Search the web
Welcome, Guest
[Sign Out, My Account]
EDGAR_Online

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
OOIL > SEC Filings for OOIL > Form 10-Q on 19-Aug-2013All Recent SEC Filings

Show all filings for ORIGINOIL INC | Request a Trial to NEW EDGAR Online Pro

Form 10-Q for ORIGINOIL INC


19-Aug-2013

Quarterly Report


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," 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. 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

OriginOil, Inc. ("we", "us", "our", the "Company" or "OriginOil") 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

OriginOil has developed a breakthrough water cleanup technology for the oil & gas, algae and other water-intensive industries.

Unlike other technologies, our patent-pending Electro Water Separation™ (EWS) process rapidly and efficiently removes organic material from large quantities of water without the need for chemicals.

EWS, our breakthrough water cleanup technology, is a high-speed, chemical-free process that efficiently extracts organic contaminants from very large quantities of water. It is the core technology powering OriginOil's innovative product line that spans multiple industries. These include:

Algae Harvesting

EWS is used cost-effectively to harvest algae, intact and bacteria-free, without chemicals, at a continuously high flow rate. Systems can be operated in parallel for increased throughput rates. Built-in intelligence ensures a minimum of operator intervention.

Oil and Gas Water Cleanup

When applied to the oil and gas industry, EWS technology is used in a continuous process to remove oils, suspended solids, insoluble organics and bacteria from produced and frac flowback water in well operations. This allows the water to be easily recycled for future fracking operations or disposed of safely.


Table of Contents

Aquaculture Water Cleanup

EWS operates in a continuous, chemical-free loop to dramatically reduce ammonia levels, and kill up to 98% of bacteria and other invaders, potentially eliminating antibiotics usage. Optionally, it can produce nitrate-rich water to grow algae for highly nutritious and cost-effective fish feed.

Organic Waste Remediation (still in prototype phase)

In many applications, such as agriculture, fish farming and animal farming, EWS can efficiently remove organic contaminants and pathogens from incoming or outgoing water supplies.

Business Model for All Applications

At this early stage, to prove our systems for wide-scale distribution and licensing, we must build, sell and support our system to companies making use of such systems.

Our long-term 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. We are not in the business of producing and marketing oil or fuel as an end product, nor of engaging in volume manufacturing.

We have only been engaged in our current and proposed business operations since June 2007. While continuing to engage in research and development, we recently moved into the commercialization phase of our business plan. .

Recent Developments

     ?        On February 5, 2013, we announced that we partnered with an
              aquaculture producer to study the impact of their technology in
              transforming a $100 billion global market.

     ?        On February 13, 2013 we announced that we strengthened our focus on
              frack water cleanup and launched a licensing group to accelerate
              commercialization in secondary markets.

     ?        On February 28, 2013 we announced that our CLEAN-FRAC™ water
              treatment system yields successful first field results.

     ?        On March 13, 2013 we announced that we teamed up with another
              California startup to challenge Halliburton's costs for cleaning
              produced water and frack water.

     ?        On April 2, 2013 we announced that we accelerated commercialization
              of our CLEAN-FRAC system with the first commercial unit planned for
              3rd quarter.

     ?        On April 26, 2013 we announced that we enhanced third party testing
              showing 99% oil and solids removal, further validating our
              CLEAN-FRAC process.

     ?        On May 9, 2013 we announced that Garden State bioEnterprises adopted
              our technology for high-value astaxanthin harvesting.

     ?        On May 15, 2013 we announced that we named a manufacturer for our
              new performance-based frack water cleanup program.

     ?        On June 25, 2013, we announced that New Global Energy will implement
              our water sanitizing and algae production technology as part of its
              strategy to acquire and restart shuttered fish farms in the
              Coachella Valley region of Southern California.

     ?        On July 2, 2013, we announced that AlgEternal Technologies LLC will
              incorporate our technology to harvest algae as a key component of
              their proprietary algal production system.

     ?        On July 10, 2013, we announced that we will establish a permanent
              technology showcase at Aqua Farming Technology in California's
              Coachella Valley.

     ?        On July 11, 2013, we announced that we expanded our algae and
              aquaculture designs to achieve commercial scale.

     ?        On July 18, 2013, we announced that our technology can successfully
              treat liquid sewage directly at the point of origin, in commercial
              buildings.


Table of Contents

     ?        On July 24, 2013, we announced that we have initiated two consulting
              agreements with top water treatment engineering firms to validate
              the efficacy of its technology in the oil and gas and aquaculture
              markets.

     ?        On July 31, 2013, we announced that we received our second
              international patent for our algae harvesting technology. The patent
              was issued by the Japan Patent Office.

     ?        On August 6, 2013, we announced that we launched our Throughput
              Program for EWS Petro.

     ?        On August 14, 2013, we announced the launch of our mid-sized algae
              harvester, designed, with producer input, for distributed algae
              production.

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

We 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.

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 June 30, 2013, the amounts reported for cash, prepaid expenses, accounts payable and accrued expenses approximate the fair value because of their short maturities.

Recently Issued Accounting Pronouncements

Management reviewed accounting pronouncements issued during the three months ended June 30, 2013, and no pronouncements were adopted during the period.

Results of Operation

Results of Operations for the three months ended June 30, 2013 compared to the three months ended June 30, 2012.

Revenue and Cost of Sales

Revenue for the three months ended June 30, 2013 and 2012 was $100,000 and $15,000, respectively. Cost of sales for the three months ended June 30, 2013 and 2012, was $30,644 and $21,272, respectively. To date we have had minimal revenues due to our focus on product development and testing. In addition, our equipment sales are primarily for trial purposes, intended for licensing or private labeling type transactions, which we believe have the potential to yield stronger long term revenue.

Operating Expenses

Selling and General Administrative Expenses

Selling and general administrative ("SG&A") expenses decreased by $558,518 to $936,834 for the three months ended June 30, 2013, compared to $1,495,352 for the three months ended June 30, 2012. The majority of the decrease in SG&A expenses was due primarily to the decrease in non-cash stock compensation expense of $420,891, professional fees of $114,229, insurance of $10,591, and an overall decrease in other G&A expenses of $199,844, with an increase in marketing and investor relations of $187,037.

Research and Development Cost

Research and development ("R&D") costs decreased by $75,897 to $224,576 for the three months ended June 30, 2013, compared to $300,473 for the three months ended June 30, 2012. The decrease in overall R&D costs was primarily due to a decrease in outside services for algae appliances and fracking research.


Table of Contents

Other Income and Expenses

Other income and (expenses) increased by $724,843 to ($2,201,444) for the three months ended June 30, 2013, compared to ($1,476,601) for the three months ended June 30, 2012. The increase was the result of an increase in net loss on change in fair value of derivative instruments of $1,529,599, commitment fees in the amount of $426,477, with an offset by decreases in loss on settlement of debt in the amount of $782,734, amortization of debt discount and original issue discount in the amount of $379,531, loss on foreign exchange in the amount of $1,045, and a decrease in interest expense of $67,923. The overall increase is the result of the issuance by us of convertible promissory notes.

Net Loss

Our net loss increased by $25,639 to $3,296,905 for the three months ended June 30, 2013, compared to a net loss of $3,271,266 for the three months ended June 30, 2012. The majority of the increase in net loss was due primarily to the accounting for the increase in other income and expenses of $724,843, and an increase in depreciation of $10,839, with a decrease in operating expenses of $634,415. Currently operating costs exceed revenue because sales are not yet sufficient to cover costs. We cannot assure of when or if revenue will exceed operating costs.

Results of Operations for the six months ended June 30, 2013 compared to the six months ended June 30, 2012.

Revenue and Cost of Sales

Revenue for the six months ended June 30, 2013 and 2012 was $100,000 and $553,163, respectively. Cost of sales for the six months ended June 30, 2013 and 2012, was $30,644 and $407,363, respectively. To date we have had minimal revenues due to our focus on product development and testing. In addition, our equipment sales are primarily for trial purposes, intended for licensing or private labeling type transactions, which we believe have the potential to yield stronger long term revenue.

Operating Expenses

Selling and General Administrative Expenses

Selling and general administrative ("SG&A") expenses decreased by $939,123 to $1,660,661 for the six months ended June 30, 2013, compared to $2,599,784 for the six months ended June 30, 2012. The majority of the decrease in SG&A expenses was due primarily to the decrease in non-cash stock compensation expense of $477,657, professional fees of $255,486, insurance of $26,196, and other G&A expenses of $216,641, with an increase in marketing and investor relations of $36,857.

Research and Development Cost

Research and development ("R&D") costs decreased by $113,837 to $437,351 for the six months ended June 30, 2013, compared to $551,188 for the six months ended June 30, 2012. The decrease in overall R&D costs was primarily due to a decrease in outside services for algae appliances and fracking research.

Other Income and Expenses

Other income and (expenses) increased by $1,861,285 to ($3,908,969) for the six months ended June 30, 2013, compared to ($2,047,684) for the six months ended June 30, 2012. The increase was the result of an increase in net loss on change in fair value of derivative instruments of $2,155,202, commitment fees in the amount of $784,664, with an offset by decreases in loss on settlement of debt in the amount of $703,214, amortization of debt discount and original issue discount in the amount of $296,658, loss on foreign exchange in the amount of $2,227, and a decrease in interest expense of $76,482. The overall increase is the result of the issuance by us of convertible promissory notes.

Net Loss

Our net loss increased by $884,722 to $5,944,380 for the six months ended June 30, 2013, compared to a net loss of $5,059,658 for the six months ended June 30, 2012. The majority of the increase in net loss was due primarily to the increase in other income and expenses in the amount of $1,861,285, with a decrease in operating expenses of $1,052,960 and depreciation of $47. Currently operating costs exceed revenue because sales are not yet sufficient to cover costs. We cannot assure of when or if revenue will exceed operating costs.

Liquidity and Capital Resources

Liquidity is the ability of a company to generate funds to support its current and future operations, satisfy its obligations, and otherwise operate on an ongoing basis. Significant factors in the management of liquidity are funds generated by operations, levels of accounts receivable and accounts payable and capital expenditures.


Table of Contents

At June 30, 2013 and December 31, 2012, we had cash of $1,738,480 and $507,355, respectively and working capital deficit of $611,678 and $936,099 respectively. The decrease in working capital deficit was primarily due to the decrease in accounts payable and accrued expenses, with an increase in cash, derivative liability and debt financing.

During the first two quarters of 2013, we raised an aggregate of $815,000 in an offering of unsecured convertible notes and $2,102,542 in an offering of shares of our common stock and warrants. During the subsequent period, we raised an aggregate of $255,000 in an offering of unsecured convertible notes and $185,000 in an offering of shares of our common stock and warrants. The opinion of our independent registered public accounting firm on our audited financial statements as of and for the year ended December 31, 2012 contains an explanatory paragraph regarding substantial doubt about our ability to continue as a going concern. Our ability to continue as a going concern is dependent upon raising capital from financing transactions and future revenue.

Net cash used in operating activities was $1,592,680 for the six months ended June 30, 2013, compared to $1,668,418 for the prior period June 30, 2012. The decrease of $75,738 in cash used in operating activities was primarily due to the net decrease in prepaid expenses, work in progress, other receivables, with an increase in accounts payable, accrued expenses, and net loss. The net loss includes non-cash expenses of depreciation, stock issued for services, loss on change in valuation of derivative liability, debt discount and original issue discount, commitment fees and stock compensation expense. Currently, operating costs exceed revenue because sales are not yet significant.

Net cash flows used in investing activities for the six months ended June 30, 2013 and 2012 were $83,737 and $75,128 respectively. The net increase in cash used in investing activities was due to an increase in patent expenditures and research equipment.

Net cash flows provided by financing activities was $2,907,542 for the six months ended June 30, 2013, as compared to $1,630,081 for the prior period June 30, 2012. The increase in cash provided by financing activities was due to an increase in debt financing. To date we have principally financed our operations through the sale of our common stock and the issuance of debt.

We do not have any material commitments for capital expenditures during the next twelve months. Although our proceeds from the issuance of convertible debt, our offering of shares of common stock and warrants together with revenue from operations are currently sufficient to fund our operating expenses, we will need to raise additional funds in the future so that we can expand our operations. Therefore, our future operations are dependent on our ability to secure additional financing. Financing transactions may include the issuance of equity or debt securities, obtaining credit facilities, or other financing mechanisms. However, the trading price of our common stock and a downturn in the U.S. equity and debt markets could make it more difficult to obtain financing through the issuance of equity or debt securities. Even if we are able to raise the funds required, it is possible that we could incur unexpected costs and expenses, fail to collect significant amounts owed to us, or experience unexpected cash requirements that would force us to seek alternative financing. Furthermore, if we issue additional equity or debt securities, stockholders may experience additional dilution or the new equity securities may have rights, preferences or privileges senior to those of existing holders of our common stock. The inability to obtain additional capital may restrict our ability to grow and may reduce our ability to continue to conduct business operations. If we are unable to obtain additional financing, we may have to curtail our marketing and development plans and possibly cease our operations.

We have estimated our current average burn, and believe that we have assets to ensure that we can function without liquidation over the next nine months, due to our cash on hand, our ability to raise money from our investor base and future revenue. Based on the aforesaid, we believe we have the ability to continue our operations for the foreseeable future and will be able to realize assets and discharge liabilities in the normal course of 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.

  Add OOIL to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for OOIL - All Recent SEC Filings
Sign Up for a Free Trial to the NEW EDGAR Online Pro
Detailed SEC, Financial, Ownership and Offering Data on over 12,000 U.S. Public Companies.
Actionable and easy-to-use with searching, alerting, downloading and more.
Request a Trial      Sign Up Now


Copyright © 2014 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.