ORIGINCLEAR, INC. - FORM 10-Q

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EX-31.1 - ORIGINCLEAR, INC.	v185356_ex31-1.htm
EX-32.1 - ORIGINCLEAR, INC.	v185356_ex32-1.htm

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, 2010

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

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 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 o

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 during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o	Accelerated filer o
Non-accelerated filer o	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 14, 2010 was 162,744,968.

TABLE OF CONTENTS

	Page
PART I - FINANCIAL INFORMATION

Item 1. Financial Statements	1
Item 2. Management’s Discussion and Analysis or Plan of Operation	9
Item 3. Quantitative and Qualitative Disclosures About Market Risk	16
Item 4. Controls and Procedures	16

PART II - OTHER INFORMATION

Item 1. Legal Proceedings	17
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	17
Item 3. Defaults Upon Senior Securities	17
Item 4. Reserved	17
Item 5. Other Information	17
Item 6. Exhibits	17

SIGNATURES	18

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements.

ORIGINOIL, INC.

(A Development Stage Company)

BALANCE SHEETS

	March 31, 2010			December 31, 2009
ASSETS	(Unaudited)
CURRENT ASSETS
Cash & cash equivalents	$	223,388		$	356,179
Prepaid expenses		24,288			32,867
Other receivables		9,200			-
Total Current Assets		256,876			389,046

PROPERTY & EQUIPMENT
Machinery & equipment		1,372			1,372
Furniture & fixtures		27,056			27,056
Computer equipment		22,268			22,268
Leasehold improvements		94,914			94,914
		145,610			145,610
Less accumulated depreciation		(80,394	)		(68,898	)
Net Property & Equipment		65,216			76,712

OTHER ASSETS
Patent		45,636			45,636
Trademark		4,467			4,467
Security deposit		9,650			9,650
Total Other Assets		59,753			59,753

TOTAL ASSETS	$	381,845		$	525,511

LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES
Accounts payable	$	14,065		$	1,391
Accrued expenses		53,226			52,985
Credit card payable		311			470
Other payables		12,412			872

TOTAL LIABILITIES		80,014			55,718

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
161,841,878 and 159,321,232 shares issued and outstanding		16,185			15,933
Additional paid in capital		7,757,660			7,160,260
Common stock subscription payable		70,000			161,040
Deficit accumulated during the development stage		(7,542,014	)		(6,867,440	)

TOTAL SHAREHOLDERS' EQUITY		301,831			469,793

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$	381,845		$	525,511

The accompanying notes are an integral part of these financial statements

ORIGINOIL, INC.

(A Development Stage Company)

STATEMENTS OF OPERATIONS

(Unaudited)

							From Inception
							June 1, 2007
	Three Months Ended						through
	March 31, 2010			March 31, 2009			March 31, 2010

REVENUE	$	-		$	-		$	-

Selling & marketing expense		119,255			109,787			958,827
Administrative expense		337,622			358,293			3,064,617
Research & development		159,798			189,133			1,121,940
Stock compensation expense		46,431			-			2,257,737
Depreciation & amortization expense		11,496			13,943			80,394

TOTAL OPERATING EXPENSES		674,602			671,156			7,581,974

LOSS FROM OPERATIONS BEFORE OTHER INCOME/(EXPENSE)		(674,602	)		(671,156	)		(7,581,974	)

OTHER INCOME/(EXPENSE)
Interest income		4			16			13,673
Dividend income		24			712			26,641
Capital gains		-			-			107
Penalties		-			(86	)		(86	)
Interest expense		-			-			(375	)
					-
TOTAL OTHER INCOME		28			642			39,960

NET LOSS	$	(674,574	)	$	(670,514	)	$	(7,542,014	)

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

WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING
BASIC AND DILUTED		159,759,605			144,180,050

The accompanying notes are an integral part of these financial statements

ORIGINOIL, INC.

(A Development Stage Company)

STATEMENT OF SHAREHOLDERS' EQUITY

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

Balance at December 31, 2009		159,321,232	$	15,933	$	7,160,260		$	161,040		$	(6,867,440	)	$	469,793

Issuance of common stock subscription payable in March 2010
(732,000 shares issued at $0.22 per share) (Unaudited)		732,000		73		160,967			(161,040	)		-			-

Issuance of common stock issued in March 2010
(1,788,646 shares issued at $0.22 per share) (Unaudited)		1,788,646		179		393,304			-			-			393,483

Common stock subscription payable (Unaudited)		-		-		-			70,000			-			70,000

Stock compensation expense (Unaudited)		-		-		46,431			-			-			46,431

Stock issuance cost (Unaudited)		-		-		(3,302	)		-			-			(3,302	)

Net loss for the three months ended March 31, 2010 (Unaudited)		-		-		-			-			(674,574	)		(674,574	)

Balance at March 31, 2010 (Unaudited)		161,841,878	$	16,185	$	7,757,660		$	70,000		$	(7,542,014	)	$	301,831

The accompanying notes are an integral part of these financial statements

ORIGINOIL, INC.

(A Development Stage Company)

STATEMENTS OF CASH FLOWS

(Unaudited)

							From Inception
							June 1, 2007
	Three Months Ended						through
	March 31, 2010			March 31, 2009			March 31, 2010
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(674,574	)	$	(670,514	)	$	(7,542,014	)
Adjustment to reconcile net loss to net cash
used in operating activities
Depreciation & amortization		11,496			13,943			80,394
Contributed capital by investor		-			-			375
Common stock issued for services		-			-			5,000
Stock compensation expense		46,431			-			2,257,737
Changes in Assets and Liabilities
(Increase) Decrease in:
Prepaid expenses		8,579			(2,728	)		(24,288	)
Other receivables		(9,200	)		-			(9,200	)
Other assets		-			-			(9,650	)
Increase (Decrease) in:
Accounts payable		12,674			3,688			14,065
Accrued expenses		241			(13,275	)		53,226
Credit card payable		(159	)		(2,167	)		311
Other payable		11,540			(20,435	)		12,412
NET CASH USED IN OPERATING ACTIVITIES		(592,972	)		(691,488	)		(5,161,632	)


CASH FLOWS USED IN INVESTING ACTIVITIES:
Patent and trademark expenditures		-			(5,789	)		(45,636	)
Purchase of fixed assets		-			(4,704	)		(145,610	)
NET CASH USED IN INVESTING ACTIVITIES		-			(10,493	)		(191,246	)


CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from common stock subscription payable		70,000			-			1,035,240
Proceeds for issuance of common stock, net		390,181			338,300			4,541,026
NET CASH PROVIDED BY FINANCING ACTIVITIES		460,181			338,300			5,576,266

NET INCREASE/(DECREASE) IN CASH		(132,791	)		(363,681	)		223,388
CASH & CASH EQUIVALENTS, BEGINNING OF PERIOD		356,179			580,055			-
CASH & CASH EQUIVALENTS, END OF PERIOD	$	223,388		$	216,374		$	223,388

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Interest paid	$	-		$	-		$	-
Taxes paid	$	800		$	800		$	1,600

SUPPLEMENTAL SCHEDULE OF NON-CASH TRANSACTIONS
Stock issued for marketing services	$	-		$	-		$	105,705

The accompanying notes are an integral part of these financial statements

ORIGINOIL, INC.

(A Development Stage Company)

NOTES TO FINANCIAL STATEMENTS-UNAUDITED

MARCH 31, 2010

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, 2010 are not necessarily indicative of the results that may be expected for the year ending December 31, 2010. 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, 2009.

Going Concern

The accompanying financial statements have been prepared on a going concern basis of accounting, which contemplates continuity of operations, realization of assets and liabilities and commitments in the normal course of business. The accompanying financial statements do not reflect any adjustments that might result if the Company is unable to continue as a going concern. The Company does not generate significant revenue, and has negative cash flows from operations, which raise substantial doubt about the Company’s ability to continue as a going concern. The ability of the Company to continue as a going concern and appropriateness of using the going concern basis is dependent upon, among other things, additional cash infusion. As discussed in Note 3, the Company has obtained funds from its shareholders since its inception through March 31, 2010. Management believes this funding will continue, and is also actively seeking new investors. Management believes the existing shareholders and the prospective new investors will provide the additional cash needed to meet the Company’s obligations as they become due, and will allow the development of its core of business.

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.

Development Stage Activities and Operations

The Company has been in its initial stages of formation and for the three months ended March 31, 2010, had no revenues. A development stage activity is one in which all efforts are devoted substantially to establishing a new business and even if planned principal operations have commenced, revenues are insignificant.

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.

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.

(A Development Stage Company)

NOTES TO FINANCIAL STATEMENTS-UNAUDITED

MARCH 31, 2010

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 months ended March 31, 2010 and 2009, 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 will be 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 would then be amortized over the respective vesting period of the stock option. The adoption of share based compensation has no material impact on our results of operations.

Reclassification

Certain expenses for the period ended March 31, 2009 were reclassified to conform with the expenses for the period ended March 31, 2010.

3.	CAPITAL STOCK

During the three months ended the Company issued 2,520,646 shares of common stock at a price of $0.22 per share 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. During the three months ended March 31, 2009, the Company issued no 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 (10th) anniversary from the effective date of this option. 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 $0.28 and $0.32 per share.

ORIGINOIL, INC.

(A Development Stage Company)

NOTES TO FINANCIAL STATEMENTS-UNAUDITED

MARCH 31, 2010

4.	STOCK OPTIONS AND WARRANTS (Continued)

	3/31/2010
Risk free interest rate	2.29%
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:

	3/31/2010
			Weighted
	Number		average
	of		exercise
	Options		price
Outstanding, beginning of period		4,150,000	$	0.31
Granted		-		-
Exercised		-		-
Expired		-		-
Outstanding, end of period		4,150,000	$	0.31
Exercisable at the end of period		540,625	$	0.31
Weighted average fair value of
options granted during the period			$	-

The stock-based compensation expense recognized in the statement of operations during the three months ended March 31, 2010 is $45,431

Warrants

During the three months ended March 31, 2010, the Company issued 20,000 warrants with a fair value of $2,800 determined using the Black Scholes pricing model.

	3/31/2010
Risk free interest rate	2.41% - 2.5%
Stock volatility factor	1%
Weighted average expected option life	5 years
Expected dividend yield	None

ORIGINOIL, INC.

(A Development Stage Company)

NOTES TO FINANCIAL STATEMENTS-UNAUDITED

MARCH 31, 2010

4.	STOCK OPTIONS AND WARRANTS (Continued)

Warrants (Continued)

During the three months ended March 31, 2010, the Company issued warrants for services. A summary of the Company’s warrant activity and related information follows:

	March 31, 2010
			Weighted
			average
			exercise
	Options		price
Outstanding -beginning of period		12,000,000	$	0.31
Granted		20,000		0.28
Exercised		-		-
Forfeited		-		-
Outstanding - end of period		12,020,000	$	0.29

5.	SUBSEQUENT EVENT

As of May 12, 2010, the Company received from investors through a private placement $128,680 for purchase of 584,909 shares of common stock at a price of $0.22 per share.

Item 2. Management’s Discussion and Analysis or Plan of Operation.

This Form 10-K 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 Memorandum.

Overview of Business

The Company is currently developing a technology to produce a bio-fuel from algae through a cost-effective, high-speed manufacturing process to replace petroleum in various applications such as diesel, gasoline, jet fuel, plastics and solvents. 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’s industrial process, with its patent pending devices and methods, optimizes this environment to help algae cells grow at their natural maximum rate - achieving a doubling of the algae population in as little as a few hours. 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. Instead of waiting hundreds of millions years for algae to become oil, the Company’s breakthrough technology and process can transform algae into oil in a matter of days.

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.

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 are a development stage company and presently, we do not have revenues related to the manufacture of our products. Our auditors have prepared our financial statements assuming that we will continue as a going concern. We have not generated any revenue, and we have negative cash flows from operations, which raise substantial doubt about our ability to continue as a going concern.

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.

An Industrial Process for Algae

OriginOil's industrial process, with its patent pending devices and methods, optimizes this environment to help algae cells grow at their natural maximum rate - achieving a doubling of the algae population in as little as a few hours. 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.

Instead of waiting hundreds of millions years for algae to become oil, OriginOil's breakthrough technology and process can transform algae into oil in a matter of days.

Operating at the Quantum Level

OriginOil’s patent-pending technology, Quantum Fracturing, is based on the science of mass transfer and fluid fracturing and addresses some of the challenges of industrializing algae oil production.

A quantum is the smallest quantity of some physical property that a system can possess. We use the term to illustrate how we fracture the nutrient delivery environment into very small parts, down to a micron, or a millionth of a meter. Using Quantum Fracturing, water, carbon dioxide and other nutrients are fractured at very high pressure to create a slurry of micron-sized nutrition-bubbles, which is then channeled to the algae culture awaiting it in a lower-pressure growth vessel, the Helix BioReactor™.

This process achieves total and instantaneous distribution of nutrients to the algae culture without fluid disruption or aeration. The pressure differentials between the two zones substantially increase contact and exchange between the micronized nutrients and the algae culture.

Ultimate Oil Production Efficiency

The increased contact between culture and nutrients makes for very high absorption of CO2 and nutrients in the growth phase and most importantly, by increasing the CO2 absorption during this phase, the algae cell will produce a much greater volume of hydrocarbons (oil).

Two Stages of Algae Production

OriginOil’s patent-pending algae oil production system employs Quantum Fracturing in two major stages of algae production:

Growth Stage:

CO2 and nutrients are fractured into a micro-bubble slurry and injected directly into the algae culture for complete contact and nutrient absorption.

Extraction Stage:

Water and special catalysts are fractured at high ultrasonic intensity, using very little energy, to crack the algae membrane to facilitate extracting its oil content.

Quantum Fracturing technology greatly enhances the efficiency of algae production and makes it cost-effective and viable.

The Ultimate Algae Growth Environment

The heart of the OriginOil system is the Helix BioReactor™, an advanced algae growth system that can grow multiple layers of algae biomass around-the-clock with daily harvests.

In a natural pond, the sun only illuminates one layer of algae growth, down to about half an inch below the surface. In contrast, the Helix BioReactor™ features a rotating vertical shaft with very low energy lights arranged in a helix or spiral pattern, which results in a theoretically unlimited number of growth layers. Additionally, each lighting element is engineered to produce specific light waves and frequencies for optimal algae growth.

The helix structure also serves as the bioreactor’s nutrient delivery system, through which the Quantum Fractured nutrients, including CO2, is evenly delivered to the entire algae culture, monitored and tuned for optimum growth.

This algae growth environment will allow the algae culture to replicate exponentially — doubling the entire colony in as little as a few hours — making for very efficient, low-cost, low-footprint industrial algae production.

Enabling a Distributed Oil Model

To reach the production levels necessary to realistically replace petroleum as an energy source, an algae oil production system must be fully scalable.

The OriginOil System is designed to be both modular and scalable. While it can function as a stand-alone oil producing system, it can also be connected in a stacked or parallel network to produce a large number of barrels per day.

OriginOil’s patent pending system design facilitates large scale algae production through the horizontal and vertical “stacking” of many Helix BioReactors™ into an integrated network of fully automated, portable, and remotely monitored growth units.

Further, by the use of such modular design, a large number of Helix BioReactors™ can be connected to a small number of extraction units to achieve both economies of scale and full industrialization of algae production.

Additionally, OriginOil systems can be transported and placed anywhere in the world to operate as fully integrated, round-the-clock oil-producing plants.

By enabling distributed oil production, we can help decentralize the oil and energy industry, empowering local energy production in villages, townships, communities, states and countries. Someday we will no longer need to import oil.

Speeding Up the Process Further

Algae growers already know that algae can expand rapidly if space is available. Once fully matured — and the space is filled — the culture will then stabilize and grow very little.

If the space was expanded by a factor of ten, for example, then the algae population would explode to occupy this new volume - in as little as a day.

This rapid expansion is called the 'log phase,' or 'logarithmic phase,' of growth where cells divide exponentially. Typically, growers incubate an algae population in a smaller vessel and then release it into a larger tank for production, one batch at a time.

OriginOil's Helix BioReactor™ growth vessel adds the time-saving efficiency of combining the incubation vessel and larger tanks into one system. Once the algae matures in the Helix BioReactor™, a portion of the culture is transferred out for extraction, and the remaining 'green' water is purified and returned to the growth tank. It is then allowed to re-expand into the Helix BioReactor™, creating a new batch, and the process is repeated.

With this system there is no need to re-incubate each batch: the remaining algae culture is already mature and is ready to re-enter the log phase after each harvest and replenishment of growth environment.

The Cascading Production design makes possible continuous daily harvesting of algae without incubation, thereby enabling a vital property of industrialized algae oil production.

Making the Process Viable

To overcome the final hurdle, and to make the entire algae-to-oil process viable, OriginOil devised a method for energy efficient algae oil extraction and 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 sent through a shielded wave guide system where it receives low-wattage, frequency-tuned microwave bursts, weakening the cell walls. Then, Quantum Fracturing is then applied to these pre-cracked cells to complete the oil extraction. Quantum Fracturing, when used for extraction, creates an ultrasonic effect where the algae cell breaks down much in the same way that a high-frequency sound wave breaks glass.

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

A Modular Oil Producing System

The OriginOil System is designed to be modular. It can function as a standalone oil producing system, or can be connected in a parallel network to produce a large number of barrels per day output. OriginOil Systems can be placed anywhere to operate as round-the-clock oil-producing plants.

The Company will commercialize its technology through an integrated system of global partners, including:

	■	Original Equipment Manufacturers (OEMs)
	■	Country and Regional Partners
	■	Device and Component Manufacturers
	■	Service and Maintenance Providers
	■	Customized Application Developers

A new oil can be cleanly manufactured in an industrialized process using the OriginOil System. By enabling distributed oil production we can help transform the oil and energy industry from a centralized to a distributed model. The ability to generate clean, carbon-neutral energy anywhere can empower industrialization in villages, townships, communities, states and countries. There will be no need to import oil.

Enabling a Distributed Oil Model

By enabling distributed oil production we can help transform the oil and energy industry from a centralized to a distributed model. The ability to generate clean, carbon-neutral energy anywhere can empower industrialization in villages, townships, communities, states and countries. There will be no need to import oil. A new oil can be cleanly manufactured in an industrialized process using the OriginOil System.

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. 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 OriginOil Systems 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 OriginOil systems 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 process will ensure that these companies can confidently plan and invest in renewable oil production for the long term.

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 not received any 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 not received any 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.

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

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, 2010, 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, 2010, and no pronouncements were adopted during the period.

Results of Operations for the three months ended March 31, 2010 compared to the three months ended March 31, 2009.

Revenues

Currently the Company is in its development stage and has no revenues.

Operating Expenses

Selling and Marketing Expenses

Selling and marketing (“S&M”) expenses for the three months ended March 31, 2010 increased by $9,468 to $119,255 compared to $109,787 for the three months ended March 31, 2009. The increase in S&M expenses was due to an increase in marketing and advertising expense for media exposure.

General and Administrative Expenses

General and administrative (“G&A”) expenses for the three months ended March 31, 2010 decreased by $(20,671) to $337,622 compared to $358,293 for the three months ended March 31, 2009. The decrease in G&A expenses was primarily due to a decrease in professional fees and rent expense.

Research and Development Cost

Research and development (“R&D”) cost for the three months ended March 31, 2010 decreased by $(29,335) to $159,798 compared to $189,133 for the three months ended March 31, 2009. The decrease in R&D costs was primarily due to a decrease in consulting fees to outside organizations for product development and testing.

Non-Cash Expenses

Non-cash expenses for the three months ended March 31, 2010 were stock compensation cost of $46,431, and depreciation expense of $11,496, compared to the three months ended March 31, 2009 of stock compensation cost of $0, and depreciation of $13,943.

Net Loss

Our net loss for the three months ended March 31, 2010 increased by $(4,060) to $(674,574) compared to $(670,514) for the three months ended March 31, 2009. The increase in net loss was due to an overall increase in operating expenses of the company.

Liquidity and Capital Resources

As of March 31 2010, we had $176,862 of working capital as compared to $333,328 at December 31, 2009. The decrease of $(156,466) in working capital was due primarily to ongoing costs of developing the company and preparing its technologies for market.

Net cash used in operating activities was $(592,972) for the three months ended March 31, 2010, compared to $(691,488) for the three months ended March 31, 2009. The decrease of $(98,516) in net cash used was due to an increase in overall payables, and a decrease in prepaid expenses. The Company also had an increase in non-cash expense for stock compensation. The Company is in the development stage and has generated no revenues.

Net cash used in investing activities for the three months ended March 31, 2010 was $0 compared to $10,493 for the three months ended March 31, 2009. The decrease of cash used by investing activities was due no expenditures for small equipment or patent expense.

Net cash flows provided from financing activities for the three months ended March 31, 2010 was $460,181 compared to $338,300 for the three months ended March 31, 2009. The increase of $121,881 in net cash flows provided from financing activities was due to equity financing.

Our financial statements as of March 31, 2010 have been prepared under the assumption that we will continue as a going concern. Our independent registered public accounting firm has issued their report dated March 31, 2010 that included an explanatory paragraph expressing substantial doubt in our ability to continue as a going concern without additional capital becoming available. Our ability to continue as a going concern ultimately is dependent on our ability to generate a profit which is dependent upon our ability to obtain additional equity or debt financing, attain further operating efficiencies and, ultimately, to achieve profitable operations. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

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 4T. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures. Under the supervision and with the participation of our management, including our President, Chief Executive Officer and Chief Financial Officer, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)) as of the end of the period covered by this report. Based upon that evaluation, our President, Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures as of the end of the period covered by this report were effective such that the information required to be disclosed by us in reports filed under the Securities Exchange Act of 1934 is (i) recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms and (ii) accumulated and communicated to our management to allow timely decisions regarding disclosure. A controls system cannot provide absolute assurance, however, that the objectives of the controls system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected.

Changes in Internal Control Over Financial Reporting. During the most recent quarter ended March 31, 2010, there has been no change in our internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act) ) that has materially affected, or is 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.

Not Applicable.

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

Item 3. Defaults Upon Senior Securities.

Not applicable.

Item 4. Removed and Reserved

Item 5. Other Information.

Not applicable.

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.	Attached
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.	Attached

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

	May 17, 2010

Attached files

ORIGINCLEAR, INC. Reports

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