Item 1.  Financial Statements.

 

ORIGINOIL, INC.

(A Development Stage Company)

BALANCE SHEETS

		(Unaudited)
		June 30, 2008			December 31, 2007
ASSETS
CURRENT ASSETS
Cash and cash equivalents		$	739,043		$	1,267,670
Prepaid expense			10,000			-
Total Current Assets			749,043			1,267,670
PROPERTY & EQUIPMENT, at cost
Machinery and equipment			1,373			-
Furniture and fixtures			2,821			-
Computer equipment			2,584			-
			6,778			-
Less accumulated depreciation			(568	)		-
			6,210			-
OTHER ASSETS
Patent			3,561			3,561
Trademark			4,467			4,467
Security deposit			9,650			650
Total Other Assets			17,678			8,678
TOTAL ASSETS		$	772,931		$	1,276,348
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accrued expenses		$	4,181			14,762
Credit card payable			869			159
Other payable			2,887			-
Payroll taxes payable			9,926			15,120
TOTAL LIABILITIES			17,863			30,041
SHAREHOLDERS' EQUITY
Preferred stock, $0.0001 par value; 50,000 authorized preferred shares Common stock, $0.0001 par value; 500,000,000 authorized common shares 143,430,050 shares issued and outstanding, respectively			14,343			14,343
Additional paid in capital			1,678,055			1,678,055
Deficit accumulated during the development stage			(937,330	)		(446,091	)
TOTAL SHAREHOLDERS' EQUITY			755,068			1,246,307
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY		$	772,931		$	1,276,348

 

The accompanying notes are an integral part of these financial statements

 

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ORIGINOIL, INC.

(A Development Stage Company)

STATEMENTS OF OPERATIONS

(Unaudited)

											From Inception
		Three Months						Six Months			June 1, 2007
		Ended			Period Ended			Ended			through
		June 30, 2008			June 30, 2007			June 30, 2008			June 30, 2008
REVENUE		$	-		$	-		$	-		$	-
OPERATING EXPENSES
General and administrative expenses			228,997			53,181			396,127			842,022
Research & development			73,361			-			111,784			123,215
Depreciation & amortization expense			51			-			568			568
TOTAL OPERATING EXPENSES			302,409			53,181			508,479			965,805
LOSS FROM OPERATIONS BEFORE OTHER INCOME			(302,409	)		(53,181	)		(508,479	)		(965,805	)
OTHER INCOME
Interest income			99			3			1,837			11,535
Dividend income			5,889			-			13,420			15,225
Capital gains			-			-			-			107
Tax exempt interest			-			-			1,983			1,983
Interest expense			-			-			-			(375	)
TOTAL OTHER INCOME/(EXPENSE)			5,988			3			17,240			28,475
NET LOSS		$	(296,421	)	$	(53,178	)	$	(491,239	)	$	(937,330	)
BASIC AND DILUTED LOSS PER SHARE		$	(0.00	)	$	(0.00)		$	(0.00	)
WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING
BASIC AND DILUTED			143,430,050			-			143,430,050

 

The accompanying notes are an integral part of these financial statements

 

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ORIGINOIL, INC.

(A Development Stage Company)

STATEMENT OF SHAREHOLDERS' EQUITY

											Deficit
											Accumulated
								Additional			during the
		Common stock						Paid-in			Development
		Shares			Amount			Capital			Stage			Total
Balance at December 31, 2007			143,430,050		$	14,343		$	1,678,055		$	(446,091	)	$	1,246,307
Net Loss for the period ended June 30, 2008 (unaudited)												(491,239	)		(491,239	)
Balance at June 30, 2008 (unaudited)			143,430,050		$	14,343		$	1,678,055		$	(937,330	)	$	755,068

The accompanying notes are an integral part of these financial statements

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ORIGINOIL, INC.

(A Development Stage Company)

STATEMENTS OF CASH FLOWS

(Unaudited)

								From Inception
		Six Months						June 1, 2007
		Ended			Period Ended			through
		June 30, 2008			June 30, 2007			June 30, 2008
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss		$	(491,239	)	$	(53,178	)	$	(937,330	)
Adjustment to reconcile net loss to net cash used in operating activities
Depreciation			568			-			568
Contributed capital by investor			-			-			375
Common stock issued for services			-			-			5,000
(Increase) Decrease in:
Prepaid expenses			(10,000	)		(15,000	)		(10,000	)
Deposits			(9,000	)		(650	)		(9,650	)
Advances to Officers			-			(2,750	)		-
Other assets			-			-			(8,028	)
Increase (Decrease) in:
Accounts payable			-			11,612			-
Accrued expenses			(10,581	)		-			4,181
Credit card payable			710			278			869
Payroll taxes payable			(5,194	)		13,489			9,926
Other liabilities			2,887			-			2,887
NET CASH USED IN OPERATING ACTIVITIES			(521,849	)		(46,199	)		(941,202	)
CASH FLOWS USED IN INVESTING ACTIVITIES:
Purchase of equipment			(6,778	)		-			(6,778	)
NET CASH USED BY INVESTING ACTIVITIES			(6,778	)		-			(6,778	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from loan payable			-			75,000			-
Proceeds from investors to purchase common stock			-			22,563			-
Proceeds from stock issuance			-			-			1,687,023
NET CASH PROVIDED BY FINANCING ACTIVITIES			-			97,563			1,687,023
NET INCREASE IN CASH			(528,627	)		51,364			739,043
CASH, BEGINNING OF PERIOD			1,267,670			-			-
CASH, END OF PERIOD		$	739,043		$	51,364		$	739,043
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Interest paid		$	-		$	-		$	-
Taxes paid		$	-		$	-		$	-

 

The accompanying notes are an integral part of these financial statements

 

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ORIGINOIL, INC.

(A Development Stage Company)

NOTES TO FINANCIAL STATEMENTS-UNAUDITED

JUNE 30, 2008

 

1.	BASIS OF PRESENTATION

The accompanying unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all normal recurring adjustments considered necessary for a fair presentation have been included. Operating results for the six month period ended June 30, 2008 are not necessarily indicative of the results that may be expected for the year ending December 31, 2008. 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, 2007.

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 since its’ inception, and believes this funding will continue, and is also actively seeking new investors. Management believes the existing shareholders and the prospective new investors will provide the additional cash needed to meet the Company’s obligations as they become due, and will allow the development of its core of business.

2.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

Development Stage Activities and Operations

The Company is in its initial stages of formation and has insignificant revenues. FASB #7 defines a development stage activity as one in which all efforts are devoted substantially to establishing a new business and even if planned principal operations have commenced, revenues are insignificant.

Revenue Recognition

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

Cash and Cash Equivalent

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

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ORIGINOIL, INC.

(A Development Stage Company)

NOTES TO FINANCIAL STATEMENTS-UNAUDITED

JUNE 30, 2008

 

2.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Loss per Share Calculations

The Company adopted Statement of Financial Standards (“SFAS”) No. 128 for the calculation of “Loss per Share”. SFAS No. 128 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. The Company’s diluted loss per share is the same as the basic loss per share for the period ended June 30, 2008 as the inclusion of any potential shares would have had an anti-dilutive effect due to the Company generating a loss.

3.	CAPITAL STOCK

During the six months ended June 30, 2008, the Company issued no shares of common stock.

4.	INCOME TAXES

The Company files income tax returns in the U.S. Federal jurisdiction, and the state of California. With few exceptions, the Company is no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations by tax authorities for years before 2006.

The Company adopted the provisions of FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes, on January 1, 2007. Deferred income taxes have been provided by temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for tax purposes. To the extent allowed by GAAP, we provide valuation allowances against the deferred tax assets for amounts when the realization is uncertain.

Included in the balance at June 30, 2008, are no tax positions for which the ultimate deductibility is highly certain but for which there is uncertainty about the timing of such deductibility. Because of the impact of deferred tax accounting, other than interest and penalties, the disallowance of the shorter deductibility period would not affect the annual effective tax rate but would accelerate the payment of cash to the taxing authority to an earlier period.

The Company's policy is to recognize interest accrued related to unrecognized tax benefits in interest expense and penalties in operating expenses.

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

This Report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These statements relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as "may," "will," "should," "expect," "plan," "anticipate," "believe," "estimate," "predict," "potential" or "continue," the negative of such terms, or other comparable terminology. These statements are only predictions. Actual events or results may differ materially from those in the forward-looking statements as a result of various important factors. Although we believe that the expectations reflected in the forward-looking statements are reasonable, such should not be regarded as a representation by OriginOil, Inc., or any other person, that such forward-looking statements will be achieved. The business and operations of OriginOil, Inc. and its subsidiaries are subject to substantial risks, which increase the uncertainty inherent in the forward-looking statements contained in this Report.

The following discussion and analysis should be read in conjunction with the Consolidated Financial Statements and related notes included elsewhere in this Report.

Overview

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

The Company’s business model is based on licensing this technology to customers such as fuel refiners, chemical and oil companies. The Company is not in the business of producing and marketing oil or fuel, based on algae, as an end product.

A host of factors, including rising oil prices, global warming, and the rapid industrialization of China and India, have greatly increased the demand for a renewable alternative to petroleum. With new technology, algae can be grown economically to replace petroleum.

There are three primary challenges in cultivating algae for oil:

·

Algae growth is dependent on a calm fluid environment; it does not like agitation. One of the primary challenges is how to optimally introduce carbon dioxide (CO2) and nutrients needed by the growing algae culture without disrupting or over-aerating it.

 

·

Algae requires light as a source of energy to fuel its growth and oil production facilities. Algae cultivation systems need to distribute light cost-effectively and evenly within the algae culture.

 

·

Algae organisms are protected by a tough cell wall. That wall must be cracked — normally an energy-expensive process — to extract the oil. The challenge is to maximize oil yield by cracking as many of the algae cells as possible with the smallest amount of energy.

 

To meet these challenges, the Company is developing a portfolio of proprietary technologies, including Quantum Fracturing™ and the Helix BioReactor™.

Quantum Fracturing

Quantum Fracturing, the Company’s patent-pending technology, based on the science of mass transfer and fluid fracturing, addresses, and overcomes, all three challenges above. It works at the microscopic level to unlock many biological and chemical properties that massively enhance the efficiency of algae production and oil extraction.

 

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In Quantum Fracturing, water, carbon dioxide and other nutrients are fractured at very high pressure to create a slurry of micron-sized bubbles, which is then injected into the algae culture awaiting it in a lower-pressure growth vessel, the bioreactor. This process can theoretically achieve total and instantaneous distribution of nutrients to every algae cell in the culture without fluid disruption or aeration. The pressure differentials between the two zones substantially increase contact and exchange between the micronized nutrients and the algae cells.

Helix BioReactor

The heart of the Company’s system is the Helix BioReactor, an advanced algae growth system that can grow multiple layers of algae biomass around-the-clock with daily harvest. In a natural pond, the sun only illuminates one layer of algae growth, down to about half an inch below the surface. In contrast, the Helix Bioreactor features a rotating vertical shaft with very low energy lights arranged in a helix or spiral pattern, which results in a theoretically unlimited number of layers. Additionally, each lighting element is engineered to produce specific light waves and frequencies for optimal algae growth.

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

Solvent-Free Extraction Process

Algae walls, which encase the oil, are resilient and difficult to break down, and the process of cracking algae cells to release the oil, known as lysing, has long represented a big challenge for the algae-to-oil industry. Mechanical methods to do so are energy-intensive and often ineffective; commonly-used chemical solvents such as benzene, ether or hexane are toxic and require careful handling. Such practices increase operating costs and make it harder to site algae production systems.

The Company has developed a new algae oil extraction process that does not use chemical solvents. Algae biomass is first sent through a shielded wave guide system where it receives low-wattage, frequency-tuned microwave bursts that break the cell walls. Quantum Fracturing is then applied to the now pre-cracked cells to complete the oil extraction with ease. This unique approach makes low-energy and environmentally-safe algae oil production a reality.

Modular and Scalable System 

To reach the production levels necessary to realistically replace petroleum as an energy source, an algae growth system must be fully scalable. The Company’s system to enhance and optimize algae growth allows both horizontal and vertical “stacking” of many Helix BioReactors into an integrated network of fully automated, portable, and remotely monitored growth units.

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

The Company’s business model is based on licensing this technology to customers such as fuel refiners, chemical and oil companies. The technologies we will use to transform algae into a new form of oil, however, have never been utilized on a commercial basis.

 

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Critical Accounting Policies

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

Revenue Recognition

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

Use of Estimates

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

 

Fair Value of Financial Instruments

SFAS No. 107, “Disclosures About 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 December 31, 2007, the amounts reported for cash, accounts receivable, accounts payable, accrued interest and other expenses, and notes payable approximate the fair value because of their short maturities.

 

Recently Issued Accounting Pronouncements

In December 2004, the Financial Accounting Standards Board issued two FASB Staff Positions - FSP FAS 109-1, Application of FASB Statement 109 "Accounting for Income Taxes" to the Tax Deduction on Qualified Production Activities Provided by the American Jobs Creation Act of 2004, and FSP FAS 109-2 Accounting and Disclosure Guidance for the Foreign Earnings Repatriation Provision within the American Jobs Creation Act of 2004. Neither of these affected the Company as it does not participate in the related activities.

 

In May 2005, the FASB issued FASB Statement No. 154, “Accounting Changes and Error Corrections.” This new standard replaces APB Opinion No. 20, “Accounting Changes, and FASB Statement No. 3, Reporting Accounting Changes in Interim Financial Statements,” and represents another step in the FASB’s goal to converge its standards with those issued by the IASB. Among other changes, Statement 154 requires that a voluntary change in accounting principle be applied retrospectively with all prior period financial statements presented on the new accounting principle, unless it is impracticable to do so. Statement 154 also provides that (1) a change in method of depreciating or amortizing a long-lived non-financial asset be accounted for as a change in estimate (prospectively) that was effected by a change in accounting principle, and (2) correction of errors in previously issued financial statements should be termed a “restatement.” The new standard is effective for accounting changes and correction of errors made in fiscal years beginning after December 15, 2005. Early adoption of this standard is permitted for accounting changes and correction of errors made in fiscal years beginning after June 1, 2005. The Company has evaluated the impact of the adoption of Statement 154 and does not believe the impact will be significant to the Company's overall results of operations or financial position

 

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As of December 31, 2007, the Company adopted Financial Accounting Standards No. 123 (revised 2004), “Share-Based Payment” (FAS) No. 123R, that addresses the accounting for share-based payment transactions in which an enterprise receives employee services in exchange for either equity instruments of the enterprise or liabilities that are based on the fair value of the enterprise’s equity instruments or that may be settled by the issuance of such equity instruments. The statement eliminates the ability to account for share-based compensation transactions, as we formerly did, using the intrinsic value method as prescribed by Accounting Principles Board, or APB, Opinion No. 25, “Accounting for Stock Issued to Employees,” and generally requires that such transactions be accounted for using a fair-value-based method and recognized as expenses in our statement of income. The adoption of (FAS) No. 123R by the Company had no material impact on the statement of income.

Results of Operations

Revenues

Currently the Company is in its development stage and has no revenues for the three months and six months ended June 30, 2008. We were incorporated in the State of Nevada on June 1, 2007.

Item 1.  Legal Proceedings.

 

 

Not Applicable.

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

Item 3.  Defaults Upon Senior Securities.

Not applicable.

Item 4.  Submission of Matters to a Vote of Security Holders.

Not applicable.