ORIGINCLEAR, INC. - Quarter Report: 2013 June (Form 10-Q)

form10q.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: June 30, 2013

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 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 (§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 x 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 the 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 August 16, 2013 was 42,211,502.

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.	14
Item 3.	Quantitative and Qualitative Disclosures About Market Risk.	18
Item 4.	Controls and Procedures.	18



Item 1.	Legal Proceedings.	19
Item 1A.	Risk Factors.	19
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.	19
Item 3.	Defaults Upon Senior Securities.	19
Item 4.	Mine Safety Disclosures.	19
Item 5.	Other Information.	19
Item 6.	Exhibits.	19

SIGNATURES		20

Table of Contents

PART I - FINANCIAL INFORMATION ORIGINOIL, INC.

ORIGINOIL, INC.

BALANCE SHEETS

	June 30, 2013			December 31, 2012
	(Unaudited)
ASSETS

CURRENT ASSETS
Cash	$	1,738,480		$	507,355
Accounts receivable		45,000			25,000
Work in process		34,729			35,666
Prepaid expenses		476,689			186,978
Other receivables		-			1,200

TOTAL CURRENT ASSETS		2,294,898			756,199

PROPERTY & EQUIPMENT
Machinery & equipment		35,326			32,670
Furniture & fixtures		27,056			27,056
Computer equipment		29,789			28,824
Leasehold improvements		94,914			94,914
		187,085			183,464
Less accumulated depreciation		(146,822	)		(140,067	)

NET PROPERTY & EQUIPMENT		40,263			43,397

OTHER ASSETS
Investment		20,000			20,000
Patents		397,805			317,689
Trademark		4,467			4,467
Security deposit		9,650			9,650

TOTAL OTHER ASSETS		431,922			351,806

TOTAL ASSETS	$	2,767,083		$	1,151,402


LIABILITIES AND SHAREHOLDERS' DEFICIT

CURRENT LIABILITIES
Accounts payable	$	88,972		$	353,200
Accrued expenses		194,091			376,846
Derivative liability		1,387,330			355,526
Convertible promissory notes, net of discount of $404,393 and 237,965, respectively		1,236,183			435,365
Unsecured notes payable, net of discount of $0 and $38,639		-			171,361

TOTAL LIABILITIES		2,906,576			1,692,298

SHAREHOLDERS' DEFICIT
Preferred stock, $0.0001 par value;
25,000,000 authorized preferred shares		-			-
Common stock, $0.0001 par value;
250,000,000 authorized common shares
38,389,479 and 17,967,545 shares issued and outstanding		3,838			1,797
Additional paid in capital		33,368,161			27,024,419
Accumulated deficit		(33,511,492	)		(27,567,112	)

TOTAL SHAREHOLDERS' DEFICIT		(139,493	)		(540,896	)

TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT	$	2,767,083		$	1,151,402

The accompany notes are an integral part of these financial statements.

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ORIGINOIL, INC.

STATEMENTS OF OPERATIONS

(Unaudited)

	Three Months Ended						Six Months Ended
	June 30, 2013			June 30, 2012			June 30, 2013			June 30, 2012

Sales	$	100,000		$	15,000		$	100,000		$	553,163

Cost of Goods Sold		30,644			21,272			30,644			407,363

Gross Profit		69,356			(6,272	)		69,356			145,800

Operating Expenses
Selling and general and administrative expenses		936,834			1,495,352			1,660,661			2,599,784
Research and development		224,576			300,473			437,351			551,188

Total Operating Expenses		1,161,410			1,795,825			2,098,012			3,150,972

Loss before Depreciation and Amortization		(1,092,054	)		(1,802,097	)		(2,028,656	)		(3,005,172	)

Depreciation & amortization expense		3,407			(7,432	)		6,755			6,802

Loss from Operations before Other Income/(Expenses)		(1,095,461	)		(1,794,665	)		(2,035,411	)		(3,011,974	)

OTHER INCOME/(EXPENSE)
Loss on settlement of debt		(55,994	)		(838,728	)		(135,514	)		(838,728	)
Gain/(Loss) on change in derivative liability		(1,418,365	)		111,234			(2,200,614	)		(45,412	)
Commitment fee		(426,477	)		-			(784,664	)		-
Foreign exchange loss		-			(1,045	)		-			(2,227	)
Interest expense		(300,608	)		(748,062	)		(788,177	)		(1,161,317	)

TOTAL OTHER INCOME/(EXPENSES)		(2,201,444	)		(1,476,601	)		(3,908,969	)		(2,047,684	)


NET LOSS	$	(3,296,905	)	$	(3,271,266	)	$	(5,944,380	)	$	(5,059,658	)

BASIC LOSS PER SHARE	$	(0.12	)	$	(0.33	)	$	(0.26	)	$	(0.56	)

WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING
BASIC AND DILUTED		27,826,639			9,980,303			23,133,809			9,087,248

The accompany notes are an integral part of these financial statements.

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ORIGINOIL, INC.

STATEMENT OF SHAREHOLDERS' DEFICIT

(Unaudited)

												Deficit
												Accumulated
									Additional			during the
	Preferred stock				Common stock				Paid-in			Development
	Shares		Amount		Shares		Amount		Capital			Stage			Total
Balance at December 31, 2012 (Audited)		-	$	-		17,967,545	$	1,797	$	27,024,419		$	(27,567,112	)	$	(540,896	)

Common stock issued at prices of $0.125 and $0.25 per share for cash		-		-		11,530,172		1,153		2,081,389			-			2,082,542

Common stock issued for services at fair value ranging in prices between $0.50 and $0.63		-		-		1,339,820		134		622,076			-			622,210

Common stock issued for conversion of debt
(prices per share of $0.34 and $0.875)		-		-		7,138,982		713		3,275,378			-			3,276,091

Common stock issued for purchase warrants at fair value through a cashless exercise		-		-		332,960		33		(33	)		-			-

Common stock issued for purchase warrants at $0.25 per share for cash		-		-		80,000		8		19,992			-			20,000

Derivative for warrants exercised		-		-		-		-		59,177			-			59,177

Stock and warrant compensation cost		-		-		-		-		285,763			-			285,763

Net loss for the six month period ended June 30, 2013		-		-		-		-		-			(5,944,380	)		(5,944,380	)

Balance at June 30, 2013		-		-		38,389,479	$	3,838	$	33,368,161		$	(33,511,492	)	$	(139,493	)

The accompany notes are an integral part of these financial statements.

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ORIGINOIL, INC.

STATEMENTS OF CASH FLOWS

(Unaudited)


	Six Months Ended
	June 30, 2013			June 30, 2012
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(5,944,380	)	$	(5,059,658	)
Adjustment to reconcile net loss to net cash
used in operating activities
Depreciation & amortization		6,755			6,802
Common stock and warrants issued for services		308,427			928,483
Stock compensation expense		76,763			554,420
Loss on change in valuation of derivative liability		2,200,614			45,412
Debt discount and beneficial conversion feature recognized as interest expense		705,044			1,001,702
Loss on settlement of debt		135,514			838,728
Original issue discount amortized as interest		-			92,662
Common stock issued for interest payable on debt		-			9,892
Commitment fee expense		784,664			-
Changes in Assets and Liabilities
(Increase) Decrease in:
Accounts receivable		(20,000	)		(15,000	)
Prepaid expenses		24,072			47,466
Work in progress		937			248,443
Other receivables		1,200			15,127
Increase (Decrease) in:
Accounts payable		26,223			(45,480	)
Accrued expenses		101,487			(24,254	)
Deferred income		-			(313,163	)

NET CASH USED IN OPERATING ACTIVITIES		(1,592,680	)		(1,668,418	)


CASH FLOWS USED FROM INVESTING ACTIVITIES:
Purchase of fixed assets		(3,621	)		-
Patent expenditures		(80,116	)		(75,128	)

NET CASH USED IN INVESTING ACTIVITIES		(83,737	)		(75,128	)


CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from unsecured subordinated debt		-			1,579,578
Payments for unsecured debt		(10,000	)		-
Proceeds from convertible promissory notes		815,000			-
Proceeds for issuance of common stock and subscription payable, net of stock issuance cost		2,102,542			50,503

NET CASH PROVIDED BY FINANCING ACTIVITIES		2,907,542			1,630,081

NET INCREASE/(DECREASE) IN CASH		1,231,125			(113,465	)

CASH BEGINNING OF PERIOD		507,355			197,868

CASH END OF PERIOD	$	1,738,480		$	84,403

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Interest paid	$	-		$	5,262
Taxes paid	$	-		$	-

SUPPLEMENTAL DISCLOSURES OF NON CASH TRANSACTIONS
During the six months ended June 30, 2013, the Company issued 332,960 shares of common stock for a cashless exercise of 454,911 common stock purchase warrants. Also, the Company issued
7,138,982 shares of common stock in conversion of $1,201,311 convertible promissory notes, and $75,131 of interest payable. During the six months ended June 30, 2012, the Company issued
1,241,929 shares of common stock for the convertible debenture at fair value of $841,197, plus 6,551 shares of common stock for interest paid in the amount of $9,892; 1,411,351 shares of common
stock were issued upftont with the promissory ntoes, and 188,492 shares of common stock were issued through a cashless exercise for common stock purchase warrants.

The accompany notes are an integral part of these financial statements.

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ORIGINOIL, INC.

NOTES TO FINANCIAL STATEMENTS

JUNE 30, 2013

1. Basis of Presentation

The accompanying unaudited financial statements of OriginOil, Inc. (the “Company”) 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 six months ended June 30, 2013 are not necessarily indicative of the results that may be expected for the year ending December 31, 2013. 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, 2012.

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. The Company has obtained funds from its shareholders in the six months ended June 30, 2013, and has standing purchase orders and open invoices with customers. Management believes this funding will continue from its’ current investors and has also obtained funding from new investors. Management believes the existing shareholders, the prospective new investors and future sales will provide the additional cash needed to meet the Company’s obligations as they become due, and will allow the development of its core business operations.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICES

This summary of significant accounting policies of the Company 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 is 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.

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 six months ended June 30, 2013, as the inclusion of any potential shares would have had an anti-dilutive effect due to the Company generating a loss.

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ORIGINOIL, INC.

NOTES TO FINANCIAL STATEMENTS

JUNE 30, 2013

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICES (Continued)

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.

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 balances reported for cash, prepaid expenses, accounts payable, accrued expenses, and derivative liability approximate the fair value because of their short maturities.

We adopted ASC Topic 820 (originally issued as SFAS 157, “Fair Value Measurements”) as of January 1, 2008 for financial instruments measured as fair value on a recurring basis. ASC Topic 820 defines fair value, established a framework for measuring fair value in accordance with accounting principles generally accepted in the United States and expands disclosures about fair value measurements.

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC Topic 820 established a three-tier fair value hierarchy which prioritizes the inputs used in measuring fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1measurements) and the lowest priority to unobservable inputs (level 3 measurements). These tiers include:

·		Level 1, defined as observable inputs such as quoted prices for identical instruments in active markets;
·		Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable such as quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in markets that are not active; and
·		Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions, such as valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.

We measure certain financial instruments at fair value on a recurring basis. Assets and liabilities measured at fair value on a recurring basis are as follows at June 30, 2012:

	Total		(Level 1)		(Level 2)		(Level 3)
Other Asset
Investment	$	20,000	$	-	$	-	$	20,000

Total assets measured at fair value	$	20,000	$	-	$	-	$	20,000

Liabilities

Derivative Liability	$	1,387,330	$	-	$	-	$	1,387,330
Convertible Debenture, net of discount		1,236,183		-		-		1,236,183
Total liabilities measured at fair value	$	2,623,513	$	-	$	-	$	2,623,513

Reclassification

Amortization of debt discount for the six months ended June 30, 2012 was reclassified as interest expense.

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.

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ORIGINOIL, INC.

NOTES TO FINANCIAL STATEMENTS

JUNE 30, 2013

3. CAPITAL STOCK

During the six months ended June 30, 2013, the Company issued 1,339,820 shares of common stock for services with prices ranging from $0.31 to $0.63 with a total fair value of $622,210; issued 494,020 shares of common stock of which 247,010 shares were associated with the settlement of a convertible promissory note for principal and interest in the amount of $200,000, and upfront shares of 247,010 issued with the notes with a fair value of $123,946; issued 6,644,962 shares of common stock for the settlement of convertible promissory notes in an aggregate principal amount of $1,001,312; with the portion attributable to the derivative in the amount of $1,816,518, and a gain of $11,568; issued 332,960 shares of common stock in exchange for a cashless exercise of 454,911 purchase warrants; issued 80,000 shares of common stock in exchange for a cash exercise of 80,000 purchase warrants; received proceeds for issuance of common stock for cash of $2,082,542 to purchase 11,530,172 shares of common stock at prices per share ranging from $0.125 to $0.25, together with one-year warrants to purchase an aggregate of 10,048,000 shares of common stock, three-year warrants to purchase an aggregate of 9,200,000 shares of common stock and five-year warrants to purchase an aggregate of 16,000,000 shares of common stock. Each of the warrants is exercisable at a price per share between $0.15 and $0.25 subject to adjustment for stock splits, dividends, distributions, recapitalizations and the like.

4. STOCKS AND WARRANTS

The Board of Directors adopted the OriginOil, Inc., 2009 Incentive Stock Option Plan (the “2009 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 Five Hundred Thousand (500,000) shares of Common Stock. Options granted under the 2009 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.

On May 25, 2012, the Board of Directors adopted a new OriginOil, Inc., 2012 Incentive Stock Option Plan (the “2012 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 One Million (1,000,000) shares of Common Stock. Options granted under the 2012 Plan may be either incentive options or nonqualified options and shall be administered by the Company's 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 2012 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.

On June 14, 2013, the Board of Directors adopted a new OriginOil, Inc., 2013 Incentive Stock Option Plan (the “2013 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 Four Million (4,000,000) shares of Common Stock. Options granted under the 2013 Plan may be either incentive options or nonqualified options and shall be administered by the Company's Board. Each Option shall state the number of shares to which it pertains. The exercise price will be determined by the holders percentage owned as follows: If the holder owns more than 10% of the total combined voting power or value of all classes of stock of the Company, then the exercise price will be no less than 110% of the fair market value of the stock as of the date of grant; if the person is not a 10% holder, then the exercise price will be no less than 100% of the fair market value of the stock as of the date of grant. 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 date of grant. If the status of an employee terminates for any reason other than disability or death, then the Optionee or their representative shall have the right to exercise the portion of any Options which were exercisable as of the date of such termination, in whole or in part, not less than 30 days nor more than three (3) months after such termination. With respect to Non-statutory Options granted to employees, directors or consultants, the Board or Committee may specify such period for exercise, that the Option shall automatically terminate following the termination of employment or services as to shares covered by the Option as the Board or Committee deems reasonable and appropriate.

During the three months ended June 30, 2013, the Company granted 533,498 incentive stock options and 2,532,665 non-statutory stock options under the 2013 Plan, which vest after ninety (90) days from the effective date of the option. Also, during the same period, 759,645 options were granted under the 2012 Plan, which vested immediately.

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ORIGINOIL, INC.

NOTES TO FINANCIAL STATEMENTS

JUNE 30, 2013

4. STOCKS AND WARRANTS (Continued)

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

	June 30, 2013
				Weighted
	Number			average
	of			exercise
	Options			price
Outstanding, beginning of period		465,294		$	1.67
Granted		3,825,808			0.41
Exercised		-			-
Forfeited/Expired		(6,459	)		-
Outstanding, end of period		4,284,643		$	0.54
Exercisable at the end of period		882,328		$	0.66
Weighted average fair value of
options granted during the period				$	0.41

The weighted average remaining contractual life of options outstanding issued under the 2009 Plan, 2012 Plan, and 2013 Plan as of June 30, 2013 was as follows:

						Weighted		Weighted		Weighted
						Average		Average		Average
		Stock		Stock		Remaining		Exercise Price		Exercise Price
Exercisable		Options		Options		Contractual		of Options		of Options
Prices		Outstanding		Exercisable		Life (years)		Outstanding		Exercisable
$	7.20		1,667		1,155		2.23	$	0.46	$	0.46
$	4.50		33,334		15,451		2.40	$	0.53	$	0.53
$	6.00		16,500		9,392		2.48	$	0.36	$	0.36
$	4.20		13,334		5,690		3.05	$	0.36	$	0.36
$	5.15		10,000		4,055		3.13
$	1.70		4,000		1,498		3.26	$	0.36	$	0.36
$	0.89		60,000		14,938		9.01	$	0.36	$	0.36
$	0.89		200,000		45,627		9.09	$	0.36	$	0.36
$	0.89		120,000		24,877		9.18	$	0.36	$	0.36
$	0.43		759,645		759,645		4.79	$	0.36	$	0.36
$	0.41		1,133,497		-		4.96	$	0.36	$	0.36
$	0.38		1,932,666		-		4.96	$	0.36	$	0.36
			4,284,643		882,328

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 three months ended June 30, 2013, included compensation expense for the stock-based payment awards granted prior to, but not yet vested, as of June 30, 2013 based on the grant date fair value estimated, and compensation expense for the stock-based payment awards granted subsequent to June 30, 2013, 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 six months ended June 30, 2013 and 2012 is $76,763 and $554,420, respectively.

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ORIGINOIL, INC.

NOTES TO FINANCIAL STATEMENTS

JUNE 30, 2013

4. STOCKS AND WARRANTS (Continued)

Warrants

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

	June 30, 2013
				Weighted
				average
				exercise
	Options			price
Outstanding -beginning of year		7,098,104		$	0.79
Granted		36,136,204			0.16
Exercised		(534,911	)		1.11
Forfeited		-			-
Outstanding - end of year		42,699,397		$	0.33

At June 30, 2013, the weighted average remaining contractual life of warrants outstanding:

						Weighted
						Average
						Remaining
Exercisable		Warrants		Warrants		Contractual
Prices		Outstanding		Exercisable		Life (years)
$	7.50		146,743		146,743		0.17
$	9.30		223,338		223,338		1.00
$	10.20		28,335		28,335		1.13
$	9.00		9,168		9,168		1.32
$	8.70		3,334		3,334		1.37
$	1.75		54,858		54,858		1.50
$	8.40		667		667		1.58
$	8.70		5,000		5,000		1.91
$	5.70		7,334		7,334		2.10
$	4.50		3,334		3,334		2.21
$	4.20		8,334		8,334		2.23
$	4.20		33,334		33,334		2.25
$	3.60		8,334		8,334		2.33
$	4.50		33,334		33,334		2.40
$	4.20		13,335		13,335		2.42
$	6.00		133,334		133,334		2.48
$	6.00		33,334		33,334		2.50
$	6.30		8,334		8,334		2.72
$	5.70		4,001		4,001		2.75
$	6.90		33,334		33,334		2.96
$	6.90		33,334		33,334		3.21
$	1.90		80,000		80,000		3.27
$	6.90		33,334		33,334		3.46
$	1.47		260,000		260,000		3.82
$	0.65		80,000		80,000		4.11
$	0.65		20,000		20,000		4.30
$	0.65		50,000		50,000		4.34
$	0.25		124,000		124,000		4.76
$	0.89		100,000		100,000		4.38
$	0.15 - 0.65		41,127,610		41,127,610		0.17 - 4.95
			42,699,397		42,699,397

5. UNSECURED PROMISSORY NOTES

January 2012 Notes

The January 2012 Notes had an aggregate remaining principal amount of $210,000, which matured in January 2013. The holder is entitled to one additional share of common stock for each share converted. During the six months ended June 30, 2013, the Company issued 494,020 shares of common stock in conversion of a principal amount of $200,000, with 247,010 upfront shares for a fair value of $123,946. The remaining $10,000 was paid in cash to the holder. The aggregate principal amount outstanding at June 30, 2013 was $0.

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ORIGINOIL, INC.

NOTES TO FINANCIAL STATEMENTS

JUNE 30, 2013

6. CONVERTIBLE PROMISSORY NOTES

On June 20, 2012, the Company received an initial advance of $100,000 in consideration for the issuance of a note in the principal amount of $400,000 on a securities purchase agreement entered into for the sale of a 10% convertible promissory note, with an aggregate sum of $400,000, plus warrants to purchase an aggregate of up to 615,384 shares of the Company’s common stock at a purchase price of $0.65 per share. At closing, which took place simultaneously with execution of the securities purchase agreement, the Company issued the Note with an outstanding principal sum of $100,000 together with a warrant to purchase 153,846 shares of the Company’s common stock. Under the terms of the securities purchase agreement, the investor had the option to advance an additional $300,000 in principal under the Note and receive further warrants to purchase an aggregate of up to 461,538 shares of the Company’s common stock. The Note originally matured six months from the date of each purchase made under the Note, and bore interest at a rate of 10% per annum, which increased to 15% when the Note was not repaid by September 18, 2012. The Note was originally convertible into shares of the Company’s common stock at a conversion price of $0.65. The warrants may be exercised at any time for a period of four years from the date of issuance at an exercise price of $0.65. On February 15, 2013, the Company and the lender entered into an amendment to the Note providing for, among other things, an extension of the maturity date of the Note until thirteen months from the effective date of each funding under the Note and the amendment of the conversion price of the Note to the lesser of $0.65 or 70% of the average of the three lowest closing prices in the 25 trading days previous to a conversion, subject to, at the election of the Company, a conversion floor of $0.4375. If the Company elected to enforce the conversion floor it was required to make cash payment to cover the conversion loss in an amount as set forth in the amendment. The conversion floor terminated in the event the Company issued or entered into an agreement providing for the issuance of shares at a price below the conversion floor. The conversion floor subsequently terminated. During the months of February and June, 2013, the lender advanced another $200,000 under the securities purchase agreement, bringing the total amount funded under the Note to $300,000. Simultaneous therewith, the Company issued to the lender a warrant to purchase 307,692 shares of the Company's common stock. During the six months ended June 30, 2013, the lender converted $100,000 of the convertible notes, plus accrued interest of $15,000, leaving a remaining advanced balance of $200,000.

During the six months ended June 30, 2013, the Company issued convertible promissory notes (the “OID Notes”) to various investors in an aggregate principal amount of $235,000, with an Original Issue Discount (OID) of $78,332. The Convertible Notes were originally convertible into the common stock of the Company at conversion prices ranging from $0.4375 to $0.65. As a result of most favored nations protection accorded to the Convertible Notes, the conversion price of the Convertible Notes is the lesser of $0.50 (subject to adjustment for stock splits, dividends, combinations and other similar transactions) or 50% of the lowest trade price of common stock on any trading day after issuance of the Convertible Notes. The maturity dates of the Notes are ninety (90) days from their effective date, with a one-time interest charge of $31,332, which is amortized over ninety (90) days and recorded as interest expense. If the Convertible Notes are not repaid on maturity, then the maturity date shall be automatically extended for up to three further 30 day periods and an extension fee of 25% of the then outstanding principal, interest and other fees shall be added to the principal amount of the Notes at the end of each 30 day period that the Convertible Notes are still outstanding. In the event of default under the Convertible Notes, the Company shall be required to repay a mandatory default amount in cash equal to 200% of the outstanding principal amount of the Notes plus accrued and unpaid interest and other fees due thereon and such mandatory default amount shall bear interest at 10% per annum. Convertible Notes issued in February and March, 2013 provide that for as long as the Convertible Notes or other convertible notes in effect between the purchaser and the Company are outstanding, if the Company issues any security with terms more favorable than the terms of the Convertible Notes or such other convertible notes or a term was not similarly provided to the purchaser of the Convertible Notes or such other convertible notes, then such more favorable or additional term shall, at the purchaser’s option, become part of the Convertible Notes and such other convertible notes.

During the month of May, 2013, the Company issued Convertible Notes (“Notes”) in an aggregate principal amount of $380,000. The Notes mature six months from the date of issuance and bear interest at 10% per annum. The Notes may be converted into shares of the Company’s common stock at a conversion price of the lesser of $0.45 to $0.50 (subject to adjustment for stock splits, dividends, combinations and other similar transactions) or 50% of the lowest trade price on any trade day following issuance of the Notes. The Notes include customary default provisions related to payment of principal and interest and bankruptcy or creditor assignment. In the event of default under the Notes, the Company shall be required to repay a mandatory default amount in cash equal to 150% of the outstanding principal amount of the Notes plus accrued and unpaid interest and other fees due thereon and such mandatory default amount shall bear interest at 10% per annum. In addition, for as long as the Notes or other convertible notes in effect between the purchaser and the Company are outstanding, if the Company issues any security with terms more favorable than the terms of the Notes or such other convertible notes or a term was not similarly provided to the purchaser of the Notes or such other convertible notes, then such more favorable or additional term shall, at the purchaser’s option, become part of the Notes and such other convertible notes.

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ORIGINOIL, INC.

NOTES TO FINANCIAL STATEMENTS

JUNE 30, 2013

6. CONVERTIBLE PROMISSORY NOTES (Continued)

ASC Topic 815 provides guidance applicable to the convertible debt issued by the Company in instances where debt has embedded conversion options and net settlement. For example, when a convertible debt converts at a discount to market based on the stock price on the date of conversion, ASC Topic 815 requires that the embedded conversion option of the convertible debt be bifurcated from the host contract and recorded at their fair value. In accounting for derivatives under accounting standards, the Company recorded a liability of $1,705,086 representing the estimated present value of the conversion feature considering the historic volatility of the Company’s stock, and a discount of $1,466,677 representing the imputed interest associated with the embedded derivative. The discount was amortized over the life of the convertible debt, and resulted in the recognition of $550,658 in interest expense for the six months ended June 30, 2013.

The derivative liability is adjusted periodically according to the Company’s stock price fluctuations. For purpose of determining the fair market value of the derivative liability for the embedded conversion, the Company used Black Scholes option valuation model. The significant assumptions used in the Black Scholes valuation of the derivative are as follows:

Risk free interest rate		.06% - .15	%
Stock volatility factor		37.24% - 66.35	%
Weighted average expected option life	6 months - 13 months
Expected dividend yield	None

The value of the derivative liability at June 30, 2013 was $1,387,330.

7. SUBSEQUENT EVENTS

Management evaluated subsequent events as of the date of the financial statements pursuant to ASC TOPIC 855, and reported the following:

On February 15, 2013, the Company commenced a private placement offering of up to 13,000,000 shares of common stock together with up to four series of warrants to purchase up to an aggregate of 52,000,000 shares of common stock. During the subsequent period, the Company sold to accredited investors 740,000 shares of its common stock together with one-year warrants to purchase an aggregate of 720,000 shares of its common stock and three-year warrants to purchase an aggregate of 720,000 shares of its common stock for aggregate gross proceeds of $185,000. Each of the warrants is exercisable at a price per share of $0.25 subject to adjustment for stock splits, dividends, distributions, recapitalizations and the like.

Between July 5, 2013 and July 18, 2013, holders of original issuance discount convertible promissory notes issued in December 2012 in the aggregate principal, fees and interest amount of $212,350 were converted into an aggregate of 1,522,136 shares of common stock.

On July 16, 2013, the Company issued a Convertible Note (“Note”) in an aggregate principal amount of $255,000. The Note matures nine months from the date of issuance and bears interest at 10% per annum. The Note may be converted into shares of the Company’s common stock at a conversion price of the lesser of $0.40 (subject to adjustment for stock splits, dividends, combinations and other similar transactions) or 50% of the lowest trade price on any trade day following issuance of the Note. The Note includes customary default provisions related to payment of principal and interest and bankruptcy or creditor assignment. In the event of default under the Note, the Company shall be required to repay a mandatory default amount in cash equal to 150% of the outstanding principal amount of the Note plus accrued and unpaid interest and other fees due thereon and such mandatory default amount shall bear interest at 10% per annum. In addition, for as long as the Note or other convertible notes in effect between the purchaser and the Company are outstanding, if the Company issues any security with terms more favorable than the terms of the Note or such other convertible notes or a term was not similarly provided to the purchaser of the Note or such other convertible notes, then such more favorable or additional term shall, at the purchaser’s option, become part of the Note and such other convertible notes.

Between August 7, 2013 and August 16, 2013, holders of original issuance discount convertible promissory notes issued in February 2013 in the aggregate principal, fees and interest amount of $214,840, converted $150,000 of their outstanding balance into an aggregate of 1,121,958 shares of common stock.

During the subsequent period, holders of warrants to purchase up to 383,528 shares at an exercise price of $0.25 delivered notices of election to exercise the warrants in full on a cash purchase basis resulting in the issuance of 383,528 shares of the Company’s common stock for an aggregate purchase price of $95,882.

During the subsequent period, the Company issued 54,401 shares of common stock for services at fair value of $15,648.

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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.

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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.

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	●	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.

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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.

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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.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.

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 ended June 30, 2013 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II

Item 1. Legal Proceedings.

None.

Item 1A. Risk Factors.

We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.

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

As previously disclosed by us in a Current Report on Form 8-K dated June 26, 2012 , February 22, 2013 and June 10, 2013, on June 20, 2012 we entered into a Securities Purchase Agreement (the "SPA") providing for, among other things, the issuance of a promissory note to a lender in the aggregate amount of up to $400,000 (the “Note”) and warrants (the "Warrants") to purchase up to 615,384 shares of our common stock. On February 15, 2013, we and the lender entered into an amendment to the Note providing for, among other things, an extension of the maturity date of the Note until thirteen months from the effective date of each funding under the Note and the amendment of the conversion price of the Note to the lesser of $0.65 or 70% of the average of the three lowest closing prices in the 25 trading days previous to a conversion, subject to, at the election by us of a conversion floor of $0.4375. If we elect to enforce the conversion floor we are required to make a cash payment to cover the conversion loss in an amount as set forth in the amendment. The conversion floor terminates in the event we issue or enters into an agreement providing for the issuance of shares at a price below the conversion floor.

On June 27, 2013, the lender funded a further $50,000 under the SPA, bringing the total amount funded under the Note to $300,000. Simultaneous therewith, we issued to the lender a Warrant to purchase 76,923 shares of our common stock. As a result of conversions of the Note into our common stock, the total outstanding principal due under the Note is currently $200,000.

The securities above were offered and sold pursuant to an exemption from the registration requirements under Section 4(2) of the Securities Act of 1933, as amended (the “Securities Act”) and Rule 506 of Regulation D promulgated thereunder since, among other things, the transactions did not involve a public offering and the securities were acquired for investment purposes only and not with a view to or for sale in connection with any distribution thereof.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information.

The following disclosure would have otherwise been filed on Form 8-K under the heading “Item 1.01 Entry into a Material Definitive Agreement”, “Item 2.03 Creation of a Direct Financial Obligation under an Off-Balance Sheet Arrangement of a Registrant” and “Item 3.02 Unregistered Sales of Equity Securities”:

On July 16, 2013, we issued a convertible promissory note (“Note”) to an accredited investor in an aggregate principal amount of $255,000 for an aggregate purchase price of $255,000 in a private placement.

The Note matures nine months from the date of issuance and bears interest at 10% per annum. The Note may be converted into shares of our common stock at a conversion price of the lesser of $0.40 (subject to adjustment for stock splits, dividends, combinations and other similar transactions) or 50% of the lowest trade price on any trade day following issuance of the Note, subject to, at the election of us, a conversion floor of $0.35. If we elect to enforce the conversion floor we are required to make a cash payment to cover the conversion loss in an amount as set forth in the Note. The conversion floor terminates in the event we issue or enter into an agreement providing for the issuance of shares at a price below the conversion floor.

The Note provides that if shares issuable upon conversion of the Note are not timely delivered then the Company shall be subject to a penalty of $2,000 per day until share delivery is made. The Note includes customary default provisions related to payment of principal and interest and bankruptcy or creditor assignment. In addition, it shall constitute an event of default under the Note if we shall not be DTC eligible or we shall be delinquent in our filings with the Securities and Exchange Commission. In the event of default under the Note, we shall be required to repay a mandatory default amount in cash equal to 150% of the outstanding principal amount of the Note plus accrued and unpaid interest and other fees due thereon and such mandatory default amount shall bear interest at 10% per annum.

We also granted to the purchaser of the Note piggyback registration rights, under which we are required to include all shares issuable upon conversion of the Note in any future registration statement filed by us subject to customary exceptions. In addition, for as long as the Note or other convertible notes in effect between the purchaser and us are outstanding, if we issue any security with terms more favorable than the terms of the Note or such other convertible notes or a term was not similarly provided to the purchaser of the Note or such other convertible notes, then such more favorable or additional term shall, at the purchaser’s option, become part of the Note and such other convertible notes.

The foregoing is qualified in its entirety by the form of Note attached as Exhibit 10.1, which is incorporated herein by reference.

The securities above were offered and sold pursuant to an exemption from the registration requirements under Section 4(2) of the Securities Act and Rule 506 of Regulation D promulgated thereunder since, among other things, the transactions did not involve a public offering and the securities were acquired for investment purposes only and not with a view to or for sale in connection with any distribution thereof.

The following disclosure would have otherwise been filed on Form 8-K under the heading “Item 3.02 Unregistered Sales of Equity Securities”:

Conversion of Notes

Between August 7, 2013 and August 16, 2013, holders of convertible promissory notes converted an aggregate principal and interest amount of $150,000 into 1,121,958 shares of our common stock.

The securities above were offered and sold pursuant to an exemption from the registration requirements under Section 4(2) of the Securities Act since, among other things, the transactions did not involve a public offering.

Warrant Exercises

On August 16, 2013, holders of warrants to purchase up to 36,834 shares of our common stock at an exercise price of $0.25 per share delivered a notice of election to exercise the warrants in full on a cash basis resulting in the issuance of 36,834 shares of our common stock for an aggregate purchase price of $9,209.

Except as set forth below, the securities above were offered and sold pursuant to an exemption from the registration requirements under Section 4(2) of the Securities Act and Rule 506 of Regulation D promulgated thereunder since, among other things, the transactions did not involve a public offering and the securities were acquired for investment purposes only and not with a view to or for sale in connection with any distribution thereof. We issued securities to one non- U.S. person in an offshore transaction relying on Regulation S.

Item 6. Exhibits.

Exhibit Number		Description of Exhibit

10.1		Form of Convertible Promissory Note
31		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		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.
101.INS		XBRL Instance Document.*
101.SCH		XBRL Taxonomy Extension Schema.*
101.CAL		XBRL Taxonomy Extension Calculation Linkbase.*
101.DEF		XBRL Taxonomy Extension Definition Linkbase.*
101.LAB		XBRL Taxonomy Extension Label Linkbase.*
101.PRE		XBRL Extension Presentation Linkbase.*

Attached as Exhibit 101 to this report are the following financial statements from the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2013 formatted in XBRL (eXtensible Business Reporting Language): (i) the Balance Sheets, (ii) the Statement of Operations, (iii) the Statement of Shareholders’ Equity, (iv) the Statement of Cash Flow, and (v) Notes to Financial Statements. The XBRL-related information in Exhibit 101 to this Quarterly Report on Form 10-Q shall not be deemed “filed” or as part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended and is not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of those sections.

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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)
		August 19, 2013