Digital Locations, Inc. - Quarter Report: 2011 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, 2011

¨ 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 November 11, 2011 was 9,594,567.

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	12
ITEM 4:	CONTROLS AND PROCEDURES	12
PART II: OTHER INFORMATION
Item 1	LEGAL PROCEEDINGS	13
ITEM 1A :	RISK FACTORS	13
ITEM 2	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	13
ITEM 3	DEFAULTS UPON SENIOR SECURITIES	13
ITEM 4	(REMOVED AND RESERVED)	13
Item 5	OTHER INFORMATION	13
ITEM 6:	EXHIBITS	13
SIGNATURES		14

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CARBON SCIENCES, INC.

(A Development Stage Company)

Balance Sheets




	September 30, 2011			December 31, 2010
	(Unaudited)
ASSETS

CURRENT ASSETS
Cash	$	318,843		$	38,422
Prepaid expenses		42,471			7,563

TOTAL CURRENT ASSETS		361,314			45,985

PROPERTY & EQUIPMENT, at cost
Machinery & equipment		133,344			91,344
Computer equipment		31,434			28,716
Furniture & fixtures		1,459			1,459
		166,237			121,519
Less accumulated depreciation		(59,203	)		(45,800	)

NET PROPERTY AND EQUIPMENT		107,034			75,719

OTHER ASSETS
Patents		69,448			37,114

TOTAL ASSETS	$	537,796		$	158,818



LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES
Accounts payable	$	53,349		$	12,635
Accrued expenses		8,966			11,369
Accrued interest, notes payable		7,635			7,346
Note payable, shareholder		-			25,000

TOTAL CURRENT LIABILITIES		69,950			56,350

SHAREHOLDERS' EQUITY
Preferred Stock, $0.001 par value,
20,000,000 authorized common shares		-			-
Common Stock, $0.001 par value;
100,000,000 authorized common shares
9,594,567 and 5,120,229 shares issued and outstanding, respectively		9,594			5,120
Additional paid in capital		7,487,774			5,914,530
Accumulated deficit during the development stage		(7,029,522	)		(5,817,182	)

TOTAL SHAREHOLDERS' EQUITY		467,846			102,468

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$	537,796		$	158,818

The accompanying notes are an integral part of these financial statements

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, 2011			September 30, 2010			September 30, 2011			September 30, 2010			September 30, 2011


REVENUE	$	-		$	-		$	-		$	-		$	-

OPERATING EXPENSES
General and administrative expenses		466,847			218,649			952,856			1,842,544			6,034,352
Research and development		43,871			61,018			243,330			138,622			946,833
Depreciation expense		4,760			3,286			13,403			11,875			80,000

TOTAL OPERATING EXPENSES		515,478			282,953			1,209,589			1,993,041			7,061,185

LOSS FROM OPERATIONS BEFORE OTHER INCOME/(EXPENSES)		(515,478	)		(282,953	)		(1,209,589	)		(1,993,041	)		(7,061,185	)

OTHER INCOME/(EXPENSE)
Interest income		-			-			-			-			39,521
Gain on sale of asset		-			-			-			5,045			5,045
Foreign exchange gain/(loss)		(2,108	)					(2,108	)		-			(2,108	)
Penalties		-			-			(29	)		-			(79	)
Interest expense		(120	)		(320	)		(614	)		(755	)		(10,716	)

TOTAL OTHER INCOME/(EXPENSES)		(2,228	)		(320	)		(2,751	)		4,290			31,663

NET LOSS	$	(517,706	)	$	(283,273	)	$	(1,212,340	)	$	(1,988,751	)	$	(7,029,522	)

BASIC AND DILUTED LOSS PER SHARE	$	(0.08	)	$	(0.06	)	$	(0.19	)	$	(0.43	)

WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING
BASIC AND DILUTED		6,840,020			4,783,598			6,531,228			4,584,224

The accompanying notes are an integral part of these financial statements

CARBON SCIENCES, INC.

(A Development Stage Company)

Statement of Shareholders' Equity/(Deficit)

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

Balance at December 31, 2010		-	$	-		5,120,229	$	5,120	$	5,914,530		$	(5,817,182	)	$	102,468


Issuance of common stock for cash (unaudited)
(price per share between $1.00 - $2.00)		-		-		1,141,000		1,141		1,480,859			-			1,482,000

Cashless issuance of common stock warrants (unaudited)		-		-		3,333,338		3,333		(3,333	)		-			-

Stock compensation cost (unaudited)		-		-		-		-		95,718			-			95,718

Net Loss for the nine months ended September 30, 2011 (unaudited)		-		-		-		-		-			(1,212,340	)		(1,212,340	)

Balance at September 30, 2011 (unaudited)		-	$	-		9,594,567	$	9,594	$	7,487,774		$	(7,029,522	)	$	467,846

The accompanying notes are an integral part of these financial statements

CARBON SCIENCES, INC.

(A Development Stage Company)

Statements of Cash Flows

(Unaudited)

							From Inception on
							August 25, 2006
	Nine Months Ended						through
	September 30, 2011			September 30, 2010			September 30, 2011
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(1,212,340	)	$	(1,988,751	)	$	(7,029,522	)
Adjustment to reconcile net loss to net cash
used in operating activities
Depreciation expense		13,403			11,875			80,000
Stock issuance for services		-			-			251,038
Stock compensation cost		95,718			1,230,000			1,325,718
Gain on sale of asset		-			(5,045	)		(5,045	)
Changes in Assets and Liabilities
(Increase) Decrease in:
Prepaid expenses		(34,908	)		7,960			(42,471	)
Increase (Decrease) in:
Accounts payable		40,714			8,500			53,349
Accrued expenses		(2,114	)		(11,871	)		16,601

NET CASH USED IN OPERATING ACTIVITIES		(1,099,527	)		(747,332	)		(5,350,332	)

CASH FLOWS USED IN INVESTING ACTIVITIES:
Proceeds from sale of vehicle		-			24,500			24,500
Patent expenditures		(32,334	)		(22,697	)		(69,448	)
Purchase of equipment		(44,718	)		(15,640	)		(206,489	)

NET CASH USED IN INVESTING ACTIVITIES		(77,052	)		(13,837	)		(251,437	)

CASH FLOWS IN FINANCING ACTIVITIES:
Advances from officer		-			-			113,000
Loans from investors		-			25,000			525,000
Repayment of advances and loans		(25,000	)		-			(373,000	)
Proceeds from subscriptions payable		-			-			362,775
Proceeds from issuance of common stock, net		1,482,000			626,000			5,292,837

NET CASH PROVIDED BY FINANCING ACTIVITIES		1,457,000			651,000			5,920,612

NET INCREASE/(DECREASE) IN CASH		280,421			(110,169	)		318,843

CASH, BEGINNING OF PERIOD		38,422			270,562			-

CASH, END OF PERIOD	$	318,843		$	160,393		$	318,843

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Interest paid	$	120		$	158		$	3,213
Taxes paid	$	800		$	800		$	3,200

SUPPLEMENTAL DISCLOSURES OF NON CASH ACTIVITIES
From inception on August 25, 2006 through September 30, 2011, the Company issued 69,737 shares of common stock for converted debt in the
amount of $265,000, at fair value of $3.80 per share.

The accompanying notes are an integral part of these financial statements

CARBON SCIENCES, INC.

(A Development Stage Company)

NOTES TO FINANCIAL STATEMENTS-UNAUDITED

SEPTEMBER 30, 2011

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, 2011 are not necessarily indicative of the results that may be expected for the year ending December 31, 2011. 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, 2010.

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, 2011

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, 2011 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.

Recently Issued Accounting Pronouncements

Management reviewed accounting pronouncements issued during the three months ended September 30, 2011, and no pronouncements were adopted during the period.

3.	CAPITAL STOCK

As of April 29, 2011, the Company authorized a one-for-forty (1:40) reverse split. All share amounts have been retroactively restated reflecting this reverse split.

During the nine months ended September 30, 2011, the Company issued:

·	800,000 shares of common stock at a price of $1.00 per share for gross cash proceeds of $800,000, with warrants attached to purchase 3,200,000 shares of common stock over a period of five years;

·	341,000 shares of common stock at a price of $2.00 for gross cash proceeds of $682,000;

·	3,333,338 shares of common stock upon cashless exercise of warrants to purchase 4,000,000 shares of common stock.

During the nine months ended September 30, 2010, the Company issued:

·	335,714 shares of common stock at a price of $1.40 per share for gross cash proceeds of $470,000;

·	150,000 shares of common stock at a price of $1.04 for gross cash proceeds of $156,000.

4. STOCK OPTIONS

As of September 30, 2011, the Board of Directors of the Company granted non-qualified stock options to purchase 725,000 shares of common stock to its employees. Each option is exercisable to the nearest whole share, in installments or otherwise, as the respective option 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 seventh (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 exercise prices between $2.80 and $4.31 per share, the market price 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, 2011

4. STOCK OPTIONS AND WARRANTS (Continued)

	9/30/2011
Risk free interest rate		.67% - 3.3	%
Stock volatility factor		92.21% - 98.23	%
Weighted average expected option life	2 - 7 years
Expected dividend yield	None

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

	9/30/2011
			Weighted
	Number		average
	of		exercise
	Options		price
Outstanding, beginning of period		462,500	$	2.90
Granted		262,500		3.45
Exercised		-		-
Expired		-		-
Outstanding, end of period		725,000	$	3.38
Exercisable at the end of period		426,250	$	2.45
Weighted average fair value of
options granted during the period			$	3.47

Stock-based compensation expense recognized during the period is based on the value of the portion of stock-based payment awards that is ultimately expected to vest. Stock-based compensation expense recognized in the financial statements of operations during the period ended September 30, 2011, included compensation expense for the stock-based payment awards granted prior to, but not yet vested, as of September 30, 2011 based on the grant date fair value estimated, and compensation expense for the stock-based payment awards granted subsequent to September 30, 2011, based on the grant date fair value estimated. We account for forfeitures as they occur. The stock-based compensation expense recognized in the statement of income during the period ended September 30, 2011 and 2010 is $95,718 and $1,230,000, respectively.

Warrants

During the period ended September 30, 2011, the Company issued no warrants. On July 22, 2011, through a cashless exercise 4,000,000 warrants were exercise to purchase 3,333,338 shares of common stock. At September 30, 2011, the Company had no warrants outstanding.

5.	SUBSEQUENT EVENTS

Management has evaluated subsequent events according to the requirements of ASC TOPIC 855, and has no events to report.

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," in our annual report on Form 10-K filed with the SEC on March 30, 2011.

OVERVIEW

We are a developmental stage company engaged in the development of a patented catalyst technology for the production of synthesis gas (syngas) from natural gas methane (CH4) and carbon dioxide (CO2). We believe the syngas the technology we are developing will be able to be used as a feedstock in the commercial production of gasoline and other liquid transportation fuels.

Our goal is to help reduce the world’s dependence on petroleum by developing technology to enable the cost effective use of natural gas as a feedstock to produce clean and green liquid fuels for use in the existing transportation infrastructure.

We believe that natural gas is the world’s next primary source of fuel. While found in abundant supply at affordable prices in the U.S. and throughout the world, natural gas cannot be used directly in cars, trucks, trains and planes without a massive overhaul of the existing liquid fuels infrastructure. We intend to address this problem by developing an industrial clean-tech process to enable the transformation of natural gas into liquid transportation fuels such as gasoline, diesel and jet fuel. The key to our technology is a patented catalyst that reacts carbon dioxide (CO2) with natural gas methane (CH4) to produce a synthesis gas mixture of hydrogen and carbon monoxide (CO + H2), often referred to as syngas. This syngas can be fed into existing industrial scale gas-to-liquids (GTL) processes to produce liquid fuels.

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.

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, 2011, 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, 2011

General and Administrative Expenses

General and administrative, or G&A, expenses increased by $248,198 to $466,847 for the three months ended September 30, 2011, compared to $218,649 for the prior period September 30, 2010. The increase in G&A for the three months ended September 30, 2011 was due to an increase in professional fees. G&A decreased by $889,688 to $952,856 for the nine months ended September 30, 2011, compared to $1,842,544 for the prior period September 30, 2010. The decrease in G&A expenses was due primarily to a decrease in non-cash stock compensation expense of $1,230,000, and an increase in salaries, and professional fees as compared to the prior period.

Research and Development

Research and Development or R&D costs decreased by $17,147) to $43,871 for the three months ended September 30, 2011, compared to $61,018 for the prior period September 30, 2010. The decrease in the R&D for the three months ended September 30, 2011 was due to a decrease in salaries offset by an increase in lab fees. The R&D for the nine months ended September 30, 2011, increased by $104,708 to $243,330, compared to $138,622 for the prior period ended September 30, 2010. The overall increase in R&D was the result of an increase in consulting and lab fees.

Net Loss

Net Loss for the nine months ended September 30, 2011was $1,212,340 compared to $1,988,751 for the prior period September 30, 2010. The overall net decrease of $776,411 in net loss was due to a decrease in non-cash stock compensation cost for the current period, offset by an increase in G&A and R&D expenses. Currently the Company is in its development stage and had no revenues.

Liquidity and Capital Resources

As of September 30, 2011, we had a working capital of $291,364 compared to a working deficit of $10,365 for the year ended December 31, 2010. The increase of $301,729 in working capital was due primarily to equity financing.

During the nine months ended September 30, 2011, the Company used $1,099,527 of cash for operating activities, as compared to $747,332 for the prior period September 30, 2010. The increase of $352,195 in the use of cash for operating activities was primarily due to an increase in operating net loss, an increase in prepaid expenses, and an increase in accounts payable.

Cash used by investing activities was $77,052 for the nine months ended September 30, 2011, as compared to cash used of $13,837 for the prior period September 30, 2010. The net increase of $63,215 in cash used by investing activities in the current period was due to an increase in the purchase of tangible and intangible assets as compared to the prior period ended September 30, 2010, which used fewer funds to purchase tangible and intangible assets, and received proceeds from the sales of a vehicle.

Cash provided from financing activities during the nine months ended September 30, 2011 was $1,457,000 as compared to $651,000 for the prior period ended September 30, 2010. 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, 2011 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 as the Company does not generate significant revenue and have negative cash flows from operations. 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. Our financial statements do not include any adjustments that might result from the outcome of this uncertainty.

During the first quarter of 2011, we issued Units comprising of an aggregate of 400,000 shares of common stock and warrants to purchase 1,600,000 shares of our common stock at a price of $1.00 per Unit for aggregate gross cash proceeds of $400,000. Each Unit consisted of 1 share and a warrant to purchase 4 shares of the Company’s common stock. The warrants were exercisable at a price of $1.00 for a term of five years. The net proceeds of the sales were used for working capital purposes. The warrants were subsequently exercised on a cashless basis for 1,333,335 shares of common stock.

During the second quarter of 2011, we issued Units comprising an aggregate of 400,000 shares of common stock and warrants to purchase 1,600,000 shares of our common stock at a price of $1.00 per Unit for aggregate gross cash proceeds of $400,000. Each Unit consisted of 1 share and a warrant to purchase 4 shares of the Company’s common stock. The warrants were exercisable at a price of $1.00 for a term of five years. The net proceeds of the sales were used for working capital purposes. The warrants were subsequently exercised on a cashless basis for 1,333,335 shares of common stock.

During the third quarter of 2011, we issued 341,000 shares of our common stock at a price of $2.00 per share for aggregate gross cash proceeds of $682,000. The net proceeds of the sales were used for working capital purposes

PLAN OF OPERATION AND FINANCING NEEDS

We are engaged in developing a technology to convert the greenhouse gas, carbon dioxide (CO2), into liquid fuels. We plan to develop our technology and 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 2011, 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 March 30, 2011.

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

During the period ended September 30, 2011, we issued 341,000 shares of our common stock at a price of $2.00 per share for aggregate gross cash proceeds of $682,000.

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.

EX-101.INS		XBRL INSTANCE DOCUMENT

EX-101.SCH		XBRL TAXONOMY EXTENSION SCHEMA DOCUMENT

EX-101.CAL		XBRL TAXONOMY EXTENSION CALCULATION LINKBASE

EX-101.DEF		XBRL TAXONOMY EXTENSION DEFINITION LINKBASE

EX-101.LAB		XBRL TAXONOMY EXTENSION LABELS LINKBASE

EX-101.PRE		XBRL TAXONOMY EXTENSION PRESENTATION LINKBASE

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 14, 2011.

	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)