIVE EXPENSES
|
223,642
|
750
|
646,113
|
|||||||||
|
NET
LOSS
|
$
|
(223,585
|
)
|
$
|
(750
|
)
|
$
|
(646,056
|
)
|
|||
|
Loss
per share, basic and diluted
|
$
|
(0.00
|
)
|
$
|
(0.01
|
)
|
$
|
(0.02
|
)
|
|||
|
Basic
and diluted weighted average number of common shares
|
67,760,654
|
100,000
|
27,814,591
|
|||||||||
The
accompanying notes are an integral part of these unaudited financial
statements.
F-2
|
MagneGas
Corporation
|
||||||||||||||||||||||||||||
|
(A
Development Stage Enterprise)
|
||||||||||||||||||||||||||||
|
STATEMENT
OF CHANGES IN STOCKHOLDERS’ EQUITY
|
||||||||||||||||||||||||||||
|
For
the period December 9, 2005 (date of inception) to December 31,
2007
|
||||||||||||||||||||||||||||
|
Accumulated
|
||||||||||||||||||||||||||||
|
Additional
|
Deficit
During
|
|||||||||||||||||||||||||||
|
Preferred
|
Common
|
Paid
in
|
Development
|
Total
|
||||||||||||||||||||||||
|
Shares
|
Amount
|
Shares
|
Amount
|
Capital
|
Stage
|
Equity
|
||||||||||||||||||||||
|
Stock
issued on acceptance of incorporation expenses,December 9,
2005
|
100,000
|
$
|
100
|
$
|
100
|
|||||||||||||||||||||||
|
Net
loss
|
(400
|
)
|
(400
|
)
|
||||||||||||||||||||||||
|
Balance
at December 31, 2005
|
-
|
-
|
100,000
|
100
|
-
|
(400
|
)
|
(300
|
)
|
|||||||||||||||||||
|
Net
loss
|
(1,450
|
)
|
(1,450
|
)
|
||||||||||||||||||||||||
|
Balance
at December 31, 2006
|
-
|
-
|
100,000
|
100
|
-
|
(1,850
|
)
|
(1,750
|
)
|
|||||||||||||||||||
|
Acquisition
of controlling interest, payment of liabilities
|
2,500
|
2,500
|
||||||||||||||||||||||||||
|
Recapitalization:
Issuance
of preferred stock to founders, valued at par, April 2,
2007
|
2,000
|
2
|
(2
|
)
|
-
|
|||||||||||||||||||||||
|
Recapitalization:
Issuance
of common stock to founders, valued at par, May 12,
2007
|
67,052,000
|
67,052
|
(67,052
|
)
|
-
|
|||||||||||||||||||||||
|
Issuance
of stock for services, valued at $1 per share, May 12,
2007
|
245,000
|
245
|
244,755
|
245,000
|
||||||||||||||||||||||||
|
Stock
issued for cash:
|
||||||||||||||||||||||||||||
|
June 12, 2007; $1 per share
|
30,000
|
30
|
29,970
|
30,000
|
||||||||||||||||||||||||
|
August
28, 2007; $1 per share
|
13,000
|
13
|
12,987
|
13,000
|
||||||||||||||||||||||||
|
September 17,2007; $1 per share
|
54,000
|
54
|
53,946
|
54,000
|
||||||||||||||||||||||||
|
October
11, 2007; $1 per share
|
60,500
|
61
|
60,439
|
60,500
|
||||||||||||||||||||||||
|
Issuance
of stock for services, valued at $1 per share, October 11,
2007
|
85,000
|
85
|
84,915
|
85,000
|
||||||||||||||||||||||||
|
Net
loss, through December 31, 2007
|
(420,621
|
)
|
(420,621
|
)
|
||||||||||||||||||||||||
|
Balance
at December 31, 2007
|
2,000
|
$
|
2
|
67,639,500
|
$
|
67,640
|
$
|
422,458
|
$
|
(422,471
|
)
|
$
|
67,629
|
|||||||||||||||
|
Issuance
of stock for license, valued at $1 per share, February 15, 2008
(unaudited)
|
100,000
|
100
|
99,900
|
100,000
|
||||||||||||||||||||||||
|
Issuance
of stock for services, valued at $1 per share, February 15, 2008
(unaudited)
|
145,000
|
145
|
144,855
|
145,000
|
||||||||||||||||||||||||
|
Net
loss, through March 31, 2008 (unaudited)
|
(223,585
|
)
|
(223,585
|
)
|
||||||||||||||||||||||||
|
Balance
at March 31, 2008 (unaudited)
|
2,000
|
$
|
2
|
67,884,500
|
$
|
67,885
|
$
|
667,213
|
$
|
(646,056
|
)
|
$
|
89,044
|
|||||||||||||||
The
accompanying notes are an integral part of these unaudited financial
statements.
F-3
|
MagneGas
Corporation
|
||||||||||||
|
(A
Development Stage Enterprise)
|
||||||||||||
|
STATEMENTS
OF CASH FLOWS
|
||||||||||||
|
|
||||||||||||
|
For
the three months ended March 31, 2008 and 2007,
|
||||||||||||
|
And
for the period December 9, 2005 (date of inception) to March 31,
2008
|
||||||||||||
|
(unaudited)
|
||||||||||||
|
|
||||||||||||
|
Three
Months Ended
March
31,
|
Inception
Date to
March
31,
|
|||||||||||
|
2008
|
2007
|
2008
|
||||||||||
|
CASH
FLOWS FROM OPERATING ACTIVITIES
|
||||||||||||
|
Net
loss
|
$
|
(223,585
|
)
|
$
|
(750
|
)
|
$
|
(646,056
|
)
|
|||
|
Adjustments
to reconcile net loss to cash used in operating
activities:
|
||||||||||||
|
Stock
compensation
|
145,000
|
-
|
475,100
|
|||||||||
|
Depreciation
|
260
|
-
|
433
|
|||||||||
|
Changes
in operating assets:
|
||||||||||||
|
Increase
in Accounts Receivable
|
(787
|
)
|
(787
|
)
|
||||||||
|
Increase in
Prepaid Expenses
|
-
|
(2,000
|
)
|
|||||||||
|
Increase
in Accounts Payable
|
5,834
|
5,834
|
||||||||||
|
Increase in
Accrued Expenses
|
28,141
|
750
|
33,771
|
|||||||||
|
Total
adjustments to net loss
|
178,448
|
750
|
512,351
|
|||||||||
|
Net
cash (used in) operating activities
|
(45,137
|
)
|
-
|
(133,705
|
)
|
|||||||
|
CASH
FLOWS FROM INVESTING ACTIVITIES
|
||||||||||||
|
Acquisition
of reporting entity
|
-
|
-
|
(5,200
|
)
|
||||||||
|
Net
cash flows (used in) investing activities
|
-
|
-
|
(5,200
|
)
|
||||||||
|
CASH FLOWS FROM FINANCING
ACTIVITIES
|
||||||||||||
|
Advances
from Related Party
|
-
|
10,000
|
||||||||||
|
Note
Payable to Related Party
|
30,210
|
-
|
30,210
|
|||||||||
|
Capital
contribution; liability payment at acquisition
|
-
|
2,500
|
||||||||||
|
Proceeds
from issuance of common stock
|
-
|
-
|
157,500
|
|||||||||
|
Net
cash flows provided by investing activities
|
30,210
|
-
|
200,210
|
|||||||||
|
Net
increase in cash
|
(14,927
|
)
|
-
|
61,305
|
||||||||
|
Cash
- beginning balance
|
76,232
|
|||||||||||
|
CASH
BALANCE - END OF PERIOD
|
$
|
61,305
|
$
|
-
|
$
|
61,305
|
||||||
Supplemental
disclosure of cash flow information and non cash investing and financing
activities:
As a
result of the transfer of ownership, effective April 2, 2007, the company
effected a recapitalization, whereby the company
issued 67,052,000 shares of common stock and 2,000 shares of
preferred stock to founding members of the organization. As the
company determined that the shares had no value, stock and additional paid in
capital were increased and decreased by the par value of the stock.
In
February 2008, the Company issued 100,000 shares of common stock, valued at $1
per share, as consideration for an intangible license.
The
accompanying notes are an integral part of these unaudited financial
statements.
F-4
MagneGas
Corporation
(A
Development Stage Enterprise)
Notes
to Financial Statements
(unaudited)
Three
Months Ended March 31, 2008, 2007 and
for
the period December 9, 2005 (date of inception) through March 31,
2008
1. Background
Information
MagneGas
Corporation (the “Company”), formerly 4307, Inc., was organized in the state of
Delaware on December 9, 2005 for the purpose of locating and negotiating with a
business entity for a combination.
On April
2, 2007 (the "Effective Date"), pursuant to the terms of a Stock Purchase
Agreement, Clean Energies Tech Co. purchased a total of 100,000 shares (100%) of
the issued and outstanding common stock of the Company from Michael Raleigh, the
sole officer, director and shareholder of the Company, for an aggregate of
$30,000 in cash and the assumption of liabilities ($2,500). The total of 100,000
shares represented all of the shares of outstanding common stock of the Company
at the time of transfer.
Prior to
the above transaction, Clean Energies Tech Co and the Company were essentially
shell companies that were unrelated, with no assets, minimal liabilities, and no
operations. As a result, the 100% change in control was recorded as a
private equity transaction, and no goodwill was recorded, as no assets were
required and minimal liabilities were assumed. On May 12, 2007,
subsequent to the date of purchase, the company effected a recapitalization,
whereby 67,052,000 shares of common stock were issued to founding members of the
organization. As the company determined that the shares had no
value, stock and additional paid in capital were increased and decreased by the
par value of the stock issued.
Since the
acquisition, the Company has adopted the operating plan and mission which is to
provide services in cleaning and converting contaminated waste. A process has
been developed which transforms contaminated waste through a proprietary
incandescent machine. The result of the product is to carbonize waste for normal
disposal. A by product of this process will produce an alternative biogas
source. The technology related to this process has been licensed in
perpetuity from a Company effectively controlled by the father of the current
majority shareholder (see note 9).
2. Development
Stage Enterprise
The
Company has been in the development stage since its formation on December 9,
2005. It has primarily engaged in raising capital to carry out its
business plan, as described in the Plan of Operations. The Company expects to
continue to incur significant operating losses and to generate negative cash
flow from operating activities while it develops its customer base and
establishes itself in the marketplace. The Company's ability to
eliminate operating losses and to generate positive cash flow from operations in
the future will depend upon a variety of factors, many of which it is unable to
control. If the Company is unable to implement its business plan
successfully, it may not be able to eliminate operating losses, generate
positive cash flow, or achieve or sustain profitability, which would materially
adversely affect its business, operations, and financial results, as well as its
ability to make payments on any obligations it may incur.
F-5
MagneGas
Corporation
(A
Development Stage Enterprise)
Notes
to Financial Statements
(unaudited)
Three
Months Ended March 31, 2008, 2007 and
for
the period December 9, 2005 (date of inception) through March 31,
2008
3. Going
Concern
The
accompanying unaudited financial statements have been prepared in conformity
with accounting principles generally accepted in the United States of America,
which contemplate continuation of the Company as a going concern.
The
Company incurred a net loss of $223,585 and $646,056 for the three months ended
March 31, 2008 and for the period December 9, 2005 (date of inception) through
the period ended March 31, 2008, respectively. As of March 31, 2008
the Company had approximately $61,000 of cash with which to satisfy any future
cash requirements. These conditions raise substantial doubt about the Company’s
ability to continue as a going concern. The Company depends upon capital to be
derived from future financing activities such as subsequent offerings of its
common stock or debt financing in order to operate and grow the
business. There can be no assurance that the Company will be
successful in raising such capital. The key factors that are not
within the Company's control and that may have a direct bearing on operating
results include, but are not limited to, acceptance of the Company's business
plan, the ability to raise capital in the future, the ability to expand its
customer base, and the ability to hire key employees to build and manufacture
such proprietary machines to provide services. There may be other
risks and circumstances that management may be unable to predict.
The
unaudited financial statements do not include any adjustments to reflect the
possible future effects on the recoverability and classification of assets or
the amounts and classification of liabilities that may result from the possible
inability of the Company to continue as a going concern.
4. Summary of
Significant Accounting Policies
The
significant accounting policies followed are:
In the
opinion of management, all adjustments consisting of normal recurring
adjustments necessary for a fair statement of (a) the result of operations for
the three month periods ended March 31, 2008, 2007 and the period December 9,
2005 (date of inception) through March 31, 2008; (b) the financial position at
March 31, 2008, and (c) cash flows for the three month periods ended March 31,
2008, 2007 and the period December 9, 2005 (date of inception) through March 31,
2008, have been made.
The
Company prepares its financial statements in conformity with generally accepted
accounting principles in the United States of America. These principals require
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Management believes that these estimates
are reasonable and have been discussed with the Board of Directors; however,
actual results could differ from those estimates.
The
financial statement and notes are presented as permitted by Form 10-Q.
Accordingly, certain information and note disclosures normally included in the
financial statements prepared in accordance with accounting principals generally
accepted in the United States of America have been omitted. The accompanying
unaudited financial statements should be read in conjunction with the financial
statements for the years ended December 31, 2006 and 2005 and notes thereto in
the Company’s annual report on Form 10-KSB/A for the year ended December 31,
2007, filed with the Securities and Exchange Commission on April 10, 2008.
Operating results for the three months ended March 31, 2008 and 2007 and for the
period December 9, 2005 (date of inception) to March 31, 2008 are not
necessarily indicative of the results that may be expected for the entire
year.
F-6
MagneGas
Corporation
(A
Development Stage Enterprise)
Notes
to Financial Statements
(unaudited)
Three
Months Ended March 31, 2008, 2007 and
for
the period December 9, 2005 (date of inception) through March 31,
2008
4. Summary
of Significant Accounting Policies (continued)
The
majority of cash is maintained with a major financial institution in the United
States. Deposits with this bank may exceed the amount of insurance
provided on such deposits. Generally, these deposits may be redeemed
on demand and, therefore, bear minimal risk. The Company considers
all highly liquid investments purchased with an original maturity of three
months or less to be cash equivalents.
Accounts
receivable consist of delivery of biogas sales to
customers. Revenue for metal-cutting fuel is recognized when
shipments are made to customers. An allowance for doubtful accounts is
considered to be established for any amounts that may not be recoverable, which
is based on an analysis of the Company’s customer credit worthiness, and current
economic trends. Based on management’s review of accounts receivable,
no allowance for doubtful accounts was considered
necessary. Receivables are determined to be past due, based on
payment terms of original invoices. The Company does not typically
charge interest on past due receivables.
Equipment
is stated at cost. Depreciation is computed by the straight-line method
over estimated useful lives (five years for equipment). The carrying
amount of all long-lived assets is evaluated periodically to determine if
adjustment to the depreciation and amortization period or the unamortized
balance is warranted. Based upon its most recent analysis, the Company believes
that no impairment of equipment exists at December 31, 2007.
During
2008, the Company recorded an intangible license for $100,000 related to the
Company's right to utilize certain intellectual property secured from a company
effectively controlled by the father of the current majority shareholder (see
Note 9). The Company valued the license based on the value of the
stock issued, as the Company believes that this is the more reliable
measurement. The intellectual property consists primarily of patents
and patent applications, which the Company has estimated has a useful life of
ten years. The estimated amortization expense for the intangible
license is expected to be $10,000 annually over the next five years and $50,000
in total thereafter.
In
accordance with Statement of Financial Accounting Standards (SFAS) No. 144,
"Accounting for Impairment or Disposal of Long-Lived Assets," 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.
In
December 2004, the Financial Accounting Standards Board (FASB) issued Statement
of Accounting Standards (SFAS) No. 123 (Revised 2004), “Share-Based Payment”
(SFAS 123R). SFAS 123R requires all share-based payments to employees, including
grants of employee stock options to be recognized as compensation expense in the
financial statements based on their fair values. That expense is recognized over
the period during which an employee is required to provide services in exchange
for the award, known as the requisite service period (usually the vesting
period). The Company had no common stock options or common stock equivalents
granted or outstanding for all periods presented
F-7
MagneGas
Corporation
(A
Development Stage Enterprise)
Notes
to Financial Statements
(unaudited)
Three
Months Ended March 31, 2008, 2007 and
for
the period December 9, 2005 (date of inception) through March 31,
2008
4. Summary
of Significant Accounting Policies (continued)
The
Company issues restricted stock to consultants for various
services. For these transactions the Company follows the guidance in
EITF 96-18 "Accounting for Equity Instruments that are Issued to Other than
Employees for Acquiring or in Conjunction with Selling Goods or
Services". Cost for these transactions are measured at the fair value
of the consideration received or the fair value of the equity instruments
issued, whichever is more reliably measurable (see Note 8). 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. For the three month periods ended March
31, 2008, 2007 and for the period December 9, 2005 (date of inception) through
March 31, 2008, the Company recognized $145,000, $0, and $475,100 in consulting
expenses and a corresponding increase to additional paid-in-capital related to
stock issued for services. No stock was issued for the three month
period ended March 31, 2007. Accordingly, no expense was recognized
for this period. All stock issued during 2007 to consultants was for
past services provided, accordingly, all shares issued are fully vested, and
there is no unrecognized compensation associated with these transactions as of
March 31, 2008.
The costs
of advertising are expensed as incurred. Advertising expense was $2,034,
$0, and $2,466 for the three months ended March 31, 2008, 2007 and for the
period December 9, 2005 (date of inception) through March 31, 2008,
respectively.
The
Company accounts for income taxes under SFAS No. 109, “Accounting for Income
Taxes,” which requires use of the liability method. SFAS No. 109 provides that
deferred tax assets and liabilities are recorded based on the differences
between the tax bases of assets and liabilities and their carrying amounts for
financial reporting purpose, referred to as temporary differences. Deferred tax
assets and liabilities at the end of each period are determined using the
currently enacted tax rates applied to taxable income in the periods in which
the deferred tax assets and liabilities are expected to be settled or
realized.
The
Company follows SFAS No. 128, “Earnings Per Share.” Basic earnings (loss) per
share calculations are determined by dividing net income (loss) by the weighted
average number of shares outstanding during the year. Diluted earnings (loss)
per share calculations are determined by dividing net income (loss) by the
weighted average number of shares. There are no share equivalents and, thus,
anti-dilution issues are not applicable.
5. Recently
Issued Accounting Pronouncements
In
September 2006, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (“SFAS”) No. 157, “Fair Value Measurements.”
SFAS No. 157 clarifies the principle that fair value should be based on the
assumptions market participants would use when pricing an asset or liability and
establishes a fair value hierarchy that prioritizes the information used to
develop those assumptions. Under the standard, fair value measurements would be
separately disclosed by level within the fair hierarchy. SFAS No. 157 is
effective for financial statements issued for fiscal years beginning after
November 15, 2007 and interim periods within those fiscal years, with early
adoption permitted. The adoption of SFAS No. 157 did not have a material impact
on the Company's financial condition or results of its operations.
In
February 2007, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (“SFAS”) No. 159, “The Fair Value Option for Financial
Assets and Financial Liabilities.” SFAS No. 159 permits entities to
choose to measure many financial instruments and certain other items at fair
value. The objective is to improve financial reporting by providing entities
with the opportunity to mitigate volatility in reported earnings caused by
measuring related assets and liabilities differently without having to apply
complex hedge accounting provisions. SFAS No. 159 is effective for financial
statements issued for fiscal years beginning after November 15, 2007 and interim
periods within those fiscal years, with early adoption permitted. The adoption
of SFAS No. 159 did not have a material impact on the Company's financial
condition or results of its operations.
F-8
MagneGas
Corporation
(A
Development Stage Enterprise)
Notes
to Financial Statements
(unaudited)
Three
Months Ended March 31, 2008, 2007 and
for
the period December 9, 2005 (date of inception) through March 31,
2008
5. Recently
Issued Accounting Pronouncements (continued)
In July
2006, the Financial Accounting Standards Board (FASB) issued FASB Interpretation
No. 48 (“FIN 48”), Accounting
for Uncertainty in Income Taxes, which is an interpretation of SFAS No.
109, Accounting for Income Taxes. FIN 48 clarifies the accounting for income
taxes by prescribing the minimum recognition threshold a tax position is
required to meet before being recognized in the financial statements. FIN 48
also provides guidance on de-recognition, measurement, classification, interest
and penalties, accounting in interim periods, disclosure and transition. In
addition, FIN 48 clearly scopes out income taxes from Financial Accounting
Standards Board Statement No. 5, Accounting for Contingencies. FIN 48 is
effective for fiscal years beginning after December 15, 2006. The Company
adopted FIN 48 on January 1, 2007. There was no material impact on the overall
results of operations, cash flows, or financial position from the adoption of
FIN 48.
In March
2008, the Financial Accounting Standards Board issued SFAS No. 161, Disclosures about Derivative
Instruments and Hedging Activities. SFAS No. 161 requires
additional disclosures related to the use of derivative instruments, the
accounting for derivatives and the financial statement impact of
derivatives. SFAS No. 161 is effective for fiscal years beginning
after November 15, 2008. The adoption of SFAS No. 161 will not impact
the Company's financial statements.
In
December 2007, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 141(revised 2007),
Business Combinations,
which replaces SFAS No. 141. The statement retains the purchase
method of accounting for acquisitions, but requires a number of changes,
including changes in the way assets and liabilities are recognized in the
purchase accounting. It also changes the recognition of assets
acquired and liabilities assumed arising from contingencies, requires the
capitalization of in-process research and development at fair value, and
requires the expensing of acquisition-related costs as incurred. SFAS
No. 141(R) is effective for the Company beginning January 1, 2009 and will apply
prospectively to business combinations completed on or after that
date.
In
December 2007, the FASB issued SFAS No. 160; Noncontrolling Interest in
Consolidated Financial Statements, and amendment of ARB 51, which changes
the accounting and reporting for minority interest. Minority interest
will be recharacterized as noncontrolling interest and will be reported as
component of equity separate from the parent's equity, and purchases or sales of
equity interests that do not result in change in control will be accounted for
as equity transactions. In addition, net income attributable to the
noncontrolling interest will be included in consolidated net income on the dace
of the income statement and, upon a loss of control, the interest sold, as well
as any interest retained, will be recorded at fair value with any gain or loss
recognized in earnings. SFAS No. 160 is effective for the Company
beginning January 1, 2009 and will apply prospectively, except for the
presentation and disclosure requirements, which will apply
retrospectively.
6. Equipment
Equipment,
as of consists of:
|
March
31, 2008
|
December
31, 2007
|
|||||||
|
Equipment
|
$
|
5,200
|
$
|
5,200
|
||||
|
Less
accumulated depreciation
|
433
|
173
|
||||||
|
Property
and equipment, net
|
$
|
4,767
|
$
|
5,027
|
||||
Depreciation
of equipment was $260, $0 and $433 for the three months ended March 31, 2008,
2007 and for the period December 9, 2005 (date of inception) through March 31,
2008, respectively.
F-9
MagneGas
Corporation
(A
Development Stage Enterprise)
Notes
to Financial Statements
(unaudited)
Three
Months Ended March 31, 2008, 2007 and
for
the period December 9, 2005 (date of inception) through March 31,
2008
7. Income
Tax
The
Company has not recognized an income tax benefit for its operating start-up
losses generated since inception based on uncertainties concerning its ability
to generate taxable income in future periods. The tax benefit for the
periods presented is offset by a valuation allowance established against
deferred tax assets arising from operating losses and other temporary
differences, the realization of which could not be considered more likely than
not. In future periods, tax benefits and related deferred tax assets
will be recognized when management considers realization of such amounts to be
more likely than not. As of December 31, 2007, the Company incurred
start-up losses of approximately $90,600. These losses are
capitalized as start-up costs for tax purposes, to be amortized when the Company
commences business operations.
8 Equity
The
company has two classifications of stock:
Preferred
Stock includes 10,000,000 shares authorized at a par value of $0.001, of which
2,000 are issued or outstanding at March 31, 2008. Preferred
Stock has been issued as Series A Preferred Stock. Preferred Stock
has liquidation and dividend rights over Common Stock, which is not in excess of
its par value. The preferred stock has no conversion rights or
mandatory redemption features. Each share of Preferred Stock is
entitled to 100,000 votes.
Common
Stock includes 100,000,000 shares authorized at a par value of $0.001, of which
67,884,500 are issued and outstanding at March 31, 2008. The holders
of Common Stock and the equivalent Preferred Stock, voting together, shall
appoint the members of the Board of the Directors. Each share of
Common Stock is entitled to one vote.
Founding
contributors were issued 67,052,000 shares during 2007. As
management determined that the Company had negligible value, no value was
attributed to the founders’ shares.
During
the three-month period ended March 31, 2008, the company issued 145,000 common
shares to various consultants. The Company also issued 100,000 common
shares to secure intellectual property rights, as discussed in footnote
9. During 2007 the Company had issued 330,000 shares to consultants
for services rendered. The Company valued all the above shares at one
dollar per share based on other third-party cash sales of the Company's common
stock.
During
the period June 2007 through October 2007, the Company issued 157,500 shares of
common stock at one dollar per share, via a private placement offering, for a
total of $157,500.
F-10
MagneGas
Corporation
(A
Development Stage Enterprise)
Notes
to Financial Statements
(unaudited)
Three
Months Ended March 31, 2008, 2007 and
for
the period December 9, 2005 (date of inception) through March 31,
2008
9. Related Party
Transactions
In April
2007, the Company reached a tentative agreement with a company, effectively
controlled by the father of the current majority shareholder, which will secure
intellectual property licensing for North, South, Central America and all
Caribbean Islands ("the Territories"), effective upon
funding. This intellectual property consists of all relevant patents,
patent applications, trademarks and domain names. The agreement
became effective upon the Company's issuance of 100,000 shares of common stock
in February 2008. The term of the license agreement is in perpetuity for the
above territories with the exception of (i) bankruptcy or insolvency of the
Company (ii) the filing of the Company of a petition for bankruptcy (iii) the
making by the Company of the assignment of the license for the benefit of
creditors (iv) the appointment of a receiver of the Company or any of its assets
which appointment shall not be vacated within 60 days thereafter (v) the filing
of any other petition for the relief from creditors based upon the alleged
bankruptcy or insolvency of the Company which shall not be dismissed within 60
days thereafter. Additionally, the agreement triggered a 5 year consulting
agreement, with the inventor and owner of the intellectual
property. The terms of the consulting agreement will be determined
during 2008. The company will have the right to exercise a
purchase option to acquire the intellectual property, within 5 years of the
funding, at a defined purchase price of $30,000,000, which was determined by an
internal valuation by the Company.
In 2007
an advance in the amount of $10,000 was made by a company owned by a
shareholder, for initial deposit for services. There are no repayment
terms to this advance and the amount is payable upon demand.
In
January 2008, the Company received approximately $30,000 in exchange for a
promissory note to a shareholder. The promissory note has no
repayment date; however it is payable within 30 days of written
demand. Payment is to include accrued simple interest at
4%.
The
Company has had limited need for use of office space or
equipment. Any use of office space or equipment supplied by related
parties has, thus far, been immaterial.
The
amounts and terms of the above transactions may not necessarily be indicative of
the amounts and terms that would have been incurred had comparable transactions
been entered into with independent third parties.
10. Contingencies
From time
to time the Company may be a party to litigation matters involving claims
against the Company. Management believes that there are no current matters
that would have a material effect on the Company’s financial position or results
of operations.
11. Subsequent
Events
Commencing
April 2008 the Company has re-located to a new facility. The Company
has 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. The facility allows for expansion
needs. The lease is held by a Company that is effectively controlled
by the father of the current majority shareholder.
F-11
Item
2. Management’s
Discussion and Analysis of Financial Condition and Results of Operation or Plan
of Operation
Cautionary Notice Regarding
Forward Looking Statements
The
information contained in Item 2 contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. Actual results may
materially differ from those projected in the forward-looking statements as a
result of certain risks and uncertainties set forth in this report. Although
management believes that the assumptions made and expectations reflected in the
forward-looking statements are reasonable, there is no assurance that the
underlying assumptions will, in fact, prove to be correct or that actual results
will not be different from expectations expressed in this report.
We desire
to take advantage of the “safe harbor” provisions of the Private Securities
Litigation Reform Act of 1995. This filing contains a number of forward-looking
statements which reflect management’s current views and expectations with
respect to our business, strategies, products, future results and events, and
financial performance. All statements made in this filing other than statements
of historical fact, including statements addressing operating performance,
events, or developments which management expects or anticipates will or may
occur in the future, including statements related to distributor channels,
volume growth, revenues, profitability, new products, adequacy of funds from
operations, statements expressing general optimism about future operating
results, and non-historical information, are forward looking statements. In
particular, the words “believe,” “expect,” “intend,” “anticipate,” “estimate,”
“may,” variations of such words, and similar expressions identify
forward-looking statements, but are not the exclusive means of identifying such
statements, and their absence does not mean that the statement is not
forward-looking. These forward-looking statements are subject to certain risks
and uncertainties, including those discussed below. Our actual results,
performance or achievements could differ materially from historical results as
well as those expressed in, anticipated, or implied by these forward-looking
statements. We do not undertake any obligation to revise these forward-looking
statements to reflect any future events or circumstances.
Readers
should not place undue reliance on these forward-looking statements, which are
based on management’s current expectations and projections about future events,
are not guarantees of future performance, are subject to risks, uncertainties
and assumptions (including those described below), and apply only as of the date
of this filing. Our actual results, performance or achievements could differ
materially from the results expressed in, or implied by, these forward-looking
statements. Factors which could cause or contribute to such differences include,
but are not limited to, the risks to be discussed in our Annual Report on form
10-KSB/A and in the press releases and other communications to shareholders
issued by us from time to time which attempt to advise interested parties of the
risks and factors which may affect our business. We undertake no obligation to
publicly update or revise any forward-looking statements, whether as a result of
new information, future events, or otherwise.
Plan of
Operations
During
the next twelve months, we expect to take the following steps in connection with
the further development of our business and the implementation of our plan of
operations:
Overall
Plan
Our
overall plan of operation for the next twelve months is to install three Plasma
Arc Flow demonstration centers. One will be installed in a municipal
sewage treatment facility to process sludge, one will be installed in a dairy or
hog farm to process manure and one will be built and used as a mobile refinery
for the metal cutting market. These demonstration centers will be used to
promote our core business strategy. In addition, during the next
twelve months, we intend to pursue equity financing using our shares of common
stock and to pursue several state grants for these types of
projects.
Second
Quarter 2008
We will
continue our efforts in selling MagneGas in the metal cutting
market. We will use established relationships with existing metal
cutting fuel wholesalers to distribute MagneGas for this market. We
will continue construction of our mobile refinery for the metal cutting market.
We have filed our S-1/A registration statement.
Third
Quarter 2008
We will
begin construction of a PlasmaArcFlow demonstration center to process sludge at
a local municipality. We will continue to aggressively pursue
MagneGas sales for the metal cutting market through wholesalers, trade events
and from our marketing and sales consultants. We intend to actively recruit new
board members with appropriate experience and hire a corporate
staff.
Fourth
Quarter 2008
We will
install our Plasma Arc Flow demonstration center at a local Florida sewage
treatment facility to process human sludge. We will also begin construction of a
PlasmaArcFlow refinery that will be placed at a local megafarm to process
manure. We will continue to pursue additional equity financing through our
public offering. We will aggressively pursue MagneGas sales for the
metal cutting market through a marketing plan that fully leverages our
demonstration centers and we will hire additional operational staff and
manufacturing staff in anticipation of new sales and will expand our current
facility to accommodate our space needs.
First
Quarter 2009
By the
first quarter of 2009, we will be fully operational at a local Florida sewage
treatment facility, processing city sludge and creating biogas. We
will complete construction of our PlasmaArcFlow refinery that will be placed on
a local farm to process manure and will we will continue sales of MagneGas in
the metal cutting market. We will aggressively pursue our marketing
and sales plan to fully leverage our demonstration centers. We expect
to obtain several service contracts during this quarter as potential customers
view first hand the operation of our equipment at an industrial level. We
will continue to hire operational staff and manufacturing staff in anticipation
of new sales.
The foregoing represents our best estimate of our current planning, and is based
on a reasonable assessment of funds we expect to become
available. However, our plans may vary significantly depending upon
the amount of funds raised and status of our business plan. In the event we are
not successful in reaching our initial revenue targets, additional funds will be
required and we would then not be able to proceed with our business plan as
anticipated. Should this occur, we would likely seek additional financing to
support the continued operation of our business.
The
Company is currently financing its operations primarily through cash generated
by the sale of stock through a private offering. We believe we can
not currently satisfy our cash requirements for the next twelve months with our
current cash and expected revenues from our private placement and
sales. However, management plans to increase revenue and obtain
additional financing in order to sustain operations for at least the next twelve
months. We have already sold shares to support our continued operations.
However, completion of our plan of operation is subject to attaining adequate
revenue. We cannot assure investors that adequate revenues will be generated. In
the absence of our projected revenues, we may be unable to proceed with our plan
of operations. Even without significant revenues within the next twelve months,
we still anticipate being able to continue with our present activities, but we
will require financing to potentially achieve our goal of profit, revenue and
growth.
In the
event we are not successful in reaching our initial revenue targets, additional
funds will be required, and we would then not be able to proceed with our
business plan for the development and marketing of our core services. Should
this occur, we would likely seek additional financing to support the continued
operation of our business. We anticipate that depending on market conditions and
our plan of operations, we would incur operating losses in the foreseeable
future. We base this expectation, in part, on the fact that we may not be able
to generate enough gross profit from our services to cover our operating
expenses. Consequently, there is substantial doubt about the Company’s ability
to continue to operate as a going concern.
As
reflected in the unaudited financial statements, we are in the development
stage, and have an accumulated deficit from inception of $646,056 and have a
negative cash flow from operations of $133,705 from inception. This raises
substantial doubt about its ability to continue as a going concern. The ability
of the Company to continue as a going concern is dependent on the Company's
ability to raise additional capital and implement its business plan. The
unaudited financial statements do not include any adjustments that might be
necessary if the Company is unable to continue as a going concern.
At March
31, 2008 the Company had approximately $61,000 of capital resources to meet
current obligations. The Company may rely upon the issuance of common
stock and additional capital contributions from shareholders to fund
administrative expenses until operations commence.
Management
believes that actions presently being taken to obtain additional funding and
implement its strategic plans provide the opportunity for the Company to
continue as a going concern. We anticipate that we will require approximately
$4,000,000 to fund our plan of operations.
In effort
to achieve revenue plans, subsequent to March 31, 2008, we have sold MagneGas as
a metal cutting biogas. We have received firm orders from four entities for the
biogas produced from waste. We have additional non-binding letters of
intent to process liquid waste based on proposals and our
demonstrations. The non-binding letters of intent include a defined
time and place with resulting revenue earning structure. To fund this
sale, the firm orders, and existing non-binding letters of intent, the Company
has raised $157,500 in cash proceeds via sales of common stock during 2007, and
raised an additional $30,000 in cash proceeds from a shareholder loan in January
2008. Additionally, to deliver on these orders we have the commitment
of three persons dedicated to the fulfillment of orders and it is headed by a
well known industry consultant, whom we have attained to help develop operating
guidelines as well as being instrumental in the marketing and development of our
brand offering.
To expand
understanding of our efforts and progress in generating revenue:
Metal Cutting
Biogas: Sales commenced on March 6, 2008. From that
date we have sold 27 bottles of metal cutting biogas for approximately
$900. Marketing efforts are being concentrated on industry
wholesalers to utilize their established customer base and distribution
channels. Our current operations in new facilities (entered into
temporary month to month agreement, which will be formalized into a long-term
agreement) have been set up for expansion. We estimate current
operations have capacity for 400-500 bottles to be processed per
week. Our new facilities allow us the flexibility to ramp up for
greater volume, as market interest is anticipated to increase.
Letter of Intent: A
non-binding letter of intent was agreed, in principal with a local
municipality's water treatment facility. The agreement calls
for a 12 month testing period to process 1/3 of the City's bio-solids waste
flow. Our existing prototype equipment is being modified for the
specifics required for this project. Revenue will be generated
at the defined price of $.0171 per gallon processed, as determined by the City's
flow meters. At this time we are unable to accurately estimate the
volume that will be processed. Upon completion of the 12 month
test the contract will be evaluated and subject to renegotiation. No date has
been determined when this project is to commence.
Results of
Operations
For
the three months ended March 31, 2008, 2007 and for the period December 9, 2005
(date of inception) through March31, 2008.
Revenues
For the three months ended March 31,
2008, 2007 and for period December 9, 2005 (date of
inception) through March 31, 2008 we generated revenues of $782, $0, and $782,
respectively from our metal cutting fuel sales operations. This
was the fulfillment of our initial order. We are currently setting up
our new facilities to fulfill future anticipated
orders. Additionally, we also received $30,000 of funding through a
promissory note from a related party.
General and Administrative
Expenses
General
and administrative costs were incurred, primarily for professional expenses, in
the amount of $223,642, $750 and $646,113 for the three months ended March 31,
2008, 2007 and for the period December 9, 2005 (date of inception) through March
31, 2008, respectively. The increase for the three month periods was
due to an overall increase of professional expenses, primarily the recognition
of stock compensation in the amount of $145,000 included in the first quarter of
2008.
Net Loss
Primarily
due to the general and administrative costs that were incurred resulted in the
net loss in the amount of $223,585, $750 and $646,056 for the three months ended
March 31, 2008, 2007 and for the period December 9, 2005 (date of inception)
through March 31, 2008, respectively. The increase in the year over
year net loss was impacted by the recognition of $145,000 of stock compensation
for professional services. At this time, normal costs
of public filing will continue and it is not known when
significant revenues will occur to off-set these expenses.
Liquidity and Capital
Resources
The
Company is currently financing its operations primarily through cash generated
by the sale of stock through a private offering. We believe we can
not currently satisfy our cash requirements for the next twelve months with our
current cash and expected revenues from our private placement and
sales. However, management plans to increase revenue and obtain
additional financing in order to sustain operations for at least the next twelve
months. We have already sold shares to support our continued operations.
However, completion of our plan of operation is subject to attaining adequate
revenue. We cannot assure investors that adequate revenues will be generated. In
the absence of our projected revenues, we may be unable to proceed with our plan
of operations. Even without significant revenues within the next twelve months,
we still anticipate being able to continue with our present activities, but we
may require financing to potentially achieve our goal of profit, revenue and
growth.
In the
event we are not successful in reaching our initial revenue targets, additional
funds may be required, and we would then not be able to proceed with our
business plan for the development and marketing of our core services. Should
this occur, we would likely seek additional financing to support the continued
operation of our business. We anticipate that depending on market conditions and
our plan of operations, we would incur operating losses in the foreseeable
future. We base this expectation, in part, on the fact that we may not be able
to generate enough gross profit from our services to cover our operating
expenses. Consequently, there is substantial doubt about the Company’s ability
to continue to operate as a going concern.
As
reflected in the unaudited financial statements, we are in the development
stage, and have an accumulated deficit from inception of $646,056 and have a
negative cash flow from operations of $133,705 from inception. This raises
substantial doubt about its ability to continue as a going concern. The ability
of the Company to continue as a going concern is dependent on the Company's
ability to raise additional capital and implement its business plan. The
unaudited financial statements do not include any adjustments that might be
necessary if the Company is unable to continue as a going concern.
At March
31, 2008 the Company had approximately $61,000 of capital resources to meet
current obligations. The Company may rely upon the issuance of common
stock and additional capital contributions from shareholders to fund
administrative expenses until operations commence.
Management
believes that actions presently being taken to obtain additional funding and
implement its strategic plans provide the opportunity for the Company to
continue as a going concern
Subsequent
Events
Commencing
April 2008 the Company has re-located to a new facility. The Company
has entered into a month-to-month lease, at a monthly rate of $2,500 for
facilities to occupy approximately 3,000 square feet of a 6,000 square foot
building. The facility allows for expansion
needs. The lease is held by a Company that is effectively controlled
by the father of the current majority shareholder.
Recent Accounting
Pronouncements
In
September 2006, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (“SFAS”) No. 157, “Fair Value Measurements.”
SFAS No. 157 clarifies the principle that fair value should be based on the
assumptions market participants would use when pricing an asset or liability and
establishes a fair value hierarchy that prioritizes the information used to
develop those assumptions. Under the standard, fair value measurements would be
separately disclosed by level within the fair hierarchy. SFAS No. 157 is
effective for financial statements issued for fiscal years beginning after
November 15, 2007 and interim periods within those fiscal years, with early
adoption permitted. The adoption of SFAS No. 157 did not have a material impact
on the Company's financial condition or results of its operations.
In
February 2007, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (“SFAS”) No. 159, “The Fair Value Option for Financial
Assets and Financial Liabilities.” SFAS No. 159 permits entities to
choose to measure many financial instruments and certain other items at fair
value. The objective is to improve financial reporting by providing entities
with the opportunity to mitigate volatility in reported earnings caused by
measuring related assets and liabilities differently without having to apply
complex hedge accounting provisions. SFAS No. 159 is effective for financial
statements issued for fiscal years beginning after November 15, 2007 and interim
periods within those fiscal years, with early adoption permitted. The adoption
of SFAS No. 159 did not have a material impact on the Company's financial
condition or results of its operations.
In July
2006, the Financial Accounting Standards Board (FASB) issued FASB Interpretation
No. 48 (“FIN 48”), Accounting
for Uncertainty in Income Taxes, which is an interpretation of SFAS No.
109, Accounting for Income Taxes. FIN 48 clarifies the accounting for income
taxes by prescribing the minimum recognition threshold a tax position is
required to meet before being recognized in the financial statements. FIN 48
also provides guidance on de-recognition, measurement, classification, interest
and penalties, accounting in interim periods, disclosure and transition. In
addition, FIN 48 clearly scopes out income taxes from Financial Accounting
Standards Board Statement No. 5, Accounting for Contingencies. FIN 48 is
effective for fiscal years beginning after December 15, 2006. The Company
adopted FIN 48 on January 1, 2007. There was no material impact on the overall
results of operations, cash flows, or financial position from the adoption of
FIN 48.
In March
2008, the Financial Accounting Standards Board issued SFAS No. 161, Disclosures about Derivative
Instruments and Hedging Activities. SFAS No. 161 requires
additional disclosures related to the use of derivative instruments, the
accounting for derivatives and the financial statement impact of
derivatives. SFAS No. 161 is effective for fiscal years beginning
after November 15, 2008. The adoption of SFAS No. 161 will not impact
the Company's financial statements.
In
December 2007, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 141(revised 2007),
Business Combinations,
which replaces SFAS No. 141. The statement retains the purchase
method of accounting for acquisitions, but requires a number of changes,
including changes in the way assets and liabilities are recognized in the
purchase accounting. It also changes the recognition of assets
acquired and liabilities assumed arising from contingencies, requires the
capitalization of in-process research and development at fair value, and
requires the expensing of acquisition-related costs as incurred. SFAS
No. 141(R) is effective for the Company beginning January 1, 2009 and will apply
prospectively to business combinations completed on or after that
date.
In
December 2007, the FASB issued SFAS No. 160; Noncontrolling Interest in
Consolidated Financial Statements, and amendment of ARB 51, which changes
the accounting and reporting for minority interest. Minority interest
will be recharacterized as noncontrolling interest and will be reported as
component of equity separate from the parent's equity, and purchases or sales of
equity interests that do not result in change in control will be accounted for
as equity transactions. In addition, net income attributable to the
noncontrolling interest will be included in consolidated net income on the dace
of the income statement and, upon a loss of control, the interest sold, as well
as any interest retained, will be recorded at fair value with any gain or loss
recognized in earnings. SFAS No. 160 is effective for the Company
beginning January 1, 2009 and will apply prospectively, except for the
presentation and disclosure requirements, which will apply
retrospectively.
Critical Accounting
Policies
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. For these transactions the Company follows the guidance in
EITF 96-18 "Accounting for Equity Instruments that are Issued to Other than
Employees for Acquiring or in Conjunction with Selling Goods or
Services". Cost for these transactions are measured at the fair value
of the consideration received or the fair value of the equity instruments
issued, whichever is more reliably measurable. The value of the
common stock is measured at the earlier of (i) the date at which a firm
commitment for performance by the counterparty to earn the equity instruments is
reached or (ii) the date at which the counterparty's performance is
complete. All stock issued during 2007 and 2008 to consultants
was for past services provided, accordingly, all shares issued are fully vested,
and there is no unrecognized compensation associated with these transactions as
of March 31, 2008.
In
accordance with Statement of Financial Accounting Standards (SFAS) No. 144,
"Accounting for Impairment or Disposal of Long-Lived Assets," 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.
Off-Balance Sheet
Arrangements
We have
no off-balance sheet arrangements.
Item
3. Quantitative and
Qualitative Disclosures About Market Risk
There
have been no material changes in market risk since the filing of the Company’s
Annual Report on Form 10-KSB/A for the fiscal year ended December 31,
2007.
Item
4T. Controls and
Procedures
Evaluation of disclosure
controls and procedures
Under the
supervision and with the participation of our management, including our
principal executive officer and principal financial officer, we conducted an
evaluation of the effectiveness of the design and operation of our disclosure
controls and procedures, as such term is defined under Rule 13a-15(e)
promulgated under the Securities Exchange Act of 1934, as amended (Exchange
Act), as of March 31, 2008. Based on this evaluation, our principal executive
officer and principal financial officer have concluded that our disclosure
controls and procedures as of the end of such periods are not effective to
ensure that information required to be disclosed by us in the reports we file or
submit under the Exchange Act is recorded, processed, summarized, and reported
within the time periods specified in the Securities and Exchange Commission’s
rules and forms and that our disclosure and controls are designed to ensure that
information required to be disclosed by us in the reports that we file or submit
under the Exchange Act is accumulated and communicated to our management,
including our principal executive officer and principal financial officer, or
persons performing similar functions, as appropriate to allow timely decisions
regarding required disclosure
The
company is a reporting shell with limited resources. As a result, a material
weakness in financial reporting currently exists.
A
material weakness is a deficiency (within the meaning of the Public Company
Accounting Oversight Board (PCAOB) auditing standard 5) or combination of
deficiencies in internal control over financial reporting such that there is a
reasonable possibility that a material misstatement of the Company's annual or
interim financial statements will not be prevented or detected on a timely
basis. Management has determined that a material weakness exists due
to a lack of segregation of duties, resulting from the Company's limited
resources.
The
Company’s management, including the President (Principal Executive Officer),
Director, and Chief Financial Officer (Principal Accounting and Financial
Officer), confirm that there was no change in the Company’s internal control
over financial reporting during the quarter ended March 31, 2008 that has
materially affected, or is reasonably likely to materially affect, the Company’s
internal control over financial reporting.
PART
II - OTHER INFORMATION
Item
1. Legal
Proceedings.
We are
currently not a party to any pending legal proceedings and no such actions by,
or to the best of our knowledge, against us have been threatened.
Item
1A. Risk Factors
None
Item
2. Unregistered Sales of
Equity Securities and Use of Proceeds.
In
February 2008 we issued 145,000 shares of our common stock to six shareholders
for services rendered. Additionally, 100,000 common shares were issued to
secure certain intellectual property, as described in the financial statement
footnotes. These shares were valued at $1.00 per shares for a total
of $145,000 in expenses and $100,000 in capitalized intangible
costs. Such shares were issued in reliance on the exemption under
Section 4(2) of the Securities Act of 1933 and such shares are restricted
pursuant to Rule 144 of the 1933 Securities Act.
Item
3. Defaults Upon Senior
Securities.
None
Item
4. Submission of Matters
to a Vote of Security Holders.
No matter
was submitted during the quarter ending March 31, 2008, covered by this report
to a vote of our shareholders, through the solicitation of proxies or
otherwise.
Item
5. Other
Information.
None
Item
6. Exhibits and Reports
of Form 8-K.
|
(a)
|
Reports
on Form 8-K and Form 8K-A - 8K Change in Auditor,
etc.
|
|
|
None
|
||
|
(b)
|
Exhibits
|
|
|
Exhibit
Number
|
Exhibit
Title
|
|
|
3.1
|
Certificate
of Incorporation*
|
|
|
3.2
|
By-Laws
*
|
|
|
31.1
|
Certification
of Dr. Ruggero Santilli pursuant to 18 U.S.C. Section 1350 as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
|
|
|
31.2
|
Certification
of Luisa Ingargiola, pursuant to 18 U.S.C. Section 1350 as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
|
|
|
32.1
|
Certification
of Dr. Rugerro Maria Santilli pursuant to 18 U.S.C. Section 1350 as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
|
|
|
32.2
|
Certification
of Luisa Ingargiola, pursuant to 18 U.S.C. Section 1350 as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
|
|
|
*Incorporated
by reference to Exhibit 3.2 to our registration statement on Form 10-SB
filed on April 3, 2006 (File no: 000-51883)
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||
SIGNATURES
In
accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, there unto duly
authorized.
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MagneGas
Corporation
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|
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By:
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/s/Dr. Ruggero Maria
Santilli
|
|
Dr.
Ruggero Maria Santilli
Chief
Executive Officer
|
|
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Dated:
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May
13, 2008
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