OCLN 10-Q Quarterly Report March 31, 2011

ORIGINCLEAR, INC.

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10-Q 1 v222531_10q.htm Unassociated Document

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)

QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED: March 31, 2011

TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________ to __________

Commission File Number: ________________

ORIGINOIL, INC.

(Exact name of registrant as specified in its charter)

Nevada		26-0287664
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

5645 West Adams Blvd

Los Angeles, CA 90016

(Address of principal executive offices, Zip Code)

(323) 939-6645

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ¨ No ¨

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 ¨	Accelerated filer € ¨
Non-accelerated filer ¨	Smaller reporting company x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

The number of shares of registrant’s common stock outstanding, as of May 13, 2011 was 203,042,964.

TABLE OF CONTENTS

	Page
PART I - FINANCIAL INFORMATION

Item 1. Financial Statements.	3
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.	12
Item 3. Quantitative and Qualitative Disclosures About Market Risk.	19
Item 4. Controls and Procedures.	19

PART II - OTHER INFORMATION

Item 1. Legal Proceedings.	20
Item 1A. Risk Factors.	20
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.	20
Item 3. Defaults Upon Senior Securities.	20
Item 4. (Removed and Reserved).	20
Item 5. Other Information.	20
Item 6. Exhibits.	20

SIGNATURES	21

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements.

ORIGINOIL, INC.

BALANCE SHEETS

	March 31, 2011			December 31, 2010
	(Unaudited)
ASSETS

CURRENT ASSETS
Cash & cash equivalents	$	554,484		$	238,424
Prepaid expenses		64,748			86,996
Other receivables		53,322			14,018

TOTAL CURRENT ASSETS		672,554			339,438

PROPERTY & EQUIPMENT
Machinery & equipment		1,372			1,372
Furniture & fixtures		27,056			27,056
Computer equipment		26,304			26,304
Leasehold improvements		94,914			94,914
		149,646			149,646
Less accumulated depreciation		(117,484	)		(114,927	)

NET PROPERTY & EQUIPMENT		32,162			34,719

OTHER ASSETS
Patent		84,833			84,833
Trademark		4,467			4,467
Security deposit		9,650			9,650

TOTAL OTHER ASSETS		98,950			98,950

TOTAL ASSETS	$	803,666		$	473,107


LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES
Accounts payable	$	21,664		$	56,288
Accrued expenses		106,032			46,942
Credit card payable		272			-
Other payables		-			8,461

TOTAL LIABILITIES		127,968			111,691

SHAREHOLDERS' EQUITY
Preferred stock, $0.0001 par value;
50,000 authorized preferred shares		-			-
Common stock, $0.0001 par value;
500,000,000 authorized common shares
202,492,964 and 184,609,682 shares issued and outstanding		20,250			18,462
Additional paid in capital		12,817,792			11,506,494
Common stock subscription payable		-			184,500
Deficit accumulated during the development stage		(12,162,344	)		(11,348,040	)

TOTAL SHAREHOLDERS' EQUITY		675,698			361,416

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$	803,666		$	473,107

The accompanying notes are an integral part of these financial statements

ORIGINOIL, INC.

STATEMENTS OF OPERATIONS

(Unaudited)

	Three Months Ended
	March 31, 2011			March 31, 2010

REVENUE	$	102,000		$	-

General & administrative expenses		715,582			502,508
Research & development		194,444			159,798
Depreciation & amortization expense		2,557			11,496

TOTAL OPERATING EXPENSES		912,583			673,802

LOSS FROM OPERATIONS BEFORE OTHER INCOME/(EXPENSE)		(810,583	)		(673,802	)

OTHER INCOME/(EXPENSE)
Interest income		-			4
Dividend income		-			24
Penalties		(2,384	)		-
Interest expense		(537	)		-
					-
TOTAL OTHER INCOME/(EXPENSES)		(2,921	)		28

LOSS BEFORE PROVISION FOR TAXES		(813,504	)		(673,774	)

Income taxes		(800	)		(800	)

NET LOSS	$	(814,304	)	$	(674,574	)

BASIC AND DILUTED LOSS PER SHARE	$	(0.00	)	$	(0.00	)

WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING
BASIC AND DILUTED		191,097,617			159,759,605

The accompanying notes are an integral part of these financial statements

ORIGINOIL, INC.

STATEMENTS OF SHAREHOLDERS ’ EQUITY

(Unaudited)

											Deficit
											Accumulated
					Additional			Common			during the
	Common stock				Paid-in			Stock			Development
	Shares		Amount		Capital			Payable			Stage			Total

Balance at December 31, 2010		184,609,682	$	18,462	$	11,506,494		$	184,500		$	(11,348,040	)	$	361,416

Common stock issued for cash and subscription payable (unaudited)		15,976,750		1,598		1,276,542			(184,500	)		-			1,093,640

Common stock issued for services (unaudited)		25,000		2		4,998			-			-			5,000

Cashless exercise of warrants (unaudited)		1,881,532		188		(188	)		-			-			-

Options and warrant compensation expense (unaudited)		-		-		110,946			-			-			110,946

Stock issuance cost (unaudited)		-		-		(81,000	)		-			-			(81,000	)

Net loss for the three months ended March 31, 2011 (unaudited)		-		-		-			-			(814,304	)		(814,304	)

Balance at March 31, 2011 (unaudited)		202,492,964	$	20,250	$	12,817,792		$	-		$	(12,162,344	)	$	675,698

The accompanying notes are an integral part of these financial statements

ORIGINOIL, INC.

STATEMENTS OF CASH FLOWS

(Unaudited)

	Three Months Ended
	March 31, 2011			March 31, 2010
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(814,304	)	$	(674,574	)
Adjustment to reconcile net loss to net cash
used in operating activities
Depreciation & amortization		2,557			11,496
Common stock issued for services		5,000			-
Stock compensation expense		110,946			46,431
Changes in Assets and Liabilities
(Increase) Decrease in:
Prepaid expenses		22,248			8,579
Other receivables		(39,305	)		(9,200	)
Increase (Decrease) in:
Accounts payable		(34,624	)		12,674
Accrued expenses		32,659			241
Credit card payable		272			(159	)
Other payable		17,971			11,540

NET CASH USED IN OPERATING ACTIVITIES		(696,580	)		(592,972	)

CASH FLOWS USED FROM INVESTING ACTIVITIES:		-			-

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from common stock subscription payable		-			70,000
Proceeds for issuance of common stock, net		1,012,640			390,181

NET CASH PROVIDED BY FINANCING ACTIVITIES		1,012,640			460,181

NET INCREASE/(DECREASE) IN CASH		316,060			(132,791	)

CASH & CASH EQUIVALENTS, BEGINNING OF PERIOD		238,424			356,179

CASH & CASH EQUIVALENTS, END OF PERIOD	$	554,484		$	223,388

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Interest paid	$	537		$	-
Taxes paid	$	800		$	800

SUPPLEMENTAL DISCLOSURES OF NON-CASH TRANSACTIONS
Cashless exercise of warrants for 1,881,532 of common stock	$	-		$	-

The accompanying notes are an integral part of these financial statements

ORIGINOIL, INC.

NOTES TO FINANCIAL STATEMENTS

MARCH 31, 2011

1.	Basis of Presentation

The accompanying unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all normal recurring adjustments considered necessary for a fair presentation have been included. Operating results for the three month period ended March 31, 2011 are not necessarily indicative of the results that may be expected for the year ending December 31, 2011. For further information refer to the financial statements and footnotes thereto included in the Company's Form 10-K for the year ended December 31, 2010.

Liquidity

The Company has estimated its current average burn, and has assets to ensure that it can function without liquidation over the next twelve months, due to its cash on hand, growing revenue, and the Company’s ability to raise money from their investor base, as evidenced by its most recent round ending January 20, 2011. Also, the Company is in the process of working on new purchase orders from new customers. The Company has the ability to continue its operations for the foreseeable future and will be able to realize assets and discharge liabilities in the normal course of operations.

2.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

This summary of significant accounting policies of OriginOil, Inc. is presented to assist in understanding the Company’s financial statements. The financial statements and notes are representations of the Company’s management, which is responsible for their integrity and objectivity. These accounting policies conform to accounting principles generally accepted in the United States of America and have been consistently applied in the preparation of the financial statements.

Revenue Recognition

We recognize revenue upon delivery of equipment, provided that evidence of an arrangement exists, title, and risk of loss have passed to the customer, fees are fixed or determinable, and collection of the related receivable is reasonably assured. Title to the equipment transferred to the customer once the last payment is received. We record revenue as it is received, and the equipment has been fully accepted by the customer. Returns are based upon each rent-to-own agreement, and revenue would be adjusted based on a pro-rata basis on the unused months of quarterly payments. Generally, we extend credit to our customers and do not require collateral. We do not ship a product until we have either a purchase agreement or rental agreement signed by the customer with a payment arrangement. This is a critical policy, because we want our accounting to show only sales which has a final payment arrangement.

We also recognize revenue for services associated with the equipment setup, provided it is part of the rent-to-own agreement.

Cash and Cash Equivalent

The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents.

ORIGINOIL, INC.

NOTES TO FINANCIAL STATEMENTS

MARCH 31, 2011

2.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Loss per Share Calculations

Loss per Share dictates the calculation of basic earnings per share and diluted earnings per share. Basic earnings per share are computed by dividing income available to common shareholders by the weighted-average number of common shares available. Diluted earnings per share is computed similar to basic earnings per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive. No shares for employee options or warrants were used in the calculation of the loss per share as they were all anti-dilutive. The Company’s diluted loss per share is the same as the basic loss per share for the three month periods ended March 31, 2011 and 2010, as the inclusion of any potential shares would have had an anti-dilutive effect due to the Company generating a loss.

Stock-Based Compensation

Share based payments applies to transactions in which an entity exchanges its equity instruments for goods or services, and also applies to liabilities an entity may incur for goods or services that are to follow a fair value of those equity instruments. We are required to follow a fair value approach using an option-pricing model, such as the Black Scholes option valuation model, at the date of a stock option grant. The deferred compensation calculated under the fair value method was amortized over the respective vesting period of the stock option.

Reclassification

Certain expenses for the period ended March 31, 2010 were reclassified to conform to the expenses for the period ended March 31, 2011.

Recently Issued Accounting Pronouncements

Management reviewed accounting pronouncements issued during the three month period ended March 31, 2011, and no pronouncements were adopted.

3.	CAPITAL STOCK

During the three months ended March 31, 2011, the Company issued through a private placement 15,976,750 of common stock and subscription payable for $1,093,640 in cash; issued 25,000 shares of common stock for services at a fair value of $5,000; Also, there was a cashless exercise of 2,857,142 warrants into 1,881,532 shares of common stock. During the three months ended March 31, 2010, the Company issued 2,520,646 shares of common stock for $554,523 in cash. Also, the Company received $70,000 of common stock subscriptions through a private placement to purchase 318,181 shares of common stock.

4.	STOCK OPTIONS AND WARRANTS

The Company adopted a Stock Option Plan for the purposes of granting stock options to its employees and others providing services to the Company, which reserves and sets aside for the granting of Options for Fifteen Million (15,000,000) shares of Common Stock. Options granted under the Plan may be either Incentive Options or Nonqualified Options and shall be administered by the Company's Board of Directors ("Board"). Each Option shall be exercisable to the nearest whole share, in installments or otherwise, as the respective Option agreements may provide. Notwithstanding any other provision of the Plan or of any Option agreement, each Option shall expire on the date specified in the Option agreement, which date shall not be later than the tenth (10 th ) anniversary from the effective date of this option.

During the three months ended March 31, 2011 and 2010, the Company granted no stock options during either period. The stock options vest as follows: 1/48 every 30 days thereafter until the remaining stock options have vested. The stock options are exercisable for a period of five years from the date of grant at an exercise price between $0.15 and $0.32 per share.

ORIGINOIL, INC.

NOTES TO FINANCIAL STATEMENTS

MARCH 31, 2011

4.	STOCK OPTIONS AND WARRANTS

	3/31/2011
Risk free interest rate		1.17%-2.04	%
Stock volatility factor		1	%
Weighted average expected option life	5 years
Expected dividend yield	None

A summary of the Company’s stock option activity and related information follows:

	3/31/2011
			Weighted
	Number		average
	of		exercise
	Options		price
Outstanding, beginning of period		14,948,750	$	0.24
Granted		-		-
Exercised		-		-
Forfeited/Expired		-		-
Outstanding, end of period		14,948,750	$	0.24
Exercisable at the end of period		2,419,353	$	0.28
Weighted average fair value of
options granted during the period			$	-

The weighted average remaining contractual life of options outstanding issued under the plan as of March 31, 2011 was as follows:

						Weighted
						Average
		Stock		Stock		Remaining
Exercisable		Options		Options		Contractual
Prices		Outstanding		Exercisable		Life (years)
$	0.32		187,500		73,877		2.25
$	0.23		6,250		1,354		2.25
$	0.32		2,640,000		1,040,178		3.43
$	0.28		100,000		37,003		3.53
$	0.30		450,000		164,358		3.55
$	0.23		2,700,000		584,845		4.14
$	0.24		3,050,000		399,529		4.48
$	0.15		1,000,000		88,527		4.65
$	0.20		4,815,000		29,682		4.98
			14,948,750		2,419,353

Stock-based compensation expense recognized during the period is based on the value of the portion of stock-based payment awards that is ultimately expected to vest. Stock-based compensation expense recognized in the financial statements of operations during the period ended March 31, 2011, included compensation expense for the stock-based payment awards granted prior to, but not yet vested, as of March 31, 2011 based on the grant date fair value estimated, and compensation expense for the stock-based payment awards granted subsequent to March 31, 2011, based on the grant date fair value estimated. We account for forfeitures as they occur. The stock-based compensation expense recognized in the statement of income during the period ended March 31, 2011 and 2010 is $83,446 and $46,431, respectively.

ORIGINOIL, INC.

NOTES TO FINANCIAL STATEMENTS

MARCH 31, 2011

4.	STOCK OPTIONS AND WARRANTS (Continued)

Warrants

During the period ended March 31, 2011 and 2010, the Company granted 250,000 and 20,000 warrants for services, respectively. Compensation expense was determined using the Black Scholes pricing model.

	3/31/2011
Risk free interest rate		1.51% - 2.5	%
Stock volatility factor		1	%
Weighted average expected option life	5 years
Expected dividend yield	None

During the period ended March 31, 2011, the Company issued warrants for services. A summary of the Company’s warrant activity and related information follows:

	Three Months Ended
	March 31, 2011
				Weighted
				average
				exercise
	Options			price
Outstanding -beginning of Period		22,390,000		$	0.14
Granted		250,000			0.21
Exercised		-			-
Forfeited		(200,000	)		(0.34	)
Outstanding - end of Period		22,440,000		$	0.15

At March 31, 2011, the weighted average remaining contractual life of warrants outstanding:

ORIGINOIL, INC.

NOTES TO FINANCIAL STATEMENTS

MARCH 31, 2011

						Weighted
						Average
						Remaining
Exercisable		Warrants		Warrants		Contractual
Prices		Outstanding		Exercisable		Life (years)
$	0.31		10,100,000		10,100,000		3.25
$	0.34		850,000		850,000		3.38
$	0.30		650,000		650,000		3.57
$	0.29		200,000		200,000		3.62
$	0.28		20,000		20,000		3.83
$	0.29		150,000		150,000		4.16
$	0.24		1,000,000		1,000,000		4.23
$	0.31		220,000		220,000		4.35
$	0.15		100,000		100,000		4.46
$	0.14		250,000		250,000		4.48
$	0.14		1,000,000		1,000,000		4.50
$	0.12		250,000		250,000		4.58
$	0.15		1,000,000		1,000,000		4.65
$	0.14		400,000		400,000		4.67
$	0.20		5,000,000		5,000,000		4.73
$	0.20		1,000,000		1,000,000		4.75
$	0.21		250,000		250,000		4.97
			22,440,000		22,440,000

4.	STOCK OPTIONS AND WARRANTS (Continued)

Warrants with a fair value of $27,500 and $2,800 determined using the Black Scholes pricing model, was recognized in the statement of income for the period ended March 31, 2011 and 2010, respectively.

Through a private placement to purchase shares of common stock, the Company offered attached warrants with a cashless option to purchase additional shares of common stock, 2,857,142 warrants were exercised and converted into 1,881,532 shares of common stock during the period ended March 31, 2011.

5.	SUBSEQUENT EVENTS

Management evaluated subsequent events as of the date of the financial statements pursuant to ASC TOPIC 855.

On April 21, 2011, the Company issued 350,000 shares of common stock at a price of $0.10 per share for cash of $35,000.

In April 2011, the Company completed arrangements to participate in Ennesys SAS, a French joint venture with UK-based Pacific Junction (PJC UK). Ennesys SAS is working with large institutions to develop two separate large-scale algae projects in eco-buildings and marine fuels. On April 26, 2011, the Company executed a co-venture agreement with Ennesys SAS, pursuant to which the Company shall sell products to Ennesys SAS from time to time under the terms of a global cooperative agreement. The Company is an equity partner in Ennesys SAS with PJC UK, each holding 22.5% of Ennesys SAS. The remaining ownership is held by the Ennesys SAS management team. On April 29, 2011, the Company paid PJC UK $20,000 for its equity interest in Ennesys, which PJC UK had reserved for the Company at the inception of Ennesys SAS in late 2010.

On May 3, 2011, the Company issued 200,000 shares of common stock at a price of $0.10 per share for cash of $20,000.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

This Form 10-Q contains forward-looking statements that are subject to a number of risks and uncertainties, many of which are beyond our control, which may include statements about our:

●

business strategy;

●

financial strategy;

●

intellectual property;

●

production;

●

future operating results; and

●

plans, objectives, expectations and intentions contained in this report that are not historical.

All statements, other than statements of historical fact included in this report, regarding our strategy, intellectual property, future operations, financial position, estimated revenues and losses, projected costs, prospects, plans and objectives of management are forward-looking statements. When used in this report, the words “could,” “believe,” “anticipate,” “intend,” “estimate,” “expect,” “project” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain such identifying words. All forward-looking statements speak only as of the date of this report. You should not place undue reliance on these forward-looking statements. Although we believe that our plans, intentions and expectations reflected in or suggested by the forward-looking statements we make in this report are reasonable, we can give no assurance that these plans, intentions or expectations will be achieved. These statements may be found under “Management's Discussion and Analysis of Financial Condition and Results of Operations,” ”Business,” “Properties,” as well as in this report generally. Actual events or results may differ materially from those discussed in forward-looking statements as a result of various factors, including, without limitation, the risks outlined under “Risk Factors” and matters described in this report generally. In light of these risks and uncertainties, there can be no assurance that the forward-looking statements contained in this filing will in fact occur.

Organizational History

The Company was incorporated on June 1, 2007 under the laws of the State of Nevada. We have only been engaged in our current and proposed business operations since June 2007, and to date, we have been primarily involved in research and development activities. Our principal offices are located at 5645 West Adams Blvd., Los Angeles, California 90016. Our telephone number is (323) 939-6645. Our website address is www.originoil.com. Our website and the information contained on our website are not incorporated into this quarterly report.

Overview of Business

The Company is currently developing technologies to help companies produce algae using a cost-effective, high-speed manufacturing process to replace petroleum in various applications such as diesel, gasoline, jet fuel, plastics and solvents, in addition to feed, nutritionals and fertilizer. Algae, unlike other bio-fuel feedstock such as corn and sugarcane, do not destroy vital farmlands and rainforests, disrupt global food supplies and create new environmental problems.

The Company has developed a number of processes in the areas of algae growth (upstream) and extraction (midstream). Based on its commercial success in the area of extraction, it is primarily focused on the midstream.

The Company’s process controls the harvesting and oil extraction cycles in a high-speed, round-the-clock, streamlined industrial production of algae oil. Instead of waiting hundreds of millions years for algae to become oil, the Company’s breakthrough technology and process can help transform algae into oil in a matter of days. At this early stage, to prove the devices, the Company must build, sell and support its devices to companies developing such algae production systems.

The Company’s business model is based on licensing this technology to distributors, manufacturers, engineering service firms, and specialty operators, as well as fuel refiners, chemical and oil companies. The Company is not in the business of producing and marketing oil or fuel, based on algae, as an end product, nor of developing sales distribution networks or engaging in volume manufacturing.

We have only been engaged in our current and proposed business operations since June 2007, and to date, we have been primarily involved in research and development activities. We began our planned principal operations in December 2010 and have exited the development stage.

Algae Oil Industry Overview and OriginOil’s System

Algae can take many forms, such as seaweed (macro-algae) and kelp. But for oil, we use micro-algae as found in outdoor ponds. Micro-algae is actually a highly efficient biological factory capable of consuming carbon dioxide (CO2), and converting it into a high-density natural oil through photosynthesis. Much of the world's petroleum is actually made up of algae that decomposed over hundreds of millions of years. But by drilling for, extracting, and burning that oil now, we are releasing the carbon dioxide that was absorbed long ago. This "carbon positive" effect is what causes global warming.

Algae cultivated today absorbs CO2 from the atmosphere or other CO2 emitted sources. Burning freshly produced algae oil releases only what it absorbed in the first place, resulting in a balanced "carbon neutral" effect. This makes algae oil an environment-friendly oil.

Oil Generation from Algae

Algae reproduce by cellular division. They divide and divide until they fill the space available to them and have consumed all nutrients in it.

In the right environment, fresh algae cells grow and divide exponentially, doubling every few hours, while absorbing all available nutrients, CO2 and light energy. This is not unique to OriginOil’s technology and process. Algae are fast growing and each oil-producing algae cell can mature in just hours. Algae are oil-rich and contain as much as 60% of its dry weight in oil.

Algae typically protect their oil behind a tough cell wall and the challenge is to harvest the oil. The process then goes on to control the harvesting and oil extraction cycles in a high-speed, round-the-clock, streamlined industrial production of algae oil. With our technology and other technologies, oil can be extracted in a matter of days from algae cells.

Instead of waiting hundreds of millions years for algae to become oil, OriginOil's breakthrough technology and process can help transform algae into oil in a matter of days. At this early stage, to prove the devices, the Company must build, sell and support its devices to companies developing such algae production systems.

Making the Process Viable

To make the entire algae-to-oil process viable, OriginOil devised a method for energy efficient algae dewatering and oil extraction which does not use hazardous chemical solvents.

The process of breaking down algae cells to release oil, known as lysing, has long represented a challenge — and a final hurdle — for the algae-to-oil industry. Algae cell walls are difficult to break down. Mechanical methods are energy-intensive and often ineffective. Commonly used chemical solvents such as benzene, ether or hexane are toxic and require special handling. Such practices increase operating costs and make it harder to site algae production systems.

In OriginOil's extraction unit, the flowing algae biomass is first dewatered and then separated, using low-wattage, frequency-tuned electromagnetic pulses and other non-chemical methods.

Overcoming this final hurdle for the algae industry enables low-energy, environmentally-safe and viable, industrialized algae oil production.

Distribution Plan

OriginOil is currently proving and scaling up its technology by working with pilot, or strategic customers.

Ultimately, the Company will distribute its technology through distribution and licensing deals with distributors, manufacturers, engineering service firms, and specialty operators, as well as fuel refiners, chemical and oil companies.

OriginOil’s blend of Strategic Partnerships in the short to medium term, and Distribution/Licensing in the long term, offers a host of potential advantages, including:

Limited Capital Requirements

Clean balance sheet and minimal leverage requirements

No capital cost for manufacturing, no time wasted on building distribution

Collaborate with major players instead of competing with them

Diversified revenue streams (large customer sales now, blending into licensing annuities)

Petroleum Alternatives Are Our Future

Driven by rising oil prices, Kyoto protocol and global warming concerns, countries worldwide are quickly embracing petroleum alternatives such as ethanol and biodiesel, which can curb their dependence on imported oil with minimal infrastructure change. The market for a new oil is proven and expanding rapidly.

OriginOil’s breakthrough technology, based on algae, is targeted at fundamentally changing the world’s source of oil without disrupting the environment or food resources. An endless supply of this new oil can be used in many of products like diesel, gasoline, jet fuel, plastics and solvents without the global warming effects of petroleum.

Only by industrializing the manufacture of new oil can the current and future demands of global industrialization be met.

Benefits of Algae Oil Production

Cleaner to Produce and Burn

Petroleum contains sulfur and other toxins. It is a heavy pollutant. Drilling operations are highly noxious; crude spills on sea and land are natural catastrophes; and refineries produce heavy pollutants. By contrast, the algae production process generates no toxins — it’s a lot like growing grass hydroponically, in water without soil. Oil created using OriginOil technology generates no heavy metals or sulfur when burned, and minimal output of greenhouse gases.

Can Be Produced Close to Point of Demand

Petroleum often travels tens of thousands of miles to reach its destination. This adds cost and gives suppliers a stranglehold on consumers. Using OriginOil technology, fuel can now be produced close to the site of usage and demand — virtually eliminating the transport cost of petroleum. In the future, portable systems based on OriginOil technology may be transported to the point of demand and quickly start producing oil for electricity generation or fuel.

Does Not Compete with Food

The ethanol boom is already having a disastrous effect on food prices. Fast-rising prices of corn have caused havoc in global food supplies and the commodities markets. Using algae as a feedstock avoids creating shortages in food supplies or markets.

Works with Existing Refineries

Unlike other solutions which bypass the existing refining infrastructure, OriginOil’s technology enables the production of fully compatible fuels. The petroleum industry has already announced plans to support the refining of biofuels. Of these, algae oil is most like petroleum in structure as it can be readily “cracked” into the lighter components of crude oil such as jet fuel, diesel, gasoline, solvents and plastics.

Works With Existing Gas Stations and Vehicles

Most solutions to the energy problem require massive new infrastructure: hybrids require new cars with toxic batteries; hydrogen cars need a new fuel network; and electric cars need their own recharging stations. By contrast, fuel refined from systems using OriginOil technology can be seamlessly integrated into the current petroleum distribution system.

A Complete Solution to Produce a New Oil

Companies implementing algae oil production systems will need to know that they can generate product consistently at a competitive price. OriginOil’s complete, validated industrial processes will ensure that these companies can confidently plan and invest in algae as a fuel and valuable set of by-products.

Competitors

Our achievement of business success will be based on the validity of our technology which can only be determined after we have a complete and validated industrial process. At that time, we can begin to assess competitive issues, including our position in the industry and methods of competition.

Companies in the new algae fuels industry tend to organize themselves as integrated producers and to keep their intellectual property to themselves. We believe that the algae industry will be far too great for any one company to dominate, and companies will succeed that do not compete with their customers and partners.

We have, however, identified other companies producing algae for the purpose of creating feedstocks for fuel. The list of algae companies includes Synthetic Genomics, PetroAlgae, Infinifuel, Valcent Products, Aquaflow Bionomic, Livefuels, Solazyme, Enhanced Biofuels & Technologies (EBT), Veridium, PetroSun, Sapphire Energy, GS AgriFuels (previously GreenShift), A2BE Carbon Capture, Algoil, Aurora Biofuels, Cellana, Solix Biofuels, Martek, Texas Clean Fuels, Algenol, AlgaeLink (NL), BioKing (NL) and Eco-Erg (PT).

With respect to harvesting and oil extraction technology, we are aware that Algae Ventures, Cavitation Technologies, Diversified Technologies, Evodos, New Oil Resources, Open Algae,LLC, Phycal, SRS Energy and Unitel Technologies, Inc. are developing technology that competes with or complements ours.

These companies have also advertised technology which they claim will enable the efficient production of algal oil and other algae culture derivatives. We believe our technology may, in some cases, complement these companies’ offerings, however there is no guarantee that our company’s technology will produce more efficiently or cost-effectively than these other technologies.

The market for the manufacture, marketing and the sale of alternative fuels is highly competitive. Such competition could drive up the cost of retaining qualified engineers, chemists and other key employees, as well as other operating expenses. Moreover, if production capacity in the industry increases faster than demand for alternative fuels, sales prices could be depressed. Increases in the alternative energies as well as falling oil prices may negatively affect demand and the competitive position of our technology.

Competition from other alternative fuels will likely increase if prices of energy on the commodities markets, including oil and bio-diesel, rise, as they have in recent years. Additionally, new companies are constantly entering the market, thus increasing the competition. This could also have a negative impact on us or our customers’ ability to obtain additional capital from investors. Larger foreign owned and domestic companies which have been engaged in the alternative energy business for substantially longer periods of time may have access to greater financial and other resources. These companies may have greater success in the recruitment and retention of qualified employees, as well as in conducting their own fuel manufacturing and marketing operations, which may give them a competitive advantage. In addition, actual or potential competitors may be strengthened through the acquisition of additional assets and interests. If we or our customers are unable to compete effectively or adequately respond to competitive pressures, this may materially adversely affect our results of operation and financial condition.

Suppliers and Customers

The Company’s business model is based on licensing this technology to customers such as fuel refiners, chemical and oil companies. The Company is not in the business of producing and marketing oil or fuel, based on algae, as an end product, nor of building machinery for customers to build refining plants. The direct and indirect costs associated with its process for producing oil from algae and other biofuels, therefore, is not relevant to the Company’s business.

Currently, our only customer is MBD Energy. The Company is working with MBD Energy to validate its technology as the Company must build, sell and support its devices to companies developing such algae production systems.

Government and Environmental Regulation

We are not aware of any existing or probable government regulations that would negatively impact on our operations. As a licensor we are not subject to government regulations of algae production. However, our operations are subject to local, state and federal laws and regulations governing environmental quality and pollution control. To date, our compliance with these regulations has had no material effect on our operations, capital, earnings, or competitive position, and the cost of such compliance has not been material. We are unable to assess or predict at this time what effect additional regulations or legislation could have on our activities.

We are part of a new and emerging biofuels industry that may subject to economic and other regulations that may have an adverse effect on the entire industry and subsequently our business. For example, the cost of biofuels has historically been higher than petroleum’s; therefore the lack of governmental subsidies for biofuels may limit the demand and marketability of our technology.

The Company’s long-term business model is based on licensing its technology to Original Equipment Manufacturers (OEMs) who will build, install and operate algae production systems in varied applications for bio-fuels, bio-chemicals, and animal feed and human nutritional feedstocks. The Company is not in the business of producing and marketing oil or fuel, based on algae, as an end product, nor of developing sales distribution networks or engaging in volume manufacturing. As a result, the Company will not be required to obtain government approval for the production, distribution, and/or use of its technology.

Intellectual Property

Since our business is based on licensing of our technology and not manufacturing oil, it is critical to the Company that it achieves one or more patents. We have filed the following patent applications with the U.S. Patent and Trademark Office:

On July 28, 2007, to protect the intellectual property rights for “Algae Growth System for Oil Production”. The inventors listed on the patent application are Nicholas Eckelberry and T. Riggs Eckelberry, the Company’s founders. The Company is listed as the assignee. We have received initial correspondence from the USPTO, with respect to this patent application.

On May 23, 2008, to protect the intellectual property rights for “Apparatus And Method For Optimizing Photosynthetic Growth In a Photo Bioreactor”. The inventors listed on the patent application are Steven Shigematsu and Nicholas Eckelberry. The Company is listed as the assignee. We have received initial correspondence from the USPTO, with respect to this patent application.

On May 30, 2008, to protect the intellectual property rights for “Modular Portable Photobioreactor System”. The inventors listed on the patent application are Steven Shigematsu and Nicholas Eckelberry. The Company is listed as the assignee. We have not received any correspondence from the USPTO, with respect to this patent application.

On January 6, 2009, to protect the intellectual property rights for “Apparatus And Method For Optimizing Photosynthetic Growth In A Photobioreactor”. The inventor listed on the patent application is Nicholas Eckelberry. The Company is listed as the assignee. We have not received any correspondence from the USPTO, with respect to this patent application.

On April 17, 2009, to protect the intellectual property rights for “Device and Method for Separation, Cell Lysing and Flocculation of Algae From Water”. The inventor listed on the patent application is Nicholas Eckelberry. The Company is listed as the assignee. We have not received any correspondence from the USPTO, with respect to this patent application.

On July 13, 2009, a provisional filing to protect the intellectual property rights for “Algae Growth Lighting and Control System”. The inventors listed on the patent application are Scott Fraser, Vikram Pattarkine, Ralph Anderson and Nicholas Eckelberry. The Company is listed as the assignee. We have not received any correspondence from the USPTO, with respect to this patent application.

On July 26, 2009, a provisional filing to protect the intellectual property rights for “Procedure For Extraction Of Lipids From Algae Without Cell Sacrifice”. The inventors listed on the patent application are Paul Reep and Scott Fraser. The Company is listed as the assignee. We have not received any correspondence from the USPTO, with respect to this patent application.

On September 30, 2009, a provisional filing to protect the intellectual property rights for “Methods and Apparatus for Growing Algae on a Solid Surface”. The inventors listed on the patent application are and Scott Fraser and Vikram Pattarkine. The Company is listed as the assignee. We have not received any correspondence from the USPTO, with respect to this patent application.

On June 18, 2010, a provisional filing to protect the intellectual property rights for “Bio-Energy Reactor”. The inventors listed on the patent application is Michael Green. The Company is listed as the assignee. We have not received any correspondence from the USPTO, with respect to this patent application.

10.

On October 17, 2010, a provisional filing to protect the intellectual property rights for “Methods and Apparatus for Dewatering, Flocculation and Harvesting of Algae Cells”. The inventors listed on the patent application are Michael Green, Nicholas Eckelberry, Scott Fraser and Brian Goodall. The Company is listed as the assignee. We have not received any correspondence from the USPTO, with respect to this patent application.

11.

On October 20, 2010, a provisional filing to protect the intellectual property rights for “Methods and Apparatus for Dewatering, Flocculation and Harvesting of Algae Cells”. The inventors listed on the patent application are Michael Green, Nicholas Eckelberry, Scott Fraser and Brian Goodall. The Company is listed as the assignee. We have not received any correspondence from the USPTO, with respect to this patent application.

12.

On March 18, 2011, a provisional filing to protect the intellectual property rights for “Enhancing Algae Growth by Reducing Competing Microorganisms in a Growth Medium”. The inventors listed on the patent application are Michael Green, Scott Fraser, Nicholas Eckelberry and Jose Sanchez. The Company is listed as the assignee. We have not received any correspondence from the USPTO, with respect to this patent application.

The Company abandoned the pursuit of two provisional patent filings filed in 2008 relating to “In-Line Lysing And Extraction System For Microorganisms” and “Renewable Carbon Sequestering Method Of Producing Pollution Free Electricity”. Neither patent is required for the Company’s business or products and the Company is focusing its efforts on the patent applications listed above.

Recent Developments

On January 25, 2011, the Company announced that MBD Energy (MBD) had committed to purchase an initial OriginOil extraction unit for piloting at one of Australia’s three largest coal-fired power plants. The total value of the purchase order was $150,000, and the initial payment received was $75,000. The next payment is due as: $37,500 upon notification ready to ship, and the balance of $37,500 shall be due upon installation.

On February 14, 2011 the Company announced that it had agreed to participate in a pilot scale algae project to be funded by the Mexican government. The project will demonstrate industrial algae production, paving the way for substantial investment by the Mexican government in large-scale jet fuels production.

On March 21, 2011, the Company announced Algae Screen™, a process that keeps algae healthy and productive by selectively eliminating microscopic predators without the use of chemicals. The announcement was associated with the company’s filing for its twelfth patent application, entitled “Enhancing Algae Growth by Reducing Competing Microorganisms in a Growth Medium.”

On March 24, 2011, the Company agreed to retain the patent law firm of Kirton & McConkie, and subsequently ended its relationship with Workman Nydegger.

On March 28, 2011, the Company announced a new policy of seamless integration with other vendors, recognizing its strategic customers want to work with the fewest possible vendors. The new policy will apply only to OriginOil’s direct customers, as the company plans to pursue distribution agreements with companies that have global sales networks.

On April 12, 2011, the Company announced that a process partner, World Water Works, Inc. of Oklahoma City, Oklahoma, agreed in principle to distribute OriginOil’s dewatering and extraction systems to its global customer base. The agreement covers product integration, manufacturing and joint marketing.

On May 9, 2011, the Company announced that it formed a co-venture for technology development with BARD Holding of Morrisville, Pensylvania, focusing on BARD’s BA 1000, a patent-pending modular system of Photo BioReactors (PBRs) to cultivate algae at commercial scale, and OriginOil’s harvesting and extraction technology. On 30 April, 2011, OriginOil executed a co-venture agreement with Ennesys, pursuant to which OOIL shall sell Products to BARD Holding from time to time under the terms of a global cooperation agreement.

On May 11, 2011, the Company announced its participation in Ennesys SAS, a French joint venture with UK-based Pacific Junction (PJC UK), and that Ennesys SAS is working with large institutions to develop two separate large-scale algae projects in eco-buildings and marine fuels. On 26 April, 2011, OriginOil executed a co-venture agreement with Ennesys, pursuant to which OOIL shall sell Products to Ennesys SAS from time to time under the terms of a global cooperation agreement. OriginOil is an equity partner in Ennesys SAS with PJC UK, each holding 22.5% of Ennesys. The remaining ownership is held by the Ennesys SAS management team. On 29 April 2011, OriginOil paid PJC UK $20,000 for its equity interest in Ennesys, which PJC UK had reserved for OriginOil at the inception of Ennesys SAS in late 2010.

Critical Accounting Policies

The Securities and Exchange Commission ("SEC") defines "critical accounting policies" as those that require application of management's most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain and may change in subsequent periods. Not all of the accounting policies require management to make difficult, subjective or complex judgments or estimates. However, the following policies could be deemed to be critical within the SEC definition.

Revenue Recognition

The Company will recognize revenue when services are performed, and at the time of shipment of products, provided that evidence of an arrangement exists, title and risk of loss have passed to the customer, fees are fixed or determinable, and collection of the related receivable is reasonably assured. To date, the Company has had no revenues and is in the development stage.

Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the accompanying financial statements. Significant estimates made in preparing these financial statements include the estimate of useful lives of property and equipment, the deferred tax valuation allowance, and the fair value of stock options. Actual results could differ from those estimates.

Fair Value of Financial Instruments

Fair value of financial Instruments requires disclosure of the fair value information, whether or not recognized in the balance sheet, where it is practicable to estimate that value. As of March 31, 2011, the amounts reported for cash, prepaid expenses, accounts payable, accrued expenses, and approximate the fair value because of their short maturities

Recently Issued Accounting Pronouncements

Management reviewed accounting pronouncements issued during the three months ended March 31, 2011, and no pronouncements were adopted during the period.

PLAN OF OPERATION AND FINANCING NEEDS

Results of Operations for the three months ended March 31, 2011 compared to the three months ended March 31, 2010.

Operating Expenses

General and Administrative Expenses

General and administrative (“G&A”) expenses increased by $213,074 to $715,582 for the three months ended March 31, 2011, compared to $502,508 for the prior period March 31, 2010. The increase in G&A expenses was due primarily to an increase in investor relations to promote the Company, and non-cash stock compensation cost.

Research and Development Cost

Research and development (“R&D”) cost increased by $34,646 to $194,444 for the three months ended March 31, 2011, compared to $159,798 for the prior period March 31,2010. The increase in R&D costs was primarily due to an increase in salaries.

Net Loss

Our net loss increased by $(139,730) to $(814,304) for the three months ended March 31, 2011, compared to $(674,574) for the prior period March 31, 2010. The majority of the increase is due to accounting for non-cash stock compensation expense.

Liquidity and Capital Resources

As of March 31, 2011, we had $544,586 of working capital as compared to $227,747 for the year ended December 31, 2010. This increase in working capital was due primarily to equity financing.

Net cash used in operating activities was $(696,580) for the three months ended March 31, 2011, compared to $(592,972) for the prior period March 31, 2010. The increase of $(103,608) in cash used in operating activities was due to an increase in net loss of $(139,730), plus an increase in accrued expenses and other receivables. The net loss includes non-cash expenses of depreciation, stock issued for services, and stock compensation expense. Currently operating costs exceed revenue because sales are not yet significant.

Net cash flows provided from financing activities was $1,012,640 for the three months ended March 31, 2011, as compared to $460,181 for the prior period March 31, 2010. There was an increase in cash provided from financing activities due to equity financing.

During the three months ended March 31, 2011, we issued 15,976,750 shares of common stock at a price of $0.08 per share for $1,093,640 in cash and common stock payable; issued 25,000 shares of common stock for services at a price of $0.20 per share at a fair value of $5,000; Also, the Company issued 1,881,532 shares of common stock due to a cashless exercise of warrants.

We believe, if we continue on our current research and development schedule as we develop the next phases of our technology, we will only be able to continue until the end of 2011. To continue our research and development schedule, we will have to continue to sell equity securities or find an alternate funding source. The sale of additional equity securities will result in additional dilution to our stockholders. The incurrence of indebtedness would result in increased debt service obligations and could result in operating and financing covenants that would restrict our operations. Financing may not be available in amounts and on terms acceptable to us, or at all. If we are unable to obtain additional financing, we may be forced to curtail our operations.

Off-Balance Sheet Arrangements

We do not have any off balance sheet arrangements that are reasonably likely to have a current or future effect on our financial condition, revenues, and results of operations, liquidity or capital expenditures.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

N/A.

Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

We have adopted and maintain disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) that are designed to ensure that information required to be disclosed in our reports under the Exchange Act, is recorded, processed, summarized and reported within the time periods required under the SEC’s rules and forms and that the information is gathered and communicated to our management, including our Chief Executive Officer (Principal Executive Officer and Principal Financial Officer), as appropriate, to allow for timely decisions regarding required disclosure.

As required by SEC Rule 15d-15(b), our Chief Executive Officer and Chief Financial Officer carried out an evaluation under the supervision and with the participation of our management, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Exchange Act Rule 15d-14 as of the end of the period covered by this report. Based on the foregoing evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective in timely alerting them to material information required to be included in our periodic SEC filings and to ensure that information required to be disclosed in our periodic SEC filings is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure about our internal control over financial reporting.

Changes in Internal Controls

There have been no changes in our internal control over financial reporting during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II

Item 1. Legal Proceedings.

We are not a party to any pending legal proceeding, nor is our property the subject of a pending legal proceeding, that is not in the ordinary course of business or otherwise material to the financial condition of our business. None of our directors, officers or affiliates is involved in a proceeding adverse to our business or has a material interest adverse to our business.

Item 1A. Risk Factors.

N/A.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

During the three months ended March 31, 2011, we issued an aggregate of 15,976,750 shares of common stock at a price of $0.08 for gross proceeds of $1,278,140.

During the three months ended March 31, 2011, we issued 25,000 shares of common stock at a price of $0.20 per share. The Company relied upon an exemption from registration afforded by Section 4(2) of the Securities Act.

Also, during the three months ended March 31, 2011, we issued 1,881,532 shares of common stock through a cashless exercise of warrants.

The Company relied upon an exemption from registration afforded by Section 4(2) of the Securities Act of 1933, as amended (the “Securities Act”) and Rule 506 of Regulation D promulgated under the Securities Act and/or Rule 903 of Regulation S promulgated under the Securities Act.

Item 3. Defaults Upon Senior Securities.

N/A.

Item 4. (Removed and Reserved)

N/A.

Item 5. Other Information.

N/A.

Item 6. Exhibits.

Exhibit No.	Title of Document	Location
3.1	Articles of Incorporation	(1)
3.3	By-laws	(2)
31.1	Certification by Chief Executive Officer and Chief Financial Officer, required by Rule 13a-14(a) or Rule 15d-14(a) of the Exchange Act.
32.1	Certification by Chief Executive Officer and Chief Financial Officer, required by Rule 13a-14(b) or Rule 15d-14(b) of the Exchange Act and Section 1350 of Chapter 63 of Title 18 of the United States Code.

(1)	Incorporated by reference to the Company’s Registration Statement on Form SB-2 filed with the Securities and Exchange Commission on March 24, 2008
(2)	Incorporated by reference to the Company’s Registration Statement on Form SB-2 filed with the Securities and Exchange Commission on December 11, 2007.

SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	ORIGINOIL, INC.

By:
	T Riggs Eckelberry
	Chief Executive Officer (Principal Executive Officer)
	and Acting Chief Financial Officer (Principal Accounting and Financial Officer)

	May 16, 2011

TABLE OF CONTENTS

Part I - Financial Information Item 1. Financial Statements Item 2. Management S Discussion and Analysis Of Financial Condition and Results Of Operations Item 3. Quantitative and Qualitative Disclosures About Market Risk Item 4. Controls and Procedures Part II 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. (removed and Reserved)Item 5. Other Information Item 6. Exhibits

OCLN 10-Q Quarter ended March 31, 2011