UNITED STATES
 SECURITIES
AND EXCHANGE COMMISSION
 WASHINGTON,
D.C. 20549
 
 FORM
10-K
 (Mark
One)
 T
              ANNUAL
      REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934FOR
      THE FISCAL YEAR ENDED DECEMBER 31, 2008o
              TRANSITION
      REPORT UNDER SECTION13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934FOR
      THE TRANSITION PERIOD FROM __________ TO
  __________
  
  COMMISSION
FILE NUMBER: 333-144931
 
 CARBON SCIENCES
INC.
 (Name of
registrant in its charter)
 
 NEVADA
                (State
      or other jurisdiction of incorporation or organization)
              20-5451302
                (I.R.S.
      Employer Identification No.)
 
 5511C Ekwill Street, Santa
Barbara, CA 93111
 (Address
of principal executive offices) (Zip Code)
 
 Issuer’s
telephone Number: (805)
456-7000
 
 Securities
registered under Section 12(b) of the Exchange Act: None.
 
 Securities
registered under Section 12(g) of the Exchange Act: None
 
 Indicate
by check mark whether the registrant is a well-known seasoned issuer, as defined
in Rule 405 of the Securities Act. Yes  o
 No  x
  Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Exchange Act. Yes 
o
  No  x
 
 Indicate by
check mark whether the registrant (1) has filed all reports required by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes  x
  No  o
  Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant’s knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or
any amendment to this Form 10-K.  x
  Indicate by check mark whether the registrant is a large accelerated
filer, an accelerated filer or a non-accelerated filer. See definition of
“accelerated filer and large accelerated filer” in Rule 12b-2 of the
Exchange Act.
  Large
      accelerated filer o
              Accelerated
      filer oNon-accelerated
      filer o
              Smaller
      reporting company x
  Indicate
by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes  o
  No  x
 
 The
aggregate market value of the common stock held by non-affiliates of the
registrant, based upon the last sale price of the common stock reported on the
OTC-Bulletin Board on June 30, 2008 was $28,000,000.
 
  i
  The
number of shares of registrant’s common stock outstanding, as of March 30,
2009 was 148,342,000.
  DOCUMENTS
INCORPORATED BY REFERENCE
  None.
   
 
  ii
  TABLE
OF CONTENTS [TO BE REVISED]
  
 PagePART IItem
      1.       Business
                              1Item 1A.    Risk
      Factors
                              3Item
      2.       Properties
                              8Item
      3.       Legal
      Proceedings
                              8Item
      4.       Submission of Matters to a
      Vote of Security Holders
                              8PART IIItem
      5.       Market for Registrant’s Common
      Equity, Related Stockholder Matters and Issuer Purchases of Equity
      Securities
                              8Item
      6.       Selected Financial
      Data
                              10Item
      7.       Management’s Discussion and
      Analysis of Financial Condition and Results of
    Operations
                              10Item
      8.       Financial Statements and
      Supplementary Data
                              13Item
      9.       Changes In and Disagreements
      with Accountants on Accounting and Financial
Disclosure
                              13Item 9A(T).    Controls and
      Procedures
                              14Item 9B.     Other
      Information
                              14PART IIIItem 10.     Directors,
      Executive Officers and Corporate Governance;
                              14Item 11.     Executive
      Compensation
                              16Item 12.     Security
      Ownership of Certain Beneficial Owners and Management and Related
      Stockholder Matters
                              18Item 13.     Certain
      Relationship and Related Transactions, and Director
      Independence
                              18Item 14.     Principal
      Accounting Fees and Services
                              18Item
      15.     Exhibits
                              19SIGNATURES
                              20
   iii
  PART
I
 
 ITEM
1.       BUSINESS.
  INTRODUCTION
 
 Carbon
Sciences, Inc. (“Carbon Sciences”, the “Company”, “we”, “us”, or “our”) is
developing a technology to convert the greenhouse gas, carbon dioxide (CO2),
into gasoline and other fuels.
 
 The fuels
we use today, such as gasoline and jet fuel, are made up of chains of hydrogen
and carbon atoms called hydrocarbons. In general, the greater the number of
carbon atoms there are in a hydrocarbon molecule, the greater the energy content
of that fuel. For example, gasoline has hydrocarbons with 7 to 10 carbon atoms
and jet fuel has 10 to 16 carbon atoms. Hydrocarbons are naturally occurring in
fuel sources such as petroleum and natural gas. To create fuel, hydrogen and
carbon atoms must be bonded together to create hydrocarbon
molecules.
 
 Our
CO2-to-Fuel technology directly transforms CO2 and H20 (water) into low level
hydrocarbons.  These low level hydrocarbons can then be used to
produce high level fuels, such as gasoline and jet fuel with readily available
technology.  The key to the CO2-to-Fuel technology lies in a
proprietary biocatalytic process. Instead of using expensive inorganic
catalysts, such as zinc, gold or zeolite, with traditional high energy catalytic
chemical processes, the process uses inexpensive, renewable biocatalysts to
catalyze certain reactions required to transform CO2 into basic hydrocarbon
building blocks. Of greatest significance, the process occurs at low temperature
and low pressure, thereby requiring far less energy than other
approaches.
 
 Our
corporate mission is to enable a sustainable world of fuel consumption and
climate stability by transforming CO2 into fuel. When commercially developed,
our CO2-to-Fuel technology can be used to transform CO2 emitted from fossil fuel
power plants into gasoline, to power our cars.
 
 We were
incorporated in the State of Nevada on August 25, 2006, as Zingerang, Inc. Our
name was changed to Carbon Sciences, Inc. on April 9, 2007. Our principal
executive offices are located at 5511C Ekwill Street, Santa Barbara, California
93111, and our telephone number is (805) 456-7000. Our fiscal year end is
December 31.
 
 Industry
Overview
 
 With
global population projected to increase from 6.5 billion in 2006 to 8.5 billion
by 2030, the Energy Information Administration projected that worldwide energy
consumption will increase by 50% in the same period. This increase translates to
a requirement of over 112 million barrels of crude oil per day, up from the
current 90 million barrels per day. The biggest use of crude oil is in the
production of liquid fuels for the transportation sector that consumes over 100
million gallons of fuel per hour. (Source: Energy Information Administration -
International Energy Outlook 2008).
 
 Liquid
fuels, such as gasoline, are expected to remain the world's most dominant fuel
because of their importance in the transportation and industrial sector and
because there are few alternatives. The transportation sector alone accounts for
74% of the total projected increase from 2005 to 2030, with the industrial
sector accounting for the remainder. This increase in demand is largely the
result of the rapid modernization of developing countries, such as China and
India, which account for more than 85% of the projected increase. Management
believes this increasing demand is likely to sustain high world oil prices for a
long period of time. (Source: Energy Information Administration - International
Energy Outlook 2008).
 
 The
continual use of fossil fuels creates two very important problems with profound
implications on humanity. First, carbon dioxide (CO2) emissions from the use of
fossil fuels have been scientifically accepted as the cause of global warming
and climate change. The Energy Information Administration projected that annual
CO2 emissions will increase from 28 billion metric tons in 2005 to 34 billion
metric tons in 2015 and over 42 billion metric tons in 2030. The largest and
most concentrated source of CO2 emissions is the growing use of coal-powered
electricity generation, especially in developing countries where coal is
abundant and inexpensive. Second, fossil fuels are non-renewable resources
because they take millions of years to form. Management believes that at some
point in the future, there will not be enough supply and production capacity to
meet the oil demands of the world. Based on historic growth trends, crude oil
production is projected to peak in 2037 at a volume of 53 billion barrels per
year.
 
 We
believe that transforming CO2, a major byproduct of fossil fuel usage and
industrialization, back into a fuel, can enable a sustainable world of energy
consumption and growth.
  Research
and Development
 
 We have
retained a number of scientific advisors and technical consultants to help us
develop and commercialize our CO2-to-Fuel technology and system.  We
have purchased and developed research apparatus which enables us to refine our
methodology and demonstrate our technology.  We plan to develop a
mini-pilot plant that will be a significant step in the production of a
commercially viable CO2-to-Fuel system.
 1
  Marketing
Strategy
 
 Once we
have completed our product development, we intend to create a favorable market
environment to license our CO2-to-Fuel technology.  We intend to
enhance, promote and support the entry of our technology system into the
marketplace. Our goal is to position our CO2-to-Fuel technology as a
commercially viable method of producing liquid fuel from CO2.
 
 Our
marketing communications strategy will include media and analyst communication,
blogs, and selected trade show attendance. We will be using appropriate
opportunities to place our brand in general and industry specific publications,
using press releases, white papers and authored articles and Internet
publications.
 
 Backlog
of Orders
 
 There are
currently no orders for sales at this time.
 
 Government
Contracts
 
 There are
no government contracts at this time.
  Compliance
with Environmental Laws and Regulations
  Our
operations are subject to local, state and federal laws and regulations
governing environmental quality and pollution control. To date, our compliance
with these regulations has had no material effect on our operations, capital,
earnings, or competitive position, and the cost of such compliance has not been
material. We are unable to assess or predict at this time what effect additional
regulations or legislation could have on our activities.
  Manufacturing
and Distribution
  We
currently do not have any mechanism for the manufacture and distribution of
products using our CO2-to-Fuel technology, nor do we have adequate financing to
undertake these efforts on our own. We intend to outsource manufacturing and
distribution efforts to existing manufacturing and distributions firms in the
development of our pilot systems.  We currently intend to only license
our technology when it has demonstrated commercial viability.
 
 Intellectual
Property
 
 We are
currently in the process of filing an initial patent application with the U.S.
Patent and Trademark Office to protect the intellectual property rights for our
CO2-to-Fuel technology. We filed a patent application on February 18, 2009 for
our CO2-to-Fuel technology “Carbon dioxide to Methanol”
61/153.290.  We anticipate filing a number of additional patent
applications related to our CO2-to-Fuel technology.
 
 We have
also filed a patent application to protect the intellectual property rights for
our CO2 to carbonate transformation technology, “Fine Particle Carbon Dioxide
Transformation and Sequestration”.
 
 Competition
 
 The
market for liquid fuel is large as well as the number of competitors providing
technology to the fuel industry.  For example, companies that offer
fuel production technologies include UOP, Chevron, Shell, BP and
Exxon.  However, we are not aware of any company marketing a
commercially viable technology to transform CO2 directly into usable liquid
fuel.   As a technology provider, we see ourselves more of a
partner, than a competitor, to the fuel technology companies.
 
 The
closest competitors we can identify are biofuel technology providers where
plants such as corn, sugarcane, switchgrass and algae are grown for their oil
contents and biomass as feedstocks for fuel production. These technology
providers and the biofuel industry in general are very much in their
infancy.  We are not aware of any commercially viable and globally
scalable renewable fuel technology.  First generation biofuel such as
corn and sugarcane ethanol have significant social issues because they use up
valuable farm land and drive up the price of food worldwide.
 
 Unlike
plant based biofuels where CO2 is sequestered into complex energy molecules,
which are then broken down into fuel equivalent hydrocarbons, our CO2-to-Fuel
technology transforms CO2 directly into fuel equivalent
hydrocarbons.
 
 2
 
 Technology
Development Partners
 
 We may
enter into technology development partnerships with other
companies.
  EMPLOYEES
 
 As of
March 30, 2009 we had 3 employees.  We have not experienced any work
stoppages and we consider relations with our employees to be good.
 
 ITEM 1A.       RISK
FACTORS
 
 RISKS
RELATED TO OUR BUSINESS AND INDUSTRY
 
 OUR
LIMITED OPERATING HISTORY DOES NOT AFFORD INVESTORS A SUFFICIENT HISTORY ON
WHICH TO BASE AN INVESTMENT DECISION.
 
 We were
formed in August 2006 and are currently developing a new technology that has not
yet gained market acceptance. There can be no assurance that at this time we
will operate profitably or that we will have adequate working capital to meet
our obligations as they become due.
 
 Investors
must consider the risks and difficulties frequently encountered by early stage
companies, particularly in rapidly evolving markets. Such risks include the
following:
  ·
              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.
 
 We cannot
be certain that our business strategy will be successful or that we will
successfully address these risks. In the event that we do not successfully
address these risks, our business, prospects, financial condition, and results
of operations could be materially and adversely affected.
 3
  WE
MAY BE UNABLE TO MANAGE OUR GROWTH OR IMPLEMENT OUR EXPANSION
STRATEGY.
 
 We may
not be able to expand our product and service offerings, our client base and
markets, or implement the other features of our business strategy at the rate or
to the extent presently planned. Our projected growth will place a significant
strain on our administrative, operational and financial resources. If we are
unable to successfully manage our future growth, establish and continue to
upgrade our operating and financial control systems, recruit and hire necessary
personnel or effectively manage unexpected expansion difficulties, our financial
condition and results of operations could be materially and adversely
affected.
 
 WE
MAY NOT BE ABLE TO SUCCESSFULLY DEVELOP AND COMMERCIALIZE OUR TECHNOLOGIES WHICH
WOULD RESULT IN CONTINUED LOSSES AND MAY REQUIRE US TO CURTAIL OR CEASE
OPERATIONS.
 
 We are
currently developing our technology and a commercial product. We have not
generated any revenues and we are unable to project when we will achieve
profitability, if at all. As is the case with any new technology, we expect the
development process to continue. We cannot assure that our engineering resources
will be able to develop the product fast enough to meet market requirements.
There can also be no assurance that our product will gain market acceptance and
that we will be able to successfully commercialize the technologies. The failure
to successfully develop and commercialize the technologies would result in
continued losses and may require us to curtail or cease operations.
 
 OUR
REVENUES ARE DEPENDENT UPON ACCEPTANCE OF OUR PRODUCTS BY THE MARKET; THE
FAILURE OF WHICH WOULD CAUSE TO CURTAIL OR CEASE OPERATIONS.
 
 We
believe that virtually all of our revenues will come from the sale or license of
our products and services. As a result, we will continue to incur substantial
operating losses until such time as we are able to generate revenues from the
sale or license of our products. There can be no assurance that businesses and
customers will adopt our technology and products, or that businesses and
prospective customers will agree to pay for or license our products. In the
event that we are not able to significantly increase the number of customers
that purchase or license our products, or if we are unable to charge the
necessary prices or license fees, our financial condition and results of
operations will be materially and adversely affected.
 
 WE
DO NOT MAINTAIN THEFT OR CASUALTY INSURANCE, AND ONLY MAINTAIN MODEST LIABILITY
AND PROPERTY INSURANCE COVERAGE AND THEREFORE WE COULD INCUR LOSSES AS A RESULT
OF AN UNINSURED LOSS.
 
 We cannot
assure that we will not incur uninsured liabilities and losses as a result of
the conduct of our business. Any such uninsured or insured loss or liability
could have a material adverse affect on our results of operations.
 
 4
  IF
WE LOSE KEY EMPLOYEES AND CONSULTANTS OR ARE UNABLE TO ATTRACT OR RETAIN
QUALIFIED PERSONNEL, OUR BUSINESS COULD SUFFER.
 
 Our
success is highly dependent on our ability to attract and retain qualified
scientific, engineering and management personnel. We are highly dependent on our
management, including Mr. Derek McLeish, who has been critical to the
development of our technology and business. The loss of the services of Mr.
McLeish could have a material adverse effect on our operations. We do not have
an employment agreement with Mr. McLeish. Accordingly, there can be no assurance
that he will remain associated with us. His efforts will be critical to us as we
continue to develop our technology and as we attempt to transition from a
development stage company to a company with commercialized products and
services. If we were to lose Mr. McLeish, or any other key employees or
consultants, we may experience difficulties in competing effectively, developing
our technology and implementing our business strategies.
 
 THE
LOSS OF STRATEGIC RELATIONSHIPS USED IN THE DEVELOPMENT OF OUR PRODUCTS AND
TECHNOLOGY COULD IMPEDE OUR ABILITY TO COMPLETE OUR PRODUCT AND RESULT IN A
MATERIAL ADVERSE EFFECT CAUSING OUR BUSINESS TO SUFFER.
 
 We may
rely on strategic relationships with technology development partners to provide
technology and operating systems. A loss of these relationships for any reason
could cause us to experience difficulties in completing the development of our
product and implementing our business strategy. There can be no assurance that
we could establish other relationships of adequate expertise in a timely manner
or at all.
  OUR
PATENT APPLICATION FOR OUR TECHNOLOGY IS PENDING AND THERE IS NO ASSURANCE THAT
THIS APPLICATION WILL BE GRANTED. FAILURE TO OBTAIN THE PATENT FOR OUR
APPLICATION COULD PREVENT US FROM SECURING ROYALTY PAYMENTS IN THE FUTURE, IF
APPROPRIATE.
 
 We have
filed a patents to protect our intellectual property rights. To date our patent
applications have not been granted. We cannot be certain that this patent will
be granted nor can we be certain that other companies have not filed for patent
protection for this technology before us. Even if we are granted patent
protection for our technology, there is no assurance that we will be in a
position to enforce our patent rights. Failure to be granted patent protection
for our technology could result in greater competition or in limited royalty
payments. This could result in inadequate revenue and cause us to cease
operations.
    5
  OUR
CURRENT AND POTENTIAL COMPETITORS, SOME OF WHOM HAVE GREATER RESOURCES THAN WE
DO, MAY DEVELOP PRODUCTS AND TECHNOLOGIES THAT MAY CAUSE DEMAND FOR, AND THE
PRICES OF, OUR PRODUCTS TO DECLINE.
  While we
are not aware of any direct competitors offering commercially viable products to
convert CO2-to Fuel. Our potential customers may choose to buy or build their
own systems instead of purchasing our technology. Furthermore, our competitors
may combine with each other, and other companies may enter our markets by
acquiring or entering into strategic relationships with our competitors.
Current and potential competitors have established, or may establish,
cooperative relationships among themselves or with third parties to increase the
abilities of their products to address the needs of our prospective
customers.
  Many of
our current and potential competitors have longer operating histories,
significantly greater financial, technical, product development and marketing
resources, greater name recognition and larger customer bases than we do. Our
present or future competitors may be able to develop products comparable or
superior to those we offer, adapt more quickly than we do to new technologies,
evolving industry trends and standards or customer requirements, or devote
greater resources to the development, promotion and sale of their products than
we do. Accordingly, we may not be able to compete effectively in our markets,
competition may intensify and future competition may harm our
business.
 
 OUR
BUSINESS IS DEPENDENT ON GOVERNMENT AND INTERNATIONAL REGULATIONS
 
 We
believe that greenhouse gases, such as carbon dioxide, contribute to global
warming and climate change. New laws and regulations are currently being drawn
up that may affect our industry and the industry of our customers. There is no
assurance that new governmental regulations will be favorable to our business
model and business plan.. The increasing use of alternative energy technology
such as solar power, nuclear power, wind power, fuel cells and other energy
sources that do not emit greenhouses gases will limit the market for our
technology.
 
 WE
ARE CONTROLLED BY CURRENT OFFICERS, DIRECTORS AND PRINCIPAL
STOCKHOLDERS.
 
 Our
directors, executive officers and principal stockholders and their affiliates
beneficially own approximately 34.2% of outstanding shares of common stock.
Accordingly, our executive officers, directors, principal stockholders and
certain of their affiliates will have the ability to control the election of our
Board of Directors and the outcome of issues submitted to our
stockholders.
 
 RISKS
RELATING TO OUR COMMON STOCK
  BECAUSE
THERE IS A LIMITED MARKET IN OUR COMMON STOCK, STOCKHOLDERS MAY HAVE DIFFICULTY
IN SELLING OUR COMMON STOCK AND OUR COMMON STOCK MAY BE SUBJECT TO SIGNIFICANT
PRICE SWINGS.
 
 There is
a very limited market for our common stock. Since trading commenced in September
2007, there has been little activity in our common stock and on some days there
is no trading in our common stock. Because of the limited market for our common
stock, the purchase or sale of a relatively small number of shares may have an
exaggerated effect on the market price for our common stock. We cannot assure
stockholders that they will be able to sell common stock or, that if they are
able to sell their shares, that they will be able to sell the shares in any
significant quantity at the quoted price.
 
  6
  IF
WE FAIL TO REMAIN CURRENT ON OUR REPORTING REQUIREMENTS, WE COULD BE REMOVED
FROM THE OTC BULLETIN BOARD WHICH WOULD LIMIT THE ABILITY OF BROKER-DEALERS TO
SELL OUR SECURITIES AND THE ABILITY OF STOCKHOLDERS TO SELL THEIR SECURITIES IN
THE SECONDARY MARKET.
  Companies
trading on the Over-The-Counter Bulletin Board, such as us, must be reporting
issuers under Section 12 of the Securities Exchange Act of 1934, as amended, and
must be current in their reports under Section 13, in order to maintain price
quotation privileges on the OTC Bulletin Board. If we fail to remain current on
our reporting requirements, we could be removed from the OTC Bulletin Board. As
a result, the market liquidity for our securities could be severely adversely
affected by limiting the ability of broker-dealers to sell our securities and
the ability of stockholders to sell their securities in the secondary market. In
addition, we may be unable to get re-listed on the OTC Bulletin Board, which may
have an adverse material effect on our Company.
  OUR
COMMON STOCK IS SUBJECT TO THE “PENNY STOCK” RULES OF THE SEC AND THE TRADING
MARKET IN OUR SECURITIES IS LIMITED, WHICH MAKES TRANSACTIONS IN OUR STOCK
CUMBERSOME AND MAY REDUCE THE VALUE OF AN INVESTMENT IN OUR STOCK.
  The
Securities and Exchange Commission has adopted Rule 15g-9 which establishes the
definition of a "penny stock," for the purposes relevant to us, as any equity
security that has a market price of less than $5.00 per share or with an
exercise price of less than $5.00 per share, subject to certain exceptions. For
any transaction involving a penny stock, unless exempt, the rules
require:
  ·
              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.
  In order
to approve a person's account for transactions in penny stocks, the broker or
dealer must:
 
 ·
              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.
  The
broker or dealer must also deliver, prior to any transaction in a penny stock, a
disclosure schedule prescribed by the Commission relating to the penny stock
market, which, in highlight form:
  ·
              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.
  Generally,
brokers may be less willing to execute transactions in securities subject to the
"penny stock" rules. This may make it more difficult for investors to dispose of
our common stock and cause a decline in the market value of our
stock.
  Disclosure
also has to be made about the risks of investing in penny stocks in both public
offerings and in secondary trading and about the commissions payable to both the
broker-dealer and the registered representative, current quotations for the
securities and the rights and remedies available to an investor in cases of
fraud in penny stock transactions. Finally, monthly statements have to be sent
disclosing recent price information for the penny stock held in the account and
information on the limited market in penny stocks.
 
  7
  WE
DO NOT EXPECT TO PAY DIVIDENDS IN THE FUTURE; ANY RETURN ON INVESTMENT MAY BE
LIMITED TO THE VALUE OF OUR COMMON STOCK.
 
 We do not
currently anticipate paying cash dividends in the foreseeable future. The
payment of dividends on our Common Stock will depend on earnings, financial
condition and other business and economic factors affecting it at such time as
the board of directors may consider relevant. Our current intention is to apply
net earnings, if any, in the foreseeable future to increasing our capital base
and development and marketing efforts. There can be no assurance that the
Company will ever have sufficient earnings to declare and pay dividends to the
holders of our Common Stock, and in any event, a decision to declare and pay
dividends is at the sole discretion of the our Board of Directors. If we do not
pay dividends, our Common Stock may be less valuable because a return on your
investment will only occur if its stock price appreciates.
 
 ITEM
2.      PROPERTIES.
 
 Our
principal office is located at 5511C Ekwill Street, Santa Barbara, California
93111. We lease approximately 2,800 square feet, with an annual cost of $50,400.
The term of the lease is for one year and expires July 15, 2009.
 
 ITEM 3.       LEGAL
PROCEEDINGS.
 
 We are not currently a party to, nor is any of our
property currently the subject of, any pending legal proceeding that will have a
material adverse effect on our business. None of our directors, officers or
affiliates is involved in a proceeding adverse to our business or has a material
interest adverse to our business.
 
 
 ITEM 4.      SUBMISSION OF
MATTERS TO A VOTE OF SECURITY HOLDERS
 
 No matter
was submitted to a vote of security holders during the fourth quarter of the
fiscal year covered by this report.
 
 PART
II
 
 ITEM 5.       MARKET FOR
COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY
SECURITIES.
 
 
 On
September 28, 2007, our common stock became eligible for quotation on the NASD's
OTC Bulletin Board under the symbol "CABN.OB."
 
 For the
periods indicated, the following table sets forth the high and low bid prices
per share of common stock. These high and low bid prices represent prices quoted
by broker-dealers on the OTC Bulletin Board. These prices represent inter-dealer
quotations without retail markup, markdown, or commission and may not
necessarily represent actual transactions.
 
 Fiscal
      2008
                          
                          
                          Fiscal
      2007Quarter Ended
                          
                          High
                          
                          
                          Low
                          
                          
                          High
      *
                          
                          
                          Low*March
      31
                          
                          $
                          0.39
                          
                          
                          $
                          0.24
                          
                          
                          
                          N/A
                          
                          
                          
                          N/AJune
      30
                          
                          
                          0.35
                          
                          
                          
                          0.15
                          
                          
                          
                          N/A
                          
                          
                          
                          N/ASeptember
      30
                          
                          
                          0.35
                          
                          
                          
                          0.08
                          
                          
                          $
                          0.22
                          
                          
                          $
                          0.20December
      31
                          
                          
                          0.30
                          
                          
                          
                          0.15
                          
                          
                          $
                          0.36
                          
                          
                          $
                          0.15
 
 *Our
common stock became eligible for quotation on the NASD's OTC Bulletin Board on
September 28, 2007.
 8
  Common
Stock
 
 Our
Articles of Incorporation, as amended, authorize the issuance of 500,000,000
shares of common stock, $.001 par value per share. Holders of shares of common
stock are entitled to one vote for each share on all matters to be voted on by
the stockholders. Holders of common stock have cumulative voting rights. Holders
of shares of common stock are entitled to share ratably in dividends, if any, as
may be declared, from time to time by the Board of Directors in its discretion,
from funds legally available therefor. In the event of a liquidation,
dissolution, or winding up of our company, the holders of shares of common
stock are entitled to share pro rata all assets remaining after payment in
full of all liabilities. Holders of common stock have no preemptive or other
subscription rights, and there are no conversion rights or redemption or sinking
fund provisions with respect to such shares.
 
 As of
March 30, 2009, our common stock was held by 103 stockholders of record and we
had 148,342,000 shares of common stock issued and outstanding. We believe that
the number of beneficial owners is substantially greater than the number of
record holders because a significant portion of our outstanding common stock is
held of record in broker street names for the benefit of individual investors.
The transfer agent of our common stock is Computershare Investor Services, 250
Royall Street Canton, MA 02021.
 
 Dividend Policy
  We have
never declared or paid any cash dividends on our common stock. We do not
anticipate paying any cash dividends to stockholders in the foreseeable future.
In addition, any future determination to pay cash dividends will be at the
discretion of the board of directors and will be dependent upon our financial
condition, results of operations, capital requirements, and such other factors
as the Board of Directors deem relevant. There are no restrictions in our
articles of incorporation or bylaws that restrict us from declaring
dividends.
 
 Equity
Compensation Plan Information
  The
following table shows information with respect to each equity compensation plan
under which our common stock is authorized for issuance as from inception (April
24, 2006) through December 31, 2008.
   EQUITY
COMPENSATION PLAN INFORMATION
 
 Plan
      category
                            
                            Number
      of securities
                              to
      be issued upon
                              exercise
      of
                              outstanding
      options,
                              warrants
      and rights
                            
                            
                            Weighted
      average
                              exercise
      price of
                              outstanding
      options,
                              warrants
      and rights
                            
                            
                            Number
      of securities
                              remaining
      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-
  
 9
  Unregistered
Sales of Equity Securities
 
 None.
 
 Issuer
Purchases of Equity Securities
 
 None.
 
 ITEM 6.       SELECTED
FINANCIAL DATA
 
 Not
applicable.
 
 ITEM 7.       MANAGEMENT’S
DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
 
 Some of
the information in this report contains forward-looking statements that involve
substantial risks and uncertainties. You can identify these statements by
forward-looking words such as "may," "expect," "anticipate," "believe,"
"estimate" and "continue," or similar words. You should read statements that
contain these words carefully because they:
  ·
              discuss
      our future expectations;
  ·
              contain
      projections of our future results of operations or of our financial
      condition; and
  ·
              state
      other "forward-looking"
information.
  We
believe it is important to communicate our expectations. However, there may be
events in the future that we are not able to accurately predict or over which we
have no control. Our actual results and the timing of certain events could
differ materially from those anticipated in these forward-looking statements as
a result of certain factors, including those set forth under "Risk Factors,"
"Business" and elsewhere in this report. See "Risk Factors."
  OVERVIEW
  Carbon
Sciences is developing a technology to convert the greenhouse gas, carbon
dioxide (CO2), into gasoline and other fuels.
 
 The fuels
we use today, such as gasoline and jet fuel, are made up of chains of hydrogen
and carbon atoms aptly called hydrocarbons. In general, the greater the number
of carbon atoms there are in a hydrocarbon molecule, the greater the energy
content of that fuel. For example, gasoline has hydrocarbons with 7 to 10 carbon
atoms and jet fuel has 10 to 16 carbon atoms. Hydrocarbons are naturally
occurring in fuel sources such as petroleum and natural gas. To create fuel,
hydrogen and carbon atoms must be bonded together to create hydrocarbon
molecules.
 
 Our
CO2-to-Fuel technology directly transforms CO2 and H20 (water) into low level
hydrocarbons.  These low level hydrocarbons can then be easily used to
produce high level fuels, such as gasoline and jet fuel with readily available
technology.  The key to our CO2-to-Fuel technology lies in a
proprietary multi-step biocatalytic process. Instead of using expensive
inorganic catalysts, such as zinc, gold or zeolite, with traditional high energy
catalytic chemical processes, our process uses inexpensive, renewable
biomolecules to catalyze certain chemical reactions required to transform CO2
into basic hydrocarbon building blocks. Of greatest significance, our process
occurs at low temperature and low pressure, thereby requiring far less energy
than other approaches.
 
 The
energy efficient biocatalytic processes we are exploiting in our technology
actually occur in all living organisms where carbon atoms, extracted from CO2,
and hydrogen atoms, extracted from H2O, are combined to create hydrocarbon
molecules.  Our breakthrough technology allows these processes to
operate on a very large industrial scale through advance nano-engineering of the
biocatalysts and highly efficient process design.
 
 Our
corporate mission is to enable a sustainable world of fuel consumption and
climate stability by transforming CO2 into fuel. When commercially developed,
our CO2-to-Fuel technology can be used to transform CO2 emitted from fossil fuel
power plants into gasoline, to power our cars.
 
 10
  Corporate
Overview
 
 We were
incorporated in the State of Nevada on August 25, 2006, as Zingerang, Inc. Our
name was changed to Carbon Sciences, Inc. on April 9, 2007. Our principal
executive offices are located at 5511 C, Santa Barbara, California 93111, and
our telephone number is (805) 456-7000. Our fiscal year end is December
31.
 
 Critical
Accounting Policies
  Our
discussion and analysis of our financial condition and results of operations are
based upon our financial statements, which have been prepared in accordance with
accounting principles generally accepted in the United States of America. The
preparation of these financial statements requires us to make estimates and
judgments that affect the reported amounts of assets, liabilities, revenues and
expenses, and related disclosures of contingent assets and liabilities. On an
ongoing basis, we evaluate our estimates, including those related to impairment
of property, plant and equipment, intangible assets, deferred tax assets and
fair value computation using the Black Scholes option pricing model. We base our
estimates on historical experience and on various other assumptions, such as the
trading value of our common stock and estimated future undiscounted cash flows,
that we believe to be reasonable under the circumstances, the results of which
form the basis for making judgments about the carrying value of assets and
liabilities that are not readily apparent from other sources. Actual results may
differ from these estimates under different assumptions or conditions; however,
we believe that our estimates, including those for the above-described items,
are reasonable.
  Revenue
Recognition
 
 Revenue on product sales is
recognized when persuasive evidence of an
arrangement exists, such as when a purchase order or contract is
received from the customer, the selling price is fixed, title to the goods
has changed and there is a reasonable assurance of collection of the
sales proceeds.  We obtain written purchase authorizations from
our customers for a specified amount of product at a specified price
and consider delivery to have occurred at the time
of shipment.  Revenue is recognized at shipment and we
record a reserve for estimated sales returns, which
is reflected as a reduction of revenue at the time of revenue recognition.
We defer revenue on products sold directly to the consumer with a fifteen day
right of return. Revenue is recognized upon the expiration of the right of
return.
 
 Revenues
from research and development activities relating to firm fixed-price
contracts are generally recognized on the percentage-of-completion
method of accounting as costs are incurred (cost-to-cost basis). 
Revenues from research and development activities relating to
cost-plus-fee contracts include costs incurred plus a portion of
estimated fees or profits based on the relationship of costs incurred to
total estimated costs.  Contract costs include all direct
material and labor costs and an allocation of allowable
indirect costs as defined by each contract, as periodically adjusted to
reflect revised agreed upon rates. These rates are subject to audit by the
other party.
 
 Use
of Estimates
 
 In
accordance with accounting principles generally accepted in the United States,
management utilizes estimates and assumptions that affect the reported amounts
of assets and liabilities and the disclosure of contingent assets and
liabilities at the date of the financial statements as well as the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates. These estimates and assumptions relate to
recording net revenue, collectability of accounts receivable, useful lives and
impairment of tangible and intangible assets, accruals, income taxes, inventory
realization, stock-based compensation expense and other factors. Management
believes it has exercised reasonable judgment in deriving these estimates.
Consequently, a change in conditions could affect these estimates.
 
 Fair
Value of Financial Instruments
 
 The
Company's cash, cash equivalents, investments, accounts receivable and accounts
payable are stated at cost which approximates fair value due to the short-term
nature of these instruments.
 
 Recently
Issued Accounting Pronouncements
 
 In
December 2004, the Financial Accounting Standards Board issued two FASB Staff
Positions - FSP FAS 109-1, Application of FASB Statement 109 "Accounting for
Income Taxes" to the Tax Deduction on Qualified Production Activities Provided
by the American Jobs Creation Act of 2004, and FSP FAS 109-2 Accounting and
Disclosure Guidance for the Foreign Earnings Repatriation Provision within the
American Jobs Creation Act of 2004. Neither of these affected the Company as it
does not participate in the related activities.
  11
 
 In May
2005, the FASB issued FASB Statement No. 154, “Accounting Changes and Error
Corrections.” This new standard replaces APB Opinion No. 20, “Accounting
Changes, and FASB Statement No. 3, Reporting Accounting Changes in Interim
Financial Statements,” and represents another step in the FASB’s goal to
converge its standards with those issued by the IASB. Among other changes,
Statement 154 requires that a voluntary change in accounting principle be
applied retrospectively with all prior period financial statements presented on
the new accounting principle, unless it is impracticable to do so. Statement 154
also provides that (1) a change in method of depreciating or amortizing a
long-lived non-financial asset be accounted for as a change in estimate
(prospectively) that was effected by a change in accounting principle, and (2)
correction of errors in previously issued financial statements should be termed
a “restatement.” The new standard is effective for accounting changes and
correction of errors made in fiscal years beginning after December 15, 2005.
Early adoption of this standard is permitted for accounting changes and
correction of errors made in fiscal years beginning after June 1, 2005. The
Company has evaluated the impact of the adoption of Statement 154 and does not
believe the impact will be significant to the Company's overall results of
operations or financial position.
 
 RESULTS
OF OPERATIONS - YEAR ENDED DECEMBER 31, 2008 COMPARED TO THE YEAR ENDED DECEMBER
31, 2007
 
 SELLING
& MARKETING EXPENSES
 
 Selling
& Marketing Expenses ("S&M") expenses decreased by $95,829 or 15.01% to
$542,510 for the year ended December 31, 2008, compared to the prior year. This
decrease in S&M expenses was the result of a decrease in marketing and
consulting fees.
 
 GENERAL
AND ADMINISTRATIVE EXPENSES
 
 General
and administrative ("G&A") expenses increased by $14,319 or 7.90% to
$195,636 for the year ended December 31, 2008, compared to the prior year. This
increase in G&A expenses was the result of an increase in professional
fees.
 
 RESEARCH
AND DEVELOPMENT
 
 Research
and Development ("R&D") costs increased by $232,243 or 328.57% to $302,926
for the year ended December 31, 2008 compared to the prior year. This increase
in R&D costs was the result of an increase in testing of product
alternatives, and construction of a prototype,
 
 NET
LOSS
 
 Net
Loss increased by $(163,042) or (18.56)%, to $(1,041,721) for the year ended
December 31, 2008, compared to the prior year.  This increase in Net
Loss was the result of an increase in G&A expenses and R&D. Currently
the Company is in its development stage and had no revenues.
 
 LIQUIDITY
AND CAPITAL RESOURCES
 
 As of December 31, 2008, we had a (77,946) working deficit as compared
to  working capital of  $942,782 as of December 31, 2007.
This decrease of $1,020,728 was due primarily to use of funds for operating
expenses.
 
 During the year ended December 31, 2008, the Company used $838,080 of cash
for operating activities, as compared to $872,747 for the year ended December
31, 2007. The decrease in the use of cash for operating activities was a result
of a decrease in selling and marketing expenses.
 
 Cash
provided by investing activities was $761,833 for the year ended December 31,
2008 as compared to cash used of $882,356 for the year ended December 31, 2007.
The net cash provided by investing activities was primarily due to a reduction
of certificates of deposit.
 
 
 12
  Cash provided from financing activities during the year ended December 31, 2008
was $112,000 as compared to $1,689,500 for the year ended December 31, 2007. Our
capital needs have primarily been met from the proceeds of
private  placements, as we are currently in the development stage and
had no revenues.
 
 Our
financial statements as of December 31, 2008 have been prepared under the
assumption that we will continue as a going concern. Our independent registered
public accounting firm has issued their report dated April 13, 2009 that
included an explanatory paragraph expressing substantial doubt in our ability to
continue as a going concern without additional capital becoming available. Our
ability to continue as a going concern ultimately is dependent on our ability to
generate a profit which is dependent upon our ability to obtain additional
equity or debt financing, attain further operating efficiencies and, ultimately,
to achieve profitable operations. The financial statements do not include any
adjustments that might result from the outcome of this
uncertainty.
 
 PLAN
OF OPERATION AND FINANCING NEEDS
 
 We are
engaged in developing a technology to convert the greenhouse gas, carbon dioxide
(CO2), into a useful form that will not contribute to global warming. We plan to
develop our products and thereafter focus our efforts on establishing markets in
the power plants and industrial factories sectors by 2010.
 
 Our plan
of operation within the next twelve months is to utilize our cash balances to
continue research and development of our CO2-to-Fuel technology.  We
believe that our current cash and investment balances will be sufficient to
support development activity and general and administrative expenses for the
next twelve months. Management estimates that it will require additional cash
resources during 2009, based upon its current operating plan and condition. We
will be investigating additional financing alternatives, including equity and/or
debt financing. There is no assurance that capital in any form would be
available to us, and if available, on terms and conditions that are acceptable.
If we are unable to obtain sufficient funds during the next twelve months, we
may be forced to reduce the size of our organization, which could have a
material adverse impact on, or cause us to curtail and/or cease, the development
of our products.
  ITEM 8.       FINANCIAL
STATEMENTS.
 
 All
financial information required by this Item is attached hereto at the end of
this report beginning on page F-1 and is hereby incorporated by
reference.
  ITEM
9.       CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTSON ACCOUNTING AND FINANCIAL
DISCLOSURE.
 
 None
  13
  ITEM
9A(T).   CONTROLS AND PROCEDURES.
 
 (a) Evaluation of Disclosure Controls
and Procedures. Based on an evaluation of our disclosure controls and
procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the
Securities Exchange Act of 1934, as amended) required by paragraph (b) of
Rule 13a-15 or Rule 15d-15, as of December 31, 2008, our Chief
Executive Officer and Acting Chief Financial Officer has concluded that our
disclosure controls and procedures were effective in ensuring that information
required to be disclosed by us in the reports that we file or submit under the
Exchange Act is recorded, processed, summarized and reported within the time
periods specified in the Commission’s rules and forms. Our Chief Executive
Officer and Acting Chief Financial Officer also concluded that, as of December
31, 2008, our disclosure controls and procedures were effective in ensuring that
information required to be disclosed by us in the reports that we file or submit
under the Exchange Act is accumulated and communicated to our management,
including our Chief Executive Officer and Acting Chief Financial Officer, to
allow timely decisions regarding required disclosure.
 
 (b) Changes in Internal Controls.
During the three months ended December 31, 2008, there were no changes in our
internal control over financial reporting identified in connection with the
evaluation required by paragraph (d) of Rule 13a-15 or Rule 15d-15 that has
materially affected, or is reasonably likely to materially affect, our internal
control over financial reporting.
 
 Management’s
Report on Internal Control over Financial Reporting.
 
 We are
responsible for establishing and maintaining adequate internal control over
financial reporting in accordance with Exchange Act Rule 13a-15. With the
participation of our Chief Executive Officer and Acting Chief Financial Officer,
our management conducted an evaluation of the effectiveness of our internal
control over financial reporting as of December 31, 2008 based on the criteria
established in Internal Control-Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission. Based on this evaluation,
management concluded that our internal control over financial reporting was
effective as of December 31, 2008, based on those criteria. A control system, no
matter how well conceived and operated, can provide only reasonable, not
absolute, assurance that the objectives of the control system are met. Because
of the inherent limitations in all control systems, no evaluation of controls
can provide absolute assurance that all control issues and instances of fraud,
if any, within the Company have been detected.
 
 This
annual report does not include an attestation report of the Company’s registered
accounting firm regarding internal control over financial reporting.
Management’s report was not subject to attestation by the Company’s registered
public accounting firm pursuant to temporary rules of the Securities and
Exchange Commission.
 
 ITEM 9B. OTHER INFORMATION.
 
 None.
 
 PART
III
 
 ITEM
10.       DIRECTORS, EXECUTIVE OFFICERS,
PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE
ACT.
 
 The
following table sets forth information about our executive officers, key
employees and directors:
 
 Name
                      
                      Age
                      
                      PositionDerek
      McLeish
                      
                      61
                      
                      Chairman,
      Chief Executive Officer and Acting Chief Financial
  OfficerByron
      Elton
                      
                      55
                      
                      President,
      Chief Operating Officer and DirectorNaveed
      Aslam
                      
                      38
                      
                      Chief
      Technology OfficerMichael
      Stone
                      
                      55
                      
                      Director
 
 Directors
serve until the next annual meeting and until their successors are elected and
qualified. The Directors of our company are elected by the vote of a
majority in interest of the holders of the voting stock of our company and hold
office until the expiration of the term for which he or she was elected and
until a successor has been elected and qualified.
 
 A
majority of the authorized number of directors constitutes a quorum of the Board
for the transaction of business. The directors must be present at the meeting to
constitute a quorum. However, any action required or permitted to be taken by
the Board may be taken without a meeting if all members of the Board
individually or collectively consent in writing to the
action.
  14
  Directors
may receive compensation for their services and reimbursement for their expenses
as shall be determined from time to time by resolution of the Board. Our
directors currently do not receive monetary compensation for their service on
the Board of Directors.
  Officers
are appointed to serve for one year until the meeting of the board of directors
following the annual meeting of stockholders and until their successors have
been elected and qualified.
  The
principal occupations for the past five years (and, in some instances, for prior
years) of each of our executive officers and directors, followed by our key
employees, are as follows:
  Derek McLeish - Chief
Executive Officer, Acting Chief Financial Officer and Chairman of the Board. Mr.
McLeish has over 30 years of domestic and international corporate management,
marketing and sales experience in the areas of technology, and software. Prior
to founding Carbon Sciences, Mr. McLeish was the President and CEO of Digital
Interactive System Corporation, Inc., a digital distribution company, from 2004
to 2005. From 2003 to 2004, Mr. McLeish served as the President and CEO of
Broadband Group, a consulting company. Prior to that, he was the Chief Operating
Officer of NetCatalyst, Inc., a technology incubator company, from 2000 to 2002.
In his career as senior executive of companies, such as DISCover,
Hasbro/MicroProse, The Gillette Company, Atari, Panavision and Activision, Mr.
McLeish was responsible for driving innovative strategic direction and
successfully creating stockholder value by developing new markets and lines of
business. At The Gillette Company, Mr. McLeish managed a large manufacturing
plant producing billions of high value parts per year. At Panavision, Mr.
McLeish was responsible for worldwide manufacturing. He served on the Board of
Directors of Amaze, the largest independent interactive game developer in
North America. Mr. McLeish undertook his MBA studies at Pepperdine University
and received his BS from the California State University at Long
Beach.
 
 Byron Elton—President, Chief
Operating Officer and Director. Mr. Elton has been President and Chief Operating
Officer of the Company since January 5, 2009 and a director of the Company since
March 16, 2009. Mr. Elton is an experienced media and marketing executive with a
proven record in pioneering new business development strategies and building
top-flight marketing organizations. He previously served as Senior Vice
President of Sales for Univision Online from 2007 to 2008. Mr. Elton also served
for eight years as an executive at AOL Media Networks from 2000 to 2007, where
his assignments included Regional Vice President of Sales for AOL and Senior
Vice President of E-Commerce for AOL Canada. His broadcast media experience
includes leading the ABC affiliate in Santa Barbara, California in 1995 to 2000
and the CBS affiliate in Monterrey, California, from 1998 to 1999, in addition
to serving as President of the Alaskan Television Network from 1995 to
1999.
 
 Dr. Naveed Aslam—Chief
Technology Officer. Mr. Aslam has been Chief Technology Officer of the Company
since January 7, 2009. Dr. Aslam is an accomplished scientist and molecular
systems expert with over 14 years of industry and research experience. He was
recently recognized by the U.S. Citizenship and Immigration Service as an alien
of extraordinary ability, and was awarded an O-1 employment visa. Dr. Aslam has
authored over ten cutting-edge publications on chemical engineering, biochemical
engineering and biomedical technologies. His most notable contributions to the
scientific community are: (1) the development of the world's first computer
aided process engineering (CAPE) design tool for using supercritical fluids to
develop next generation chemical and petroleum processes that are cost effective
and environment friendly; and (2) the development of the world's first
non-linear computational tool for modeling biological processes related to
inflammation and memory loss for the development of drugs against cancer and
Alzheimer's disease.
 
 Dr. Aslam
has served as a technology advisor to Carbon Sciences since 2008 and is the
inventor of the Company's breakthrough CO2-to-Fuel technology. During the early
part of his career, Dr. Aslam was a senior process engineer for Saudi Basic
Industries Corporation (SABIC), Riyadh, Saudi Arabia. At SABIC, his duties
included responsibility for all aspects of process engineering during the
preliminary and detailed design phases of 125,000 tons per year ethylene
manufacturing plant. From January 2004 through August 2005 Dr. Aslam was a
Research Associate and Instructor at the University of South Florida, Department
of Chemical Engineering. From September 2005 through January 2006, Dr Aslam
served as a Post Doctoral Fellow at Florida State University School of Computer
and Science, Tallahassee. Also from January 2001 through December 2008, Dr.
Aslam served as Post Doctoral Fellow at the University of Texas.
 
 Michael Stone - Director. Mr.
Stone is currently an independent management consultant. From 1999 to 2004, he
was the co-founder and Chief Financial Officer of CardioNow, a medical imaging
software company. Over the years, Mr. Stone has provided consulting services in
strategy, marketing, litigation support and business development to many
technology companies including Symantec, Microsoft, Earthlink, Avery Dennison,
Creative Labs and Toshiba. In his over 25 years of experience he has served as a
McKinsey and Company consultant, product marketing director at Ashton-Tate, VP
Marketing at Citrix Systems and Quarterdeck Software.  He has also served
on the Advisory Board and Board of Directors for Persistence Software,
IntelliQuest and iTaggit.  Mr. Stone received his MBA and BBA from the
University of Texas at Austin.
 15
  COMMITTEES
OF THE BOARD
  We
currently have no audit committee, compensation committee, nominations and
governance committee of our board of directors.
  INDEBTEDNESS
OF EXECUTIVE OFFICERS AND DIRECTORS
  No
executive officer, director or any member of these individuals' immediate
families or any corporation or organization with whom any of these individuals
is an affiliate is or has been indebted to us since the beginning of our last
fiscal year.
 
 FAMILY
RELATIONSHIPS
  There are
no family relationships among our executive officers and directors.
  CODE
OF ETHICS
  We have
adopted a Code of Ethics that applies to all of our directors, officers and
employees. The text of the Code of Ethics has been posted on Carbon Science’s
Internet website and can be viewed
at  www.carbonscience.com.  A copy of the Code of Ethics has
also been filed as an exhibit to our Annual Report for the year ending December
31, 2007, filed with the SEC on March 26, 2008, and incorporated herein by
reference. Any waiver of the provisions of the Code of Ethics for executive
officers and directors may be made only by the Audit Committee and, in the case
of a waiver for members of the Audit Committee, by the Board of
Directors.  Any such waivers will be promptly disclosed to our
shareholders.
  
 ITEM 11.       EXECUTIVE
COMPENSATION.
 
 The following table sets forth the
compensation paid or accrued by us to our Chief Executive Officer and President
and Chief Operating Officer and each of our other officers whose compensation
exceeded $100,000 for each of the Company’s last two completed fiscal
years.
 
 Name
      and
                                                                              Principal
      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
      ($)Derek
      W. McLeish CEO and Acting
                                                                            2008
                                                                            
                                                                            $
                                                                            180,000
                                                                            
                                                                            
                                                                            
                                                                            -
                                                                            
                                                                            
                                                                            
                                                                            -
                                                                            
                                                                            
                                                                            
                                                                            -
                                                                            
                                                                            
                                                                            
                                                                            -
                                                                            
                                                                            
                                                                            
                                                                            -
                                                                            
                                                                            
                                                                            
                                                                            -
                                                                            
                                                                            
                                                                            $
                                                                            180,000CFO
                                                                            2007
                                                                            
                                                                            $
                                                                            175,000
                                                                            
                                                                            
                                                                            
                                                                            -
                                                                            
                                                                            
                                                                            
                                                                            -
                                                                            
                                                                            
                                                                            
                                                                            -
                                                                            
                                                                            
                                                                            
                                                                            -
                                                                            
                                                                            
                                                                            
                                                                            -
                                                                            
                                                                            
                                                                            
                                                                            -
                                                                            
                                                                            
                                                                            $
                                                                            175,000
  
 16
  Outstanding
Equity Awards at Fiscal Year-End Table.
 
 The
following table sets forth information with respect to grants of options to
purchase our common stock to the named executive officers at December 31,
2008.
 
 Option
      Awards
                                  
                                  Stock
      AwardsName
                                  
                                  Number
      of
                                    Securities
                                    Underlying
                                    Unexercised
                                    Options
      (#) Exercisable
                                  
                                  Number of
                                    Securities
                                    Underlying
                                    Unexercised
                                    Options
      (#) Unexercisable
                                  
                                  Equity
                                    Incentive
                                    Plan
      Awards:
                                    Number
      of
                                    Securities
      Underlying
                                    Unexercised
                                    Unearned
                                    Options
      (#)
                                  
                                  Option
                                    Exercise
                                    Price
      ($)
                                  
                                  Option
                                    Expiration
                                    Date
                                  
                                  Number of Shares or Units of Stock That Have Not
                                    Vested
      (#)
                                  
                                  Market
      Value of Shares or Units of Stock That Have Not
                                    Vested
      ($)
                                  
                                  Equity
                                    Incentive
                                    Plan
      Awards: Number of
                                    Unearned
                                    Shares,
                                    Units
      or
                                    Other
      Rights
                                    That
      Have
                                    Not
                                    Vested
      (#)
                                  
                                  Equity
      Incentive
                                    Plan
      Awards:
                                    Market
      or Payout
                                    Value
      of
                                    Unearned
                                    Shares,
      Units or
                                    Other
                                    Rights
                                    That
      Have
                                    Not
                                    Vested
      ($)Derek
      W. McLeish CEO and Acting CFO
                                  
                                  
                                  -0-
                                  
                                  -0-
                                  
                                  
                                  -0-
                                  
                                  -0-
                                  
                                  
                                  -0-
                                  
                                  -0-
                                  
                                  
                                  -0-
                                  
                                  -0-
                                  
                                  
                                  -0-
    
  17
   Director
Compensation
 
 The
following table sets forth with respect to our directors, compensation
information inclusive of equity awards and payments made for the fiscal year
ended December 31, 2008.
  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)Derek
      McLeish
                                  
                                  
                                  -0-
                                  
                                  -0-
                                  
                                  
                                  -0-
                                  
                                  -0-
                                  
                                  
                                  -0-
                                  
                                  -0-
                                  
                                  
                                  -0-Michael
      Stone
                                  
                                  
                                  -0-
                                  
                                  -0-
                                  
                                  
                                  -0-
                                  
                                  -0-
                                  
                                  
                                  -0-
                                  
                                  -0-
                                  
                                  
                                  -0-Daniel
      Elenbaas *
                                  
                                  
                                  -0-
                                  
                                  -0-
                                  
                                  
                                  -0-
                                  
                                  -0-
                                  
                                  
                                  -0-
                                  
                                  -0-
                                  
                                  
                                  -0-
 
 * Mr.
Elenbaas resigned as a director of the Company on March 16,
2009.
 
 EMPLOYMENT
AGREEMENTS
  We currently
have no employment agreements with our executive officers.
 
 Item 12.        
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
 
 The
following table sets forth, as of March 30, 2009, the number of and percent of
our common stock beneficially owned by:
  ·
              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:
  We
believe that all persons named in the table have sole voting and investment
power with respect to all shares of common stock beneficially owned by
them.
  A person
is deemed to be the beneficial owner of securities that can be acquired by him
within 60 days from March __, 2009 upon the exercise of options, warrants or
convertible securities. Each beneficial owner's percentage ownership is
determined by assuming that options, warrants or convertible securities that are
held by him, but not those held by any other person, and which are exercisable
within 60 days of March __, 2009 have been exercised and converted.
  Title
      of Class
                        
                        Name
      of
                          Beneficial
      Owner
                        
                        Number
      of Shares
                          Beneficially
      Owned
                        
                        Percent
      of Total (1)Common
      Stock
                        
                        Derek
      McLeish
                        
                        
                        49,750,000
                        
                        
                        33.6%Common
      Stock
                        
                        Richard
      Travis Beifuss
                        
                        
                        10,015,000
                        
                        
                        6.8%Common
      Stock
                        
                        Michael
      Stone
                        
                        
                        1,000,000
                        
                        
                        .7%Common
      Stock
                        
                        Byron
      Elton
                        
                        
                        0
                        
                        
                        --Common
      Stock
                        
                        Naveed
      Aslam
                        
                        
                        1,000,000
                        
                        
                        .7%Common
      Stock
                        
                        All
      Executive Officers and Directors as a Group (4 persons )
                        
                        
                        51,750,000
                        
                        
                        35.0%
  *Less
than one percent.
 
 (i) Based
upon 148,342,000 shares issued and outstanding as of March 30,
2009.
 
 ITEM 13.       CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE.
 
 Certain
Relationships and Related Transactions
  There
were no material related party transactions which we entered into during the
year endedDecember 31, 2008.
 
 Director Independence
 
 Mr. Stone is independent as that term
is defined under the Nasdaq Marketplace Rules.
 
 ITEM
14.       PRINCIPAL ACCOUNTANT FEES AND
SERVICES.
 
 Audit
Fees
  The
aggregate fees billable to us by HJ Associates & Consultants, LLP during
2008 and 2007 for the audits of our annual financial statements for the fiscal
year totaled approximately $28,909 and $27,803, respectively.
 
 Audit-Related
Fees
 
 We
incurred assurance and audit-related fees during 2008 and 2007 of $0 and $0
respectively, to HJ Associates & Consultants, LLP in connection with the
audit of the financial statements of the Company for the years ended December
31, 2008 and December 31, 2007, for the reviews of registration statements and
issuance of related consents and assistance with SEC comment
letters.
  Tax
Fees
  We
incurred fees of $0 and $0 billed to us by HJ Associates & Consultants, LLP
for services rendered to us for tax compliance, tax advice, or tax planning for
the fiscal year ended December 31, 2008 and December 31, 2007,
respectively.
 18
  All
Other Fees
  There
were no fees billed to us by HJ Associates & Consultants, LLP for services
rendered to us during the last two fiscal years, other than the services
described above under “Audit Fees” and “Audit-Related Fees.”
  As of the
date of this filing, our current policy is to not engage HJ Associates &
Consultants, LLP to provide, among other things, bookkeeping services, appraisal
or valuation services, or international audit services. The policy provides that
we engage HJ Associates & Consultants, LLP to provide audit, tax, and other
assurance services, such as review of SEC reports or filings.
 
 ITEM 15.      
EXHIBITS.
 
 Exhibit
      No.
                  Description3.1
                  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 30232.1*
                  Certification
      by Chief Executive Officer and Acting Chief Financial Officer pursuant to
      18 U.S.C. Section 1350
 
 *Filed
herewith
 
 19
  SIGNATURES
 
 Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
 .
 Carbon
      Sciences, Inc.Date:
      April 14, 2009
                By:
                /s/ Derek
      McLeishCHIEF
      EXECUTIVE OFFICER (PRINCIPAL EXECUTIVE OFFICER)AND
      ACTING CHIEF FINANCIAL OFFICER (PRINCIPAL ACCOUNTING AND FINANCIAL
      OFFICER)
 Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed by the following persons on behalf of the registrant and in the
capacities and on the dates indicated:
 
 
 SIGNATURE
                                  
                                  TITLE
                                  
                                  DATE/s/
      Derek
      McLeish
                                  
                                  CHIEF
      EXECUTIVE OFFICER (PRINCIPAL EXECUTIVE OFFICER),
                                  
                                  APRIL14,
      2009Derek
      McLeish
                                  
                                  ACTING
      CHIEF FINANCIAL OFFICER (PRINCIPAL ACCOUNTINGAND
      FINANCIAL OFFICER) AND CHAIRMAN OF THE BOARD/s/ Byron
      Elton
                                  
                                  PPRESIDENT,
      CHIEF OPERATINGOFFICER AND DIRECTOR
                                  
                                  APRIL
      14, 2009Byron
      Elton/s/
      Michael Stone
                                  
                                  DIRECTOR
                                  
                                  APRIL 14,
      2009Michael
      Stone
      20


Report
of Independent Registered Public Accounting Firm
 
 To the
Board of Directors of
 Carbon
Sciences, Inc
 (A
Development Stage Company)
 Santa
Barbara, California
 
 We have
audited the balance sheets of Carbon Sciences, Inc. (A Development Stage
Company) as of December 31, 2008 and 2007, and the related statements of
operations, stockholders’ equity and cash flows for the years ended December 31,
2008 and 2007 and from inception on August 25, 2006 through December 31,
2008.  These financial statements are the responsibility of the
Company's management.  Our responsibility is to express an opinion on
these financial statements based on our audits.
 
 We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States).  Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement.  We were
not engaged to perform an audit of the Company’s internal control over financial
reporting.  Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company’s internal control over financial
reporting.  Accordingly, we express no such opinion.  An
audit also includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements.  An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation.  We believe that our audits provide a reasonable basis
for our opinion.
 
 In our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Carbon Sciences, Inc. (A
Development Stage Company) as of December 31, 2008, and 2007 and the results of
its operations and its cash flows for the years ended December 31, 2008 and 2007
and from inception on August 25, 2006 through December 31, 2008, in conformity
with U.S. generally accepted accounting principles.
 
 The
accompanying financial statements have been prepared assuming that the Company
will continue as a going concern.  As discussed in Note 1 to the
financial statements, the Company does not generate significant revenue, and has
negative cash flows from operations.  This raises substantial doubt
about the Company's ability to continue as a going
concern.  Management's plans in regard to these matters are also
described in Note 1.  The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
 
 We were
not engaged to examine management’s assessment of the effectiveness of Carbon
Sciences, Inc.’s internal control over financial reporting as of December 31,
2008, included in the accompanying  Form 10-K and, accordingly, we do
not express an opinion thereon.
 
 
 
 
 HJ
Associates & Consultants, LLP
 Salt Lake
City, Utah
 April 13,
2009
  F-1






CARBON
SCIENCES, INC.








December
      31,2008
                            
                            
                            December
      31,2007ASSETSCURRENT
      ASSETSCash
                            
                            $
                            45,292
                            
                            
                            $
                            9,539Certificate
      of deposits
                            
                            
                            -
                            
                            
                            
                            821,505Prepaid
      expenses
                            
                            
                            2,720
                            
                            
                            
                            122,488Other
      receivable
                            
                            
                            2,400
                            
                            
                            
                            -TOTAL
      CURRENT ASSETS
                            
                            
                            50,412
                            
                            
                            
                            953,532PROPERTY
      & EQUIPMENT, at costMachinery
      & equipment
                            
                            
                            71,498
                            
                            
                            
                            20,599Computer
      equipment
                            
                            
                            17,559
                            
                            
                            
                            17,559Mobile
      vehicle
                            
                            
                            40,252
                            
                            
                            
                            40,252129,309
                            
                            
                            
                            78,410Less
      accumulated depreciation
                            
                            
                            (28,302
                            )
                            
                            
                            (9,637
                            )Net
      property and equipment
                            
                            
                            101,007
                            
                            
                            
                            68,773TOTAL
      OTHER ASSETSPatents
                            
                            
                            8,773
                            
                            
                            
                            -TOTAL
      ASSETS
                            
                            $
                            160,192
                            
                            
                            $
                            1,022,305LIABILITIES
      AND SHAREHOLDERS' EQUITYCURRENT
      LIABILITIESAccounts
      payable
                            
                            $
                            34,806
                            
                            
                            $
                            2,676Accrued
      expenses
                            
                            
                            43,552
                            
                            
                            
                            8,074Note
      payable, Investor
                            
                            
                            50,000
                            
                            
                            
                            -TOTAL
      CURRENT LIABILITIES
                            
                            
                            128,358
                            
                            
                            
                            10,750SHAREHOLDERS'
      EQUITYCommon
      stock, $0.001 par value;500,000,000
      authorized common shares148,342,000
      shares issued and outstanding
                            
                            
                            148,342
                            
                            
                            
                            148,342Additional
      paid in capital
                            
                            
                            2,155,533
                            
                            
                            
                            2,155,533Stock
      subscription payable
                            
                            
                            62,000
                            
                            
                            
                            -Accumulated
      deficit during the development stage
                            
                            
                            (2,334,041
                            )
                            
                            
                            (1,292,320
                            )TOTAL
      SHAREHOLDERS' EQUITY
                            
                            
                            31,834
                            
                            
                            
                            1,011,555TOTAL
      LIABILITIES AND SHAREHOLDERS' EQUITY
                            
                            $
                            160,192
                            
                            
                            $
                            1,022,305








F-2




CARBON
SCIENCES, INC.


From
      Inception onAugust
      25,2006Year
      Ended
                                                        
                                                        
                                                        throughDecember
      31, 2008
                                                        
                                                        
                                                        December
      31, 2007
                                                        
                                                        
                                                        December
      31, 2008REVENUE
                                                        
                                                        $
                                                        -
                                                        
                                                        
                                                        $
                                                        -
                                                        
                                                        
                                                        $
                                                        -OPERATING
      EXPENSESSelling
      & marketing expenses
                                                        
                                                        
                                                        542,510
                                                        
                                                        
                                                        
                                                        638,339
                                                        
                                                        
                                                        
                                                        1,529,082General
      & administrative expenses
                                                        
                                                        
                                                        195,636
                                                        
                                                        
                                                        
                                                        181,317
                                                        
                                                        
                                                        
                                                        440,958Research
      & development
                                                        
                                                        
                                                        302,926
                                                        
                                                        
                                                        
                                                        70,683
                                                        
                                                        
                                                        
                                                        373,609Depreciation
                                                        
                                                        
                                                        18,665
                                                        
                                                        
                                                        
                                                        8,234
                                                        
                                                        
                                                        
                                                        28,302TOTAL
      OPERATING EXPENSES
                                                        
                                                        
                                                        1,059,737
                                                        
                                                        
                                                        
                                                        898,573
                                                        
                                                        
                                                        
                                                        2,371,951LOSS
      FROM OPERATIONS BEFORE OTHER INCOME/(EXPENSES)
                                                        
                                                        
                                                        (1,059,737
                                                        )
                                                        
                                                        
                                                        (898,573
                                                        )
                                                        
                                                        
                                                        (2,371,951
                                                        )OTHER
      INCOME/(EXPENSE)Interest
      income
                                                        
                                                        
                                                        18,016
                                                        
                                                        
                                                        
                                                        21,505
                                                        
                                                        
                                                        
                                                        39,521Interest
      expense
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        (1,611
                                                        )
                                                        
                                                        
                                                        (1,611
                                                        )TOTAL
      OTHER INCOME
                                                        
                                                        
                                                        18,016
                                                        
                                                        
                                                        
                                                        19,894
                                                        
                                                        
                                                        
                                                        37,910NET
      LOSS
                                                        
                                                        $
                                                        (1,041,721
                                                        )
                                                        
                                                        $
                                                        (878,679
                                                        )
                                                        
                                                        $
                                                        (2,334,041
                                                        )BASIC
      AND DILUTED LOSS PER SHARE
                                                        
                                                        $
                                                        (0.01
                                                        )
                                                        
                                                        $
                                                        (0.01
                                                        )WEIGHTED-AVERAGE
      COMMON SHARES OUTSTANDINGBASIC
      AND DILUTED
                                                        
                                                        
                                                        148,342,000
                                                        
                                                        
                                                        
                                                        139,133,340




F-3
  CARBON
SCIENCES, INC.


DeficitAccumulatedAdditional
                                                            
                                                            
                                                            Stock
                                                            
                                                            
                                                            during
      theCommon
      stock
                                                            
                                                            
                                                            Paid-in
                                                            
                                                            
                                                            Subscription
                                                            
                                                            
                                                            DevelopmentShares
                                                            
                                                            
                                                            Amount
                                                            
                                                            
                                                            Capital
                                                            
                                                            
                                                            Payable
                                                            
                                                            
                                                            Stage
                                                            
                                                            
                                                            TotalInception
      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
                                                            )
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            24,875Issuance
      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
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            105,000Issuance
      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
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            315,000Issuance
      of common stock for cash in November 2006(390,000
      shares issued at $0.10 for cash)
                                                            
                                                            
                                                            390,000
                                                            
                                                            
                                                            
                                                            390
                                                            
                                                            
                                                            
                                                            38,610
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            39,000Issuance
      of common stock for cash in December 2006(555,000
      shares issued at $0.10 for cash)
                                                            
                                                            
                                                            555,000
                                                            
                                                            
                                                            
                                                            555
                                                            
                                                            
                                                            
                                                            54,945
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            55,500Net
      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
                                                            )
                                                            
                                                            
                                                            125,734Issuance
      of common stock for cash in January 2007(255,000
      shares issued at $0.10 for cash)
                                                            
                                                            
                                                            255,000
                                                            
                                                            
                                                            
                                                            255
                                                            
                                                            
                                                            
                                                            25,245
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            25,500Issuance
      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
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            290,000Issuance
      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
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            177,000Issuance
      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
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            145,000Issuance
      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
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            1,125,000Issuance
      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
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            147,200Issuance
      of common stock for services in September 2007(500,000
      shares issued at $0.15 per share)
                                                            
                                                            
                                                            500,000
                                                            
                                                            
                                                            
                                                            500
                                                            
                                                            
                                                            
                                                            74,500
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            75,000Stock
      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
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            45,000Net
      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
                                                            )
                                                            
                                                            
                                                            1,011,555Stock
      subscription payable
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            62,000
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            62,000Net
      Loss for the year ended December 31, 2008
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            (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
  F-4
  CARBON
SCIENCES, INC.
 
 From
      Inception onAugust
      25,2006Year
      Ended
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    throughDecember
      31, 2008
                                                    
                                                    
                                                    December
      31, 2007
                                                    
                                                    
                                                    December
      31, 2008CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      loss
                                                    
                                                    $
                                                    (1,041,721
                                                    )
                                                    
                                                    $
                                                    (878,679
                                                    )
                                                    
                                                    $
                                                    (2,334,041
                                                    )Adjustment
      to reconcile net loss to net cashused
      in operating activitiesDepreciation
      expense
                                                    
                                                    
                                                    18,665
                                                    
                                                    
                                                    
                                                    8,234
                                                    
                                                    
                                                    
                                                    28,302Stock
      issuance for services
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    75,000
                                                    
                                                    
                                                    
                                                    75,000(Increase)
      Decrease in:Prepaid
      expenses
                                                    
                                                    
                                                    119,768
                                                    
                                                    
                                                    
                                                    (72,488
                                                    )
                                                    
                                                    
                                                    (2,720
                                                    )Other
      receivable
                                                    
                                                    
                                                    (2,400
                                                    )
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    (2,400
                                                    )Increase
      (Decrease) in:Accounts
      payable
                                                    
                                                    
                                                    32,130
                                                    
                                                    
                                                    
                                                    2,676
                                                    
                                                    
                                                    
                                                    34,806Accrued
      expenses
                                                    
                                                    
                                                    35,478
                                                    
                                                    
                                                    
                                                    (7,490
                                                    )
                                                    
                                                    
                                                    43,552NET
      CASH USED IN OPERATING ACTIVITIES
                                                    
                                                    
                                                    (838,080
                                                    )
                                                    
                                                    
                                                    (872,747
                                                    )
                                                    
                                                    
                                                    (2,157,501
                                                    )CASH
      FLOWS (USED)/PROVIDED IN INVESTING ACTIVITIES:Investment
      in certificates of deposit
                                                    
                                                    
                                                    821,505
                                                    
                                                    
                                                    
                                                    (821,505
                                                    )
                                                    
                                                    
                                                    -Patent
      expenditures
                                                    
                                                    
                                                    (8,773
                                                    )
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    (8,773
                                                    )Purchase
      of equipment
                                                    
                                                    
                                                    (50,899
                                                    )
                                                    
                                                    
                                                    (60,851
                                                    )
                                                    
                                                    
                                                    (129,309
                                                    )NET
      CASH (USED)/PROVIDED BY INVESTING ACTIVITIES
                                                    
                                                    
                                                    761,833
                                                    
                                                    
                                                    
                                                    (882,356
                                                    )
                                                    
                                                    
                                                    (138,082
                                                    )CASH
      FLOWS FROM FINANCING ACTIVITIES:Advances
      from officer
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    73,000Loan
      from investor
                                                    
                                                    
                                                    50,000
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    210,000Repayment
      of advances and loans
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    (233,000
                                                    )Proceeds
      from issuance of common stock, net
                                                    
                                                    
                                                    62,000
                                                    
                                                    
                                                    
                                                    1,689,500
                                                    
                                                    
                                                    
                                                    2,290,875NET
      CASH PROVIDED BY FINANCING  ACTIVITIES
                                                    
                                                    
                                                    112,000
                                                    
                                                    
                                                    
                                                    1,689,500
                                                    
                                                    
                                                    
                                                    2,340,875NET
      INCREASE/(DECREASE) IN CASH
                                                    
                                                    
                                                    35,753
                                                    
                                                    
                                                    
                                                    (65,603
                                                    )
                                                    
                                                    
                                                    45,292CASH,
      BEGINNING OF YEAR
                                                    
                                                    
                                                    9,539
                                                    
                                                    
                                                    
                                                    75,142
                                                    
                                                    
                                                    
                                                    -CASH,
      END OF YEAR
                                                    
                                                    $
                                                    45,292
                                                    
                                                    
                                                    $
                                                    9,539
                                                    
                                                    
                                                    $
                                                    45,292SUPPLEMENTAL
      DISCLOSURES OF CASH FLOW INFORMATIONInterest
      paid
                                                    
                                                    $
                                                    -
                                                    
                                                    
                                                    $
                                                    1,611
                                                    
                                                    
                                                    $
                                                    1,611Taxes
      paid
                                                    
                                                    $
                                                    800
                                                    
                                                    
                                                    $
                                                    800
                                                    
                                                    
                                                    $
                                                    800SUPPLEMENTAL
      SCHEDULE FOR NON-CASH TRANSACTIONSDuring
      the year ended December 31, 2007, the Company issued1,472,000
      shares of common stock for services at a price of $0.10and
      500,000 shares of common stock for services at a price of
      $0.15.
  
 F-5
 CARBON
SCIENCES, INC.


(A
Development Stage Company)


NOTES TO
FINANCIAL STATEMENTS


DECEMBER
31, 2008 and 2007


1.     ORGANIZATION
AND LINE OF BUSINESS




Organizational
History


The
Company was incorporated in the State of Nevada on August 25, 2006, as
Zingerang, Inc.  On April 2, 2007 the Company changed its name to
Carbon Sciences, Inc.




Overview
of Business


The
Company was initially in the business of offering a real-time and interactive
mobile communication services to businesses and consumers under the Zingerang
trade name. The Company is now pursuing a new line of business.  The
company is developing a technology to convertthe greenhouse gas, carbon
dioxide (CO2), into gasoline and other fuels.


The fuels
we use today, such as gasoline and jet fuel, are made up of chains of hydrogen
and carbon atoms aptly called hydrocarbons. In general, the greater the number
of carbon atoms there are in a hydrocarbon molecule, the greater the energy
content of that fuel. For example, gasoline has hydrocarbons with 7 to 10 carbon
atoms and jet fuel has 10 to 16 carbon atoms. Hydrocarbons are naturally
occurring in fuel sources such as petroleum and natural gas. To create fuel,
hydrogen and carbon atoms must be bonded together to create hydrocarbon
molecules.
  Our
CO2-to-Fuel technology directly transforms CO2 and H20 (water) into low level
hydrocarbons.  These low level hydrocarbons can then be easily used to
produce high level fuels, such as gasoline and jet fuel with readily available
technology.  The key to our CO2-to-Fuel technology lies in a
proprietary multi-step biocatalytic process. Instead of using expensive
inorganic catalysts, such as zinc, gold or zeolite, with traditional high energy
catalytic chemical processes, our process uses inexpensive, renewable
biomolecules to catalyze certain chemical reactions required to transform CO2
into basic hydrocarbon building blocks. Of greatest significance, our process
occurs at low temperature and low pressure, thereby requiring far less energy
than other approaches.


Going
Concern


The
accompanying financial statements have been prepared on a going concern basis of
accounting, which contemplates continuity of operations, realization of assets
and liabilities and commitments in the normal course of business.  The
accompanying financial statements do not reflect any adjustments that might
result if the Company is unable to continue as a going concern.  The
Company does not generate significant revenue, and has negative cash flows from
operations, which raise substantial doubt about the Company’s ability to
continue as a going concern.  The ability of the Company to continue
as a going concern and appropriateness of using the going concern basis is
dependent upon, among other things, additional cash infusion.  As
discussed in Note 3, the Company has obtained funds from its shareholders since
its’ inception through December 31, 2008. Management believes this funding will
continue, and is also actively seeking new investors.  Management
believes the existing shareholders and the prospective new investors will
provide the additional cash needed to meet the Company’s obligations as they
become due, and will allow the development of its core of business.





2.   
 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES





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





Development Stage Activities
and Operations


The
Company is in its initial stages of formation and has insignificant revenues.
FASB #7 defines a development stage activity as one in which all efforts are
devoted substantially to establishing a new business and even if planned
principal operations have commenced, revenues are insignificant.





Revenue
Recognition


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




F-6




CARBON
SCIENCES, INC.
 (A
Development Stage Company)
 NOTES TO
FINANCIAL STATEMENTS
 DECEMBER
31, 2008 and 2007


2.  
  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)





Cash and Cash
Equivalent


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




Use of
Estimates


The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the accompanying financial
statements.  Significant estimates made in preparing these financial
statements include the estimate of useful lives of property and equipment, the
deferred tax valuation allowance, and the fair value of stock options. Actual
results could differ from those estimates.





Property and
Equipment


Property
and equipment are stated at cost, and are depreciated using the straight
line  method over its estimated useful lives:




Computer
      equipment
                    3
      YearsMachinery
      & Equipment
                    7
      YearsMobile
      vehicle
                    5
      Years




Depreciation
expense as of December 31, 2008 and 2007 was $18,665 and $8,234
respectively.





Fair Value of Financial
Instruments


SFAS No.
107, “Disclosures About Fair Value of Financial Instruments”, requires
disclosure of the fair value information, whether or not recognized in the
balance sheet, where it is practicable to estimate that value. As of December
31, 2008, the amounts reported for cash, accounts receivable, accounts payable,
accrued interest and other expenses, and notes payable approximate the fair
value because of their short maturities.




Loss per Share
Calculations


The
Company adopted Statement of Financial Standards (“SFAS”) No. 128 for the
calculation of “Loss per Share”.  SFAS No. 128 dictates the
calculation of basic earnings per share and diluted earnings per share. Basic
earnings per share are computed by dividing income available to common
shareholders by the weighted-average number of common shares available. Diluted
earnings per share is computed similar to basic earnings per share except that
the denominator is increased to include the number of additional common shares
that would have been outstanding if the potential common shares had been issued
and if the additional common shares were dilutive. The Company’s diluted loss
per share is the same as the basic loss per share for the period ended December
31, 2008 as the inclusion of any potential shares would have had an
anti-dilutive effect due to the Company generating a loss.





Income
Taxes


The
Company uses the liability method of accounting for income
taxes.  Deferred tax assets and liabilities are recognized for the
future tax consequences attributable to financial statements carrying amounts of
existing assets and liabilities and their respective tax bases and operating
loss and tax credit carry-forwards.  The measurement of deferred tax
assets and liabilities is based on provisions of applicable tax
law.  The measurement of deferred tax assets is reduced, if necessary,
by a valuation allowance based on the amount of tax benefits that, based on
available evidence, is not expected to be realized.





F-7




CARBON
SCIENCES, INC.
 (A
Development Stage Company)
 NOTES TO
FINANCIAL STATEMENTS
 DECEMBER
31, 2008 and 2007






2.     SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (Continued)




Research and
Development


Research
and development costs are expensed as incurred.  Total research and
development costs were $302,926 and $70,683 for the years ended December 31,
2008 and 2007, respectively.





Advertising
Costs


The
Company expenses the cost of advertising and promotional materials when
incurred.  Total advertising costs were $36,993 and $40,836 for the
years ended December 31, 2008 and 2007, respectively.





Reclassification


Certain
expenses for the year ended December 31, 2007 were reclassified to conform with
the expenses for the year ended December 31, 2008.





Stock-Based
Compensation


In December 2004, the FASB issued
Statement of Financial Accounting Standards No. 123R, Share-based Payment. SFAS
123R revises SFAS 123 and supersedes APB 25. SFAS 123R will be effective for the
period ending December 31, 2008, and applies to transactions in which an entity
exchanges its equity instruments for goods or services and also applies to
liabilities an entity may incur for goods or services that are to follow a fair
value of those equity instruments. Under SFAS 123R, we will be required to
follow a fair value approach using an option-pricing model, such as the Black
Scholes option valuation model, at the date of a stock option grant. The
deferred compensation calculated under the fair value method would then be
amortized over the respective vesting period of the stock option. The adoption
of SFAS 123R is expected to have a material impact on our results of
operations.





Recently Issued Accounting
Pronouncements


In
      September 2006, the FASB issued SFAS 157, which defines fair value,
      establishes a framework for measuring fair value, and expands disclosures
      about fair value measurements. The provisions of SFAS 157 are effective as
      of the beginning of our 2008 fiscal year. The  adoption of SFAS
      157  had no impact on our financial
  statements.





3.
            CAPITAL
      STOCK





As of
December 31, 2008, the Company has a stock subscription payable of $62,000, of
which 620,000 shares of common stock will be issued. During the year ended
December 31, 2007, the Company issued through private placements 17,625,000
shares of common stock  at a price of $0.10 per share for $1,762,500
cash; and 300,000 shares of common stock at a price of $0.15 per share for
$45,000; the private placements, were made in reliance upon an exemption from
registration under Rule 506 of Regulation D promulgated under Section 4(2) of
the Securities Act of 1933. Also, the Company issued 1,472,000 shares of common
stock at a  price of $0.10 per share and 500,000 shares of common
stock at a price of $0.15 per share for services.





4.
              RENTAL
      LEASE


The
      Company entered into a one year rental agreement for its’ facility
      expiring on July 15, 2009. The base rent is $4,200 per month. The rent
      paid for the years ended December 31, 2008 and 2007 were $22,168 and
      $29,964.





F-8





CARBON
SCIENCES, INC.
 (A
Development Stage Company)
 NOTES TO
FINANCIAL STATEMENTS
 DECEMBER
31, 2008 and 2007







5.
            INCOME
      TAXES





The
      Company files income tax returns in the U.S. Federal jurisdiction, and the
      state of California. With few exceptions, the Company is no longer subject
      to U.S. federal, state and local, or non-U.S. income tax examinations by
      tax authorities for years before
2006.





The
      Company adopted the provisions of FASB Interpretation No. 48, Accounting
      for Uncertainty in Income Taxes, on January 1, 2007.  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.







Balance
      at January 1, 2008
                        
                        $
                        -Addition
      based on tax positions related to the current year
                        
                        
                        -Balance
      at December 31, 2008
                        
                        $
                        -


Included
      in the balance at December 31, 2008, 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 period ended December 31, 2008, the Company did not recognize
      interest and penalties.





6.
            DEFERRED
      TAX BENEFIT





At
      December 31, 2008, the Company had net operating loss carry-forwards of
      approximately $2,334,100, which expire at dates that have not been
      determined. No tax benefit has been reported in the December 31, 2008
      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, 2008 and 2007, with federal
      income tax expense presented in the financial statements is
      as  follows:







2008
                          
                          
                          2007Income
      tax benefit computed at U.S. Federalsatatutory
      rate of 34%
                          
                          $
                          (351,193
                          )
                          
                          $
                          (298,751
                          )State
      Income taxes, net of benefit of federal taxes
                          
                          
                          (61,975
                          )
                          
                          
                          (52,721
                          )Depreciation
                          
                          
                          (11,995
                          )
                          
                          
                          -R&D
                          
                          
                          (8,848
                          )
                          
                          
                          14,137Accrued
      expenses
                          
                          
                          12,000
                          
                          
                          
                          -Non
      deductable stock compensation
                          
                          
                          -
                          
                          
                          
                          30,000Other
                          
                          
                          (226
                          )
                          
                          
                          21Valuation
      Allowance
                          
                          
                          422,237
                          
                          
                          
                          307,314Income
      tax expense
                          
                          $
                          -
                          
                          
                          $
                          -




F-9




CARBON
SCIENCES, INC.
 (A
Development Stage Company)
 NOTES TO
FINANCIAL STATEMENTS
 DECEMBER
31, 2008 and 2007




6.
            DEFERRED
      TAX BENEFIT (Continued)





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.





The items
as of December 31, 2008 and 2007, which comprise a significant portion of
deferred tax assets and liabilities are approximately as follows:




2008
                          
                          
                          2007Deferred
      tax assets:NOL
      carryover
                          
                          $
                          929,592
                          
                          
                          $
                          486,900Contribution
      carryover
                          
                          
                          200
                          
                          
                          
                          -R&D
      credit
                          
                          
                          10,968
                          
                          
                          
                          14,137Accrued
      salary
                          
                          
                          12,000
                          
                          
                          
                          -Deferred
      tax liabilities:Depreciation
                          
                          
                          (15,011
                          )
                          
                          
                          (200
                          )Less
      Valuation Allowance
                          
                          
                          (937,749
                          )
                          
                          
                          (500,837
                          )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.





7.
            PROMISSORY
      NOTE





On
      December 15, 2008, an investor loaned the Company $50,000 for operating
      expenses. The note bears interest at a rate of 6% per annum, and is due
      and payable May 31, 2009.





8.
            SUBSEQUENT
      EVENT





As
      of March 2009, the Company received $198,650 through a private placement
      to issue  2,825,000 shares of common
  stock.





As
      of March 2009, the Company issued promissory notes in the amount of
      $130,000. The promissory notes are from the CEO of the Company and an
      investor. The notes incur interest at the rate of 6% per annum, and are
      due and payable upon the earlier of (i) demand by the holder or (ii) May
      31, 2009.









F-10