What drove up the price of OriginOil Inc.? And what brought it down?

The L.A. alternative fuel company’s stock price skyrocketed in early August when the company reduced the number of shares through a reverse stock split. Then last week shares plunged.

After the reverse stock split, the company’s shares jumped from 12 cents to $4 on the Over-the-Counter Bulletin Board. (On an adjusted basis, the share price would have gone from $3.60 to $4.) Shares continued to trade up, closing at a high of $5.50 on Aug. 22.

But last week, shares dropped 29 percent to close at $3 on Aug. 31, making OriginOil the biggest loser on the LABJ Stock Index. (See page 24.)

Riggs Eckelberry, the company’s chief executive, attributes the stock drop to investors’ desire to take profits from shares they couldn’t sell while the reverse split process was finalizing.

OriginOil, which develops technology to turn algae into fuel, completed its reverse split Aug. 11, reducing the number of outstanding shares by a 30-1 ratio.

In the weeks following, shareholders were not able to sell their shares because they were waiting for new stock certificates reflecting the reverse split. Meanwhile, Standard & Poor’s downgrade of the U.S. credit market and concerns over market instability in Europe caused extreme volatility in the overall markets.

Eckelberry said sell-off of OriginOil’s stock was the result of delayed investor concern about market conditions.

“When the market went crazy, all our shareholders were locked up by the whole (reverse stock split) transaction,” he said. “They could not sell. It was just a big plugged-up pipe. When the transaction pipeline opened up, people sold.”

The company also reported its second quarter earnings Aug. 15. Revenue was $40,500 compared with no revenue during the same quarter last year.

The company’s second quarter revenue is from a June 2010 deal with MBD Energy Ltd., an East Melbourne, Australia, company that developed technology to reduce pollution by recycling carbon dioxide. MBD has licensed technology from OriginOil, which began reporting revenue from that contract last December. It has since signed two additional contracts with MBD that won’t show up as revenue on its balance sheet until next year.

OriginOil is not yet profitable. The company had a second quarter net loss of $930,000, compared with an $815,000 net loss during the same period last year. Eckelberry attributed the wider loss to increased expenses for investor relations, customer acquisition, and research and development.

“We’re well funded to move ahead with our commercial plan, and we’re not hesitating,” he said. “Of course, you have to spend more money to get there.”

Marketplace move

Eckelberry plans to increase investor interest and analyst coverage of OriginOil by moving its shares from the Bulletin Board, where it trades under the ticker OOILD, to a major U.S. exchange. He declined to say which one.

The company completed the reverse split to raise its share price above $1, the amount that a stock must trade above for at least 30 consecutive days to be eligible to trade on Nasdaq or the New York Stock Exchange.

The boost in share price from the reverse split has raised the company’s profile. Chicago equity investment firm Zacks Investment Research began covering the company Aug. 26.

Zacks analyst Ian Gilson is bullish on the company, rating it “outperform” and giving it a $6-a-share six-month target price in a recent report.

But the algae biofuel industry is still young, and many investors might be wary about putting their money in unproven technology, said John Benemann, a consultant for Benemann Associates in Walnut Creek.

“The industry is still in the very early stages of development and it’s uncertain who will benefit,” he said.

But one positive sign for OriginOil’s public market plans was Solazyme Inc.’s initial public offering in May, Benemann said. The South San Francisco developer of plant-based fuel raised $198 million and now trades at $13.75 a share.

Eckelberry acknowledged that algae biofuel companies need to accelerate growth to become a more recognized alternative energy option.

“Algae has got to scale up,” he said. “Until it scales up, it’s not going to get a lot of support.”