Digital Locations, Inc. - Quarter Report: 2011 March (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 MARCH 31, 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 May 13, 2011 was 5,619,467.

CARBON SCIENCES, INC.

INDEX

PART I: FINANCIAL INFORMATION		Page
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	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

	March 31, 2011			December 31, 2010
	(Unaudited)
ASSETS

CURRENT ASSETS
Cash	$	71,092		$	38,422
Prepaid expenses		23,734			7,563

TOTAL CURRENT ASSETS		94,826			45,985

PROPERTY & EQUIPMENT, at cost
Machinery & equipment		91,344			91,344
Computer equipment		28,716			28,716
Furniture & fixtures		1,459			1,459
		121,519			121,519
Less accumulated depreciation		(50,100	)		(45,800	)

NET PROPERTY AND EQUIPMENT		71,419			75,719

OTHER ASSETS
Patents		37,114			37,114

TOTAL ASSETS	$	203,359		$	158,818



LIABILITIES AND SHAREHOLDER'S EQUITY

CURRENT LIABILITIES
Accounts payable	$	13,453		$	12,635
Accrued expenses		11,369			11,369
Accrued interest, notes payable		7,635			7,346
Note payable, investor		-			25,000

TOTAL CURRENT LIABILITIES		32,457			56,350

SHAREHOLDER'S EQUITY
Preferred Stock, $0.001 par value		-			-
Common Stock, $0.001 par value;
12,500,000 authorized common shares
5,519,467 and 5,119,467 shares issued and outstanding		5,519			5,119
Additional paid in capital		6,314,131			5,914,531
Accumulated deficit during the development stage		(6,148,748	)		(5,817,182	)

TOTAL SHAREHOLDER'S EQUITY		170,902			102,468

TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY	$	203,359		$	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						through
	March 31, 2011			March 31, 2010			March 31, 2011


REVENUE	$	-		$	-		$	-

OPERATING EXPENSES
General and administrative expenses		242,743			203,896			5,324,239
Research and development		84,148			47,400			787,651
Depreciation expense		4,300			4,902			70,897

TOTAL OPERATING EXPENSES		331,191			256,198			6,182,787

LOSS FROM OPERATIONS BEFORE OTHER INCOME/(EXPENSES)		(331,191	)		(256,198	)		(6,182,787	)

OTHER INCOME/(EXPENSE)
Interest income		-			-			39,521
Gain on sale of asset		-			-			5,045
Penalties		-			-			(50	)
Interest expense		(375	)		(137	)		(10,477	)

TOTAL OTHER INCOME/(EXPENSES)		(375	)		(137	)		34,039

NET LOSS	$	(331,566	)	$	(256,335	)	$	(6,148,748	)

BASIC AND DILUTED LOSS PER SHARE	$	(0.06	)	$	(0.06	)

WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING
BASIC AND DILUTED		5,250,989			4,433,753

The accompanying notes are an integral part of these financial statements

CARBON SCIENCES, INC.

(A Development Stage Company)

Statement of Shareholders' Equity/(Deficit)

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

Balance at December 31, 2010		-	$	-		5,119,467	$	5,119	$	5,914,531	$	(5,817,182	)	$	102,468

Issuance of common stock in Januaary for cash
(50,000 shares of common stock issued at $1.00 per share) (unaudited)		-		-		50,000		50		49,950		-			50,000

Issuance of common stock in February for cash
(150,000 shares of common stock issued at $1.00 per share) (unaudited)		-		-		150,000		150		149,850		-			150,000

Issuance of common stock in February for cash
(200,000 shares of common stock issued at $1.00 per share) (unaudited)		-		-		200,000		200		199,800		-			200,000

Net Loss for the three months ended March 31, 2011 (unaudited)		-		-		-		-		-		(331,566	)		(331,566	)

Balance at March 31, 2011 (unaudited)		-	$	-		5,519,467	$	5,519	$	6,314,131	$	(6,148,748	)	$	170,902

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
	Three Months Ended						through
	March 31, 2011			March 31, 2010			March 31, 2011
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(331,566	)	$	(256,335	)	$	(6,148,748	)
Adjustment to reconcile net loss to net cash
used in operating activities
Depreciation expense		4,300			4,902			70,897
Stock issuance for services		-			-			251,038
Stock compensation cost		-			-			1,230,000
Gain on sale of asset		-						(5,045	)
Changes in Assets and Liabilities
(Increase) Decrease in:
Prepaid expenses		(16,171	)		13,817			(23,734	)
Increase (Decrease) in:
Accounts payable		818			4,420			13,453
Accrued expenses		289			(14,386	)		19,004

NET CASH USED IN OPERATING ACTIVITIES		(342,330	)		(247,582	)		(4,593,135	)

CASH FLOWS USED IN INVESTING ACTIVITIES:
Proceeds from sale of vehicle		-			-			24,500
Patent expenditures		-			(14,139	)		(37,114	)
Purchase of equipment		-			(4,955	)		(161,771	)

NET CASH USED IN INVESTING ACTIVITIES		-			(19,094	)		(174,385	)

CASH FLOWS IN FINANCING ACTIVITIES:
Advances from/(to) officer		-			-			113,000
Loans from investors		-			-			525,000
Repayment of advances and loans		(25,000	)		-			(373,000	)
Proceeds from subscriptions payable		-			-			362,775
Proceeds from issuance of common stock, net		400,000			-			4,210,837

NET CASH PROVIDED BY FINANCING ACTIVITIES		375,000			-			4,838,612

NET INCREASE/(DECREASE) IN CASH		32,670			(266,676	)		71,092

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

CASH, END OF PERIOD	$	71,092		$	3,886		$	71,092

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Interest paid	$	87		$	137		$	2,974
Taxes paid	$	800		$	800		$	3,200

The accompanying notes are an integral part of these financial statements

CARBON SCIENCES, INC.

(A Development Stage Company)

NOTES TO FINANCIAL STATEMENTS-UNAUDITED

MARCH 31, 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 three month period ended March 31, 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

MARCH 31, 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 March 31, 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.

Reclassification

Selling and marketing expenses for the period ended March 31, 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 March 31, 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 three months ended March 31, 2011, the Company issued 400,000 shares of common stock at a price of $1.00 per share for cash of $400,000, with warrants attached with the option to purchase 1,200,000 shares of common stock over a period of five years. During the three months ended March 31, 2010, the Company issued no shares of common stock.

4. STOCK OPTIONS

On April 23, 2010, the Board of Directors of the Company granted non qualified stock options for 512,500 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 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 an exercise price of $2.92 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

MARCH 31, 2011

4. STOCK OPTIONS AND WARRANTS (Continued)

	3/31/2011
Risk free interest rate	3.30%
Stock volatility factor	1%
Weighted average expected option life	7 years
Expected dividend yield	None

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

	3/31/2011
			Weighted
	Number		average
	of		exercise
	Options		price
Outstanding, beginning of period		387,500	$	2.92
Granted		-		-
Exercised		-		-
Expired		-		-
Outstanding, end of period		387,500	$	2.92
Exercisable at the end of period		387,500	$	2.92
Weighted average fair value of
options granted during the period			$	-

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 was paid in full as of March 31, 2011.

6.	SUBSEQUENT EVENTS

Management evaluated subsequent events as of the date of the financial statements pursuant to ASC TOPIC 855.

On April 6, 2011, the Company entered into a consulting agreement with Emerging Fuels Technology, Inc. to aid in furthering their commercial grade catalyst technology.

On April 28, 2011, the Company issued 100,000 shares of common stock at a price of $1.00 per share for $100,000 cash, with warrants attached to purchase 400,000 shares of common stock at a price of $1.00. The shares are stated at the effected 1:40 reverse split.

On April 29, 2011, the Company authorized a one-for-forty (1:40) reverse split of the Company’s authorized, issued and outstanding shares of common stock. As a result of the reverse split each forty (40) shares of the Company’s common stock issued and outstanding immediately prior to the reverse split shall be changed into one (1).

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 is currently developing a technology to convert the greenhouse gas, carbon dioxide (CO2), into gasoline and other fuels.

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

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

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

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

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

Corporate Overview

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

Critical Accounting Policies

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

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 March 31, 2011, and no pronouncements were adopted during the period.

RESULTS OF OPERATIONS – THREE MONTHS ENDED MARCH 31, 2011 COMPARED TO THE THREE MONTHS ENDED MARCH 31, 2010

General and Administrative Expenses

General and administrative ("G&A") expenses increased by $38,847 to $242,743 for the three months ended March 2011, compared to $203,896 for the prior period March 31, 2010. The increase in G&A expenses was due primarily to an increase in salary expense and professional fees.

Research and Development

Research and Development ("R&D") costs increased by $36,748 to $84,148 for the three months ended March 2011, compared to $47,400 for the prior period March 31, 2010. The overall increase in R&D was the result of an increase in consulting and lab fees.

Net Loss

Net Loss for the three months ended March 2011was $(331,566) compared to $(256,335) for the prior period March 31, 2010. The overall net increase of $(75,231) 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 March 31, 2011, we had a working capital of $62,369 compared to a working deficit of $(10,365) for the year ended December 31, 2010. The increase of $72,734 in working capital was due primarily to equity financing.

During the three months ended March 2011, the Company used $(342,330) of cash for operating activities, as compared to $(247,582) for the prior period March 31, 2010. The decrease of $(94,748) in the use of cash for operating activities was primarily due to an increase in net loss of $(75,231), an increase in prepaid expenses of $(29,988), and an increase in accounts payable and accrued expenses of $11,073.

Cash used by investing activities was $0 for the three months ended March 2011as compared to cash used of $(19,094) for the prior period March 31, 2010. The net decrease of $(19,094) in cash used by investing activities in the current period was due to no purchases for equipment or patent expenditures as compared to the purchase of $19,094 for equipment and patent expenditure in the prior period ended March 2010.

Cash provided from financing activities during the three months ended March 2011 was $375,000 as compared to $0 for the prior period ended March 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 March 31, 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 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 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 March 31, 2011, the Company issued 400,000 shares of common stock for proceeds of $400,000.*

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.

*Effective April 29, 2011, the Company’s Board of Directors approved and authorized the implementation of a one-for-forty (1:40) reverse split of the Company’s authorized, issued and outstanding shares of common stock. All share amounts have been retroactively restated reflecting a one for forty (1:40) reverse split.

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 May 13, 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)