Digital Locations, Inc. - Quarter Report: 2009 September (Form 10-Q)

form10q.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

x QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2009

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

5511C Ekwill Street, Santa Barbara, California 93111

(Address of principal executive offices) (Zip Code)

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

WITH COPIES TO:

Gregory Sichenzia, Esq.

Marcelle S. Balcombe, Esq.

Sichenzia Ross Friedman Ference LLP

61 Broadway, 32 nd Flr.

New York, New York 10006

(212) 930-9700

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 is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o		Accelerated filer o
Non-accelerated filer o		Smaller reporting company x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

The number of shares of registrant’s common stock outstanding, as of November 13, 2009 was 169,850,125.

CARBON SCIENCES, INC.

INDEX

PART I: FINANCIAL INFORMATION		Page

ITEM 1:	FINANCIAL STATEMENTS (Unaudited)	3

	Balance Sheets	3

	Statements of Operations	4

	Statement of Shareholders' Equity/(Deficit)	5

	Statements of Cash Flows	6

	Notes to the Financial Statements	7-9

ITEM 2:	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	10

ITEM 3 :	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	13

ITEM 4:	CONTROLS AND PROCEDURES	13

PART II: OTHER INFORMATION

Item 1	LEGAL PROCEEDINGS	14

ITEM 1A :	RISK FACTORS	14

ITEM 2	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	14

ITEM 3	DEFAULTS UPON SENIOR SECURITIES	14

ITEM 4	SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS	14

ITEM 6:	EXHIBITS	14
SIGNATURES		15

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CARBON SCIENCES, INC.

(A Development Stage Company)

Balance Sheets



	(unaudited)
	September 30, 2009			December 31, 2008

ASSETS

CURRENT ASSETS
Cash	$	244,688		$	45,292
Other receviable		-			2,400
Prepaid expenses		49,125			2,720

TOTAL CURRENT ASSETS		293,813			50,412

PROPERTY & EQUIPMENT, at cost
Machinery & equipment		71,498			71,498
Computer equipment		17,559			17,559
Mobile vehicle		40,252			40,252
		129,309			129,309
Less accumulated depreciation		(45,337	)		(28,302	)

NET PROPERTY AND EQUIPMENT		83,972			101,007

OTHER ASSETS
Patents		14,417			8,773

TOTAL ASSETS	$	392,202		$	160,192



LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES
Accounts payable	$	4,798		$	34,806
Accrued expenses		89,858			43,552
Accrued interest, notes payable		6,434			-
Note payable, investor		-			50,000

TOTAL CURRENT LIABILITIES		101,090			128,358

SHAREHOLDERS' EQUITY
Common Stock, $0.001 par value;
500,000,000 authorized common shares
168,358,875 and 148,342,000 shares issued and outstanding		168,359			148,342
Additional paid in capital		3,246,166			2,155,533
Stock subscription payable		149,125			62,000
Accumulated deficit during the development stage		(3,272,538	)		(2,334,041	)

TOTAL SHAREHOLDERS' EQUITY		291,112			31,834

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$	392,202		$	160,192

CARBON SCIENCES, INC.

(A Development Stage Company)

Statements of Operations

(Unaudited)

													From Inception on
	Three Months Ended						Nine Months Ended						August 25,2006
	September 30,						September 30,						through
	2009			2008			2009			2008			September 30, 2009


REVENUE	$	-		$	-		$	-		$	-		$	-

OPERATING EXPENSES
Selling and marketing expenses		254,395			133,612			630,396			441,694			2,159,478
General and administrative expenses		53,127			49,002			179,713			127,012			620,672
Research and development		6,439			104,493			103,972			194,943			477,581
Depreciation expense		5,678			4,212			17,035			12,635			45,337

TOTAL OPERATING EXPENSES		319,639			291,319			931,116			776,284			3,303,068

LOSS FROM OPERATIONS BEFORE OTHER INCOME/(EXPENSES)		(319,639	)		(291,319	)		(931,116	)		(776,284	)		(3,303,068	)

OTHER INCOME/(EXPENSE)
Interest income		-			3,288			-			17,615			39,521
Interest expense		(3,037	)		-			(7,381	)		-			(8,991	)

TOTAL OTHER INCOME/(EXPENSES)		(3,037	)		3,288			(7,381	)		17,615			30,530

NET LOSS		(322,676	)		(288,031	)		(938,497	)		(758,669	)		(3,272,538	)

BASIC AND DILUTED LOSS PER SHARE	$	(0.00	)	$	(0.00	)	$	(0.01	)	$	(0.01	)

WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING
BASIC AND DILUTED		154,488,539			148,342,000			151,922,564			148,342,000

CARBON SCIENCES, INC.

(A Development Stage Company)

Statement of Shareholders' Equity/(Deficit)

					Additional			Stock			Deficit Accumulated during the
	Common stock				Paid-in			Subscriptions			Development
	Shares		Amount		Capital			Payable			Stage			Total

Balance at December 31, 2008		148,342,000	$	148,342	$	2,155,533		$	62,000		$	(2,334,041	)	$	31,834

Stock subscriptions payable (unaudited)		-		-		-			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) (unaudited)		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) (unaudited)		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) (unaudited)		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) (unaudited)		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) (unaudited)		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) (unaudited)		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) (unaudited)		2,789,474		2,789		262,211			-			-			265,000

Issuance of common stock for cash in September 2009
(11,210,526 shares issued $0.026 per share) (unaudited)		11,210,526		11,211		283,789			-			-			295,000

Stock subscriptions payable (unaudited)		-		-		-			149,125			-			149,125

Stock issuance cost (unaudited)		-		-		(51,038	)		-			-			(51,038	)

Net Loss for the nine months ended September 30, 2009 (unaudited)		-		-		-			-			(938,497	)		(938,497	)

Balance at September 30, 2009 (unaudited)		168,358,875	$	168,359	$	3,246,166		$	149,125		$	(3,272,538	)	$	291,112

CARBON SCIENCES, INC.

(A Development Stage Company)

Statements of Cash Flows

(Unaudited)

							From Inception on
							August 25,2006
	Nine Months Ended						through
	September 30, 2009			September 30, 2008			September 30, 2009
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(938,497	)	$	(758,669	)	$	(3,272,538	)
Adjustment to reconcile net loss to net cash
used in operating activities
Depreciation expense		17,035			12,635			45,337
Stock issuance for services		176,038			-			251,038
Changes in Assets and Liabilities
(Increase) Decrease in:
Other receivable		2,400			(2,400	)		-
Prepaid expenses		(46,405	)		113,321			(49,125	)
Increase (Decrease) in:
Accounts payable		(30,008	)		34,319			4,798
Accrued expenses		52,740			(8,074	)		96,292

NET CASH USED IN OPERATING ACTIVITIES		(766,697	)		(608,868	)		(2,924,198	)

CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in certificates of deposit		-			682,386			-
Patent expenditures		(5,644	)		(5,425	)		(14,417	)
Purchase of equipment		-			(50,899	)		(129,309	)

NET CASH PROVIDED/(USED) IN INVESTING ACTIVITIES		(5,644	)		626,062			(143,726	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Advances from/(to) officer		40,000			-			113,000
Loans from investors		290,000			-			500,000
Repayment of advances and loans		(115,000	)		-			(348,000	)
Proceeds from subscriptions payable		362,775			-			362,775
Proceeds from issuance of common stock, net		393,962			-			2,684,837

NET CASH PROVIDED BY FINANCING ACTIVITIES		971,737			-			3,312,612

NET INCREASE IN CASH		199,396			17,194			244,688

CASH, BEGINNING OF PERIOD		45,292			9,539			-

CASH, END OF PERIOD	$	244,688		$	26,733		$	244,688

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Interest paid	$	2,555		$	-		$	2,555
Taxes paid	$	800		$	59		$	800

SUPPLEMENTAL DISCLOSURES OF NON-CASH TRANSACTIONS
During the three months ended September 30, 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.

CARBON SCIENCES, INC.

(A Development Stage Company)

NOTES TO FINANCIAL STATEMENTS-UNAUDITED

SEPTEMBER 30, 2009

1.	Basis of Presentation

The accompanying unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all normal recurring adjustments considered necessary for a fair presentation have been included. Operating results for the nine months ended September 30, 2009 are not necessarily indicative of the results that may be expected for the year ending December 31, 2009. For further information refer to the financial statements and footnotes thereto included in the Company's Form 10-K for the year ended December 31, 2008.

Going Concern

The accompanying financial statements have been prepared on a going concern basis of accounting, which contemplates continuity of operations, realization of assets and liabilities and commitments in the normal course of business. The accompanying financial statements do not reflect any adjustments that might result if the Company is unable to continue as a going concern. The Company does not generate significant revenue, and has negative cash flows from operations, which raise substantial doubt about the Company’s ability to continue as a going concern. The ability of the Company to continue as a going concern and appropriateness of using the going concern basis is dependent upon, among other things, additional cash infusion. The Company has obtained funds from its shareholders since its inception , and believes this funding will continue, and is also actively seeking new investors. Management believes the existing shareholders and the prospective new investors will provide the additional cash needed to meet the Company’s obligations as they become due, and will allow the development of its core of business.

2.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

Development Stage Activities and Operations

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

Revenue Recognition

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

Cash and Cash Equivalents

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

CARBON SCIENCES, INC.

(A Development Stage Company)

NOTES TO FINANCIAL STATEMENTS-UNAUDITED

SEPTEMBER 30, 2009

2.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Loss per Share Calculations

Loss per Share is the calculation of basic earnings per share and diluted earnings per share. Basic earnings per share are computed by dividing income available to common shareholders by the weighted-average number of common shares available. Diluted earnings per share is computed similar to basic earnings per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive. The Company’s diluted loss per share is the same as the basic loss per share for the nine months ended September 30, 2009 as the inclusion of any potential shares would have had an anti-dilutive effect due to the Company generating a loss.

Recent Accounting Pronouncements

In June 2009, the FASB issued guidance under Accounting Standards Codification (“ASC”) Topic 105, “Generally Accepted Accounting Principles” (SFAS No. 168, The FASB Accounting Standards Codification TM and the Hierarchy of Generally Accepted Accounting Principles). This guidance establishes the FASB ASC as the single source of authoritative U.S. GAAP recognized by the FASB to be applied by nongovernmental entities. Rules and interpretive releases of the SEC under authority of federal securities laws are also sources of authoritative U.S. GAAP for SEC registrants. SFAS 168 and the ASC are effective for financial statements issued for interim and annual periods ending after September 15, 2009. The ASC supersedes all existing non-SEC accounting and reporting standards. All other non-grandfathered, non-SEC accounting literature not included in the ASC has become non-authoritative. Following SFAS 168, the FASB will no longer issue new standards in the form of Statements, FSPs, or EITF Abstracts. Instead, the FASB will issue Accounting Standards Updates, which will serve only to update the ASC, provide background information about the guidance, and provide the bases for conclusions on the change(s) in the ASC. We adopted ASC 105 effective for our financial statements issued as of September 30, 2009. The adoption of this guidance did not have an impact on our financial statements but will alter the references to accounting literature within the consolidated financial statements.

In August 2009, the FASB issued guidance under Accounting Standards Update (“ASU”) No. 2009-05, “Measuring Liabilities at Fair Value”. This guidance clarifies how the fair value of a liability should be determined. This guidance is effective for the first reporting period after issuance. We will adopt this guidance for our year ending December 31, 2009. We do not expect the adoption of this guidance to have a material impact on our financial statements.

3.	CAPITAL STOCK

During the nine months ended September 30, 2009, the Company issued 4,256,500 shares of common stock for cash at a price of $0.10 per share; 11,210,526 shares of common stock for cash at a price of $0.026 per share; 1,760,375 shares of common stock were issued for services at a fair value of $176,038. The Company received $149,125 for subscriptions payable to purchase 1,491,250 shares of common stock through a private placement at a price of $0.10 per share; 2,789,474 shares of common stock were issued for conversion of debt at a fair value of $265,000.

4.	PROMISSORY NOTE

On December 15, 2008, an investor loaned the Company $50,000 for operating expenses. The note boar interest at a rate of 6% per annum, and was due and payable May 31, 2009. During the nine months ended September 30, 2009, the investor loaned an additional $215,000 to the Company for operating expenses. On September 28, 2009, the Company converted the note into 2,789,474 shares of common stock. Interest due on the note at the end of the period is $6,261.

CARBON SCIENCES, INC.

(A Development Stage Company)

NOTES TO FINANCIAL STATEMENTS-UNAUDITED

SEPTEMBER 30, 2009

5.	INCOME TAXES

The Company files income tax returns in the U.S. Federal jurisdiction, and the state of California. With few exceptions, the Company is no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations by tax authorities for years before 2005.

Deferred income taxes have been provided by temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for tax purposes. To the extent allowed by GAAP, we provide valuation allowances against the deferred tax assets for amounts when the realization is uncertain.

Included in the balance at September 30, 2009 are no tax positions for which the ultimate deductibility is highly certain but for which there is uncertainty about the timing of such deductibility. Because of the impact of deferred tax accounting, other than interest and penalties, the disallowance of the shorter deductibility period would not affect the annual effective tax rate but would accelerate the payment of cash to the taxing authority to an earlier period.

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

6.	SUBSEQUENT EVENTS

Management has evaluated subsequent events after the balance sheet date of September 30, 2009 through November 16, 2009.

During October 2009, the Company issued 1,491,250 shares of common stock for $149,125.

ITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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."

OVERVIEW

Carbon Sciences is 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.

Our CO2-to-Fuel technology directly transforms CO2 and H20 (water) into low level hydrocarbons. These low level hydrocarbons can then be used to produce high level fuels, such as gasoline and jet fuel. The key to our CO2-to-Fuel technology lies in a proprietary multi-step biocatalytic process. Instead of using expensive inorganic catalysts, such as zinc, gold or zeolite, with traditional high energy catalytic chemical processes, our process uses biological enzymes to catalyze certain chemical reactions required to transform CO2 into basic hydrocarbon fuel molecules. Of greatest significance, our process occurs at low temperature and low pressure, thereby requiring far less energy than other approaches.

The energy efficient biocatalytic processes we are exploiting in our technology actually occur in certain microorganisms where carbon atoms, extracted from CO2, and hydrogen atoms, extracted from H2O, are combined to create hydrocarbon molecules. Our breakthrough technology allows these processes to operate on a very large industrial scale through advance nano-engineering of the biocatalysts and highly efficient process design.

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 5511C Ekwill Street, Santa Barbara, California 93111, and our telephone number is (805) 456-7000. Our fiscal year end is December 31

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.

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

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

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

RESULTS OF OPERATIONS – THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2009 COMPARED TO THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2008

Selling and Marketing Expenses

Selling and Marketing ("S&M") expenses increased by $120,783 or 90.40% to $254,395 for the three months ended September 30, 2009, compared to the prior period. S&M expenses increased by $188,702 or 42.72% to $630,396 for the nine months ended September 30, 2009, compared to the prior period. The increase in S&M expenses was due primarily to an increase in market exposure.

General and Administrative Expenses

General and administrative ("G&A") expenses increased by $4,125 or 8.42% to $53,127 for the three months ended September 30, 2009, compared to the prior period. G&A expenses increased by $52,701 or 41.49% to $179,713 for the nine months ended September 30, 2009, compared to the prior period. The increase in G&A expenses was due primarily to an increase in rent expense and salaries.

Research and Development

Research and Development ("R&D") costs decreased by $(98,054) or 93.84% to $6,439 for the three months ended September 30, 2009, compared to the prior period. R&D costs decreased by $(90,971) or 46.67% to $103,972 for the nine months ended September 30, 2009, compared to the prior period. The decrease in R&D was the result of a decrease in supplies, and consulting fees.

Net Loss

Net Loss for the three months ended September 30, 2009 was $322,676 compared to $288,031 for the prior period. Net Loss for the nine months ended September 30, 2009 was $938,497 compared to $758,669 for the prior period. The increase in net loss was due to an increase in operating expenses. Currently the Company is in its development stage and had no revenues.

Liquidity and Capital Resources

As of September 30, 2009, we had a $192,723 working capital as compared to working capital of $140,424 as of September 30, 2008. This decrease of $52,299 was due primarily to use of funds for operating expenses.

During the nine months ended September 30, 2009, the Company used $766,697 of cash for operating activities, as compared to $608,868 for the nine months ended September 30, 2008. The increase in the use of cash for operating activities was a result of an increase in selling and marketing, and general and administrative expenses.

Cash used by investing activities was $(5,644) for the nine months ended September 30, 2009 as compared to cash provided of $626,062 for the nine months ended September 30, 2008. The decrease of cash provided by investing activities was due to a decrease in funds provided from certificates of deposits.

Cash provided from financing activities during the nine months ended September 30, 2009 was $971,737 as compared to $0 for the nine months ended September 30, 2008. Our capital needs have primarily been met from the proceeds of equity financing, as we are currently in the development stage and had no revenues.

PLAN OF OPERATION AND FINANCING NEEDS

We are engaged in developing a technology to convert the greenhouse gas, carbon dioxide (CO2), into fuels. We plan to license this technology to energy companies and large CO2 emitters.

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 2009, 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.

Off-Balance Sheet Arrangements

We do not have any off balance sheet arrangements that are reasonably likely to have a current or future effect on our financial condition, revenues, and results of operations, liquidity or capital expenditures.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

n/a

ITEM 4T. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this report, we conducted an evaluation, under the supervision and with the participation of our chief executive officer and chief financial officer of our disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) of the Exchange Act). Based upon this evaluation, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is: (i) recorded, processed, summarized and reported, within the time periods specified in the Commission's rules and forms, and (ii) accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting

There was no change to our internal controls or in other factors that could affect these controls during our last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

We are not a party to any pending legal proceeding, nor is our property the subject of a pending legal proceeding, that is not in the ordinary course of business or otherwise material to the financial condition of our business. None of our directors, officers or affiliates is involved in a proceeding adverse to our business or has a material interest adverse to our business.

ITEM 1A. RISK FACTORS

There are no material changes from the risk factors previously disclosed in the Registrant’s Form 10-K filed on April 14, 2009.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

On September 28, 2009, we entered into a Stock Purchase Agreement with an accredited investor for the sale of 11,210,526 shares of common stock at a price of $0.0263 per share for gross proceeds of $295,000.

On September 28, 2009, we entered into an Exchange of Notes for shares agreement, pursuant to which we agreed to issue 2,789,474 shares of common stock in exchange for the cancellation of promissory notes in the amount of $265,000.

Also, during the three months ended September 30, 2009, we sold 1,491,250 shares of common stock to accredited investors at a price of $0.10 per share for gross proceeds of $149,125.

We relied on an exemption from the registration requirements of the Securities Act of 1933, as amended (the “Act”), pursuant to Rule 506 and Section 4(2) of the Act in connection with the foregoing issuances.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None

ITEM 6. EXHIBITS

SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Los Angeles, State of California, on November 16, 2009.

		CARBON SCIENCES, INC.

	By:	/s/ Byron Elton
		Chief Executive Officer (Principal Executive Officer ) and Acting Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)