I figured this out though there are many other things that can cause this problem. The two main things are the fly wheel having magnetism around the fly wheel other then where the magnet is, and incorrect fuel air mixture.
First let's deal with the flywheel. I was having problems with backfire and actual flame coming out of carb. I had put new carb, fuel lines and fuel pump on machine due to fuel lines and pump being completely stopped up. The carb needle valve would stick closed so had to replace card. I tried all the normal stuff to stop it and nothing helped. Then I decided it had to be firing at the wrong time. So I started thinking now how could it fire at wrong time? There is only two reasons it can fire wrong they are key is damaged or magnetic problem with fly wheel. I took a screw driver that was not magnetic and check around fly wheel and found it was magnetic all way around just stronger at the magnet. This can cause coils to fire intermittently at wrong time.
Now to demagnetise the fly wheel there is only three ways take it to generator shop and have them demagnetise it, use heat to 700 degrees or use a hammer to strike around it. I used a hammer and extension and hit it from top all way around but not the magnet. This decreased the number of the actual backfire but not the sputtering. Now I also found even with the new carb the fuel air mixture was off. I could pull choke out about 1/4 way and adjust idle screw to proper idle, then sputtering and back fire stopped completely at all speeds. This tells me the mixture (which on this carb has no adjustment) is wrong.
Back fire can be caused by the engine not buring all the fuel and if the fuel air mixture is wrong it will not.
