originoil, inc

Analyst: Victor Sula, Ph.D.Report Update

October 28th, 2009

OriginOil, Inc. (OTCBB: OOIL) 1


October 28th, 2009

Company Introduction

OriginOil, Inc.5645 W Adams BlvdLos Angeles, CA 90016 Phone: (323) 939 6645Fax: (888) 317-1850E-mail: [email protected]: www.originoil.com

MARKET DATA

SymbolExchangeCurrent PriceRatingOutstanding SharesMarket Cap.Average 3M Volume

Source: Yahoo Finance, Analyst Estimates

OOILOTC BB

$0.34Speculative Buy

148.70 Mn$44.61 Mn

133,317

OriginOil Inc. (OOIL) is developing a portfolio of new technologies for producing oil from algae, a next-generation biofuel feedstock that may yield 30 times more energy per acre than crops such as soybeans. The biofuel produced by the OriginOil System can re-place petroleum in various applications such as diesel, gasoline, jet fuel, plastics and solvents. In addition, by-products of algae oil ex-traction can be used for animal feed. By creating a fuel that replaces fossil fuel, OOIL also helps producers garner saleable carbon cred-its. The OriginOil System may be operated as a stand-alone produc-tion system or connected in a parallel network. OOIL’s proprietary process is supported by intellectual property assets that include nine patent filings and two international Patent Cooperation Trea-ties (PCT).

Efficiently producing oil from algae in a closed system requires cul-tivating an algal strain with high lipid content and a rapid growth rate, which in turn requires the right combination of water, sun-light, nutrients and carbon dioxide. In addition, algae organisms are protected by a tough cell wall, which must be cracked to ex-tract the oil. This is normally an energy-intensive process. OOIL has successfully developed a cost-effective cultivation and extrac-tion system that is also safe and energy-efficient. The cultivation system, known as the Helix BioReactor™, is designed to increase and optimize photosynthetic growth of algae. This system has been deployed in laboratory prototypes and will be expanded for use in pilot systems in 2009. In December 2008, OOIL announced the suc-cessful automation of its Helix BioReactor™ system, which makes large-scale commercial algae production scalable. To help dissolve nutrients in the growth phase and solve the tough cell wall problem in the extraction phase, the Company has developed the Quantum

10/27/09

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Analyst: Victor Sula, Ph.D. Report Update

October 28th, 2009



October 28th, 2009


Fracturing™ process, which uses ultrasound to break down algae cells, much in the same way high-frequency sound waves break glass. Used in combination with tuned low-power microwave radiation, this process maxi-mizes oil yield while minimizing energy use. Recently, the Company announced advances in automated process control, LED-based lighting and continuous live oil extraction.

The Company’s technology produces “new oil” from algae, through a cost-effective, high-speed manufacturing process. Algae have long been recognized as a potential feedstock for producing biofuels, but a number of factors such as CO2 and nutrient delivery, light delivery, land use, extraction efficiency, and harvesting rates presented challenges to feasible algae-to-oil conversion.

The Company’s technology innovations have successfully addressed these challenges and made scalable, industrialized algae production possible. OOIL has integrated these innovations into a complete industrialized algae production system and the Company is emerging as a leading player in algae-to-oil production.

OOIL has filed numerous patents to protect its technology, including the following:

• 2007: Quantum Fracturing™: Achieves total and instantaneous distribution of CO2 and nutrients in the algae culture with minimal disruption.

• 2008: Helix BioReactor™: Enables multiple vertical growth planes by optimizing delivery of light.

• 2008: Modular and Scalable Growth System: Horizontal and vertical “stacking” of many Helix BioReactors into an integrated network of fully automated, portable, and remotely monitored growth units.

• 2008: Low Cost Oil Extraction Process: Energy efficient process through the used of tuned microwaves and Quantum Fracturing.

• 2008: Algae Closed Circuit System: On-site conversion and sequestration of algae biomass for electricity, with CO2 recovery to minimize carbon requirements, and cogeneration to maximize available energy.

• 2009: Optimizing Photosynthesis in a Photo Bioreactor: Additional improvements in photosynthesis using artificial lighting.

Technology Update

OOIL’s technology innovations

Source: http://www.originoil.com/pdf/OriginOil_Company_Presentation.pdf


October 28th, 2009



October 28th, 2009


• 2009: Single-Step Extraction™: A simplification of the algae harvesting process; combines Quantum Fracturing™ with electromagnetics and pH modification to bring about oil extraction, and self-separation of oil, water and biomass.

• 2009: Dynamic Control System: Bio-feedback process that improves energy efficiency and growth rates by ensuring the right types and amounts of light are used at all times as the algae grows to maturity.

• 2009: Live Extraction™: Achieves continuous production of algae oil without destroying the algae cell; does not employ expensive consumables and is not limited to oil-bearing algae strains,

• 2009: Methods and Apparatus for Growing Algae on a Solid Surface: an innovative production system using a type of algae that attaches itself to growth surfaces.

The above mentioned innovations have been combined to create an algae production system that optimizes the production of oil from algae.

Source: http://www.originoil.com/pdf/Optimized-Algae-Production-System.pdf


October 28th, 2009



October 28th, 2009


The Company presented its algae production model at the National Algae Association’s (NAA) quarterly conference in September 2009. OOIL explained its production model, inputs, outputs and efficiency indicators, commenting that maximum efficiency can be achieved by co-locating the algae production site with a wastewater treatment facility, resulting in profit margins exceeding 20%.

According to Barry Cohen, NAA’s Executive Director, OOIL is the first company to document and address productivity challenges of the algae-to-oil process. The Company’s model was well received by industry leaders because of its comprehensive data set, transparent assumptions and clarity regarding commercialization challenge.

The Company recently announced an innovative new production system using a type of algae that attaches itself to growth surfaces. The new system furthers clean water goals while generating algae for fuel and other valuable products in wastewater treatment plants. OOIL has filed a patent for its new attached growth system and plans to integrate the process into the demonstration algae system being built at its headquarters.

Growing algae in water is challenging because the growing algae thickens and blocks light. One solution is OriginOil’s Helix Bioreactor™ which puts the lights inside the tank. Another method is to rotate the algae periodically out of the water so it can be exposed to light. OOIL’s attached growth system uses types of algae that will attach to surfaces rotating in and out of the water, exposing the algae to sunlight or artificial light. At harvest time, the algae are scraped off as sludge, greatly reducing energy costs associated with dewatering during oil extraction.

In wastewater treatment plants, OOIL’s attached growth system can also be configured to encourage bacterial growth. Combining algal and bacterial growth makes for better nutrient extraction and supports clean water goals while making fuel and absorbing CO2.

The Company demonstrated algae production is more profitable when production sites are co-located with wastewater treatment facilities during its September 2009 presentation at NAA.

New Algae Growth System for Use in Wastewater Facilities


October 28th, 2009


Research Project with Department of Energy’s Idaho National Laboratory

OOIL’s Single Step Extraction™ Reaches Highest Oil Extraction Efficiency In collaboration with an advanced research lab at California State University, OOIL has optimized its Single Step Extraction process to achieve the highest industry level of algae oil extraction. Typical efficiency for oil extraction is 94-97%; OOIL can now consistently extract up to 97% of the oil from algae cells.

Harvesting algae is a challenge. Algae grow suspended in large volumes of water. Once ready for harvest, the algae culture must be concentrated and the oil extracted from each cell. Then, the oil, water and biomass must all be separated for processing. OOIL’s Single Step Extraction achieves all these steps in one pass requiring less than one hour and separates the oil, water and biomass by gravity alone. Unlike conventional methods, OIL’s single step process requires no chemicals, heavy machinery or initial dewatering.

With the performance efficiency of the Single Step Extraction process now validated, the Company can move forward with system level optimizations and pilot scale development with commercial partners.

OOIL is working with INL to develop a viable model for the commercial production of algae for biofuels and other value-added products. Phase 1 of a Cooperative Research and Development Agreement (CRADA) focused on developing a comprehensive mass-energy balance of OOIL’s proprietary process. This enabled the Company to develop a detailed productivity model incorporating INL data on projected efficiency and recovery values for the various steps involved in algae-growing, including lipid and biomass production from algae.

Phase 2 of the CRADA will focus on further process validation, economic modeling and improved biomass logistics for the scale up of algae biomass production. INL and OOIL are negotiating the scope and terms of Phase 2 and 3 of the CRADA. Deliverables for Phases 2-3 will include biological and chemical feedstock evaluation and scale-up demonstration. OOIL will identify and incorporate minor feeds (such as trace nutrients for algae), recycle streams, intermediate storage needs, energy requirements and waste streams. Equipment sizes and the appropriate number of parallel units may also be determined, resulting in a more robust model of an industrial scale system.

Single Step Extraction Process

Source: http://www.originoil.com/


October 28th, 2009



October 28th, 2009


The Company was featured on PBS Television’s internationally-recognized NOVA Science NOW as part of an educational segment on how algae can help reduce the world’s dependence on petroleum. The “From Pond Scum to Power” video segment features commentary by OOIL’s founder Riggs Eckelberry. It showed footage of the Company’s patent-pending Helix BioReactor™, representing the closed-system option for algae production, and a time lapse overview of the Single-Step Extraction™ process.

OOIL anticipates the algae-to-oil industry to be serviced by a network of application providers, service organizations, and manufacturers of both commodity and specialty equipment. The Company plans to sell its technology through this network, both as integrated technology and as branded devices, and to offer its services to help design, build and manage algae installations the world over. To help reach customers widely, it intends to develop regional partners to provide local manufacturing, sales, and services to regional end users.

The Company plans to license its technology mainly to fuel refiners, chemical and oil companies. Over the medium-term, OOIL plans to market its Single-Step Extraction process to algae producers worldwide, while continuing to optimize its end-to-end system.

The Company is building a demonstration prototype to test and refine its technology and initially deploy its system. OOIL also plans to eventually deploy its technology in large scale commercial production systems.

OOIL is currently developing a technology for cost-effectively producing bio-fuel from algae. The Company plans to eventually license this technology but has not yet signed any licensing agreements or generate licensing revenues.

Revenue

Selling and marketingGeneral and administrative expensesResearch & developmentDepreciation & amortization expenseTotal operating expenses

Operating incomeTotal other income/(expense)Net lossDiluted EPS

0

56,731172,266

73,36151

302,409

-302,4095,988

-302,409-0.002

0

200,365469,591

90,69513,943

774,594

-774,59463

-774,594-0.005

n/m

253%173%

24%27239%

156%

n/m-99%

n/mn/m

% ChgQ2 09 Q2 08

Income statement, $

Source: SEC Filings

Growing Visibility of OOIL Technology

Technology Commercialization Initiatives

Financial Analysis


October 28th, 2009


The Company’s operating expenses increased 156% year-over-year in Q2 09 to $774,594 as a result of increased marketing expense, new hires, higher professional fees and rent and increased R&D investment. OOIL’s net loss rose by $478,110 to $774,531 for Q2 09 because of higher operating costs.

Liquidity and capital resources

As of June 30, 2009, OOIL had working capital of $350,202, down from $731,180 one year earlier. The working capital decline is attributable to ongoing investment in building the business and preparing the Company’s technologies for commercialization.

Since its inception, the Company has consumed cash flow in its operations. Cash flow will likely remain negative for the foreseeable future. As a result, OOIL must raise additional capital to fund its research and development activities and ongoing operations. During the six months ended June 30, 2009, the Company raised $904,200 by issuing 4.5 million shares at $0.20 per share and completed a private placement of 5.7 million shares which generated net proceeds of $1,151,350.

The Company has reported significant progress since our last update, including further refinements to its Optimized Algae Production System which has been updated with new, patent-pending technology innovations. OOIL introduced its comprehensive algae production model at the National Algae Association’s (NAA) quarterly conference in September 2009. In addition, the Company has proven that its Single Step Extraction Process can consistently achieve the highest level of industry efficiency by consistenly extracting 97% of the oil from algae cells.

The Company has created an algae production process that can be co-located with a wastewater treatment facility to maximize productivity and profits and has developed and is patenting a production system that uses a type of algae that attaches itself to growth surfaces. OOIL’s technology progress and increasing visibility as a leading player in the algae-to-oil production segment are reasons we are maintaining our Speculative Buy rating.

Cash and cash equivalentsTotal current assetsTotal other assetsTotal assets

Total liabilitiesTotal shareholders’ equity, includingAccumulated deficit

967,450990,151143,606

1,133,757

18,4441,115,313

-1,401,133

216,374236,031164,276400,307

38,292362,015

-2,622,883

580,055596,984167,726764,710

70,481694,229

-1,952,369

380,820388,706150,333539,039

38,504500,535

-3,397,413

Sept 30, 2008 Dec 31, 2008 Mar 31, 2009 Jun 30, 2009

Balance sheet $

Source: SEC Filings

Analyst Summary


October 28th, 2009


Disclaimer

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The report is a service of BlueWave Advisors, LLC, a financial public relations firm that has been compensated by the companies profiled. All direct and third party compensation received has been disclosed within each individual profile in accordance with section 17(b) of the Securities Act of 1933. This compensation constitutes a conflict of interest as to our ability to remain objective in our communication regarding the profiled companies. BlueWave Advisors, LLC, and/or its affiliated will hold, buy, and sell securities in the companies profiled. When compensated in shares, all readers should be aware that is our policy to liquidate all shares immediately. We reserve the right to buy or sell the shares of any the com-panies mentioned in any materials we produce at any time. This compensation constitutes a conflict of interest as to our ability to remain objective in our communication regarding the profiled companies. BeaconEquity.com is a Website wholly-owned by BlueWave Advisors, LLC, which has been compensated nine hundred and ninety thousand ninety one restricted rule 144 shares for advertising and promotion; BlueWave was also previously compensated a total of eighty thousand dollars directly from OOIL for services that have expired, as a marketing budget to manage a comprehensive investor awareness program including the creation and distribution of this report as well as other investor relations efforts.

Information contained in our report will contain “forward looking statements” as defined under Section 27A of the Securities Act of 1933 and Section 21B of the Securities Exchange Act of 1934. Subscribers are cautioned not to place undue reliance upon these forward looking statements. These forward looking statements are subject to a number of known and unknown risks and uncertainties outside of our control that could cause actual operations or results to differ materially from those anticipated. Factors that could affect performance include, but are not limited to, those factors that are discussed in each profiled company’s most recent reports or registration statements filed with the SEC. You should consider these factors in evaluating the forward looking statements included in the report and not place undue reliance upon such statements.

We are committed to providing factual information on the companies that are profiled. However, we do not provide any assurance as to the accuracy or completeness of the informa-tion provided, including information regarding a profiled company’s plans or ability to effect any planned or proposed actions. We have no first-hand knowledge of any profiled company’s operations and therefore cannot comment on their capabilities, intent, resources, nor experience and we make no attempt to do so. Statistical information, dollar amounts, and market size data was provided by the subject company and related sources which we believe to be reliable.

To the fullest extent of the law, we will not be liable to any person or entity for the quality, accuracy, completeness, reliability, or timeliness of the information provided in the report, or for any direct, indirect, consequential, incidental, special or punitive damages that may arise out of the use of information we provide to any person or entity (including, but not limited to, lost profits, loss of opportunities, trading losses, and damages that may result from any inaccuracy or incompleteness of this information).We encourage you to invest carefully and read investment information available at the websites of the SEC at http://www.sec.gov and FINRA at http://www.finra.org.

All decisions are made solely by the analyst and independent of outside parties or influence.

I, Victor Sula, Ph.D, the author of this report, certify that the material and views presented herein represent my personal opinion regarding the content and securities included in this report. In no way has my opinion been influenced by outside parties, nor has my compensation been either directly or indirectly tied to the performance of any security listed. I certify that I do not currently own, nor will own and shares or securities in any of the companies featured in this report.

Victor Sula, Ph.D. - Senior Analyst

Victor Sula, Ph.D. has held the position of Senior Analyst with several independent investment research firms since 2004. Prior to 2004, Mr. Sula held Senior Financial Consultant posi-tions within the World Bank sponsored Agency for Restructuring and Enterprise Assistance and TACIS sponsored Center for Productivity and Competitiveness of Moldova, where he was involved in corporate reorganization and liquidation. He is also employed as Associate Professor at the Academy of Economic Studies of Moldova. Mr. Sula earned his Ph.D. degree in 2001 and bachelor’s degree in Finance in 1997 from the Academy of Economic Studies of Moldova. Mr. Sula is currently a level III candidate in the CFA program.

originoil, inc

Documents

originoil system

cultivation system

algae organisms

algae cells

new oil

closed system

photosynthetic growth

victor sula