Digital Locations, Inc. - Quarter Report: 2010 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, 2010

¨ 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, 32nd 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 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 (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o 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 October 29, 2010 was 196,778,697.

CARBON SCIENCES, INC.

INDEX

PART I: FINANCIAL INFORMATION
ITEM 1:	FINANCIAL STATEMENTS (Unaudited)	3
	Balance Sheets	3
	Statements of Operations	4
	Statement of Stockholder’s Equity	5
	Statements of Cash Flows	6
	Notes to the Financial Statements	7
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	(REMOVED AND RESERVED)	14
Item 5	OTHER INFORMATION	14
ITEM 6:	EXHIBITS	14
SIGNATURES		15

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CARBON SCIENCES, INC.

(A Development Stage Company)

Balance Sheets

	September 30, 2010				December 31, 2009
	(Unaudited)
ASSETS

CURRENT ASSETS
Cash	$	160,393		$	270,562
Prepaid expenses		16,063			24,023

TOTAL CURRENT ASSETS		176,456			294,585

PROPERTY & EQUIPMENT, at cost
Machinery & equipment		75,377			71,498
Computer equipment		27,861			17,559
Furniture & Fixtures		1,459			-
Mobile vehicle		-			40,252
		104,697			129,309
Less accumulated depreciation		(42,095	)		(51,018	)

NET PROPERTY AND EQUIPMENT		62,602			78,291

OTHER ASSETS
Patents		37,114			14,417

TOTAL ASSETS	$	276,172		$	387,293



LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES
Accounts payable	$	12,547		$	4,046
Accrued expenses		15,292			27,762
Accrued interest, notes payable		7,033			6,434
Note payable, investor		25,000			-

TOTAL CURRENT LIABILITIES		59,872			38,242

SHAREHOLDERS' EQUITY
Common Stock, $0.001 par value;
500,000,000 authorized common shares
196,778,697 and 177,350,125 shares issued and outstanding, repectively		196,778			177,350
Additional paid in capital		5,522,872			3,686,300
Accumulated deficit during the development stage		(5,503,350	)		(3,514,599	)

TOTAL SHAREHOLDERS' EQUITY		216,300			349,051

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$	276,172		$	387,293

CARBON SCIENCES, INC.

(A Development Stage Company)

Statements of Operations

(Unaudited)

													From Inception on
													August 25,2006
	Three Months Ended						Nine Months Ended						through
	September 30, 2010			September 30, 2009			September 30, 2010			September 30, 2009			September 30, 2010


REVENUE	$	-		$	-		$	-		$	-		$	-

OPERATING EXPENSES
Selling and marketing expenses		-			-			-			-			1,896,783
General and administrative expenses		218,649			307,522			612,544			810,109			1,698,807
Research and development cost		61,018			6,439			138,622			103,972			649,614
Stock compensation expense		-			-			1,230,000			-			1,230,000
Depreciation expense		3,286			5,678			11,875			17,035			62,893

TOTAL OPERATING EXPENSES		282,953			319,639			1,993,041			931,116			5,538,097

LOSS FROM OPERATIONS BEFORE OTHER INCOME/(EXPENSES)		(282,953	)		(319,639	)		(1,993,041	)		(931,116	)		(5,538,097	)

OTHER INCOME/(EXPENSE)
Interest income		-			-			-			-			39,521
Gain on sale of asset		-			-			5,045			-			5,045
Penalties		-			-			-			-			(50	)
Interest expense		(320	)		(3,037	)		(755	)		(7,381	)		(9,769	)

TOTAL OTHER INCOME (EXPENSES)		(320	)		(3,037	)		4,290			(7,381	)		34,747

NET LOSS	$	(283,273	)	$	(322,676	)	$	(1,988,751	)	$	(938,497	)	$	(5,503,350	)

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

WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING
BASIC AND DILUTED		191,343,914			154,488,539			183,368,963			151,922,564

CARBON SCIENCES, INC.

(A Development Stage Company)

Statement of Shareholders' Equity/(Deficit)

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

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) (unaudited)		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) (unaudited)		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) (unaudited)		4,000,000		4,000		100,000		-			104,000

Stock compensation expense for stock options granted and fully vested (unaudited)		-		-		1,230,000		-			1,230,000

Issuance of common stock for cash in July 2010
(2,000,000 shares issued $0.035 per share) (unaudited)		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) (unaudited)		8,571,429		8,571		291,429		-			300,000

Net Loss for the nine months ended September 30, 2010 (unaudited)		-		-		-		(1,988,751	)		(1,988,751	)

Balance at September 30, 2010 (unaudited)		196,778,697	$	196,778	$	5,522,872	$	(5,503,350	)	$	216,300

CARBON SCIENCES, INC.

(A Development Stage Company)

Statements of Cash Flows

(Unaudited)

							From Inception on
							August 25,2006
	Nine Months Ended						through
	September 30, 2010			September 30, 2009			September 30, 2010
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(1,988,751	)	$	(938,497	)	$	(5,503,350	)
Adjustment to reconcile net loss to net cash
used in operating activities
Depreciation expense		11,874			17,035			62,892
Stock issuance for services		-			176,038			251,038
Stock compensation expense		1,230,000			-			1,230,000
Gain on sale of asset		(5,045	)		-			(5,045	)
(Increase) Decrease in:
Other receivable		-			2,400			-
Prepaid expenses		7,960			(46,405	)		(16,063	)
Increase (Decrease) in:
Accounts payable		8,501			(30,008	)		12,547
Accrued expenses		(11,871	)		52,740			22,325

NET CASH USED IN OPERATING ACTIVITIES		(747,332	)		(766,697	)		(3,945,656	)

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		(15,640	)		-			(144,949	)

NET CASH USED IN INVESTING ACTIVITIES		(13,837	)		(5,644	)		(157,563	)

CASH FLOWS IN FINANCING ACTIVITIES:
Advances from officer		-			40,000			113,000
Loan from investor		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		626,000			393,962			3,610,837

NET CASH PROVIDED BY FINANCING ACTIVITIES		651,000			971,737			4,263,612

NET INCREASE/(DECREASE) IN CASH		(110,169	)		199,396			160,393

CASH, BEGINNING OF PERIOD		270,562			45,292			-

CASH, END OF PERIOD	$	160,393		$	244,688		$	160,393

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Interest paid	$	158		$	2,555		$	2,866
Taxes paid	$	800		$	800		$	2,400

SUPPLEMENTAL DISCLOSURES OF NON-CASH TRANSACTIONS
During the nine 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, 2010

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 month period ended September 30, 2010 are not necessarily indicative of the results that may be expected for the year ending December 31, 2010. 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, 2009.

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, 2010

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Loss per Share Calculations

The Company adopted the accounting pronouncement for loss per share, which dictates the calculation of basic earnings per share and diluted earnings per share. Basic earnings per share are computed by dividing income available to common shareholders by the weighted-average number of common shares available. Diluted earnings per share is computed similar to basic earnings per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive. The Company’s diluted loss per share is the same as the basic loss per share for the period ended September 30, 2010 as the inclusion of any potential shares would have had an anti-dilutive effect due to the Company generating a loss.

Stock-Based Compensation

Share based payments applies to transactions in which an entity exchanges its equity instruments for goods or services, and also applies to liabilities an entity may incur for goods or services that are to follow a fair value of those equity instruments. We will be required to follow a fair value approach using an option-pricing model, such as the Black Scholes option valuation model, at the date of a stock option grant. The deferred compensation calculated under the fair value method would then be amortized over the respective vesting period of the stock option. The adoption of share based compensation has no material impact on our results of operations.

Reclassification

Selling and marketing expenses for the period ended September 30, 2010 were reclassified to general and administrative expenses since the Company is focusing more on research and development of its product.

Recently Issued Accounting Pronouncements

Management reviewed accounting pronouncements issued during the three months ended September 30, 2010, and no pronouncements were adopted during the period.

3.	CAPITAL STOCK

During the nine months ended September 30, 2010, the Company issued 13,428,572 shares of common stock at a price of $0.035 per share for cash; 6,000,000 shares of common stock were issued at a price of $0.026 for cash. 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. STOCK OPTIONS

On April 23, 2010, the Board of Directors of the Company granted non qualified stock options for 20,500,000 shares of common stock to its employees, agreements may provide. Notwithstanding any other provisions of the Option agreement, each Option expires on the date specified in the Option agreement, which date shall not be later than the tenth (7th) anniversary from the grant date of the options. The stock options vested immediately, and are exercisable for a period of seven years from the date of grant at an exercise price of $0.073 per share, the market value of the Company’s common stock on the date of grant.

CARBON SCIENCES, INC.

(A Development Stage Company)

NOTES TO FINANCIAL STATEMENTS-UNAUDITED

SEPTEMBER 30, 2010

4. STOCK OPTIONS AND WARRANTS (Continued)

	9/30/2010			9/30/2009
Risk free interest rate		3.30	%		0.00	%
Stock volatility factor		1	%		0	%
Weighted average expected option life	7 years				0
Expected dividend yield	None				0

A summary of the Company’s stock option activity and related information follows:

	9/30/2010
			Weighted
	Number		average
	of		exercise
	Options		price
Outstanding, beginning of period		-	$	-
Granted		20,500,000		0.073
Exercised		-		-
Expired		-		-
Outstanding, end of period		20,500,000	$	0.073
Exercisable at the end of period		20,500,000	$	0.073
Weighted average fair value of
options granted during the period			$	-

The stock-based compensation expense recognized in the statement of operations during the nine months ended September 30, 2010, related to the granting of these options is $1,230,000.

5.	RELATED PARTY TRANSACTION

On April 9, 2010, the Company signed a promissory note for funds received from an investor in the amount of $25,000 for operating expenses. The note bears interest at 5% per annum, and is due April 9, 2011.

6.	SUBSEQUENT EVENTS

Management has evaluated subsequent events according to the requirements of FASB ASC TOPIC 855 and has determined there are no subsequent events to be reported.

I TEM 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, 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.

Our CO2-to-Fuel technology directly reacts CO2 emissions streams and sources of hydrogen atoms, such as water, biomethane and natural methane into high-level fuels, such as gasoline and jet fuel. The key to our CO2-to-Fuel technology lies in a number of proprietary enzyme and chemical process innovations as well as novel catalyst designs.

We are currently in the development phase of our technology and have not generated any revenues.

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 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.

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.

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 September 30, 2010, and no pronouncements were adopted during the period.

RESULTS OF OPERATIONS – THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2010 COMPARED TO THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2009

General and Administrative Expenses

General and administrative ("G&A") expenses decreased by $(88,873) to $218,649 for the three months ended September 30, 2010, compared to $307,522 for the prior period. G&A expenses decreased by $(197,565) to $612,544 for the nine months ended September 30, 2010, compared to $810,109 for the prior period. The decrease in G&A expenses was due primarily to a decrease in salary expense and public relations expense.

Research and Development

Research and Development ("R&D") costs increased by $54,579 to $61,018 for the three months ended September 30, 2010, compared to $6,439 for the prior period. R&D costs increased by $34,650 to $138,622 for the nine months ended September 30, 2010, compared to $103,972 for the prior period. The overall increase in R&D was the result of an increase in consulting fees and supplies.

Net Loss

Net Loss for the three months ended September 30, 2010 was $(283,273) compared to $(322,676) for the prior period. Net Loss for the nine months ended September 30, 2010 was $(1,988,751) compared to $(938,497) for the prior period. The overall net increase of $(1,050,254) in net loss was due primarily to a non-cash expense for stock compensation cost of $1,230,000. Currently the Company is in its development stage and had no revenues.

Liquidity and Capital Resources

As of September 30, 2010, we had a working capital of $116,584 compared to a working capital of $256,343 for the prior period. The decrease of $139,759 was due primarily to the use of funds for operating expenses.

During the nine months ended September 30, 2010, the Company used $(747,332) of cash for operating activities, as compared to $(766,697) for the prior period. The decrease of $(19,365) in the use of cash for operating activities was primarily due to a decrease in accrued and prepaid expenses.

Cash used by investing activities was $(13,837) for the nine months ended September 30, 2010 as compared to cash used of $(5,644) for the prior period. The net decrease of $(8,193) in cash used by investing activities in the current period was due to the combination of proceeds from the sale of a company vehicle for $24,500, and the purchase of patent expenditures and equipment of $38,337, compared to the cash used in investing activities of $5,644 for the purchase of patent expenditure for the nine months ended September 30, 2009.

Cash provided from financing activities during the nine months ended September 30, 2010 was $651,000 as compared to $971,737 for the nine months ended September 30, 2009. Our capital needs have primarily been met from the proceeds of equity financing, and investor loans, as we are currently in the development stage and had no revenues.

Our financial statements as of September 30, 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 April 15, 2010 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 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 our 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 4. 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 15, 2010.

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

During the period covered by this report, the Company sold 10,571,429 shares of common stock for total proceeds of $370,000 at a price of $0.035 per share.

The Company relied on an exemption pursuant to Rule 506 of Regulation d and/or Section 4(2) of the Securities Act of 1933, as amended in connection with the sale of the shares.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None

ITEM 4. (REMOVED AND RESERVED)

ITEM 5. OTHER INFORMATION

None

ITEM 6. EXHIBITS

31.1	Certification of the Chief Executive Officer and Chief Financial Officer., pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1	Certification of the Chief Executive Officer and Chief Financial Officer., furnished pursuant to Section 1350 of Chapter 63 of 18 U.S.C. as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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 4, 2010.

		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)