MagneGas' (MNGA) CEO Ermanno Santillion Q4 2015 Results - Earnings Call Transcript

| About: MagneGas Corporation (MNGA)

MagneGas Corporation (NASDAQ:MNGA)

Q4 2015 Earnings Conference Call

March 23, 2016 10:00 ET

Executives

Natalya Rudman - IR

Ermanno Santilli - CEO

Luisa Ingargiola - CFO

Analysts

Debra Fiakas - Crystal Equity

Brian Murphy - Merriman Capital

Operator

Greetings and welcome to the MagneGas Corporation's Year End 2015 Business Update. At this time, all participants are in a listen-only mode. And a brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded.

I would now like to turn the conference over to Natalya Rudman with Crescendo Communications. Thank you Natalya, you may now begin.

Natalya Rudman

Thanks, Rob. Good morning and thank you everyone for joining MagneGas 2015 year-end financial results and business update conference call. On the call with us today is Ermanno Santilli, Chief Executive Officer of MagneGas; and Luisa Ingargiola, Chief Financial Officer of MagneGas. At the conclusion of today's prepared remarks, we will open the call for your questions. If anyone has any questions after the call please contact Crescendo Communications at 212-671-1020.

Before we begin, let me take a minute to note that this conference call may contain forward-looking statements. Forward-looking statements address future events and conditions and therefore involve inherent risks and uncertainties. Actual results may differ materially from those currently anticipated in such statements. Such information is subject to known and unknown risks, uncertainties and other factors that could influence actual results or events and cause actual results or events to differ materially from those stated, anticipated or implied in the forward-looking information. Listeners are cautioned not to place undue reliance on forward-looking information as no assurance can be given as to the future results, levels of activity or achievements.

With that out of the way, let me now turn the call over to Ermanno Santilli, Chief Executive Officer. Please go ahead, Ermanno.

Ermanno Santilli

Thanks Natalya and thanks to everyone for joining us today. I'm pleased to report that we've achieved $2.4 million of revenue for 2015 due to ESSI acquisition and the superiority of MagneGas2 fuel, with proven faster cutting speed, smaller heat affected zone, demonstrated safety attributes, and also the eco-friendly attributes we have experienced a rapid increase in new customers and distributors. MagneGas2 is one of the very few product differentiators in the industrial gas business and acts as a catalyst allowing for rapid customer acquisitions.

Feedback from our distributors is that MagneGas2 is ideal to differentiate them in a purely commodity industry where everybody has acetylene and propane. In short, our product allows for above average distributor growth through acquisition of competitive counts with MagneGas2 as the differentiator. At the same time customers tell us that MagneGas adds dollars to their bottom line due to increased productivity, lower fuel consumption results in quicker, less costly projects. MagneGas2 users also tell us that setting up their shop around our gas in many cases means the complete near elimination of their grinding operations, something that reduces risks, reduces costs and reduces the risk of fires.

So it's now been a full year since the acquisition of ESSI and we continue to see top line growth. This validates our strategy of acquiring regional distributors. In addition, we recently sold a 100 kilowatt Plasma-Arc Gasification system for $775,000 and will receive recurring, high-margin royalty payments that equate to approximately 6% of gross sales. This marks the first historic sale of a unit here in the United States and signals a completely new era for MagneGas Corporation which is not just to produce the best metal working fuel in the world but be able to produce it locally for independent distributors who are eager to grow. This equipment sale allows us to cost-effectively expand into Louisiana, Texas and the Gulf Coast Region. The system should be operational in the fourth quarter of this year.

We are also seeing increased demand on the West Coast and we are in continued discussions with distributors for the installation of a gasification unit locally in order to reduce shipping cost and consolidate a foothold on the West Coast. Internationally, we signed and MOU with Masada Waste Management Company, a major waste collection and management company based in the Republic of Sierra Leone to import fuel and equipment. The MOU with Masada calls for the development of the definitive agreements which would include a $550,000 deposit, 5% gross royalty payments and subsequent equipment imports under two phase approach to expansion plans. Through this partnership, Masada would be appointed as the exclusive distributor for MagneGas fuel for the country of Sierra Leone. The collaboration between entities will have two main phases including the importation of MagneGas fuel to establish the market and support public funding initiatives. Followed then by implementing multiple MagneGas units in country to produce fuel locally.

Masada has been also identifying and appointing local distribution partners to help feed the market with MagneGas fuel for various long term uses. This is a strategic collaboration aimed to expanding MagneGas fuel in West Africa. My recent trip to Sierra Leone further validated the fact that our technology can provide a significant environmental benefit to Sierra Leone by eliminating problematic waste oils that currently have no viable treatment or disposable options. This was confirmed through several visits to ministries such as the local EPA, oil ministries, and we look forward to producing gas for the first time in Sierra Leone while helping bring needed jobs to their economy. In December, we announced proudly that are fuel is selected to be a part of $100 million NASA project at the Kennedy Space Center by SNR Enterprises LLC, a lead subcontractor. This contract will last approximately two years, and our fuel will be used for the metal cutting portion of the project which is anticipated to be significant.

Just last month we announced our joint venture partner Suwannee Ironworks is now the second subcontractor at the Kennedy Space Center in Florida to use MagneGas2 as the fuel of choice. We are pleased that we have two subcontractors now using MagneGas as their fuel of choice. The Kennedy Space Center is a great addition to our Military Fire Rescue and other marquee corporate customers and opens up new opportunities.

I recently visited NASA and learned that NASA has been more active than ever with private and public launches associated with activities of Mars exploration and supporting other global strategic objectives in space exploration. So it's a fantastic opportunity for MagneGas. In January, we announced that two major utilities expanded the use of MagneGas to multiple facilities. These marquee energy customers selected our fuel above all other cutting fuels in the market. At the end of January, we announced that the major international bridge builder, Condotte America Incorporated, selected MagneGas too as their fuel of choice for metal cutting. Condotte conducted extensive testing of MagneGas2 under various conditions since placing their initial order and have indicated their intention to switch all metal cutting operations to MagneGas2.

To accommodate this growing demand for MagneGas2 we have purchased 2,000 additional cylinders. In addition, ESSI, the Company's wholly owned gas distributor, has put an additional 400 cylinders into service to help accommodate ancillary gas demand. We look forward to seeing the impact of these new cylinders on revenue in the coming months as we continue to expand nationwide. So as you can see MagneGas2 is fast becoming the preferred cutting fuel across the United States which we believe is a direct result of our sales penetration and a key vertical market segment including utilities, demolition companies, first responders, as well as government and military sectors.

We have also worked aggressively to expand our distribution network in our in-house sales and marketing programs which we believe is finally paying off. Additionally, we are seeing an important shift. We are noticing a tipping point in the industry where the reputation of MagneGas2 as the best in the industry is being recognized by distributors as opposed to solely customers. Namely in the past in order to expand distribution we had to target customers in the area and employ a pull through strategy. Today, independent distributors who are eager to grow are actually hearing about MagneGas2, understanding the value proposition and calling us to distribute the product.

Regarding our agricultural opportunity with one of the largest swine farms in the United States, we have conducted multiple successful test at the farm and increase flow and efficiency rate. MagneGas2 successfully completed this pilot of a small 50 kilowatt unit. Through this pilot we also found that our system reduces Nitrogen and Phosphorous by over 40% which we have learned a significant and that many times it is those two elements which dictate or restrict how much manure can be applied to the fields. In effect, this opens new doors in our sterilization business and we'll be a particular interest to farms along waterways and lakes.

Funding is always problematic in the small margin agricultural industry, but we approached the U.S. Department of Agriculture to obtain a grant assistance which is available up to 80% in some cases. We are on our way to applying for a $2 million USDA grant which is ideally suited for MagneGas. This grant will pay for testing in USDA lab that will independently verify our sterilization results and the results of the reduction of Nitrogen and Phosphorous. Once our testing is verified, USDA has indicated they will consider funding 80% of the equipment sales to farmers. We are in active discussions with USDA and we will provide additional updates as they become available.

At the end of last year we announced that we advanced testing of our co-combustion. Once again, we achieved significance reductions in certain coal flue gas emissions including C02 with a dramatic increase in heat without corresponding increase in the carbon footprint. We have also filed provisional patents to proprietary characteristics of the new MagneGas fuel as part of our ongoing development of a co-combustion technology to substantially reduce coal emissions and approved coal burning efficiency. We are working towards obtaining independent validation of these results from a leading coal technology research center that is associated with the nation's largest utilities, and we anticipate this validation to be received in 2016.

The renewable energy landscape has become much more favorable for the project with the Paris Climate Agreement reached at the 21st Conference of the Parties, COP21. This historic agreement was signed by 186 countries and is the beginning of a worldwide and legally binding effort to reduce emissions by embracing, funding and monitoring renewable technology's impact on carbon emissions.

Coal demand is also increasing internationally. Markets such as India has strived for energy independence, so coal is not going away. We believe the COP21 agreement is the start of a more robust market for renewable technologies such as our co-combustion solution for coal, and we look forward to continue advancements. As you know I enjoy announcing new information on our conference calls. So I'm very pleased to share with you we have received our certificate of occupancy at our fantastic new headquarters new Clearwater Airport. Those of you who visited our facilities in Tarpon Springs know it was not ideally suited to present MagneGas Corporation or our technology. Well, I can say this new facility is modern and complies with all the safety requirements and has additional safety features that go above and beyond typical facility for producing or distributing gas.

In addition, we have a very professional lobby, conference room, engineering room, training room and laboratory. Therefore for the first time in history all of our functions will be under one presentable, professional roof and a facility that we're all proud of. Since we will start moving in next week, the official ribbon cutting ceremony will be sometime in the summer where we will arrange for media, customers, investors and stakeholders to attend. This has been the event that we've all been waiting for and looking forward to probably showcasing our new headquarters.

Finally, this will allow us to double our production of MagneGas2 since we will not be constrained by weather, lightning or being adjacent to residential areas that restrict our operation at night. So this means that we can operate on three phase shifts if we so choose.

I'd like to turn the call over to our CFO, Luisa Ingargiola, who will review our financial performance in detail.

Luisa Ingargiola

Thanks, Ermanno. Revenues for the year ended December 31, 2015 with $2.4 million as compared to $1 million for the same period last year. Revenue from the industrial gas segment was $2.4 million for the yearend of December 31, 2015 as compared to $875,000 for the same period last year. This is primarily due to an increase in MagneGas fuel sale and a full year of revenue received from the acquisition of ESSI Incorporated. The acquisition of ESSI has allowed us to platform to increase our metal cutting segment sales to the sale of MagneGas2 which is used as the door opener to new customers.

Gross margins increased to 39% from 34% for the year ended December 31, 2015 versus the same period last year. This was primarily due to reduced product cost associated with the vendor agreement through ESSI Incorporated. General Operating expenses increased $3 million for the yearend of December 31, 2015 to $7 million from $4 million for the same period. The additional expenses are primarily due to the operating expenses associated with the ESSI acquisition as well as other additional regulatory and other expenses related to the internet. The much of the expenditure related to the internet will not be incurred.

As of December 31, 2015 we had a cash balance of $5.3 million versus $5.1 million as of December 31, 2014 due to $3 million of warrant exercises in mid-December. Overall, we are extremely encouraged by the outlook to the business and believe we have the infrastructure and balance sheet to support our growth.

At this point I will like to open the call up to questions, thank you very much.

Question-and-Answer Session

Operator

Thank you. We will now be conducting a question and answer session. [Operator Instructions] Our first question comes from the line of Nick Fevers [ph] with Forest Capital. Please go ahead with your questions.

Unidentified Analyst

Thank you and congratulations on another exciting quarter. Couple of questions, first one is could you explain a little bit more about how moving to the headquarters is going to allow you to double the production?

Ermanno Santilli

Hey Nick, sure. This is Ermanno. Where we are right now really was never ideal to produce MagneGas. There are a lot of limitations, there are simple limitations for example, when it rains, it slows us down. We are not covered and more hard limitations such as the safety requirements that ocean places on everybody regarding operating when there is lightning which is 10 miles. When there is lightning within 10 miles of our facility, we have to stop what we are doing and when the lightning is within 3 miles of our facility we have to go inside.

So -- and Florida actually has the highest rates of lightning strikes in the nation so this is something we take very seriously and in the summer months you could lose up to 40% of your week simply because of lightning, it's amazing. The other facility that we have nearby is adjacent to a residential area and while we are perfectly allowed to operate there whenever we want, we do have some issues if we want to operate at night. So our new facility will have three inline units which are covered so, rain and lightning are not an issue and adjacent to us is basically a highway and a retention pond so there is nobody who would have problems with us operating at night as well.

So we are basically operating one and a half, two shifts if we are lucky here and in future we will be able to operate 3 full shifts without any restrictions at all. So, that is a fantastic opportunity for us because as we spoke you could approach a customer and you sell them 5 bottles of MagneGas, you shake hands with them and they also give you their $150,000. So the MagneGas bottles is the tip of the spear for the sales team and having more bottle out there in additional bottles we purchased means that we are opening ourselves up for even more growth.

Unidentified Analyst

Got it. Thanks. Also, can you talk some more about the opportunities in Sierra Leone that you saw during the visit?

Ermanno Santilli

Yes, Sierra Leone actually has a very vibrant economy. They are one of the most vibrant economies on the west coast of Africa and Masada is a fantastic organization that has cleaned up, they have a mandate to clean up all the solid and liquid waste in Freetown which is the capital of Sierra Leone. And when I visited, even before I spend much time there, the first thing you realize is that the streets are clean. There is not a lot of trash there and that's really down to Masada. They sent me some pictures of before and after and two years ago, the trash in the streets would literally stop traffic. It was a health problem, it was a logistical problem, and it was a major issue. Masada cleaned it up so, they can make it happen.

The Masada also has access to, as I mentioned, the mandate to clean up liquid waste and the vast majority of electricity in Sierra Leone is produced by generators. These generators operate on diesel and it's a particular grade of diesel called MFO which is a dirty type of marine diesel. They filter out these 100s of generators that they have dotted around the country, they filter out the oils that are bad, particulates and any water that gets into it. That filtrate that mix of waste oil they have no solution for. In the past, they were exporting it at $1.10 a gallon to neighboring country but there were some concerns it was not properly being disposed of so the EPA closed that option down.

So I actually met with the EPA and they confirmed this to me that the producers of electricity and people who are running generators, organizations that are running generators are now having to stock piles of oil which is becoming new problem because there is no solution. So, we come in and we have done diesel. We know we can work with this diesel. We have done some preliminary analysis on this waste oil, waste diesel and it looks perfectly suitable for our fuel, our operating systems and our gasification systems. So the idea is instead of somebody being paid to export it at $1.10 they would pay Masada and Masada would have MagneGas unites to produce fuels locally and then that would be distributed to around the country.

We also met with one of the largest gas distributors of the country that has 70,000 bottles on the ground and they expressed interest in distributing our fuels as well. So during my visit, I was able to see that Masada had the mandate, we met with distributors and we also met with the oil ministry as well and we obtained their support. So, it was a very interesting trip, it's a beautiful country and I am very excited about the opportunities there.

Unidentified Analyst

Great, congratulations on the project.

Ermanno Santilli

Thank you, Nick.

Operator

The next question comes from the line of Debra Fiakas with Crystal Equity. Please go ahead with your question.

Debra Fiakas

Oh thank you for taking my question. I wanted to also ask about the Sierra Leone opportunity. I wondered why you chose that particular company or that particular country or that particular market. It seems like it's now as large as perhaps some other markets you would have chosen. Why that one and how do you or do you expect to be able to use your position in that market, I'll say a reference customer much like you to be able to use the NASA opportunity as a reference customer?

Ermanno Santilli

Thank you, Debra. I think that's a good question. At MagneGas, we have always been interested in expanding in Africa simply because off grid opportunities to limit waste and produce gas really support our process and our system. Masada was an organization we were introduced to from Jack Breuer [ph] and they have a mandate and that is to collect solid and liquid waste and that's something that is very important and very special. Now why do we choose Sierra Leone, as I mention Sierra Leone is a vibrant economy, is one of the most developed in the west coast of Africa?

Some of the problems and strife's that are affecting religion, political stability, those kinds of things, Sierra Leone has really been immune to them. So it is potentially one of the best locations that we could choose to establish ourselves in Africa. And if this solution works in Sierra Leone, we believe there are loads of other opportunities out there because many of these countries are producing electricity through these generators. Most of these generators produces waste fuel and we could use this method of expansion to go into other countries in Africa.

Debra Fiakas

Well, thank you.

Operator

Our next question is from the line of Brian Murphy with Merriman Capital. Please go ahead with your questions.

Brian Murphy

Hi, and thanks for taking my question. I was hoping you could talk a little bit more about the Kandhari account. My understanding is that that's a company cuts a lot of metal and you know just looking at the testing documentation, they view the gas very favorably so, could you talk about maybe how much they're using currently or they are just using that for one project? I mean looking at their website, they have got some very large projects underway up and down the East Coast right now, and maybe you can just talk about the head room you guys have as that gas more standardized within the organization.

Ermanno Santilli

Hey, Brian. Yes, sure, Condotte, obviously they are on the cutting edge of technology. They always have their eyes open to new technologies and they recognize that MagneGas is the only renewable solution for cutting fuel, really in the world. So they approached our sales team and right now they're using us for one, and I believe potentially two projects. Like any organization of that size they want to start slowly. They want to make sure that their new products meet their expectations and distribution is there and everything else. So, what we're doing is basically supplying them for this new project right now and we're looking to expand through distribution. It's a classic pull through wherever their projects are. Condotte along with some of our power company partners basically say, hey, if you could produce wherever we have plans or projects, we would be buying your gas. So some of it is related to access to distribution and really it's just finding the right distributors will be able to help us to supply them. That's the limiting factor right now.

Brian Murphy

Okay, great. And so that the unit sale for 775K, can you just remind me again how the revenue recognition is going to work for that. Are we not going to see any revenue recognized until I guess Q4 of '16?

Ermanno Santilli

Luisa, do you want to take that one?

Luisa Ingargiola

Yes. The revenue recognition will occur when the unit has actually shipped. Right now we're anticipating shipping the unit in Q3 and the getting it up and operational by Q4, that's why we had mentioned Q4 as when we'd actually start producing fuel. But right now we're shooting for having it actually ship in Q3, so that's when the revenue would be recognized. And I do want to mention that that really is an enormous opportunity. We didn't spend a lot of time on it, but that particular group is expanding and has indicated an interest and up to 20 units. We could literally put 50 of our machines in Texas and Louisiana and not meet all of the acetylene gas sales in the area. So it's really an enormous opportunity for us. We're extremely excited about it, and as soon as that unit ships I think you're going to see a lot more coming from the region.

Brian Murphy

Okay. Just remind me again, just broadly speaking about gross margins for unit sales. Is that sort of in the mid-50s range?

Luisa Ingargiola

Yes. It's even greater. I mean the cost of that unit is going to be in the range of $400,000, so we should achieve pretty healthy margin on those.

Brian Murphy

Okay, great. Thanks very much. I'm going to jump back in the queue. Thanks.

Luisa Ingargiola

Okay. Thanks, Brian.

Ermanno Santilli

Thanks, Brian.

Operator

Our next question comes from the line of Paul Hart with Mount Lucas [ph]. Please go ahead with your questions.

Unidentified Analyst

Yes, good morning to all. Thinking big picture can you state what your goals are for 2016 and what are the opportunities and challenges to reach those goals?

Ermanno Santilli

Sure. First of all, as I stated we want to leverage successfully this expected significant increase in the availability of MagneGas cylinders. That is really going to be the core strategy to continue to expand sales organically. We are also actively looking at other acquisitions for industrial gas distributors, and that has been ongoing for a while and although as you can imagine that that takes quite a bit of time and quite a bit of investigative work and hand holding. So we validated that the purchase of ESSI is successful. We believe expanding that is in the best interest of our shareholders, and we're looking to expand in Florida and elsewhere where we already have a beachhead. Within the industry in a couple of years we could be considered to be a regional gas distributor or super regional if we acquire a group of distributors, so that's a part of it.

On the agricultural side in respect to sterilization, this information that we received regarding the reduction of Nitrogen and Phosphorous is really significant and the USDA has basically said that this is really a game changer for some farms as long as we succeeded in finding a cost-effective solution for them. They're not aware of any other technologies that really just use UV heat that can make those reductions. So that is something very interesting for us, and like I said selling to a farmer, their cash drop, that's going to be difficult in some cases although not impossible, particularly if we have the support of USDA regarding the grant.

On the co-combustion side, we are very encouraged by the fact that we have continued to develop and identify this specific fuel which is not MagneGas2, it does not come from soybean oil. We lost a bit of time because we were using MagneGas2 in the co-combustion chamber; we weren't getting the same results. Then we went back to the original fuel and we got the same results again. Actually right now, we have a team in Michigan running the co-combustion unit as we speak, literally. So that is really encouraging, I mean everybody's really excited about it. Still, the power company we're continuing to work with them and they're basically ready to go once we pull the trigger on the verification phase and we're getting a lot of attention a lot of viables, and I think that the verification phase will really be important for us as a company and for our shareholders as well.

On the safety side, we are much, much safer company than we were before and as you know this is a continuous improvement and never stops, safety never stops. We are continuing to pull through and improve our processes and procedures associated with production, transportation, training, everything. So that is always something that's in our strategic objectives which is obviously very important to everybody and the safety of our employees. Barriers, I would say when it comes to distribution, MagneGas, it's really going to come down to the three units that we have operating. We actually are loosely looking at expanding into a neighboring building so we can put some additional units up online. That is a barrier, and opportunity is improving the efficiency of the units. And we have some projects associated with improving the actual power units that we attach to the units. We use on the shelf power. Go ahead, sorry.

Unidentified Analyst

I'm sorry. And when you think about the potential going to every large farm and every fire department in the country, my understanding that will be done through the distributors correct? Would you help me there?

Ermanno Santilli

Yes, you really need to own or be working with distribution in order to get singles and packs out to these users. The industrial gas business is really a war in the trenches, bottle by bottle, you need to have the availability. You can't ship by truck from here to New York all the time. So ultimately the restriction would be we need to be able to place units at these distributors. And that's why Luisa's comment is very important regarding the partner that we're going to be selling this unit to in the Louisiana and Texas area because once we've proven that we can do that, it opens up a whole new opportunity for MagneGas where all these distributors that are eager to grow, they have to be aggressive and willing to value sell as opposed to just price sell, and that's really important new ones in the industry, is that when you have a distributor that wants to grow and can value sell we can place units at their facility. Potentially with just Louisiana partner assisting us in some sort of funding opportunity, its game over. Basically, in my opinion that's the beginning of the end of acetylene.

Unidentified Analyst

Yes, obviously, and then as of today, how many distributors do you have and what kind of percent of where you ultimately want to get to get full U.S. distribution coverage are you at?

Ermanno Santilli

Well, numbers of distributors off the top of my head, I can't tell you exactly, it varies, and we're signing them on every day. But when it comes to coverage of the United States, that is going to be something that takes a while, but it can be accelerated by succeeding in Louisiana and being able to place units quickly, being having access to funds to do that and of course, purchasing distribution whether it's single or multiple site distribution.

Unidentified Analyst

And you got to choose wisely, obviously?

Ermanno Santilli

Yes, absolutely.

Unidentified Analyst

Okay, thank you.

Ermanno Santilli

My pleasure.

Operator

Our next question is a follow-up from the line of Brian Murphy from Merriman Capital. Please go ahead with your question.

Brian Murphy

Yes, hi, thanks, just a follow-up on some of the discussion about your potential for selling these units. I am wondering if you can just help us understand where you are right now in terms of our production capacity for these units. And how we should think about what you need to do increase that capacity if things start to play out?

Ermanno Santilli

Well, thanks Brian, that's a good question. Our current facility, the facility we are moving to which is our fantastic new headquarters, that is going to be primarily a facility for producing gas and we'll also be able to produce two or three units, produce actually build the units at the same time. Next to us is another property that we could easily take space, rent space from where we could produce many more. Gas production, and I speak to shareholders all the time and they say why it is taking so long to move it to this new facility. We have a 3000 amp service, we have systems that are way above and beyond what's necessary to produce gas and bottled gas in Florida but when it comes to assembly, welding, turning wrenches, having space, that is really kind of cheap and cheerful that you can get that easily in Florida.

So Rick Conz is our VP of Engineering, he is a fantastic process centric guy. We are ready and we are adding a more of a project based function onto his responsibility as well. We are ready for him to quickly turn on the unit assembly process and expand. All we are doing is waiting to make sure that we are successful in Louisiana and we have down bedded commission, everybody is happy and then we can turn to expanding that business model.

Brian Murphy

Okay, sounds good. Thanks for the color.

Ermanno Santilli

Thanks, Brian.

Operator

Thank you. Our next question is filed from the line of Nick Fevers [ph] from Forest Capital. Please go ahead with your question.

Unidentified Analyst

Thanks, a follow-up question to the one earlier about co combustion. Can you talk about the next steps after the verification and maybe just a little bit about how you think of the market in terms of the addressable markets of coal plants and revenue potential per plant?

Ermanno Santilli

The co combustion project is a relatively complicated two-step process. The first step is the verification phase. The verification phase purely says, there are two independent labs that we are working with right now, actually not just the power company but the two independent labs, all that they are going to say is, yes your gas reduces the emissions and improves the CO2 footprint per heat that's generated. People from the industry who are watching MagneGas and watching us very carefully, some of them are dubious and that's ok because as the power company told us, once this is verified, we will be the only technology that reduces CO2 and saves money because today coal fired power plants, they need a $700 million scrubber system for each 500MW power plant and typical site has four of them, so even that equipment does not reduce CO2.

And if you note recently, NASA has confirmed that the temperature increase in February was the highest by a wide margin ever recorded on the phase of the planet. So, the scientific community is becoming increasingly alarmed and people who are questioning whether global warming is real or not, I think are recently seeing that actually happening. So, that is all part of the COP21 that is all going to feed into supporting our product and our solution. Now, after verification phase is something called validation phase. Validation phase is we are taking our unit to their actual facility, it's right now in one of our partner's facility, but we are actually taking the co combustion unit, I should say to their facility that has more equipment on it for measuring typical emissions from a power plant and we are going to run it and measure, first of all recreate the verification results as well but also measure the amount of MagneGas required for the amount of flu gas.

We have estimated in the past between 10 and 13 units to be required for the typical 500MW power plant that maybe low, that maybe high but we don't know yet. But the validation phase should tell us. But in mind, verification phase is the most important because once we verify that we eliminate these emissions and reduce CO2 for the heat footprint, people from the industry will realize that this is something very special and they are going to want to know what it's all about. And if wasn't for these two independent labs that are probably the best in the industry, certainly in the United States and potentially even worldwide, people would be really questioning those results. But with the support of these independent verifications, they are going to realize that this is the real deal and MagneGas has this technology which is going to lead to a strategic change in the energy markets.

So for me verification is going to be the most important and let's say the validation phase means we need 20 units or 50 units per 50MW power plant, I am very confident that the monetization of the verification phase for MagneGas and our shareholders will lead us to finding more and better ways to improve the efficiency of our unit that's potentially by two or three times or more based on fluid dynamics, temperature controlling, power systems. All those things will lead to a unit we can't even imagine what it's going to look like for its going to be more efficient. Because it's going to be driven by the market which is proven and it's going to be proven in the verification phase.

Unidentified Analyst

Great, thanks.

Ermanno Santilli

My pleasure.

Operator

At this time I will turn the floor back to Ermanno Santilli for closing remarks.

Ermanno Santilli

Thank you. I just wanted to thank everybody for joining the call. Last year was really a year of change for MagneGas Corporation and really it has been a tipping point in a lot of ways as well. We have perfected the, or improved I should say, we will never be perfected but improved the production of MagneGas2. We have confirmed that the only metal cutting shield which is renewable is also the best in the world. We are at the tipping point now with our distributors and customers where distributors are coming to us and just yesterday I had contact from a distributor who would like to work with us.

The testing of Swamp farm was significant because we realized that not only do we sterilize but we also reduce nitrogen to phosphorus which has now attracted the attention of the USDA. And, co combustion has really evolved and has resulted in new IP and it will result in more IP and I think we are setup for all these things are going to be a consonant for 2016 with increasing sales, potential acquisitions in the industrial gas sectors and hopefully grants from the USDA, other contracts, expansion from our current partner from Louisiana, Texas and of course, the co-combustion verification.

So I am very excited about 2016 and I am looking forward to moving into the new building to have that new change of company culture which is really about process centrism, about having the safest possible workspaces, not having any restrictions on production and just getting everybody focused on this next strategic phase for MagneGas Corporation.

Operator

Thank you. This concludes today's teleconference. You may disconnect your lines this time and we thank you for your participation.

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