|   | x      | ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934    |
|--------|--------|-----------------------------------------------------------------------------------|
|   |   | FOR THE FISCAL YEAR ENDED DECEMBER 31, 2010                                       |
|   |   |                                                                              |
|   |   |                                                                              |
|   | o      | TRANSITION REPORT UNDER SECTION13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
|   |   |  FOR THE TRANSITION PERIOD FROM __________ TO __________                     |

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

| Large accelerated filer [ ]                                                      |                         | Accelerated Filer []     |   |
|------------------------------------------------------------------------------------------------------|------------------------------|----------------------------------------------|--------|
| Non-accelerated filer [ ] (Do not check if a smaller reporting company)     | Smaller reporting company[x] |                                         |

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

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----

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|   | · | competition;                     |
|--------|--------|----------------------------------|
|   | · | need for acceptance of products; |

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

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

|   | · | dependence upon key personnel. |
|--------|--------|--------------------------------|

----

----

----

| · | that a broker or dealer approve a person's account for transactions in penny stocks; and |
|--------|------------------------------------------------------------------------------------------|

| · | the broker or dealer receive from the investor a written agreement to the transaction, setting forth the identity and quantity of the penny stock to be purchased. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | obtain financial information and investment experience objectives of the person; and |
|--------|--------------------------------------------------------------------------------------|

| · | make a reasonable determination that the transactions in penny stocks are suitable for that person and the person has sufficient knowledge and experience in financial matters to be capable of evaluating the risks of transactions in penny stocks. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | sets forth the basis on which the broker or dealer made the suitability determination; and |
|--------|--------------------------------------------------------------------------------------------|

| · | that the broker or dealer received a signed, written agreement from the investor prior to the transaction. |
|--------|------------------------------------------------------------------------------------------------------------|

----

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

----

| Plan category                                              |   | Number of securitiesto be issued uponexercise ofoutstanding options,warrants and rights |   | Weighted averageexercise price ofoutstanding options,warrants and rights |   | Number of securitiesremaining available for future issuance under equity compensation plans (excluding securities reflected in column (a) |   |
|------------------------------------------------------------|--------|-----------------------------------------------------------------------------------------|--------|--------------------------------------------------------------------------|--------|-------------------------------------------------------------------------------------------------------------------------------------------|--------|
|                                                       |   | (a)                                                                                     |   | (b)                                                                      |   | (c)                                                                                                                                       |   |
| Equity compensation plans approved by security holders     |   |                                                                                    | -0-    |                                                                     |   | -0-                                                                                                                                       |   |   | -0- |   |
|                                                       |   |                                                                                    |   |                                                                     |   |                                                                                                                                      |   |   |   |   |
| Equity compensation plans not approved by security holders |   |                                                                                    | -0-    |                                                                     |   | -0-                                                                                                                                       |   |   | -0- |   |
|                                                       |   |                                                                                    |   |                                                                     |   |                                                                                                                                      |   |   |   |   |
| Total                                                      |   |                                                                                    | -0-    |                                                                     |   | -0-                                                                                                                                       |   |   | -0- |   |

| ●  | discuss our future expectations; |
|---------------|----------------------------------|

| ●  | contain projections of our future results of operations or of our financial condition; and |
|---------------|--------------------------------------------------------------------------------------------|

| ●  | state other "forward-looking" information. |
|---------------|--------------------------------------------|

----

----

----

----

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

----

| ·   | the subject of any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time; |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | convicted in a criminal proceeding or is subject to a pending criminal proceeding (excluding traffic violations and other minor offenses); |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction or any Federal or State authority, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities; |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | found by a court of competent jurisdiction (in a civil action), the Commission or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law. |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | the subject of, or a party to, any Federal or State judicial or administrative order, judgment, decree, or finding, not subsequently reversed, suspended or vacated, relating to an alleged violation of (a) any Federal or State securities or commodities law or regulation; (b) any law or regulation respecting financial institutions or insurance companies including, but not limited to, a temporary or permanent injunction, order of disgorgement or restitution, civil money penalty or temporary or permanent cease-and-desist order, or removal or prohibition order; or (c) any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; or |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | the subject of, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory organization (as defined in Section 3(a)(26) of the Exchange Act (15 U.S.C. 78c(a)(26))), any registered entity (as defined in Section 1(a)(29) of the Commodity Exchange Act (7 U.S.C. 1(a)(29))), or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member. |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|    Name andPrincipal Position |   |   Year |   |     Salary ($) |                 |   |     Bonus ($) |   |          |       Stock Awards ($) |   |   | Option Awards ($) |   |   |     Non-Equity Incentive Plan Compensation ($) |          |   |   Change in Pension Value and Non-Qualified Deferred Compensation Earnings ($) |   |          | All Other Compensation ($) |   |   |    Total ($) |   |
|----------------------------------------------|--------|------------------|--------|-------------------------------|----------------------|--------|------------------------------|--------|---------------|-------------------------------------------------|--------|--------|-------------------|--------|--------|---------------------------------------------------------------|---------------|--------|-------------------------------------------------------------------------------------|--------|---------------|----------------------------|--------|--------|------------------------|--------|
| Byron Elton, CEO and Acting*                 |   | 2010             |   | $                             | 250,000              |   |                         |   |          |                                            |   |   | -                 |   |   |                                                          | 900,000       |   |                                                                                |   | -             |                       |   |   | -                      |   |   |   | - |   |   | $ | 1,150,000 |   |
| CFO                                          |   | 2009             |   | $                             | 250,000              |   |                         |   |  60,000  |                                            |   |   | 0                 |   |   |                                                          | 0             |   |                                                                                |   | 0             |                       |   |   | 0                      |   |   |   | 0 |   |   | $ | 310,000 |   |
| Naveed Aslam, CTO**                          |   | 20102009         |   |  $$                      |  120,000120,000 |   |                         |   |   0 |                                            |   |   |   0     |   |   |                                                          |   0 |   |                                                                                |   |   0 |                       |   |   |   0          |   |   |   |   0 |   |   |  $$ |  120,000120,000 |   |
| Derek W. McLeish CEO and Acting              |   | 2010             |   | $                             | 0                    |   |                         |   | 0             |                                            |   |   | 0                 |   |   |                                                          | 0             |   |                                                                                |   | 0             |                       |   |   | 0                      |   |   |   | 0 |   |   | $ | 0 |   |
| CFO***                                       |   | 2009             |   | $                             | 71,221               |   |                         |   | 22,500        |                                            |   |   | 0                 |   |   |                                                          | -             |   |                                                                                |   | -             |                       |   |   | -                      |   |   |   | - |   |   | $ | 93,721 |   |

| *  | Mr. Elton was appointed President and Chief Operating Officer on January 5, 2009 and as CEO and Chairman on May 15, 2009. |
|---------|---------------------------------------------------------------------------------------------------------------------------|

| ** | Dr. Aslam was appointed CTO on January 7, 2009. On December 24, 2010, the Company accepted the resignation of Dr. Aslam effective as of December 31, 2010. |
|----|------------------------------------------------------------------------------------------------------------------------------------------------------------|

| *** | Mr. McLeish resigned as an officer of the Company effective May 15, 2009. |
|-----|---------------------------------------------------------------------------|

| Option Awards                  |   | Stock Awards                                                    |       |
|--------------------------------|--------|-----------------------------------------------------------------|------------|
| Name                 |   | Number ofSecuritiesUnderlyingUnexercisedOptions (#) Exercisable |       |   Number ofSecuritiesUnderlyingUnexercisedOptions (#) Unexercisable |   | EquityIncentivePlan Awards:Number ofSecurities UnderlyingUnexercisedUnearnedOptions (#) |   | OptionExercisePrice ($) |   | OptionExpirationDate |   |   Number of Shares or Units of Stock That Have NotVested (#) |   | Market Value of Shares or Units of Stock That Have NotVested ($) |   |   EquityIncentivePlan Awards: Number ofUnearnedShares,Units orOther RightsThat HaveNotVested (#) |   | Equity IncentivePlan Awards:Market or PayoutValue ofUnearnedShares, Units orOtherRightsThat HaveNotVested ($) |   |
| Byron Elton CEO and Acting CFO |   |                                                            | 15,000,000 |   | -0- |   |   | -0- |   | $0.073 |   |   | 4/23/2017 |   | -0- |   |   | -0- |   | -0- |   |   | -0- |   |

----

| Name   (a)   |   | Fees Earned or Paid in Cash   ($)   (b) |   | Stock Awards   ($)   (c) |   | Option   Awards ($)   (d) |   | Non-Equity Incentive Plan Compensation ($)   (e) |   | Change in Pension Value and Nonqualified Deferred Compensation Earnings   (f) |   | All Other Compensation   ($)   (g) |   | Total   ($)   (h) |   |
|-------------------|--------|---------------------------------------------------|--------|------------------------------------|--------|-------------------------------------|--------|-------------------------------------------------------|--------|------------------------------------------------------------------------------------|--------|----------------------------------------------|--------|-----------------------------|--------|
| Byron Elton       |   |                                              | -0-    |                               | -0-    |                                |   | -0-                                                   |   | -0-                                                                                |   |                                         | -0-    |                        | -0-    |   |   | -0- |   |
| Roland F. Bryan   |   |                                              | -0-    |                               | 25,000 |                                |   | -0-                                                   |   | -0-                                                                                |   |                                         | -0-    |                        | -0-    |   |   | 25,000 |   |
| Daniel Nethercott |   |                                              | -0-    |                               | 25,000 |                                |   | -0-                                                   |   | -0-                                                                                |   |                                         | -0-    |                        | -0-    |   |   | 25,000 |   |

| · | all directors and nominees, naming them, |
|--------|------------------------------------------|

| · | our executive officers, |
|--------|-------------------------|

| · | our directors and executive officers as a group, without naming them, and |
|--------|---------------------------------------------------------------------------|

| · | persons or groups known by us to own beneficially 5% or more of our common stock: |
|--------|-----------------------------------------------------------------------------------|

| Title of Class |   | Name ofBeneficial Owner                                      |   | Number of SharesBeneficially Owned |       | Percent of Total (1) |
|----------------|--------|--------------------------------------------------------------|--------|------------------------------------|------------|----------------------|
| Common Stock   |   | Byron Elton(2)                                               |   |                               | 28,666,666 |                 |   | 11.58% |
| Common Stock   |   | Roland R. Bryan                                              |   |                               | 250,000    |                 |   | * |
| Common Stock   |   | Daniel Nethercott                                            |   |                               | 250,000    |                 |   | * |
| Common Stock   |   | Derek McLeish (3)                                            |   |                               | 45,250,000 |                 |   | 20.50% |
| Common Stock   |   | New Quest Ventures, LLC                                      |   |                               | 16,857,143 |                 |   | 7.63% |
| Common Stock   |   | Wings Fund, Inc.                                             |   |                               | 15,000,000 |                 |   | 6.79% |
| Common Stock   |   | All Executive Officers and Directors as a Group (3 persons ) |   |                               | 29,166,666 |                 |   | 11.78% |

----

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

----

|                       | Carbon Sciences, Inc. |                                                                            |
|----------------------------|-----------------------|---------------------------------------------------------------------------------|
|                       |                  |                                                                            |   |
|  Date: March 30, 2011 | By:                   | /s/ Byron Elton                                                            |   |
|                       |                  | CHIEF EXECUTIVE OFFICER (PRINCIPAL EXECUTIVE OFFICER)                           |   |
|                       |                  | AND ACTING CHIEF FINANCIAL OFFICER (PRINCIPAL ACCOUNTING AND FINANCIAL OFFICER) |   |
|                       |                  |                                                                            |   |

| SIGNATURE             |   | TITLE                                                                                                                     |   | DATE           |
|-----------------------|--------|---------------------------------------------------------------------------------------------------------------------------|--------|----------------|
|                  |   |                                                                                                                      |   |           |
| /s/ Byron Elton       |   | CHIEF EXECUTIVE OFFICER, PRESIDENT (PRINCIPAL                                                                             |   | March 30, 2011 |
| Byron Elton           |   | EXECUTIVE OFFICER), ACTING CHIEF FINANCIAL OFFICER (PRINCIPAL ACCOUNTING AND FINANCIAL OFFICER) AND CHAIRMAN OF THE BOARD |   |           |
|                  |   |                                                                                                                      |   |           |
| /s/ Roland R. Bryan   |   | DIRECTOR                                                                                                                  |   | March 30, 2011 |
| Roland R. Bryan       |   |                                                                                                                      |   |           |
|                  |   |                                                                                                                      |   |           |
| /s/ Daniel Nethercott |   | DIRECTOR                                                                                                                  |   | March 30, 2011 |
| Daniel Nethercott     |   |                                                                                                                      |   |           |

----

----

----

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

----

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

----

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

----

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

----

| 1.  | ORGANIZATION AND LINE OF BUSINESS |
|----------|-----------------------------------|

| 2.  | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
|----------|--------------------------------------------|

----

| 2.  | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) |
|----------|--------------------------------------------------------|

|    Computer equipment        |   | 3 Years |
|---------------------------------------------|--------|---------|
|    Machinery & Equipment |   | 7 Years |
|    Mobile vehicle            |   | 5 Years |

----

| 2.  | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) |
|----------|--------------------------------------------------------|

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

| 3. | CAPITAL STOCK |
|----|---------------|

| 4.  | STOCK OPTIONS AND WARRANTS |
|----------|----------------------------|

|                                  |   | 12/31/2010 |   |
|---------------------------------------|--------|------------|--------|
| Risk free interest rate               |   |       | 3.30   | % |
| Stock volatility factor               |   |       | 1      | % |
| Weighted average expected option life |   | 7 years    |   |
| Expected dividend yield               |   | None       |   |

----

| 4.  | STOCK OPTIONS AND WARRANTS (Continued) |
|----------|----------------------------------------|

|                              |   | 12/31/2010 |       |
|-----------------------------------|--------|------------|------------|
|                              |   |       |       |   | Weighted |   |
|                              |   | Number     |       |   | average |   |
|                              |   | of         |       |   | exercise |   |
|                              |   | Options    |       |   | price |   |
| Outstanding, beginning of period  |   |       | -          |   |   | $ | - |   |
| Granted                           |   |       | 20,500,000 |   |   |   | 0.073 |   |
| Exercised                         |   |       | -          |   |   |   | - |   |
| Expired                           |   |       | (5,000,000 | ) |   |   | - |   |
| Outstanding, end of period        |   |       | 15,500,000 |   |   | $ | 0.073 |   |
| Exercisable at the end of period  |   |       | 15,500,000 |   |   | $ | 0.073 |   |
| Weighted average fair value of    |   |       |       |   |   |   |   |   |
| options granted during the period |   |       | $          | 0.073 |   |

|        |   |   |        |   |       |        |   |   | Average      |   |
|-------------|--------|--------|-------------|--------|------------|-------------|--------|--------|--------------|--------|
|        |   |   | Stock       |   |       | Stock       |   |   | Remaining    |   |
| Exercisable |   |   | Options     |   |       | Options     |   |   | Contractual  |   |
| Prices      |   |   | Outstanding |   |       | Exercisable |   |   | Life (years) |   |
| $           | 0.07   |   |        |   | 15,500,000 |        |   |   | 15,500,000   |   |   |   | 6.32 |   |

|                                  |   | 2010    |         |   | 2009    |   |
|---------------------------------------|--------|---------|--------------|--------|---------|--------|
| Risk free interest rate               |   |    | 2.28% - 2.51 | %      |    |   | 2.28% - 2.51 | % |
| Stock volatility factor               |   |    | 1            | %      |    |   | 1 | % |
| Weighted average expected option life |   | 5 years |         |   | 5 years |   |
| Expected dividend yield               |   | None    |         |   | None    |   |

|                           |   | Year End          |       |   | Year End          |   |
|--------------------------------|--------|-------------------|------------|--------|-------------------|--------|
|                           |   | December 31, 2010 |       |   | December 31, 2009 |   |
|                           |   |              |       |   | Weighted          |   |   |   |   |   | Weighted |   |
|                           |   |              |       |   | average           |   |   |   |   |   | average |   |
|                           |   |              |       |   | exercise          |   |   |   |   |   | exercise |   |
|                           |   | Options           |       |   | price             |   |   | Options |   |   | price |   |
| Outstanding -beginning of year |   |              | 12,000,000 |   |              | $      | 0.31 |   |   |   | - |   |   | $ | - |   |
| Granted                        |   |              | -          |   |              |   | - |   |   |   | 12,000,000 |   |   |   | 0.29 |   |
| Exercised                      |   |              | -          |   |              |   | - |   |   |   | - |   |   |   | - |   |
| Forfeited                      |   |              | -          |   |              |   | - |   |   |   | - |   |   |   | - |   |
| Outstanding - end of year      |   |              | 12,000,000 |   |              | $      | 0.31 |   |   |   | 12,000,000 |   |   | $ | 0.29 |   |

----

| 4.  | STOCK OPTIONS AND WARRANTS (Continued) |
|----------|----------------------------------------|

|        |   |   |        |   |       |        |   |   | Weighted     |   |
|-------------|--------|--------|-------------|--------|------------|-------------|--------|--------|--------------|--------|
|        |   |   |        |   |       |        |   |   | Average      |   |
|        |   |   |        |   |       |        |   |   | Remaining    |   |
| Exercisable |   |   | Warrants    |   |       | Warrants    |   |   | Contractual  |   |
| Prices      |   |   | Outstanding |   |       | Exercisable |   |   | Life (years) |   |
| $           | 0.18   |   |        |   | 10,100,000 |        |   |   | 10,100,000   |   |   |   | 4.50 |   |
| $           | 0.19   |   |        |   | 1,050,000  |        |   |   | 1,050,000    |   |   |   | 4.63 |   |
| $           | 0.16   |   |        |   | 650,000    |        |   |   | 650,000      |   |   |   | 4.81 |   |
| $           | 0.16   |   |        |   | 200,000    |        |   |   | 200,000      |   |   |   | 4.87 |   |
|        |   |   |        |   | 12,000,000 |        |   |   | 12,000,000   |   |   |   |   |   |

| 5. | RENTAL LEASE |
|----|--------------|

|   | The Company extended its facility lease for a period of two years expiring on September 30, 2012. The base rent is $2,800 per month. The rent paid for the years ended December 31, 2010 and 2009 were $45,101 and $43,481. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 6.   INCOME TAXES |
|--------|----------------------------------|

|   | The Company files income tax returns in the U.S. Federal jurisdiction, and the state of California. With few exceptions, the Company is no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations by tax authorities for years before 2008. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Deferred income taxes have been provided by temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for tax purposes. To the extent allowed by GAAP, we provide valuation allowances against the deferred tax assets for amounts when the realization is uncertain.Included in the balances at December 31, 2010 and 2009, are no tax positions for which the ultimate deductibility is highly certain, but for which there is uncertainty about the timing of such deductibility.  Because of the impact of deferred tax accounting, other than interest and penalties, the disallowance of the shorter deductibility period would not affect the annual effective tax rate but would accelerate the payment of cash to the taxing authority to an earlier period. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | The Company's policy is to recognize interest accrued related to unrecognized tax benefits in interest expense and penalties in operating expenses. During the periods ended December 31, 2010 and 2009, the Company did not recognize interest and penalties. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| 7. | DEFERRED TAX BENEFIT |
|----|----------------------|

|   | At December 31, 2010, the Company had net operating loss carry-forwards of approximately $4,513,700, which expire at dates that have not been determined. No tax benefit has been reported in the December 31, 2010 financial statements since the potential tax benefit is offset by a valuation allowance of the same amount. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | A reconciliation of income tax expense that would result from applying the U.S. Federal and State rate of 40% to pretax income from continuing operations for the period ended December 31, 2010 and 2009, with federal income tax expense presented in the financial statements is as follows: |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                                                |   | 2010   |     |   | 2009   |   |
|-----------------------------------------------------|--------|--------|----------|--------|--------|--------|
| Income tax benefit computed at U.S. Federal         |   |   |     |   |   |   |
|  statutory rate of 34%                         |   | $      | (921,033 | )      |   | $      | (472,224 | ) |
| State Income taxes, net of benefit of federal taxes |   |   | -        |   |   |   | - |   |
| Depreciation                                        |   |   | (9,805   | )      |   |   | 982 |   |
| R&D                                             |   |   | 7,700    |   |   |   | 5,397 |   |
| Accrued compensated absences                        |   |   | (5,566   | )      |   |   | 5,566 |   |
| Other                                               |   |   | 1,562    |   |   |   | 586 |   |
| Related party payable                               |   |   | (6,556   | )      |   |   | (825 | ) |
| Penalty                                             |   |   | -        |   |   |   | 20 |   |
| Loss on disposal of asset                           |   |   | (1,341   | )      |   |   | - |   |
| Non deductible stock compensation                   |   |   | 492,000  |   |   |   | - |   |
|                                                |   |   |     |   |   |   |   |   |
| Valuation Allowance                                 |   |   | 443,039  |   |   |   | 460,498 |   |
|                                                |   |   |     |   |   |   |   |   |
| Income tax expense                                  |   | $      | -        |   |   | $      | - |   |

|   | Deferred taxes are provided on a liability method whereby deferred tax assets are recognized for deductible differences and operating loss and tax credit carry-forwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the difference between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| 7. | DEFERRED TAX BENEFIT (Continued) |
|----|----------------------------------|

|                                     |   | 2010   |       |   | 2009   |   |
|------------------------------------------|--------|--------|------------|--------|--------|--------|
| Deferred tax assets:                     |   |   |       |   |   |   |
|   NOL carryover                |   | $      | 1,761,769  |   |   | $      | 1,318,730 |   |
|   Contribution carryover       |   |   | 200        |   |   |   | 200 |   |
|   R & D credit carryover   |   |   | 60,859     |   |   |   | 41,608 |   |
|   Accrued compensated absences |   |   | -          |   |   |   | 5,566 |   |
|   Related party payable        |   |   | 4,618      |   |   |   | 825 |   |
|                                     |   |   |       |   |   |   |   |   |
| Deferred tax liabilites:                 |   |   |       |   |   |   |   |   |
|   Depreciation                 |   |   | (32,251    | )      |   |   | (13,447 | ) |
|                                     |   |   |       |   |   |   |   |   |
| Less Valuation Allowance                 |   |   | (1,795,195 | )      |   |   | (1,353,482 | ) |
|                                     |   |   |       |   |   |   |   |   |
| Net deferred tax asset                   |   | $      | -          |   |   | $      | - |   |

|   | Due to the change in ownership provisions of the Tax Reform Act of 1986, net operating loss carry-forwards for Federal income tax reporting purposes are subject to annual limitations. Should a change in ownership occur, net operating loss carryforwards may be limited as to use in future years. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 8.   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. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 9. | SUBSEQUENT EVENTS |
|----|-------------------|

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