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EX-32.1 - EXHIBIT 32.1 - Digital Locations, Inc.ex321.htm
EX-31.1 - EXHIBIT 31.1 - Digital Locations, Inc.ex311.htm
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K
(Mark One)
 
x
ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
   
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2010
     
     
 
o
TRANSITION REPORT UNDER SECTION13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
   
 FOR THE TRANSITION PERIOD FROM __________ TO __________
 
COMMISSION FILE NUMBER: 333-144931

CARBON SCIENCES, INC.
(Name of registrant in its charter)

NEVADA
(State or other jurisdiction of incorporation or organization)
20-5451302
(I.R.S. Employer Identification No.)

5511C Ekwill Street, Santa Barbara, CA 93111
 (Address of principal executive offices) (Zip Code)

Issuer’s telephone Number: (805) 456-7000

Securities registered under Section 12(b) of the Exchange Act: None.
Securities registered under Section 12(g) of the Exchange Act: None

Indicate by check mark whether the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes  o  No  x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes  o   No  x

              Indicate by check mark whether the registrant (1) has filed all reports required by Section 13 or 15(d) of the Securities 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 during the preceding 12 months (or such shorter period that the registrant was required to submit and post such files.   Yes [ ] No [ ]

                Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  x
 
                Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer [ ]       Accelerated Filer []      
Non-accelerated filer [ ] (Do not check if a smaller reporting company)     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 aggregate market value of the common stock held by non-affiliates of the registrant, based upon the last sale price of the common stock reported on the OTC-Bulletin Board on June 30, 2010 was $15,368,014.

The number of shares of registrant’s common stock outstanding, as of March 30, 2011 was 220,778,697
 
DOCUMENTS INCORPORATED BY REFERENCE
 
None.
 
 
i

 
 
TABLE OF CONTENTS
 

 
Page
PART I
Item 1.       Business
1
Item 1A.    Risk Factors
4
Item 2.       Properties
7
Item 3.       Legal Proceedings
7
Item 4.       Removed and Reserved
7
   
PART II
Item 5.       Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
8
Item 6.       Selected Financial Data
9
Item 7.       Management’s Discussion and Analysis of Financial Condition and Results of Operations
9
Item 8.       Financial Statements and Supplementary Data
12
Item 9.       Changes In and Disagreements with Accountants on Accounting and Financial Disclosure
12
Item 9A.    Controls and Procedures
13
Item 9B.     Other Information
13
   
PART III
Item 10.     Directors, Executive Officers and Corporate Governance;
13
Item 11.     Executive Compensation
15
Item 12.     Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
16
Item 13.     Certain Relationship and Related Transactions, and Director Independence
17
Item 14.     Principal Accounting Fees and Services
17
Item 15.     Exhibits
17
   
SIGNATURES
18
 
 
ii

 

PART I

ITEM 1.       BUSINESS.

INTRODUCTION

Carbon Sciences, Inc. (“Carbon Sciences”, the “Company”, “we”, “us”, or “our”) is currently developing a technology to convert the greenhouse gas, carbon dioxide (CO2), into gasoline and other fuels.

The fuels we use today, such as gasoline and jet fuel, are made up of chains of hydrogen and carbon atoms aptly called hydrocarbons. In general, the greater the number of carbon atoms there are in a hydrocarbon molecule, the greater the energy content of that fuel. For example, gasoline has hydrocarbons with 7 to 10 carbon atoms and jet fuel has 10 to 16 carbon atoms. Hydrocarbons are naturally occurring in fuel sources such as petroleum and natural gas. To create fuel, hydrogen and carbon atoms must be bonded together to create hydrocarbon molecules.

Carbon Sciences is developing a breakthrough CO2 based gas-to-liquids (“CO2-GTL”) fuel technology to transform greenhouse gases into liquid portable fuels such as gasoline, diesel and jet fuel.

Our CO2-GTL platform is comprised of several novel and highly scalable technology modules that transform CO2 and methane gas into liquid fuels.  Methane can be obtained from many sources such as natural gas fields, landfills and plant biomass.  Each module can be a standalone fuel production process or connected together to produce multiple fuel products.  When developed, a CO2-to-Methane module will provide an end-to-end solution for transforming CO2 emissions from coal-fired power plants and cement factories into gasoline, without methane.

Our next generation CO2-GTL technology will be able to process syngas (CO + H2) into liquid fuels as well.

Our corporate mission is to enable a sustainable world of fuel consumption and climate stability by transforming CO2 into fuel. When commercially developed, our CO2-to-Fuel technology can be used to transform CO2 emitted from fossil fuel power plants into gasoline, to power our cars.
 
We were incorporated in the State of Nevada on August 25, 2006, as Zingerang, Inc. Our name was changed to Carbon Sciences, Inc. on April 9, 2007. Our principal executive offices are located at 5511C Ekwill Street, Santa Barbara, California 93111, and our telephone number is (805) 456-7000. Our fiscal year end is December 31.

Industry Overview

With a growing global population, worldwide energy consumption will increase by 50% from 2005 to 2030.  This increase translates to a requirement of over 112 million barrels of crude oil per day, up from the current 90 million barrels per day. The biggest use of crude oil is in the production of liquid fuels for the transportation sector. (Source: Energy Information Administration - International Energy Outlook 2008)

Liquid fuels, such as gasoline, are expected to remain the world's most dominant fuel because of their importance in the transportation and industrial sector since there are few alternatives. The transportation sector alone accounts for 74% of the total projected increase from 2005 to 2030, with the industrial sector accounting for the remainder. This increase in demand is largely the result of the rapid modernization of developing countries, such as China and India, which account for more than 85% of the projected increase. Management believes this increasing demand is likely to sustain high world oil prices for a long period of time.  (Source: Energy Information Administration - International Energy Outlook 2008)

The continual use of fossil fuels creates two very important problems with profound implications on humanity. First, carbon dioxide (CO2) emissions from the use of fossil fuels are believed to be the cause of global warming and climate change.  In 2005, the Energy Information Administration projected that annual CO2 emissions will increase from 28 billion metric tons in 2005 to 34 billion metric tons in 2015 and over 42 billion metric tons in 2030. The largest and most concentrated source of CO2 emissions is the growing use of coal-powered electricity generation, especially in developing countries where coal is abundant and inexpensive. Second, fossil fuels are non-renewable resources because they take millions of years to form. Management believes that at some point in the future, there will not be enough supply and production capacity to meet the oil demands of the world. Based on historic growth trends, crude oil production is projected to peak in 2037 at a volume of 53 billion barrels per year.

We believe that transforming CO2, a major byproduct of fossil fuel usage and industrialization, back into a fuel, can enable a sustainable world of energy consumption and growth.

 
1

 

Research and Development

We have hired technical personnel and have retained a number of scientific advisors and technical consultants to help us develop and commercialize our CO2-to-Fuel technology and system.  We have purchased and developed research apparatus that enables us to refine our methodology and demonstrate our technology.  We have entered into an agreement with Emerging Fuels Technology based in Tulsa, OK to provide laboratory services to support the development of our catalytic process to convert CO2 and methane into syngas.  Using computer aided process engineering (CAPE) tools, we plan to develop a detailed computer simulation model that will allow us to (a) demonstrate the commercial viability of our CO2-to-Fuel system and (b) to design and build a pilot plant.
 
Marketing Strategy

Once we have completed our product development, we intend to create a favorable market environment to license our CO2-to-Fuel technology.  We intend to enhance, promote and support the entry of our technology system into the marketplace. Our goal is to position our CO2-to-Fuel technology as a commercially viable method of producing liquid fuel from CO2.

Our marketing communications strategy will include media and analyst communication, blogs, and selected trade show attendance. We will be using appropriate opportunities to place our brand in general and industry specific publications, using press releases, white papers and authored articles and Internet publications.

Backlog of Orders

There are currently no orders for sales at this time.

Government Contracts

There are no government contracts at this time.
 
Compliance with Environmental Laws and Regulations
 
Our operations are subject to local, state and federal laws and regulations governing environmental quality and pollution control. To date, our compliance with these regulations has had no material effect on our operations, capital, earnings, or competitive position, and the cost of such compliance has not been material. We are unable to assess or predict at this time what effect additional regulations or legislation could have on our activities.
 
Manufacturing and Distribution
 
We currently do not have any mechanism for the manufacture and distribution of products using our CO2-to-Fuel technology, nor do we have adequate financing to undertake these efforts on our own. We intend to outsource manufacturing and distribution efforts to existing manufacturing and distributions firms in the development of our pilot systems.  We currently intend to only license our technology when it has demonstrated commercial viability.

Intellectual Property

On February 17, 2009, we filed an initial patent application with the U.S. Patent and Trademark Office to protect the intellectual property rights for our CO2-to-Fuel technology. The patent application, "A Biocatalytic Process and System to Transform Carbon Dioxide into Methanol," details a complete Process Flow Diagram ("PFD") for a system that takes CO2 directly from a large emitter, such as a coal-fired power plant, and transforms it into methanol, a low level fuel, using our proprietary biocatalytic process. The resulting methanol is usable directly as a fuel, or it can be used as a building block to create higher-level fuels such as gasoline, butanol and jet fuel. We also anticipate filing a number of additional patent applications related to our CO2-to-Fuel technology.

 
2

 
 
On October 7, 2009, we filed a patent application titled “Smart Nano-Particle technology for converting CO2 to fuel through a biocatalyst-mediated multi-step reaction.” This invention describes a nano-structured smart particle system which is designed to enhance the biocatalysis of a multi-step CO2 conversion to methanol. The nano-structured particles, i.e., vesicles, are spontaneously formed through molecular self assembly of block copolymers forming a “supramolecule” structure with nanoscopic dimensions. The supramolecule vesicle provides a two-shell structure which contains the enzymes and cofactor for multi-step conversion of CO2 to fuel and in-situ cofactor regeneration. Thus, within the domains of these nanoscopic particles, this invention can accomplish the reduction of CO2 to fuel and cofactor regeneration. This type of nano-structure assembly can thus provide an appropriate scale-up strategy for converting CO2 to methanol through a low energy reaction.
 
On November 24, 2010, a search of industry literature undertaken to file a patent to protect its most recent development of catalysts for transforming greenhouse gases into gasoline revealed that similar research and development has been published by others in the field. As a result, we intend to modify its development efforts in such a way that its work can be patent protected.
 
On December 23, 2010, we entered in to an Exclusive License Agreement with the University of Saskatchewan (“UOS”), Canada, pursuant to which we have an exclusive, worldwide, sub-licensable, royalty-bearing right and license to make, have made, use, offer for sale, sell, reproduce, distribute, incorporate into other technology, or otherwise exploit certain patent-pending technology and relevant improvements from UOS, for a high performance catalyst for the dry reforming of methane with carbon dioxide for the production of synthesis gas.  This license agreement commences on December 23, 2010, and will continue until the expiration date of the last of the licensed patents to expire.

Competition

The market for liquid fuel is large as well as the number of competitors providing technology to the fuel industry.  For example, companies that offer fuel production technologies include UOP, Chevron, Shell, BP and Exxon.  However, we are not aware of any company marketing a commercially viable technology to transform CO2 directly into usable liquid fuel.  As a technology provider, we see ourselves more of a partner, than a competitor, to the fuel technology companies.

The closest competitors we can identify are biofuel technology providers where plants such as corn, sugarcane, switchgrass and algae are grown for their oil contents and biomass as feedstocks for fuel production. These technology providers and the biofuel industry in general are very much in their infancy.  We are not aware of any commercially viable and globally scalable renewable fuel technology.  First generation biofuel such as corn and sugarcane ethanol have proven to be unscalable because they use up valuable farm land and drive up the price of food worldwide.  

Unlike plant based biofuels where CO2 is sequestered into complex energy molecules, which are then broken down into fuel equivalent hydrocarbons, our CO2-to-Fuel technology transforms CO2 directly into fuel equivalent hydrocarbons.

Technology Development Partners

We may enter into technology development partnerships with other companies.
 
EMPLOYEES

As of March 30, 2011 we had 3 full-time employees.  We have not experienced any work stoppages and we consider relations with our employees to be good.

 
3

 

ITEM 1A.       RISK FACTORS

RISKS RELATED TO OUR BUSINESS AND INDUSTRY

OUR LIMITED OPERATING HISTORY DOES NOT AFFORD INVESTORS A SUFFICIENT HISTORY ON WHICH TO BASE AN INVESTMENT DECISION.

We were formed in August 2006 and are currently developing a new technology that has not yet gained market acceptance. There can be no assurance that at this time we will operate profitably or that we will have adequate working capital to meet our obligations as they become due.

Investors must consider the risks and difficulties frequently encountered by early stage companies, particularly in rapidly evolving markets. Such risks include the following:
 
·
competition;
 
·
need for acceptance of products;

 
·
ability to continue to develop and extend brand identity;
 
·
ability to anticipate and adapt to a competitive market;

 
·
ability to effectively manage rapidly expanding operations;
 
·
amount and timing of operating costs and capital expenditures relating to expansion of our business, operations, and infrastructure; and

 
·
dependence upon key personnel.

We cannot be certain that our business strategy will be successful or that we will successfully address these risks. In the event that we do not successfully address these risks, our business, prospects, financial condition, and results of operations could be materially and adversely affected. 
 
WE MAY BE UNABLE TO MANAGE OUR GROWTH OR IMPLEMENT OUR EXPANSION STRATEGY.

We may not be able to expand our product and service offerings, our client base and markets, or implement the other features of our business strategy at the rate or to the extent presently planned. Our projected growth will place a significant strain on our administrative, operational and financial resources. If we are unable to successfully manage our future growth, establish and continue to upgrade our operating and financial control systems, recruit and hire necessary personnel or effectively manage unexpected expansion difficulties, our financial condition and results of operations could be materially and adversely affected.

WE MAY NOT BE ABLE TO SUCCESSFULLY DEVELOP AND COMMERCIALIZE OUR TECHNOLOGIES WHICH WOULD RESULT IN CONTINUED LOSSES AND MAY REQUIRE US TO CURTAIL OR CEASE OPERATIONS.

We are currently developing our technology and a commercial product. We have not generated any revenues and we are unable to project when we will achieve profitability, if at all. As is the case with any new technology, we expect the development process to continue. We cannot assure that our engineering resources will be able to develop the product fast enough to meet market requirements. There can also be no assurance that our product will gain market acceptance and that we will be able to successfully commercialize the technologies. The failure to successfully develop and commercialize the technologies would result in continued losses and may require us to curtail or cease operations.

OUR REVENUES ARE DEPENDENT UPON ACCEPTANCE OF OUR PRODUCTS BY THE MARKET; THE FAILURE OF WHICH WOULD CAUSE TO CURTAIL OR CEASE OPERATIONS.

We believe that virtually all of our revenues will come from the sale or license of our products. As a result, we will continue to incur substantial operating losses until such time as we are able to generate revenues from the sale or license of our products. There can be no assurance that businesses and customers will adopt our technology and products, or that businesses and prospective customers will agree to pay for or license our products. In the event that we are not able to significantly increase the number of customers that purchase or license our products, or if we are unable to charge the necessary prices or license fees, our financial condition and results of operations will be materially and adversely affected..
 
 
4

 
    
WE DO NOT MAINTAIN THEFT OR CASUALTY INSURANCE, AND ONLY MAINTAIN MODEST LIABILITY AND PROPERTY INSURANCE COVERAGE AND THEREFORE WE COULD INCUR LOSSES AS A RESULT OF AN UNINSURED LOSS.

We cannot assure that we will not incur uninsured liabilities and losses as a result of the conduct of our business. Any such uninsured or insured loss or liability could have a material adverse effect on our results of operations.
 
IF WE LOSE KEY EMPLOYEES AND CONSULTANTS OR ARE UNABLE TO ATTRACT OR RETAIN QUALIFIED PERSONNEL, OUR BUSINESS COULD SUFFER.

Our success is highly dependent on our ability to attract and retain qualified scientific, engineering and management personnel. We are highly dependent on our management, including Mr. Byron Elton, who has been critical to the development of our technology and business. The loss of the services of Mr. Elton could have a material adverse effect on our operations. We do not have an employment agreement with Mr. Elton. Accordingly, there can be no assurance that he will remain associated with us. His efforts will be critical to us as we continue to develop our technology and as we attempt to transition from a development stage company to a company with commercialized products and services. If we were to lose Mr. Elton or any other key employees or consultants, we may experience difficulties in competing effectively, developing our technology and implementing our business strategies.

THE LOSS OF STRATEGIC RELATIONSHIPS USED IN THE DEVELOPMENT OF OUR PRODUCTS AND TECHNOLOGY COULD IMPEDE OUR ABILITY TO COMPLETE OUR PRODUCT AND RESULT IN A MATERIAL ADVERSE EFFECT CAUSING OUR BUSINESS TO SUFFER.

We may rely on strategic relationships with technology development partners to provide technology and operating systems. A loss of these relationships for any reason could cause us to experience difficulties in completing the development of our product and implementing our business strategy. There can be no assurance that we could establish other relationships of adequate expertise in a timely manner or at all.

OUR PATENT APPLICATIONS FOR OUR TECHNOLOGY ARE PENDING AND THERE IS NO ASSURANCE THAT THESE APPLICATIONS WILL BE GRANTED. FAILURE TO OBTAIN THE PATENTS FOR OUR APPLICATIONS COULD PREVENT US FROM SECURING ROYALTY PAYMENTS IN THE FUTURE, IF APPROPRIATE.

We have filed a patent to protect the intellectual property rights for “Fine Particle Carbon Dioxide Transformation and Sequestration” and “Smart Nano-Particle Technology for Converting CO2 to Fuel through a Biocatalyst-Mediated Multi-Step Reaction.” To date our patent application has not been granted. We cannot be certain that this patent will be granted nor can we be certain that other companies have not filed for patent protection for this technology before us. Even if we are granted patent protection for our technology, there is no assurance that we will be in a position to enforce our patent rights. Failure to be granted patent protection for our technology could result in greater competition or in limited royalty payments. This could result in inadequate revenue and cause us to cease operations.
 
 
5

 
 
OUR CURRENT AND POTENTIAL COMPETITORS, SOME OF WHOM HAVE GREATER RESOURCES THAN WE DO, MAY DEVELOP PRODUCTS AND TECHNOLOGIES THAT MAY CAUSE DEMAND FOR, AND THE PRICES OF, OUR PRODUCTS TO DECLINE.
 
While we are not aware of any direct competitors offering commercial viable products to convert CO2-to Fuel, our potential customers may choose to buy or build their own systems instead of purchasing our technology. Furthermore, our competitors may combine with each other, and other companies may enter our markets by acquiring or entering into strategic relationships with our competitors. Current and potential competitors have established, or may establish, cooperative relationships among themselves or with third parties to increase the abilities of their products to address the needs of our prospective customers.
 
Many of our current and potential competitors have longer operating histories, significantly greater financial, technical, product development and marketing resources, greater name recognition and larger customer bases than we do. Our present or future competitors may be able to develop products comparable or superior to those we offer, adapt more quickly than we do to new technologies, evolving industry trends and standards or customer requirements, or devote greater resources to the development, promotion and sale of their products than we do. Accordingly, we may not be able to compete effectively in our markets, competition may intensify and future competition may harm our business.

OUR BUSINESS IS DEPENDENT ON GOVERNMENT AND INTERNATIONAL REGULATIONS MANDATING THE REDUCTION OF CARBON DIOXIDE EMISSIONS.

We believe that greenhouse gases, such as carbon dioxide, contribute to global warming and climate change. New laws and regulations are currently being drawn up that may affect our industry and the industry of our customers. There is no assurance that new governmental regulations will be favorable to our business model and business plan.. The increasing use of alternative energy technology such as solar power, nuclear power, wind power, fuel cells and other energy sources that do not emit greenhouses gases will limit the market for our technology.

WE ARE CONTROLLED BY CURRENT OFFICERS, DIRECTORS AND PRINCIPAL STOCKHOLDERS.

Our directors, executive officers and principal stockholders and their affiliates beneficially own approximately 42.95% of outstanding shares of common stock. Accordingly, our executive officers, directors, principal stockholders and certain of their affiliates will have the ability to control the election of our Board of Directors and the outcome of issues submitted to our stockholders.

THERE IS SUBSTANTIAL DOUBT ABOUT OUR ABILITY TO CONTINUE AS A GOING CONCERN.

Our independent public accounting firm in their report dated March 30, 2011, included an explanatory paragraph expressing substantial doubt in our ability to continue as a going concern without additional capital becoming available. Going concern contemplates the realization of assets and the satisfaction of liabilities in the normal course of business over a reasonable length of time. Our ability to continue as a going concern ultimately is dependent on our ability to generate a profit which is dependent upon our ability to obtain additional equity or debt financing, attain further operating efficiencies and, ultimately, to achieve profitable operations. As a result, our financial statements do not reflect any adjustment which would result from our failure to continue to operate as a going concern.  Any such adjustment, if necessary, would materially affect the value of our assets.

RISKS RELATING TO OUR COMMON STOCK
 
BECAUSE THERE IS A LIMITED MARKET IN OUR COMMON STOCK, STOCKHOLDERS MAY HAVE DIFFICULTY IN SELLING OUR COMMON STOCK AND OUR COMMON STOCK MAY BE SUBJECT TO SIGNIFICANT PRICE SWINGS.

There is a very limited market for our common stock. Since trading commenced in September 2007, there has been little activity in our common stock and on some days there is no trading in our common stock. Because of the limited market for our common stock, the purchase or sale of a relatively small number of shares may have an exaggerated effect on the market price for our common stock. We cannot assure stockholders that they will be able to sell common stock or, that if they are able to sell their shares, that they will be able to sell the shares in any significant quantity at the quoted price.
 

IF WE FAIL TO REMAIN CURRENT ON OUR REPORTING REQUIREMENTS, WE COULD BE REMOVED FROM THE OTC BULLETIN BOARD WHICH WOULD LIMIT THE ABILITY OF BROKER-DEALERS TO SELL OUR SECURITIES AND THE ABILITY OF STOCKHOLDERS TO SELL THEIR SECURITIES IN THE SECONDARY MARKET.
 
Securities traded on the OTC Bulletin Board must be registered with the Securities and Exchange Commission and the issuer must be current with its filings pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1933, as amended, in order to maintain price quotation privileges on the OTC Bulletin Board. If  our common stock  becomes quoted on the OTC Bulletin Board, but we fail to remain current in our reporting requirements, we could be removed from the OTC Bulletin Board. As a result, the market liquidity of our securities could be severely adversely affected by limiting the ability of broker-dealers to trade our securities and the ability of stockholders to sell their securities in the secondary market. In addition, we may be unable to get re-listed on the OTC Bulletin Board, which may have an adverse material effect on our Company.
 
 
6

 
 
OUR COMMON STOCK IS SUBJECT TO THE “PENNY STOCK” RULES OF THE SEC AND THE TRADING MARKET IN OUR SECURITIES IS LIMITED, WHICH MAKES TRANSACTIONS IN OUR STOCK CUMBERSOME AND MAY REDUCE THE VALUE OF AN INVESTMENT IN OUR STOCK.
 
The Securities and Exchange Commission has adopted Rule 15g-9 which establishes the definition of a "penny stock," for the purposes relevant to us, as any equity security that has a market price of less than $5.00 per share or with an exercise price of less than $5.00 per share, subject to certain exceptions. For any transaction involving a penny stock, unless exempt, the rules require:
 
·
that a broker or dealer approve a person's account for transactions in penny stocks; and
 
·
the broker or dealer receive from the investor a written agreement to the transaction, setting forth the identity and quantity of the penny stock to be purchased.
 
In order to approve a person's account for transactions in penny stocks, the broker or dealer must:
   
·
obtain financial information and investment experience objectives of the person; and
 
·
make a reasonable determination that the transactions in penny stocks are suitable for that person and the person has sufficient knowledge and experience in financial matters to be capable of evaluating the risks of transactions in penny stocks.
 
The broker or dealer must also deliver, prior to any transaction in a penny stock, a disclosure schedule prescribed by the Commission relating to the penny stock market, which, in highlight form:
 
·
sets forth the basis on which the broker or dealer made the suitability determination; and
 
·
that the broker or dealer received a signed, written agreement from the investor prior to the transaction.
 
Generally, brokers may be less willing to execute transactions in securities subject to the "penny stock" rules. This may make it more difficult for investors to dispose of our common stock and cause a decline in the market value of our stock.
 
Disclosure also has to be made about the risks of investing in penny stocks in both public offerings and in secondary trading and about the commissions payable to both the broker-dealer and the registered representative, current quotations for the securities and the rights and remedies available to an investor in cases of fraud in penny stock transactions. Finally, monthly statements have to be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks. 
 
WE DO NOT EXPECT TO PAY DIVIDENDS IN THE FUTURE; ANY RETURN ON INVESTMENT MAY BE LIMITED TO THE VALUE OF OUR COMMON STOCK.

We do not currently anticipate paying cash dividends in the foreseeable future. The payment of dividends on our Common Stock will depend on earnings, financial condition and other business and economic factors affecting it at such time as the board of directors may consider relevant. Our current intention is to apply net earnings, if any, in the foreseeable future to increasing our capital base and development and marketing efforts. There can be no assurance that the Company will ever have sufficient earnings to declare and pay dividends to the holders of our Common Stock, and in any event, a decision to declare and pay dividends is at the sole discretion of the our Board of Directors. If we do not pay dividends, our Common Stock may be less valuable because a return on your investment will only occur if its stock price appreciates.

ITEM 2.       PROPERTIES.

Our principal office is located at 5511C Ekwill Street, Santa Barbara, California 93111. We lease approximately 2,800 square feet, with an annual cost of $45,000. The term of the lease is for two years and expires September 30, 2012.

ITEM 3.       LEGAL PROCEEDINGS.

We are not currently a party to, nor is any of our property currently the subject of, any pending legal proceeding that will have a material adverse effect on our business.
 
ITEM 4.       REMOVED AND RESERVED

 
7

 
 
PART II

ITEM 5.       MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.

On September 28, 2007, our common stock became eligible for quotation on the NASD's OTC Bulletin Board under the symbol "CABN.OB."

For the periods indicated, the following table sets forth the high and low bid prices per share of common stock. These high and low bid prices represent prices quoted by broker-dealers on the OTC Bulletin Board. These prices represent inter-dealer quotations without retail markup, markdown, or commission and may not necessarily represent actual transactions.

   
Fiscal 2010
   
Fiscal 2009
 
Quarter Ended
 
High
   
Low
   
High
   
Low
 
March 31
 
$
0.154
   
$
0.0819
   
 $
0.34
   
$
0.14
 
June 30
   
0.115
     
0.05
     
0.32
     
0.20
 
September 30
   
0.11
     
0.071
     
0.23
     
0.059
 
December 31
   
0.095
     
0.046
     
0.195
     
0.09
 

 Common Stock

Our Articles of Incorporation, as amended, authorize the issuance of 500,000,000 shares of common stock, $.001 par value per share. Holders of shares of common stock are entitled to one vote for each share on all matters to be voted on by the stockholders. Holders of common stock have cumulative voting rights. Holders of shares of common stock are entitled to share ratably in dividends, if any, as may be declared, from time to time by the Board of Directors in its discretion, from funds legally available therefor. In the event of a liquidation, dissolution, or winding up of our company, the holders of shares of common stock are entitled to share pro rata all assets remaining after payment in full of all liabilities. Holders of common stock have no preemptive or other subscription rights, and there are no conversion rights or redemption or sinking fund provisions with respect to such shares.

As of March 30, 2011, our common stock was held by 117 stockholders of record and we had 220,778,697 shares of common stock issued and outstanding. We believe that the number of beneficial owners is substantially greater than the number of record holders because a significant portion of our outstanding common stock is held of record in broker street names for the benefit of individual investors. The transfer agent of our common stock is Computershare Investor Services, 250 Royall Street Canton, MA 02021.

Dividend Policy
 
We have never declared or paid any cash dividends on our common stock. We do not anticipate paying any cash dividends to stockholders in the foreseeable future. In addition, any future determination to pay cash dividends will be at the discretion of the board of directors and will be dependent upon our financial condition, results of operations, capital requirements, and such other factors as the Board of Directors deem relevant. There are no restrictions in our articles of incorporation or bylaws that restrict us from declaring dividends.

Equity Compensation Plan Information
 
The following table shows information with respect to each equity compensation plan under which our common stock is authorized for issuance as from inception (April 24, 2006) through December 31, 2010.
 
 
8

 
 
EQUITY COMPENSATION PLAN INFORMATION

Plan category
 
Number of securities
to be issued upon
exercise of
outstanding options,
warrants and rights
 
Weighted average
exercise price of
outstanding options,
warrants and rights
 
Number of securities
remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)
 
   
(a)
 
(b)
 
(c)
 
Equity compensation plans approved by security holders
   
-0-
   
-0-
   
-0-
 
                     
Equity compensation plans not approved by security holders
   
-0-
   
-0-
   
-0-
 
                     
Total
   
-0-
   
-0-
   
-0-
 
 
Unregistered Sales of Equity Securities

In November 2010, we issued 4,000,000 units comprising of 4,000,000 shares and a warrant to purchase 16,000,000 shares of common stock of the Company for proceeds of $100,000.

In December 2010, we sold an aggregate of 4,000,000 units comprising of 4,000,000 shares and warrants to purchase 16,000,000 shares of common stock of the Company for proceeds $100,000

In connection with the sale the Company relied upon an exemption from registration afforded by Section 4(2) of the Securities Act of 1933, as amended.

Issuer Purchases of Equity Securities

None.

ITEM 6.       SELECTED FINANCIAL DATA
      
Not applicable.
 
ITEM 7.       MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.

Some of the information in this report contains forward-looking statements that involve substantial risks and uncertainties. You can identify these statements by forward-looking words such as "may," "expect," "anticipate," "believe," "estimate" and "continue," or similar words. You should read statements that contain these words carefully because they:
 
● 
discuss our future expectations;
 
● 
contain projections of our future results of operations or of our financial condition; and
 
● 
state other "forward-looking" information.
 
We believe it is important to communicate our expectations. However, there may be events in the future that we are not able to accurately predict or over which we have no control. Our actual results and the timing of certain events could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including those set forth under "Risk Factors," "Business" and elsewhere in this report. See "Risk Factors."

 
9

 
 
OVERVIEW
 
Carbon Sciences is currently developing a technology to convert the greenhouse gas, carbon dioxide (CO2), into gasoline and other fuels.
 
The fuels we use today, such as gasoline and jet fuel, are made up of chains of hydrogen and carbon atoms aptly called hydrocarbons. In general, the greater the number of carbon atoms there are in a hydrocarbon molecule, the greater the energy content of that fuel. For example, gasoline has hydrocarbons with 7 to 10 carbon atoms and jet fuel has 10 to 16 carbon atoms. Hydrocarbons are naturally occurring in fuel sources such as petroleum and natural gas. To create fuel, hydrogen and carbon atoms must be bonded together to create hydrocarbon molecules.
 
Carbon Sciences is developing a breakthrough CO2 based gas-to-liquids (“CO2-GTL”) fuel technology to transform greenhouse gases into liquid portable fuels such as gasoline, diesel and jet fuel.

Our CO2-GTL platform is comprised of several novel and highly scalable technology modules that transform CO2 and methane gas into liquid fuels.  Methane can be obtained from many sources such as natural gas fields, landfills and plant biomass.  Each module can be a standalone fuel production process or connected together to produce multiple fuel products.  When developed, a CO2-to-Methane module will provide an end-to-end solution for transforming CO2 emissions from coal-fired power plants and cement factories into gasoline, without methane.

Our next generation CO2-GTL technology will be able to process syngas (CO +H2) into liquid fuels as well.

Our corporate mission is to enable a sustainable world of fuel consumption and climate stability by transforming CO2 into fuel. When commercially developed, our CO2-to-Fuel technology can be used to transform CO2 emitted from fossil fuel power plants into gasoline, to power our cars.
 
Corporate Overview

We were incorporated in the State of Nevada on August 25, 2006, as Zingerang, Inc. Our name was changed to Carbon Sciences, Inc. on April 9, 2007. Our principal executive offices are located at 5511, Santa Barbara, California 93111, and our telephone number is (805) 456-7000. Our fiscal year end is December 31.

Critical Accounting Policies
 
Our discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates, including those related to impairment of property, plant and equipment, intangible assets, deferred tax assets and fair value computation using the Black Scholes option pricing model. We base our estimates on historical experience and on various other assumptions, such as the trading value of our common stock and estimated future undiscounted cash flows, that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions; however, we believe that our estimates, including those for the above-described items, are reasonable.
 
 
10

 
 
Revenue Recognition

Revenue on product sales is recognized when persuasive evidence of an arrangement exists, such as when a purchase order or contract is received from the customer, the selling price is fixed, title to the goods has changed and there is a reasonable assurance of collection of the sales proceeds.  We obtain written purchase authorizations from our customers for a specified amount of product at a specified price and consider delivery to have occurred at the time of shipment.  Revenue is recognized at shipment and we record a reserve for estimated sales returns, which is reflected as a reduction of revenue at the time of revenue recognition. We defer revenue on products sold directly to the consumer with a fifteen day right of return. Revenue is recognized upon the expiration of the right of return.

Revenues from research and development activities relating to firm fixed-price contracts are generally recognized on the percentage-of-completion method of accounting as costs are incurred (cost-to-cost basis).  Revenues from research and development activities relating to cost-plus-fee contracts include costs incurred plus a portion of estimated fees or profits based on the relationship of costs incurred to total estimated costs.  Contract costs include all direct material and labor costs and an allocation of allowable indirect costs as defined by each contract, as periodically adjusted to reflect revised agreed upon rates. These rates are subject to audit by the other party. 
  
Use of Estimates

In accordance with accounting principles generally accepted in the United States, management utilizes estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements as well as the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. These estimates and assumptions relate to recording net revenue, collectability of accounts receivable, useful lives and impairment of tangible and intangible assets, accruals, income taxes, inventory realization, stock-based compensation expense and other factors. Management believes it has exercised reasonable judgment in deriving these estimates. Consequently, a change in conditions could affect these estimates.

Fair Value of Financial Instruments

The Company's cash, cash equivalents, investments, accounts receivable and accounts payable are stated at cost which approximates fair value due to the short-term nature of these instruments.

Recently Issued Accounting Pronouncements

Management reviewed accounting pronouncements issued during the three months ended December 31, 2010, and no pronouncements were adopted during the period.

RESULTS OF OPERATIONS - YEAR ENDED DECEMBER 31, 2010 COMPARED TO THE YEAR ENDED DECEMBER 31, 2009

GENERAL AND ADMINISTRATIVE EXPENSES

         General and administrative ("G&A") expenses increased by $1,085,442 to $2,098,449 for the year ended December 31, 2010, compared to $1,013,007 for the prior year ended December 31, 2009. This increase in G&A expenses was primarily due to the increase in non-cash stock compensation expense of $1,230,000, and the net effect of the overall decrease in G&A expenses of $(144,558).

RESEARCH AND DEVELOPMENT

         Research and Development ("R&D") costs increased by $55,128 to $192,511 for the year ended December 31, 2010 compared to $137,383 for the prior year ended December 31, 2009. This increase in R&D costs was the result of an increase in outside consulting fees, and supplies for testing and research of product development.
 
 
11

 

NET LOSS

         Net Loss increased by $(1,122,025) to $(2,302,583) for the year ended December 31, 2010, compared to $(1,180,558) for the prior year ended December 31, 2009.  This increase in Net Loss was the result of an increase in non-cash stock compensation expense of $1,230,000, and  the overall decrease in operating expenses of $(96,567). Currently the Company is in its development stage and had no revenues.

LIQUIDITY AND CAPITAL RESOURCES

         As of December 31, 2010, we had a $(10,365) working deficit as compared to working capital of $256,343 as of December 31, 2009. This decrease of $(266,708) was due primarily to use of cash for operating expenditures and less equity financing.

        During the year ended December 31, 2010, the Company used $(1,052,481) of cash for operating activities, as compared to cash used of $(1,040,823) for the prior year ended December 31, 2009. The increase of $(11,658) in the use of cash for operating activities was primarily due to an increase in prepaid expenses for insurance and accounts payable for the purchase of research and development software.

        Cash used in investing activities was $(30,659) for the year ended December 31, 2010, compared to $(5,644) cash used in investing activities for the prior year ended December 31, 2009. The increase of $25,015 in cash used in investing activities for the current year was due to $(55,159) for the purchase of equipment, and patent expenditures, and proceeds of $24,500 for the sale of a vehicle, compared to $5,644 for patent expenditures in the prior year ended December 31, 2009.
 
       Cash provided from financing activities during the year ended December 31, 2010 was $851,000 as compared to $1,271,737 for the prior year Ended December 31, 2009. Our capital needs have primarily been met from the proceeds of private placements, as we are currently in the development stage and had no revenues.

Our financial statements as of December 31, 2010 have been prepared under the assumption that we will continue as a going concern. Our independent registered public accounting firm has issued their report dated March 30, 2011 that included an explanatory paragraph expressing substantial doubt in our ability to continue as a going concern without additional capital becoming available. Our ability to continue as a going concern ultimately is dependent on our ability to generate a profit which is dependent upon our ability to obtain additional equity or debt financing, attain further operating efficiencies and, ultimately, to achieve profitable operations. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

PLAN OF OPERATION AND FINANCING NEEDS
   
We are engaged in developing a technology to convert the greenhouse gas, carbon dioxide (CO2), into gasoline and other fuels.  We plan to develop our technology and thereafter focus our efforts on licensing this technology to solutions providers in the energy and industrial factories sectors.

Our plan of operation within the next twelve months is to utilize our cash balances to continue research and development of our CO2-to-Fuel technology.  We believe that our current cash and investment balances will be sufficient to support development activity and general and administrative expenses for the next twelve months. Management estimates that it will require additional cash resources during 2010, based upon its current operating plan and condition. We will be investigating additional financing alternatives, including equity and/or debt financing. There is no assurance that capital in any form would be available to us, and if available, on terms and conditions that are acceptable. If we are unable to obtain sufficient funds during the next twelve months, we may be forced to reduce the size of our organization, which could have a material adverse impact on, or cause us to curtail and/or cease, the development of our products.

 ITEM 8.      FINANCIAL STATEMENTS.

All financial information required by this Item is attached hereto at the end of this report beginning on page F-1 and is hereby incorporated by reference.
 
ITEM 9.       CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

None
 
 
12

 
  
ITEM 9A.    CONTROLS AND PROCEDURES.

(a) Evaluation of Disclosure Controls and Procedures. Based on an evaluation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended) required by paragraph (b) of Rule 13a-15 or Rule 15d-15, as of December 31, 2010, our Chief Executive Officer and Acting Chief Financial Officer has concluded that our disclosure controls and procedures were effective in ensuring that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Commission’s rules and forms. Our Chief Executive Officer and Acting Chief Financial Officer also concluded that, as of December 31, 2010, our disclosure controls and procedures were effective in ensuring that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Acting Chief Financial Officer, to allow timely decisions regarding required disclosure.

(b) Changes in Internal Controls. During the three months ended December 31, 2010, there were no changes in our internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Rule 13a-15 or Rule 15d-15 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Management’s Report on Internal Control over Financial Reporting.

We are responsible for establishing and maintaining adequate internal control over financial reporting in accordance with Exchange Act Rule 13a-15. With the participation of our Chief Executive Officer and Acting Chief Financial Officer, our management conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2010 based on the criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, management concluded that our internal control over financial reporting was effective as of December 31, 2010, based on those criteria. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected.
 
ITEM 9B.    OTHER INFORMATION.

 None.

PART III

ITEM 10.     DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE.

The following table sets forth information about our executive officers, key employees and directors:

Name
 
Age
 
Position
Byron Elton
 
57
 
Chairman, Chief Executive Officer, President and Acting Chief Financial Officer
Roland R. Bryan
 
76
 
Director
Daniel Nethercott
 
50
 
Director

Directors serve until the next annual meeting and until their successors are elected and qualified. The Directors of our company are elected by the vote of a majority in interest of the holders of the voting stock of our company and hold office until the expiration of the term for which he or she was elected and until a successor has been elected and qualified.  

A majority of the authorized number of directors constitutes a quorum of the Board for the transaction of business. The directors must be present at the meeting to constitute a quorum. However, any action required or permitted to be taken by the Board may be taken without a meeting if all members of the Board individually or collectively consent in writing to the action. 
 
Directors may receive compensation for their services and reimbursement for their expenses as shall be determined from time to time by resolution of the Board. Our directors currently do not receive monetary compensation for their service on the Board of Directors.
 
 
13

 
 
Officers are appointed to serve for one year until the meeting of the board of directors following the annual meeting of stockholders and until their successors have been elected and qualified.
 
The principal occupations for the past five years (and, in some instances, for prior years) of each of our executive officers and directors, followed by our key employees, are as follows:
 
Byron Elton— Chief Executive Officer, President, Acting Chief Financial Officer and Chairman of the Board. Mr. Elton has been President and Chief Operating Officer of the Company since January 5, 2009 and a director of the Company since March 16, 2009. Mr. Elton is an experienced media and marketing executive with a proven record in pioneering new business development strategies and building top-flight marketing organizations. He previously served as Senior Vice President of Sales for Univision Online from 2007 to 2008. Mr. Elton also served for eight years as an executive at AOL Media Networks from 2000 to 2007, where his assignments included Regional Vice President of Sales for AOL and Senior Vice President of E-Commerce for AOL Canada. His broadcast media experience includes leading the ABC affiliate in Santa Barbara, California in 1995 to 2000 and the CBS affiliate in Monterrey, California, from 1998 to 1999, in addition to serving as President of the Alaskan Television Network from 1995 to 1999.  Mr. Elton’s extensive senior level management experience specifically in new business development and partnership strategies made him qualified to serve on the Board of Directors.

Roland F. Bryan – Director.  Roland F. Bryan has been the President, Chief Executive Officer, Chief Financial Officer, and Chairman of the Board of Directors of MachineTalker, Inc. (MTI) since its inception in January 2002 and the Secretary of MTI since May 2006.  For the six years prior to founding MTI, Mr. Bryan was self-employed as an independent advisor to several high-tech companies on corporate organization, management, marketing and product development.  Mr. Bryan’s professional background is in the areas computer science research and process control through computer automation.  During the last 25 years he has built up and sold several high-tech companies in the fields of telecommunications networking, military computer systems and commercial equipment for network access.  In 1974, he founded Associated Computer   Consultants, Inc.  ("ACC"), a company that implemented interconnections to the first packet network for many United States government agencies.  In 1983 the name of the company was changed to Advanced Computer Communications, Inc. and continued to produce networking products for both military and commercial applications. ACC made the Inc. 500 List of Fastest Growing Companies in 1984.  In 1991 the company was split into two separate businesses, one to concentrate on military products, the other to concentrate on commercial products. Ericsson acquired ACC in 1998 for $265 million.  In September 1994, WIRED MAGAZINE honored Mr. Bryan and 18 others, as the "Creators of the Internet."  Since October 2010 Mr. Bryan has been involved with Solar 3D, Inc., a company developing a 3 dimensional approach to gathering sunlight to improve the efficiency of solar cells.  Mr. Bryan is presently Chairman of the Board and Chief Financial Officer of Solar 3D, Inc.  Mr. Bryan’s long and successful career in building and growing technology companies made him qualified to serve on the Board of Directors.

Daniel Nethercott – Director.  Mr. Nethercott has been a real estate professional for more than two decades.  He is currently the President of Redfern Development and acts as the principal liaison to investors, partnerships and directing boards, both public and private.  Before forming Redfern Development in 2004 he spent the majority of his career in executive management positions, including over 10 years as a Senior Vice President and Partner for the Grupe Company from 1995 to 2004, one of the largest commercial and residential developers in Northern California.  His extensive entrepreneurial experience also includes being a founding partner of NEKO Industries and an investor and founding board member of InMotx Robotics, a world leader in automated handling of natural products.  Mr. Nethercott received his BA in Finance from Brigham Young University prior to attending graduate school at the Arizona State University School of Business.  Mr. Nethercott’s experience as board member and board consultant to technology companies combined with his executive management experience in strategic and financial planning made him qualified to serve on the Board of Directors.

 Board Leadership Structure and Role in Risk Oversight

Although we have not adopted a formal policy on whether the Chairman and Chief Executive Officer positions should be separate or combined, we have traditionally determined that it is in the best interests of the Company and its shareholders to combine these roles.   Due to the small size and early stage of the Company, we believe it is currently most effective to have the Chairman and Chief Executive Officer positions partially combined.

Our Board of Directors focuses on the most significant risks facing our company and our company’s general risk management strategy, and also ensure that risks undertaken by our Company are consistent with the Board’s appetite for risk. While the Board oversees our company’s risk management, management is responsible for day-to-day risk management processes. We believe this division of responsibilities is the most effective approach for addressing the risks facing our company and that our Board leadership structure supports this approach.
 
INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS

To our knowledge, during the past ten years, none of our directors, executive officers, promoters, control persons, or nominees has been:
 
·  
the subject of any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time;
 
·  
convicted in a criminal proceeding or is subject to a pending criminal proceeding (excluding traffic violations and other minor offenses);
 
·  
subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction or any Federal or State authority, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities;
 
·  
found by a court of competent jurisdiction (in a civil action), the Commission or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law.
 
·  
the subject of, or a party to, any Federal or State judicial or administrative order, judgment, decree, or finding, not subsequently reversed, suspended or vacated, relating to an alleged violation of (a) any Federal or State securities or commodities law or regulation; (b) any law or regulation respecting financial institutions or insurance companies including, but not limited to, a temporary or permanent injunction, order of disgorgement or restitution, civil money penalty or temporary or permanent cease-and-desist order, or removal or prohibition order; or (c) any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; or
 
·  
the subject of, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory organization (as defined in Section 3(a)(26) of the Exchange Act (15 U.S.C. 78c(a)(26))), any registered entity (as defined in Section 1(a)(29) of the Commodity Exchange Act (7 U.S.C. 1(a)(29))), or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member.
 
 
14

 
 
COMMITTEES OF THE BOARD
 
We currently have no audit committee, compensation committee, nominations and governance committee of our board of directors.
 
INDEBTEDNESS OF EXECUTIVE OFFICERS AND DIRECTORS
 
No executive officer, director or any member of these individuals' immediate families or any corporation or organization with whom any of these individuals is an affiliate is or has been indebted to us since the beginning of our last fiscal year.

FAMILY RELATIONSHIPS
 
There are no family relationships among our executive officers and directors.
 
CODE OF ETHICS
 
We have adopted a Code of Ethics that applies to all of our directors, officers and employees. The text of the Code of Ethics has been posted on Carbon Science’s Internet website and can be viewed at www.carbonscience.com.  A copy of the Code of Ethics has also been filed as an exhibit to our Annual Report for the year ending December 31, 2007, filed with the SEC on March 26, 2008, and incorporated herein by reference. Any waiver of the provisions of the Code of Ethics for executive officers and directors may be made only by the Audit Committee and, in the case of a waiver for members of the Audit Committee, by the Board of Directors.  Any such waivers will be promptly disclosed to our shareholders.
 
ITEM 11.     EXECUTIVE COMPENSATION.

The following table sets forth the cash compensation (including cash bonuses) paid or accrued and equity awards granted by us for years ended December 31, 2010 and 2009 to our Chief Executive Officer and our most highly compensated officers other than the Chief Executive Officer at December 31, 2010 whose total compensation exceeded $100,000.
 
 
 
 
Name and
Principal Position
 
 
 
Year
 
 
 
 
Salary ($)
   
 
 
 
Bonus ($)
   
 
 
 
 
 
Stock Awards ($)
   
Option Awards ($)
   
 
 
 
Non-Equity Incentive Plan Compensation ($)
   
 
Change in Pension Value and Non-Qualified Deferred Compensation Earnings ($)
   
All Other Compensation ($)
   
 
 
Total ($)
 
Byron Elton, CEO and Acting*
 
2010
 
$
250,000
             
-
     
900,000
     
-
     
-
     
-
   
$
1,150,000
 
CFO
 
2009
 
$
250,000
     
 
60,000
     
0
     
0
     
0
     
0
     
0
   
$
310,000
 
Naveed Aslam, CTO**
 
2010
2009
 
 
$
$
 
120,000
120,000
     
 
 
0
     
 
 
0
     
 
 
0
     
 
 
0
     
 
 
0
     
 
 
0
   
 
$
$
 
120,000
120,000
 
Derek W. McLeish CEO and Acting
 
2010
 
$
0
   
 
0
     
0
     
0
     
0
     
0
     
0
   
$
0
 
CFO***
 
2009
 
$
71,221
     
22,500
     
0
     
-
     
-
     
-
     
-
   
$
93,721
 
 
Mr. Elton was appointed President and Chief Operating Officer on January 5, 2009 and as CEO and Chairman on May 15, 2009.
**
Dr. Aslam was appointed CTO on January 7, 2009. On December 24, 2010, the Company accepted the resignation of Dr. Aslam effective as of December 31, 2010.
***
Mr. McLeish resigned as an officer of the Company effective May 15, 2009.
 
Outstanding Equity Awards at Fiscal Year-End Table.

The following table sets forth information with respect to grants of options to purchase our common stock to the named executive officers at December 31, 2010.

Option Awards
 
Stock Awards
 
Name    
 
Number of
Securities
Underlying
Unexercised
Options (#) Exercisable
 
  Number of
Securities
Underlying
Unexercised
Options (#) Unexercisable
 
Equity
Incentive
Plan Awards:
Number of
Securities Underlying
Unexercised
Unearned
Options (#)
 
Option
Exercise
Price ($)
 
Option
Expiration
Date
 
  Number of Shares or Units of Stock That Have Not
Vested (#)
 
Market Value of Shares or Units of Stock That Have Not
Vested ($)
 
  Equity
Incentive
Plan Awards: Number of
Unearned
Shares,
Units or
Other Rights
That Have
Not
Vested (#)
 
Equity Incentive
Plan Awards:
Market or Payout
Value of
Unearned
Shares, Units or
Other
Rights
That Have
Not
Vested ($)
 
Byron Elton CEO and Acting CFO
   
15,000,000
 
-0-
   
-0-
 
$0.073
   
4/23/2017
 
-0-
   
-0-
 
-0-
   
-0-
 
 
 
15

 
Director Compensation

The following table sets forth with respect to our directors, compensation information inclusive of equity awards and payments made for the fiscal year ended December 31, 2010.
 
Name   (a)
 
Fees Earned or Paid in Cash   ($)   (b)
 
Stock Awards   ($)   (c)
 
Option   Awards ($)   (d)
 
Non-Equity Incentive Plan Compensation ($)   (e)
 
Change in Pension Value and Nonqualified Deferred Compensation Earnings   (f)
 
All Other Compensation   ($)   (g)
 
Total   ($)   (h)
 
Byron Elton
   
-0-
 
-0-
   
-0-
 
-0-
   
-0-
 
-0-
   
-0-
 
Roland F. Bryan
   
-0-
 
25,000
   
-0-
 
-0-
   
-0-
 
-0-
   
25,000
 
Daniel Nethercott
   
-0-
 
25,000
   
-0-
 
-0-
   
-0-
 
-0-
   
25,000
 

EMPLOYMENT AGREEMENTS
 
We currently have no employment agreements with our executive officers.

ITEM 12.     SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The following table sets forth, as of March 30, 2011, the number of and percent of our common stock beneficially owned by:
 
·
all directors and nominees, naming them,
 
·
our executive officers,
 
·
our directors and executive officers as a group, without naming them, and
 
·
persons or groups known by us to own beneficially 5% or more of our common stock:
 
We believe that all persons named in the table have sole voting and investment power with respect to all shares of common stock beneficially owned by them.
 
A person is deemed to be the beneficial owner of securities that can be acquired by him within 60 days from March 30, 2011 upon the exercise of options, warrants or convertible securities. Each beneficial owner's percentage ownership is determined by assuming that options, warrants or convertible securities that are held by him, but not those held by any other person, and which are exercisable within 60 days of March 30, 2011 have been exercised and converted.
 
Title of Class
 
Name of
Beneficial Owner
 
Number of Shares
Beneficially Owned
 
Percent of Total (1)
Common Stock
 
Byron Elton(2)
   
28,666,666
   
11.58%
Common Stock
 
Roland R. Bryan
   
250,000
   
*
Common Stock
 
Daniel Nethercott
   
250,000
   
*
Common Stock
 
Derek McLeish (3)
   
45,250,000
   
20.50%
Common Stock
 
New Quest Ventures, LLC
   
16,857,143
   
7.63%
Common Stock
 
Wings Fund, Inc.
   
15,000,000
   
6.79%
Common Stock
 
All Executive Officers and Directors as a Group (3 persons )
   
29,166,666
   
11.78%
 
*Less than one percent.    

(1) Based upon 220,778,697 shares issued and outstanding as of March 30, 2011.
(2) Pursuant to the Stock Option Agreement with Derek McLeish, a former officer of the Company, Mr. Elton has the right to acquire 15,000,000 shares of common stock held by Mr. McLeish at a price of $.10, of which 11,666,666 will become fully vested and exercisable in the next 60 days. Includes an option to purchase 15,000,000 shares of the Company’s common stock at a price of $.073 which is currently exercisable.
(3) Mr. McLeish has granted an option to Mr. Elton to purchase 15,000,000 shares to at a price of $.10.

 
16

 

ITEM 13.     CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.

Certain Relationships and Related Transactions
 
There were no material related party transactions which we entered into since the beginning of the fiscal year to be reported in accordance with Item 404 of Regulation S-K.  

Director Independence

Roland Bryan and Daniel Nethercott are independent as that term is defined under the Nasdaq Marketplace Rules.

ITEM 14.     PRINCIPAL ACCOUNTANT FEES AND SERVICES.

Audit Fees
 
The aggregate fees billable to us by HJ Associates & Consultants, LLP during 2010 and 2009 for the audits of our annual financial statements for the fiscal year totaled approximately $25,500 and $41,265, respectively.

Audit-Related Fees

We incurred assurance and audit-related fees during 2010 and 2009 of $0 and $0 respectively, to HJ Associates & Consultants, LLP in connection with the audit of the financial statements of the Company for the years ended December 31, 2010 and December 31, 2009, for the reviews of registration statements and issuance of related consents and assistance with SEC comment letters.
 
Tax Fees
 
We incurred fees of $760 and $1,300 billed to us by HJ Associates & Consultants, LLP for services rendered to us for tax compliance, tax advice, or tax planning for the fiscal year ended December 31, 2010 and December 31, 2009, respectively.
  
All Other Fees
 
There were no fees billed to us by HJ Associates & Consultants, LLP for services rendered to us during the last two fiscal years, other than the services described above under “Audit Fees” and “Audit-Related Fees.”
 
As of the date of this filing, our current policy is to not engage HJ Associates & Consultants, LLP to provide, among other things, bookkeeping services, appraisal or valuation services, or international audit services. The policy provides that we engage HJ Associates & Consultants, LLP to provide audit, tax, and other assurance services, such as review of SEC reports or filings.

ITEM 15.     EXHIBITS.

Exhibit No.
Description
   
3.1
Articles of Incorporation of Carbon Sciences, Inc. filed with the Nevada Secretary of State on August 25, 2007. (Incorporated by reference to the Company’s Registration Statement on Form SB-2 filed on July 27, 2007)
   
3.2
Articles of Amendment of Articles of Incorporation of Carbon Sciences, Inc. filed with the Nevada Secretary of State on April 9, 2007 (Incorporated by reference to the Company’s Registration Statement on Form SB-2 filed on July 27, 2007)
   
3.3
Bylaws of Carbon Sciences, Inc. (Incorporated by reference to the Company’s Registration Statement on Form SB-2 filed on July 27, 2007)
   
10.1
Form of Subscription Agreement dated as of September 18, 2006 (Incorporated by reference to the Company’s Registration Statement on Form SB-2 filed on July 27, 2007)
   
10.2
Form of Subscription Agreement dated as of October 2, 2006(Incorporated by reference to the Company’s Registration Statement on Form SB-2 filed on July 27, 2007)
   
10.3
Form of Subscription Agreement dated as of March 1, 2007(Incorporated by reference to the Company’s Registration Statement on Form SB-2 filed on July 27, 2007)
   
10.4
Form of Subscription Agreement dated as of April 16, 2007(Incorporated by reference to the Company’s Registration Statement on Form SB-2 filed on July 27, 2007)
   
14.1
Code of Ethics (Incorporated by reference to the Company’s Annual Report on Form 10-K for the year ended December 31, 2007 filed on March 26, 2008)
   
31.1*
Certification by Chief Executive Officer and Acting Chief Financial Officer pursuant to Sarbanes-Oxley Section 302
   
32.1*
Certification by Chief Executive Officer and Acting Chief Financial Officer pursuant to 18 U.S.C. Section 1350

*Filed herewith

 
17

 
 

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
 
Carbon Sciences, Inc.
 
       
 Date: March 30, 2011
By:
/s/ Byron Elton  
   
CHIEF EXECUTIVE OFFICER (PRINCIPAL EXECUTIVE OFFICER)
 
   
AND ACTING CHIEF FINANCIAL OFFICER (PRINCIPAL ACCOUNTING
AND FINANCIAL OFFICER)
 
       
 
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated:
 
SIGNATURE
 
TITLE
 
DATE
         
/s/ Byron Elton
 
CHIEF EXECUTIVE OFFICER, PRESIDENT (PRINCIPAL
 
March 30, 2011
Byron Elton
  EXECUTIVE OFFICER), ACTING CHIEF FINANCIAL OFFICER (PRINCIPAL ACCOUNTING AND FINANCIAL OFFICER) AND CHAIRMAN OF THE BOARD    
         
/s/ Roland R. Bryan
 
DIRECTOR
 
March 30, 2011
Roland R. Bryan
       
         
/s/ Daniel Nethercott
 
DIRECTOR
 
March 30, 2011
Daniel Nethercott
       
 
 
 
 
 
 
 
18

 
 


Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders
Carbon Sciences, Inc.
(A Development Stage Company)
Santa Barbara, California

We have audited the accompanying balance sheets of Carbon Sciences, Inc. as of December 31, 2010 and 2009, and the related statements of operations, stockholders' equity, and cash flows for the years then ended, and from inception on August 25, 2006 through December 31, 2010. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Carbon Sciences, Inc. as of December 31, 2010 and 2009, and the results of its operations and its cash flows for the years then ended, and from inception on August 25, 2006 through December 31, 2010, in conformity with U.S. generally accepted accounting principles.

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern.  As discussed in Note 1 to the financial statements, the Company does not generate significant revenue, and has negative cash flows from operations.  This raises substantial doubt about the Company's ability to continue as a going concern.  Management's plans in regard to these matters are also described in Note 1.  The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
 

/s/ HJ Associates & Consultants, LLP

HJ Associates & Consultants, LLP
Salt Lake City, Utah
March 30, 2011
 
 
 
 
F - 1

 
CARBON SCIENCES, INC.
(A Development Stage Company)
BALANCE SHEETS
 
   
December 31, 2010
   
December 31, 2009
 
             
ASSETS
           
             
CURRENT ASSETS
           
  Cash
  $ 38,422     $ 270,562  
  Prepaid expenses
    7,563       24,023  
                 
                        TOTAL CURRENT ASSETS
    45,985       294,585  
                 
PROPERTY & EQUIPMENT, at cost
               
   Machinery & equipment
    91,344       71,498  
   Computer equipment
    28,716       17,559  
   Furniture & fixtures
    1,459       -  
   Mobile vehicle
    -       40,252  
      121,519       129,309  
   Less accumulated depreciation
    (45,800 )     (51,018 )
                 
                        NET PROPERTY AND EQUIPMENT
    75,719       78,291  
                 
OTHER ASSETS
               
   Patents
    37,114       14,417  
                 
                       TOTAL ASSETS
  $ 158,818     $ 387,293  
                 
                 
                 
LIABILITIES AND SHAREHOLDER'S EQUITY
               
                 
CURRENT LIABILITIES
               
    Accounts payable
  $ 12,635     $ 4,046  
    Accrued expenses
    11,369       27,762  
    Accrued interest, notes payable
    7,346       6,434  
    Note payable, shareholder
    25,000       -  
                 
                       TOTAL CURRENT LIABILITIES
    56,350       38,242  
                 
SHAREHOLDER'S EQUITY
               
   Common Stock, $0.001 par value;
               
   500,000,000 authorized common shares
               
  204,778,697 and 177,350,125 shares issued and outstanding
    204,778       177,350  
   Additional paid in capital
    5,714,872       3,686,300  
   Accumulated deficit during the development stage
    (5,817,182 )     (3,514,599 )
                 
                      TOTAL SHAREHOLDER'S EQUITY
    102,468       349,051  
                 
    TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY
  $ 158,818     $ 387,293  
 
The accompanying notes are an integral part of these financial statements
 
 
F - 2

 
 
CARBON SCIENCES, INC.
(A Development Stage Company)
STATEMENTS OF OPERATIONS
 
               
From Inception on
 
               
August 25,2006
 
   
Year Ended
   
through
 
   
December 31, 2010
   
December 31, 2009
   
December 31, 2010
 
                   
                   
REVENUE
  $ -     $ -     $ -  
                         
OPERATING EXPENSES
                       
  General and administrative expenses
    2,098,449       1,013,007       5,081,496  
  Research and development
    192,511       137,383       703,503  
  Depreciation expense
    15,579       22,716       66,597  
                         
TOTAL OPERATING EXPENSES
    2,306,539       1,173,106       5,851,596  
                         
LOSS FROM OPERATIONS BEFORE  OTHER INCOME/(EXPENSES)
    (2,306,539 )     (1,173,106 )     (5,851,596 )
                         
OTHER INCOME/(EXPENSE)
                       
  Interest income
    -       -       39,521  
  Gain on sale of asset
    5,045       -       5,045  
  Penalties
    -       (50 )     (50 )
  Interest expense
    (1,089 )     (7,402 )     (10,102 )
                         
TOTAL OTHER INCOME/(EXPENSES)
    3,956       (7,452 )     34,414  
                         
NET LOSS
  $ (2,302,583 )   $ (1,180,558 )   $ (5,817,182 )
                         
BASIC AND DILUTED LOSS PER SHARE
  $ (0.01 )   $ (0.01 )        
                         
WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING
                 
      BASIC AND DILUTED
    187,329,773       156,509,428          
 
The accompanying notes are an integral part of these financial statements
 
 
F - 3

 
 
CARBON SCIENCES, INC.
(A Development Stage Company)
STATEMENTS OF SHAREHOLDER'S EQUITY
 
                       
Deficit
       
                   
 
 
Accumulated
       
             
Additional
   
Stock
 
during the
       
   
Common stock
 
Paid-in
   
Subscriptions
 
Development
       
   
Shares
   
Amount
  Capital    
Payable
 
Stage
   
Total
 
Inception August 25, 2006
    -     $ -     $ -     $ -     $ -     $ -  
                                                 
Issuance of common stock for cash to founders in September 2006
 
(99,500,000 shares issued at $0.00025 for cash)
    99,500,000       99,500       (74,625 )     -       -       24,875  
                                                 
Issuance of common stock for cash in September 2006
                 
(7,000,000 shares issued at $0.015 for cash)
    7,000,000       7,000       98,000       -       -       105,000  
                                                 
Issuance of common stock for cash in October 2006
                 
(21,000,000 shares issued at $0.015 for cash)
    21,000,000       21,000       294,000       -       -       315,000  
                                                 
Issuance of common stock for cash in November 2006
                 
(390,000 shares issued at $0.10 for cash)
    390,000       390       38,610       -       -       39,000  
                                                 
Issuance of common stock for cash in December 2006
                 
(555,000 shares issued at $0.10 for cash)
    555,000       555       54,945       -       -       55,500  
                                                 
Net Loss from Inception through December 31, 2006
                                    (413,641 )     (413,641 )
Balance at December 31, 2006
    128,445,000       128,445       410,930       -       (413,641 )     125,734  
                                                 
Issuance of common stock for cash in January 2007
                 
(255,000 shares issued at $0.10 for cash)
    255,000       255       25,245       -       -       25,500  
                                                 
Issuance of common stock for cash in March 2007
                 
(2,900,000 shares issued at $0.10 for cash)
    2,900,000       2,900       287,100       -       -       290,000  
                                                 
Issuance of common stock for cash in May 2007
                         
(1,770,000 shares issued at $0.10 for cash)
    1,770,000       1,770       175,230       -       -       177,000  
                                                 
Issuance of common stock for cash in May 2007
                         
(1,450,000 shares issued at $0.10 for cash)
    1,450,000       1,450       143,550       -       -       145,000  
                                                 
Issuance of common stock for cash in July 2007
                         
(11,250,000 shares issued at $0.10 for cash)
    11,250,000       11,250       1,113,750       -       -       1,125,000  
                                                 
Issuance of common stock for services in July 2007
                 
(1,472,000 shares issued at $0.10 per share)
    1,472,000       1,472       145,728       -       -       147,200  
                                                 
Issuance of common stock for services in September 2007
         
(500,000 shares issued at $0.15 per share)
    500,000       500       74,500       -       -       75,000  
                                                 
Stock issuance cost
    -       -       (265,200 )     -       -       (265,200 )
                                                 
Issuance of common stock for cash in December 2007
                 
(300,000 shares issued at $0.15 per share)
    300,000       300       44,700       -       -       45,000  
                                                 
Net Loss for the year ended December 31, 2007
    -       -       -       -       (878,679 )     (878,679 )
Balance at December 31, 2007
    148,342,000       148,342       2,155,533       -       (1,292,320 )     1,011,555  
                                                 
Stock subscriptions payable
    -       -       -       62,000       -       62,000  
                                                 
Net Loss (unaudited)
    -       -       -       -       (1,041,721 )     (1,041,721 )
Balance at December 31, 2008
    148,342,000       148,342       2,155,533       62,000       (2,334,041 )     31,834  
                                                 
Stock subscriptions payable
    -       -       -       213,650       -       213,650  
                                                 
Issuance of common stock for services in April 2009
                 
(172,500 shares issued at fair value for $0.10 per share)
    172,500       172       17,078       -       -       17,250  
                                                 
Issuance of common stock for services in April 2009
                 
(250,000 shares issued at fair value at $0.10 per share)
    250,000       250       24,750       -       -       25,000  
                                                 
Issuance of common stock for cash in May 2009
                         
(2.756,500 shares issued at $0.10 per share)
    2,756,500       2,757       272,893       (275,650 )     -       -  
                                                 
Issuance of common stock for cash in May 2009
                         
(1,500,000 shares issued at $0.10 per share)
    1,500,000       1,500       148,500       -       -       150,000  
                                                 
Issuance of common stock for services in May 2009
                 
(1,000,000 shares issued at fair value at $0.10 per share)
    1,000,000       1,000       99,000       -       -       100,000  
                                                 
Issuance of common stock for services in September 2009
         
(337,875 shares issued at fair value at $0.10 per share)
    337,875       338       33,450       -       -       33,788  
                                                 
Issuance of common stock for conversion of debt in September 2009
 
(2,789,474 shares issued at fair value at $0.095 per share)
    2,789,474       2,789       262,211       -       -       265,000  
                                                 
Issuance of common stock for cash in September 2009
                 
(11,210,526 shares issued  $0.0263146 per share)
    11,210,526       11,211       283,789       -       -       295,000  
                                                 
Stock subscriptions payable
    -       -       -       149,125       -       149,125  
                                                 
Stock issuance cost
    -       -       (51,038 )     -       -       (51,038 )
                                                 
Issuance of common stock for subscription payable
                 
(1,491,250 shares issued  $0.10 per share)
    1,491,250       1,491       147,634       (149,125 )     -       -  
                                                 
Issuance of common stock for cash in December 2009
                 
(7,500,000 shares issued  $0.04 per share)
    7,500,000       7,500       292,500       -       -       300,000  
                                                 
Net Loss for the year ended December 31, 2009
    -       -       -       -       (1,180,558 )     (1,180,558 )
Balance at December 31, 2009
    177,350,125       177,350       3,686,300       -       (3,514,599 )     349,051  
                                                 
Issuance of common stock for cash in April 2010
                       
(2,857,143 shares issued  $0.035 per share)
    2,857,143       2,857       97,143       -       -       100,000  
                                                 
Issuance of common stock for cash in May 2010
                         
(2,000,000 shares issued  $0.026 per share)
    2,000,000       2,000       50,000       -       -       52,000  
                                                 
Issuance of common stock for cash in June 2010
                         
(4,000,000 shares issued  $0.026 per share)
    4,000,000       4,000       100,000       -       -       104,000  
                                                 
Stock compensation expense for stock options granted and fully vested
    -       -       1,230,000       -       -       1,230,000  
                                                 
Issuance of common stock for cash in July 2010
                         
(2,000,000 shares issued  $0.035 per share)
    2,000,000       2,000       68,000       -       -       70,000  
                                                 
Issuance of common stock for cash in August 2010
                 
(8,571,429 shares issued  $0.035 per share)
    8,571,429       8,571       291,429       -       -       300,000  
                                                 
Issuance of common stock for cash in November 2010
                 
(4,000,000 shares issued  $0.025 per share)
    4,000,000       4,000       96,000       -       -       100,000  
                                                 
Issuance of common stock for cash in December 2010
                 
(4,000,000 shares issued  $0.025 per share)
    4,000,000       4,000       96,000       -       -       100,000  
                                                 
Net Loss for the year ended December 31, 2010
    -       -       -       -       (2,302,583 )     (2,302,583 )
                                                 
Balance at December 31, 2010
    204,778,697     $ 204,778     $ 5,714,872     $ -     $ (5,817,182 )   $ 102,468  
 
The accompanying notes are an integral part of these financial statements
 
 
F - 4

 
 
CARBON SCIENCES, INC.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
 
               
From Inception on
 
               
August 25,2006
 
   
Year Ended
   
through
 
   
December 31, 2010
   
December 31, 2009
   
December 31, 2010
 
CASH FLOWS FROM OPERATING ACTIVITIES:
                 
   Net loss
  $ (2,302,583 )   $ (1,180,558 )   $ (5,817,182 )
   Adjustment to reconcile net loss to net cash
                       
     used in operating activities
                       
   Depreciation expense
    15,579       22,716       66,597  
   Stock issuance for services
    -       176,038       251,038  
   Stock compensation cost
    1,230,000       -       1,230,000  
   Gain on sale of asset
    (5,045 )             (5,045 )
  Changes in Assets and Liabilities
                       
   (Increase) Decrease in:
                       
   Other receivable
    -       2,400       -  
   Prepaid expenses
    16,460       (21,303 )     (7,563 )
   Increase (Decrease) in:
                       
   Accounts payable
    8,589       (30,760 )     12,635  
   Accrued expenses
    (15,481 )     (9,356 )     18,715  
                         
NET CASH USED IN OPERATING ACTIVITIES
    (1,052,481 )     (1,040,823 )     (4,250,805 )
                         
CASH FLOWS USED IN INVESTING ACTIVITIES:
                       
   Proceeds from sale of vehicle
    24,500       -       24,500  
   Patent expenditures
    (22,697 )     (5,644 )     (37,114 )
   Purchase of equipment
    (32,462 )     -       (161,771 )
                         
NET CASH USED IN INVESTING ACTIVITIES
    (30,659 )     (5,644 )     (174,385 )
                         
CASH FLOWS IN FINANCING ACTIVITIES:
                       
   Advances from/(to) officer
    -       40,000       113,000  
   Loans from investors
    25,000       290,000       525,000  
   Repayment of advances and loans
    -       (115,000 )     (348,000 )
   Proceeds from subscriptions payable
    -       362,775       362,775  
   Proceeds from issuance of common stock,net
    826,000       693,962       3,810,837  
                         
NET CASH PROVIDED BY FINANCING  ACTIVITIES
    851,000       1,271,737       4,463,612  
                         
NET INCREASE/(DECREASE) IN CASH
    (232,140 )     225,270       38,422  
                         
CASH, BEGINNING OF YEAR
    270,562       45,292       -  
                         
CASH, END OF YEAR
  $ 38,422     $ 270,562     $ 38,422  
                         
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
                       
   Interest paid
  $ 179     $ 968     $ 2,887  
   Taxes paid
  $ 800     $ 800     $ 2,400  
                         
SUPPLEMENTAL DISCLOSURES OF NON-CASH TRANSACTIONS
                       
During the year ended December 31, 2009, the Company issued 2,789,474 shares of common stock for converted debt
         
   in the amount of $265,000, at fair value of $0.095 per share.