10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

x QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2013

¨ TRANSITION REPORT UNDER SECTION13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM __________ TO __________

COMMISSION FILE NUMBER: 000-54817

CARBON SCIENCES, INC.

(Name of registrant in its charter)

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

5511C Ekwill Street, Santa Barbara, California 93111

(Address of principal executive offices) (Zip Code)

Issuer’s telephone Number: (805) 456-7000

Indicate by check mark whether the registrant (1) has filed all reports required by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  x   No  o

 Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes  x    No  o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o	Accelerated filer o
Non-accelerated filer o	Smaller reporting company x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  o   No  x

The number of shares of registrant’s common stock outstanding, as of May 17, 2013 was 11,576,680.

CARBON SCIENCES, INC. 

INDEX

PART I: FINANCIAL INFORMATION		3
ITEM 1:	FINANCIAL STATEMENTS (Unaudited)	3
	Balance Sheets	3
	Statements of Operations	4
	Statement of Stockholders’ Deficit	5
	Statements of Cash Flows	6
	Notes to the Financial Statements	7
ITEM 2:	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	12
ITEM 3 :	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	15
ITEM 4:	CONTROLS AND PROCEDURES	15
Pap PART II: OTHER INFORMATION		15
ITEM 1:	LEGAL PROCEEDINGS	15
ITEM 1A :	RISK FACTORS	15
ITEM 2:	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	15
ITEM 3:	DEFAULTS UPON SENIOR SECURITIES	15
ITEM 4:	MINE SAFETY DISCLOSURES	15
ITEM 5:	OTHER INFORMATION	16
ITEM 6:	EXHIBITS	16
SIGNATURES		17

2

PART I   – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CARBON SCIENCES, INC.

(A Development Stage Company)

Balance Sheets

	March 31, 2013			December 31, 2012
	(Unaudited)
ASSETS
CURRENT ASSETS
Cash	$	913		$	14,257
Prepaid expenses		21,257			12,888
TOTAL CURRENT ASSETS		22,170			27,145
PROPERTY & EQUIPMENT, at cost
Computer equipment		9,740			9,740
Furniture & fixtures		1,459			1,459
		11,199			11,199
Less accumulated depreciation		(8,527	)		(7,663	)
NET PROPERTY AND EQUIPMENT		2,672			3,536
OTHER ASSETS
Patents		1,784			1,584
TOTAL ASSETS	$	26,626		$	32,265
LIABILITIES AND SHAREHOLDERS' DEFICIT
CURRENT LIABILITIES
Accounts payable	$	307,369		$	274,485
Accrued expenses		16,311			16,244
Accrued interest, notes payable		38,599			22,408
Rent deposit		1,500			-
Unearned income		2,250			-
Promissory notes payable, shareholders		5,000			5,000
Derivative liability		767,907			753,971
Convertible promissory notes, net of beneficial conversion feature of $8,986		1,014			-
Convertible promissory notes, net of discount of $523,949		244,669			86,182
TOTAL CURRENT LIABILITIES		1,384,619			1,158,290
SHAREHOLDERS' DEFICIT
Preferred Stock, $0.001 par value,
20,000,000 authorized common shares		-			-
Common Stock, $0.001 par value;
100,000,000 authorized common shares
11,576,680 and 11,576,680 shares issued and outstanding, respectively		11,578			11,578
Additional paid in capital		9,895,157			9,814,227
Accumulated deficit during the development stage		(11,264,728	)		(10,951,830	)
TOTAL SHAREHOLDERS' DEFICIT		(1,357,993	)		(1,126,025	)
TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT	$	26,626		$	32,265

3

CARBON SCIENCES, INC.

(A Development Stage Company)

Statements of Operations

(Unaudited)

							From Inception on
							August 25,2006
	Three Months Ended						through
	March 31, 2013			March 31, 2012			March 31, 2013
REVENUE	$	-		$	-		$	-
OPERATING EXPENSES
General and administrative expenses		155,619			521,742			8,503,540
Research and development		2,439			98,746			1,247,808
Depreciation and amortization expense		864			6,026			110,284
TOTAL OPERATING EXPENSES		158,922			626,514			9,861,632
LOSS FROM OPERATIONS BEFORE  OTHER INCOME/(EXPENSES)		(158,922	)		(626,514	)		(9,861,632	)
OTHER INCOME/(EXPENSE)
Interest income		-			-			39,521
Rental income		2,250			-			2,250
Loss on sale of asset		-			-			(69,033	)
Loss on foreign exchange		-			-			(2,327	)
Impairment of intangible assets		-			-			(88,147	)
Loss on shares issued for debt		-			-			(705	)
Gain on forgiveness of debt		-			-			102,000
Common stock issued for incentive fees		-			(258,400	)		(1,079,800	)
Gain/(loss) on change in derivative liability		8,550			-			(64,709	)
Penalties		-			-			(382	)
Interest expense		(164,776	)		(2,275	)		(241,764	)
TOTAL OTHER INCOME/(EXPENSES)		(153,976	)		(260,675	)		(1,403,096	)
NET LOSS	$	(312,898	)	$	(887,189	)	$	(11,264,728	)
BASIC AND DILUTED LOSS PER SHARE	$	(0.03	)	$	(0.09	)
WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING
BASIC AND DILUTED		11,576,680			9,644,818

4

CARBON SCIENCES, INC.

(A Development Stage Company)

Statement of Shareholders' Equity/(Deficit)

(Unaudited)

											Deficit
											Accumulated
									Additional		during the
	Preferred stock				Common stock				Paid-in		Development
	Shares		Amount		Shares		Amount		Capital		Stage			Total
Balance at December 31, 2012    (Audited)		-	$	-		11,576,680	$	11,578	$	9,814,227	$	(10,951,830	)	$	(1,126,025	)
Beneficial conversion feature		-		-		-		-		10,000		-			10,000
Stock compensation cost		-		-		-		-		70,930		-			70,930
Net Loss for the three months ended March 31, 2013		-		-		-		-		-		(312,898	)		(312,898	)
Balance at March 31, 2013		-	$	-		11,576,680	$	11,578	$	9,895,157	$	(11,264,728	)	$	(1,357,993	)

5

CARBON SCIENCES, INC.

(A Development Stage Company)

Statements of Cash Flows

(Unaudited)

							From Inception on
							August 25, 2006
	Years Ended						through
	March 31, 2013			March 31, 2012			March 31, 2013
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(312,898	)	$	(887,189	)	$	(11,264,728	)
Adjustment to reconcile net loss to net cash
used in operating activities
Depreciation expense		864			6,026			110,284
Common stock issuance for services		-			76,000			417,038
Common stock issuance for incentive fees		-			258,400			1,079,800
Stock compensation cost		70,930			155,959			2,210,505
Impairment of intangible assets		-			-			88,147
Loss on sale of asset		-			-			69,033
Loss on shares issued for debt		-			-			705
Gain on forgiveness of debt		-			-			(102,000	)
Amortization of debt discount and beneficial conversion feature recorded as interest expense		146,988			-			191,930
Loss on change in derivative liability		(8,550	)		-			64,709
Changes in Assets and Liabilities
(Increase) Decrease in:
Prepaid expenses		(8,369	)		(30,723	)		(21,257	)
Increase (Decrease) in:
Accounts payable		32,883			159,091			424,368
Accrued expenses		16,258			91,134			299,362
Rent deposit		1,500			-			1,500
Unearned income		2,250			-			2,250
								.
NET CASH USED IN OPERATING ACTIVITIES		(58,144	)		(171,302	)		(6,428,354	)
CASH FLOWS USED IN INVESTING ACTIVITIES:
Proceeds from sale of vehicle		-			-			24,500
Patent expenditures		(200	)		-			(89,931	)
Purchase of equipment		-			-			(206,489	)
NET CASH USED IN INVESTING ACTIVITIES		(200	)		-			(271,920	)
CASH FLOWS IN FINANCING ACTIVITIES:
Advances from officer		-			-			113,000
Loans from investors		-			120,000			625,000
Proceeds received for convertible promissory notes		45,000			-			437,500
Repayment of advances and loans		-			-			(383,000	)
Proceeds from subscriptions payable		-			-			362,775
Proceeds from issuance of common stock, net		-			55,000			5,545,912
NET CASH PROVIDED BY FINANCING  ACTIVITIES		45,000			175,000			6,701,187
NET INCREASE/(DECREASE) IN CASH		(13,344	)		3,698			913
CASH, BEGINNING OF PERIOD		14,257			7,265			-
CASH, END OF PERIOD	$	913		$	10,963		$	913
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Interest paid	$	1,535		$	491		$	11,065
Taxes paid	$	-		$	-		$	-
								.
SUPPLEMENTAL DISCLOSURES OF NON CASH ACTIVITIES
During the three month period ended March 31, 2012, the Company issued 69,737 shares of common stock for converted debt in the amount of $265,000, at fair
value of $3.80 per share.

6

CARBON SCIENCES, INC.

(A Development Stage Company)

NOTES TO FINANCIAL STATEMENTS-UNAUDITED

MARCH 31, 2013

1.      Basis of Presentation

The accompanying unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X.  Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all normal recurring adjustments considered necessary for a fair presentation have been included.  Operating results for the three months ended March 31, 2013 are not necessarily indicative of the results that may be expected for the year ending December 31, 2013.  For further information refer to the financial statements and footnotes thereto included in the Company's Form 10-K for the year ended December 31, 2012.

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 has not generated any revenue, and has negative cash flows from operations, which raise substantial doubt about the Company’s ability to continue as a going concern.  The ability of the Company to continue as a going concern and appropriateness of using the going concern basis is dependent upon, among other things, additional cash infusion.  The Company has obtained funds from its shareholders since its inception , and believes this funding will continue, and is also actively seeking new investors.  Management believes the existing shareholders and the prospective new investors will provide the additional cash needed to meet the Company’s obligations as they become due, and will allow the development of its core of business.

2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

Development Stage Activities and Operations

The Company is in its initial stages of formation and has no revenues. A development stage activity is one in which all efforts are devoted substantially to establishing a new business and even if planned principal operations have commenced, revenues are insignificant.

Revenue Recognition

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

Cash and Cash Equivalents

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

Loss per Share Calculations

The Company adopted the accounting pronouncement for loss per share, which dictates the calculation of basic earnings per share and diluted earnings per share. Basic earnings per share are computed by dividing income available to common shareholders by the weighted-average number of common shares available. Diluted earnings per share is computed similar to basic earnings per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive. The Company’s diluted loss per share is the same as the basic loss per share for the three months ended March 31, 2013 as the inclusion of any potential shares would have had an anti-dilutive effect due to the Company generating a loss.

Stock-Based Compensation

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

7

CARBON SCIENCES, INC.

(A Development Stage Company)

NOTES TO FINANCIAL STATEMENTS-UNAUDITED

MARCH 31, 2013

2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Fair Value of Financial Instruments

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, 2012, the amounts reported for cash, accrued interest and other expenses, and notes payable approximate the fair value because of their short maturities.

We adopted ASC Topic 820 (originally issued as SFAS 157, “Fair Value Measurements”) as of January 1, 2008 for financial instruments measured as fair value on a recurring basis. ASC Topic 820 defines fair value, established a framework for measuring fair value in accordance with accounting principles generally accepted in the United States and expands disclosures about fair value measurements.

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC Topic 820 established a three-tier fair value hierarchy which prioritizes the inputs used in measuring fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1measurements) and the lowest priority to unobservable inputs (level 3 measurements). These tiers include:

· Level 1, defined as observable inputs such as quoted prices for identical instruments in active markets;

· Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable such as quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in markets that are not active; and

· Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions, such as valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.

We measure certain financial instruments at fair value on a recurring basis. Assets and liabilities measured at fair value on a recurring basis are as follows at March 31, 2013:

	Total		(Level 1)		(Level 2)		(Level 3)
Assets	$	-	$	-	$	-	$	-
Total assets measured at fair value	$	-	$	-	$	-	$	-
Liabilities
Derivative liability		767,907		-		-		767,907
Convertible promissory note		245,683		-		-		245,683
Total liabilities measured at fair value	$	1,013,590	$	-	$	-	$	1,013,590

Recently Issued Accounting Pronouncements

Management reviewed accounting pronouncements issued during the three months ended March 31, 2013, and no pronouncements were adopted during the period.

3.      CAPITAL STOCK

At March 31, 2013, the Company’s authorized stock consisted of 100,000,000 shares of common stock, with $0.001 par value.  The Company is also authorized to issue 20,000,000 shares of preferred stock with a par value of $0.001 per share.  The rights, preferences and privileges of the holders of the preferred stock will be determined by the Board of Directors prior to issuance of such shares.

4.      STOCK OPTIONS

As of March 31, 2013, the Company had non-qualified stock options outstanding of 1,137,500 shares of common stock which were granted to its employees. Each Option shall be exercisable to the nearest whole share, in installments or otherwise, as the respective Option agreements may provide. Notwithstanding any other provisions of the Option agreement, each Option expires on the date specified in the Option agreement, which date shall not be later than the seventh (7th) anniversary from the grant date of the options. The stock options vested immediately, and are exercisable for a period of seven  to ten years from the date of grant at exercise prices between $0.95 and $4.31 per share, which represented the market price of the Company’s common stock on the date of grant.

8

CARBON SCIENCES, INC.

(A Development Stage Company)

NOTES TO FINANCIAL STATEMENTS-UNAUDITED

MARCH 31, 2013

4.      STOCK OPTIONS AND WARRANTS (Continued)

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

	3/31/2013
			Weighted
	Number		average
	of		exercise
	Options		price
Outstanding, beginning of period		1,137,500		$	2.39
Granted		-			-
Exercised		-			-
Expired		-			-
Outstanding, end of period		1,137,500		$	2.39
Exercisable at the end of period		759,000		$	2.22
Weighted average fair value of
options granted during the period				$	-

Stock-based compensation expense recognized during the period is based on the value of the portion of stock-based payment awards that is ultimately expected to vest. Stock-based compensation expense recognized in the financial statements of operations during the three months ended March 31, 2013, included compensation expense for the stock-based payment awards granted prior to, but not yet vested, as of March 31,2013 based on the grant date fair value estimated, and compensation expense for the stock-based payment awards granted subsequent to March 31, 2013, based on the grant date fair value estimated. We account for forfeitures as they occur. The stock-based compensation expense recognized in the statement of income during the three months ended March 31, 2013 and 2012 is $70,930 and $155,959, respectively.

Warrants

As of March 31, 2013, the Company had 460,000 common stock purchase warrants outstanding.

5.   RELATED PARTY TRANSACTION

During the three months ended March 31, 2013, the Company signed a promissory note for funds received on January 17, 2013 in the amount of $10,000 for operating expenses from an existing shareholder. The note bears interest at 5% per annum, and is due within one year from the effective date.

6.   CONVERTIBLE PROMISSORY NOTES

The Company received funds for two (2) securities purchase agreement entered into on September 19, 2012 and December 21, 2012, for the sale of two (2) 8% convertible promissory notes in the aggregate principal amount of $75,000. The notes are convertible into shares of common stock of the Company at a price equal to a variable conversion price of 58% multiplied by the market price representing a discount of 42%. The market price means the average of the lowest three (3) trading prices for the common stock during a ten (10) trading day period ending on the latest complete trading day prior to the conversion date. The notes mature on June 21, 2013, and September 14, 2013. The Company recorded a debt discount of $60,382 related to the conversion feature of the note, along with a derivative liability at inception.  During the three months ended March 31, 2013, total amortization was recorded in amount of $20,636 resulting in a debt discount of $26,386 at March 31, 2013.

On December 12, 2012, the Company exchanged certain promissory notes in the aggregate amount of $327,500 to convertible promissory notes. The Company entered into securities purchase agreements for the sale of 10% convertible promissory notes in the aggregate principal amount of $327,500, which are convertible into shares of common stock of the Company at a conversion price equal to (a) the lesser of $0.54 per share or (b) 50% of the lowest trade price recorded on any trade date after the effective date, or (c) the lowest effective price per share granted to any person after the effective date. The notes mature one (1) year from the effective date of each of the notes. The Company recorded a debt discount of $327,500 related to the conversion feature of the notes, along with a derivative liability at inception.  During the three months ended March 31, 2013, total amortization was recorded in amount of $80,753 resulting in a debt discount of $228,648 at March 31, 2013.

9

CARBON SCIENCES, INC.

(A Development Stage Company)

NOTES TO FINANCIAL STATEMENTS-UNAUDITED

MARCH 31, 2013

6.     CONVERTIBLE PROMISSORY NOTES (Continued)

On December 31, 2012, the Company entered into promissory notes in exchange for services rendered in the aggregate amount of $244,452 for   convertible promissory notes. The Company entered into securities purchase agreements for the sale of 5% convertible promissory notes in the principal amount of $244,452, which are convertible into shares of common stock of the Company at a conversion price equal to the lesser of $0.20 per share or the closing price per share of common stock recorded on the trading day immediately preceding the date of conversion. The notes mature two (2) years from their effective dates. The Company recorded a debt discount of $237,742 related to the conversion feature of the note, along with a derivative liability at inception.  During the three months ended March 31, 2013, total amortization was recorded in amount of $29,341 resulting in a debt discount of $208,075 at March 31, 2013.

On February 22, 2013, the Company received in consideration upon execution of a note in the sum of $10,000 on a securities purchase agreement for the sale of a 10% convertible promissory note in the aggregate principal amount of $100,000. The Company received an advance in the amount of $10,000 on February 25, 2013. The note is convertible into shares of common stock of the Company at a price equal to a variable conversion price of the lesser of $0.09 per share or fifty percent (50%) of the lowest trade price recorded after the effective date. The note matures one (1) year from the effective date. The Company recorded a debt discount of $10,000 related to the beneficial conversion feature of the note.  As of March 31, 2013, total amortization was recorded in the amount of $1,014 resulting in a discount of $8,986 at March 31, 2013.

On October 8, 2012, the Company received in consideration upon execution of a note in the sum of $75,000 on a securities purchase agreement for the sale of 10% convertible promissory notes in aggregate principal amount of $335,000 with a 10% Original Issue Discount (OID) of $35,000.  The principal amount of $81,784 outstanding on the note as of December 31, 2012 included the payment of $75,000 plus the unamortized original issue discount of $6,784.  The Company recorded a debt discount of $54,843 related to the conversion feature of the note and $6,784 related to the original issue discount, along with a derivative liability at inception.  During the three months ended March 31, 2013, total amortization was recorded in the amount of $15,680 resulting in a discount of $28,999 at March 31, 2013.  On February 27, 2013, the Company received additional proceeds of $25,000 on this securities purchase agreement, with an original issue discount of $2,917 for total principal owed of $27,917.  The Company recorded a debt discount of $22,487 related to the conversion feature of the note and $2,917 related to the original issue discount, along with a derivative liability at inception.  During the three months ended March 31, 2013, total amortization was recorded in the amount of $2,227 resulting in a discount of $23,176 at March 31, 2013.If the notes are repaid before 90 days, the interest rate will be zero percent (0%), otherwise a one-time interest rate of five percent (5%) will be applied to the principal sums outstanding. The note is convertible into shares of common stock of the Company at a price equal to the lesser of $0.72 or 70% of the lowest trade price in the 25 trading days previous to the conversion. The notes mature one (1) year from the effective date of each advance.

For purpose of determining the fair market value of the derivative liability, the Company used Black Scholes option valuation model. The significant assumptions used in the Black Scholes valuation of the derivative are as follows:

Stock price on the valuation dates	$	0.14 - $0.77
Conversion price for the debt	$	0.06 - $0.50
Dividend yield		0.00	%
Years to Maturity		1 - 2
Risk free rate		.11% - .25	%
Expected volatility		90.93% - 313.78	%

The value of the derivative liability balance at March 31, 2013 was $767,907.

10

CARBON SCIENCES, INC.

(A Development Stage Company)

NOTES TO FINANCIAL STATEMENTS-UNAUDITED

MARCH 31, 2013

7.    SUBSEQUENT EVENTS

Management has evaluated subsequent events according to the requirements of ASC TOPIC 855, and has reported the following:

On April 23, 2013, the Company signed a promissory note for funds received in the amount of $10,000 for operating expenses from an existing shareholder. The note bears interest at 5% per annum, and is due with one year from the effective date.

On May 1, 2013, the Company signed a promissory note for funds received in the amount of $10,000 for operating expenses from an existing shareholder. The note bears interest at 5% per annum, and is due with one year from the effective date.

11

ITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis should be read together with our financial statements and the related notes appearing elsewhere in this filing. This discussion contains forward-looking statements reflecting our current expectations that involve risks and uncertainties. See “Forward-Looking Statements” for a discussion of the uncertainties, risks and assumptions associated with these statements. Actual results and the timing of events could differ materially from those discussed in our forward-looking statements as a result of many factors, including those set forth under “Risk Factors” in our annual report on Form 10-K filed with the SEC on April 2, 2013 and other filings made with the SEC.

OVERVIEW

Carbon Sciences is in the early stages of developing a complete small-scale natural gas-to-liquids (“GTL”) fuel production plant (the “miniGTL plant” or the “Plant”). The miniGTL plant will be based on integrating and optimizing existing GTL technology components and processes into a modular diesel or gasoline production facility. Developing the Plant will require bringing together natural gas resource holders, engineering firms, and technology firms. Based on our internal economic analysis and conversations with prospective partners, we believe that the miniGTL A modular Plant producing approximately 1,000 barrels per day of diesel or gasoline may be economically viable in the United States, given the low price and abundance of natural gas. A modular Plant would be mobile and could be moved from one gas field to another, amortizing the capital cost of the plant over several small gas fields, which are more plentiful than large gas fields.

With respect to catalyst development activities, Carbon Sciences is developing a proprietary catalyst technology to facilitate the production of cleaner and greener transportation fuels, hydrogen and other valuable, large volume products from natural gas. We believe our clean-tech process will enable the world to reduce its dependence on petroleum by transforming abundant and affordable natural gas into gasoline, diesel and jet fuel, and other products, such as hydrogen, methanol, ammonia, solvents, plastics and detergent alcohols. The key to our process is a chemical catalyst that can reduce the cost of reforming natural gas into synthetic gas (syngas), the most costly step in making liquid fuel and other products from natural gas.

Our patented catalyst has been proven in laboratory conditions to be very robust with over 2,000 hours of uninterrupted run time with high efficiency in converting natural gas to syngas.  Initial testing of the catalyst under industrial conditions, such as high temperature and high pressure, confirmed our belief that some variation of our base catalyst may be developed to outperform existing natural gas reforming catalysts by (a) lowering the amount of steam required in the reaction chamber, which decreases the energy required and increases the natural gas throughput rate, and (b) consuming carbon dioxide, which reduces the carbon footprint of the process.  Our research and development efforts are based on developing a commercial form of this catalyst for use in existing natural gas reforming processes. Our development activities are primarily performed by outside catalyst development firms and we are also seeking a strategic partner to help accelerate the commercial development of our catalyst.

We have not yet generated revenues. We currently have negative working capital and, in connection with our December 31, 2012 financial statements, we received an opinion from our auditors that expressed substantial doubt about our ability to continue as a going concern without additional financing. Subsequent to December 31, 2012, we obtained $65,000 in funding through private placement offerings. We believe that the financings received by us after December 31, 2012 will fully address such concern and enable us to implement our business plan through such time as revenues support our operations. If additional funds are required because our plans, expectations or assumptions change, we may also seek funding through additional equity or debt financing. There can be no assurance that such financing will be available or upon such terms that are acceptable to us, if at all.

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 Ekwill Street, Santa Barbara, California 93111, and our telephone number is (805) 456-7000. Our fiscal year end is December 31.

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

Use of Estimates

In accordance with GAAP, management utilizes estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements as well as the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. These estimates and assumptions relate to recording net revenue, collectability of accounts receivable, useful lives and impairment of tangible and intangible assets, accruals, income taxes, inventory realization, stock-based compensation expense and other factors. Management believes it has exercised reasonable judgment in deriving these estimates. Consequently, a change in conditions could affect these estimates.

Fair Value of Financial Instruments

The Company's cash, cash equivalents, investments, accounts receivable and accounts payable are stated at cost which approximates fair value due to the short-term nature of these instruments.

Recently Issued Accounting Pronouncements

Management reviewed accounting pronouncements issued during the three months ended March 31, 2013 and no pronouncements were adopted during the period which could have a material impact on the Company's financial statements.

RESULTS OF OPERATIONS – THREE MONTHS ENDED MARCH 31, 2013 COMPARED TO THE THREE MONTHS ENDED MARCH 31, 2012

General and Administrative Expenses

G&A expenses decreased by $(366,123) to $155,619 for the three months ended March 31, 2013, compared to $521,742 for the three months ended March 31, 2012. This decrease in G&A expenses was primarily due to the decrease in non-cash stock compensation of $(85,029), a decrease in salaries of $(99,071), investor relations of $(98,500), professional fees of $(50,026), this was partially offset by the decrease in other G&A expenses of $(33,497) compared to the prior year.

Research and Development

R&D costs decreased by $(96,307) to $2,439 for the three months ended March 31, 2013, compared to $98,746 for the three months ended March 31, 2012. This decrease in R&D costs was the result of a decrease in outside consulting and lab fees, supplies for testing, and research and product development.

13

Net Loss

Net loss decreased by $(574,291) to $(312,898) for the three months ended March 31, 2013, compared to $(887,189) for the three months ended March 31, 2012.  This decrease in net loss was the result of a net decrease in other expenses of $(106,699), which consisted of an increase in interest of $(15,514), an increase in amortization of debt discount and original issue discount of $(146,988), gain on change in derivative liability of $8550, an increase in rental income of $2,250, and a decrease in common stock issued for incentive fees of $258,400, with an overall decrease in operating expenses of $(377,401), a decrease in non-cash stock compensation expense of $(85,029), and depreciation of $(5,162) . Currently the Company is in its development stage and  have not generated any revenues.

Liquidity and Capital Resources

 As of March 31, 2013, we had a working capital deficit of $(1,362,449) compared to $(1,131,145) for the year ended December 31, 2012. The increase of $(231,304) in working capital deficit was due primarily to the non-cash derivative liability, plus an increase in accounts payable and issuance of convertible promissory notes.

During the three months ended March 31, 2013, we used $(58,144) of cash for operating activities, as compared to $(171,302) for the prior period March 31, 2012. The decrease of $(113,158) in the use of cash for operating activities was primarily due to a decrease in operating net loss associated with an increase in non-cash expenses, and a decrease in prepaid expenses, accounts payable, and accrued expenses.

Cash used by investing activities was $(200) for the three months ended March 31, 2013, as compared to no patent expenditures in the prior period ended March 31, 2012.

Cash provided from financing activities during the March 31, 2013 was $45,000 as compared to $175,000 for the prior period ended March 31, 2012. Our capital needs have primarily been met from the proceeds of equity financings, and investor loans, as we are currently in the development stage and have not generated any revenues.

We do not have any material commitments for capital expenditures during the next twelve months.  Although proceeds received from the sale of our securities are currently sufficient to fund our current operating expenses, we will need to raise additional funds in the future to continue our operations. Therefore, our future operations are dependent on our ability to secure additional financing.  Financing transactions may include the issuance of equity or debt securities, obtaining credit facilities, or other financing mechanisms. However, the trading price of our common stock and a downturn in the U.S. equity and debt markets could make it more difficult to obtain financing through the issuance of equity or debt securities. Even if we are able to raise the funds required, it is possible that we could incur unexpected costs and expenses, or experience unexpected cash requirements that would force us to seek alternative financing. Furthermore, if we issue additional equity or debt securities, stockholders may experience additional dilution or the new equity securities may have rights, preferences or privileges senior to those of existing holders of our common stock. The inability to obtain additional capital may restrict our ability to grow and may reduce our ability to continue to conduct business operations. If we are unable to obtain additional financing, we may have to curtail our marketing and development plans and possibly cease our operations.

We believe that we have assets to ensure that we can continue to operate without liquidation over the next twelve months, due to our cash on hand, and our experience in the past in being able to raise money from our investor base.  Based on the aforesaid, we believe we have the ability to continue our operations for the foreseeable future and will be able to realize assets and discharge liabilities in the normal course of our operations.

Our financial statements as of March 31, 2013 have been prepared under the assumption that we would continue as a going concern. Our independent registered public accounting firm issued their report dated March 30, 2013 that included an explanatory paragraph expressing substantial doubt in our ability to continue as a going concern  as the Company does not generate significant revenue and has negative cash flows from operations. Our ability to continue as a going concern ultimately is dependent on our ability to generate a profit which is dependent upon our ability to obtain additional equity or debt financing, attain further operating efficiencies and, ultimately, to achieve profitable operations. Our financial statements do not include any adjustments that might result from the outcome of this uncertainty.

14

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

n/a

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this report, we conducted an evaluation, under the supervision and with the participation of our chief executive officer and chief financial officer of our disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) of the Exchange Act). Based upon this evaluation, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is: (i) recorded, processed, summarized and reported, within the time periods specified in the Commission's rules and forms, and (ii) accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting

There was no change to our internal controls or in other factors that could affect these controls during our last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

We are not a party to any pending legal proceeding, nor is our property the subject of a pending legal proceeding, that is not in the ordinary course of business or otherwise material to the financial condition of our business. None of our directors, officers or affiliates is involved in a proceeding adverse to our business or has a material interest adverse to our business.

ITEM 1A. RISK FACTORS

There are no material changes from the risk factors previously disclosed in the Registrant’s Form 10-K filed April 2, 2013.

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

During the three months ended March 31, 2013 the Company entered into securities purchase agreements and convertible promissory notes for funds received in the amount of $45,000. The funds were used for operating expenses.

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

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None

15

ITEM 4. MINE SAFETY DISCLOSURES

None

ITEM 5. OTHER INFORMATION

None

ITEM 6. EXHIBITS

31.1	Certification of the Chief Executive Officer and Chief Financial Officer., pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certification of the Chief Executive Officer and Chief Financial Officer., furnished pursuant to Section 1350 of Chapter 63 of 18 U.S.C. as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
EX-101.INS	XBRL INSTANCE DOCUMENT
EX-101.SCH	XBRL TAXONOMY EXTENSION SCHEMA DOCUMENT
EX-101.CAL	XBRL TAXONOMY EXTENSION CALCULATION LINKBASE
EX-101.DEF	XBRL TAXONOMY EXTENSION DEFINITION LINKBASE
EX-101.LAB	XBRL TAXONOMY EXTENSION LABELS LINKBASE
EX-101.PRE	XBRL TAXONOMY EXTENSION PRESENTATION LINKBASE

16

SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Los Angeles, State of California, on May 20, 2013.

CARBON SCIENCES, INC.
By:	/s/ William Beifuss
	Chief Executive Officer (Principal Executive Officer ) and Acting Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)

17

EX-31.1

EXHIBIT 31.1

CERTIFICATION

I, William Beifuss, certify that:

1.           I have reviewed this quarterly report on Form 10-Q of Carbon Sciences, Inc. for the quarter ended March 31, 2013;

2.           Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.           Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.           The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a.           Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b.           Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c.           Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d.           Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.           The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

a.           All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b.           Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

May 20, 2013

/s/ William Beifuss

William Beifuss

Chief Executive Officer and

Acting Chief Financial Officer (Principal Executive Officer and Principal Accounting and Financial Officer)

EX-32.1

EXHIBIT 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Carbon Sciences, Inc (the “Company”) on Form 10-Q for the quarter ended March 31, 2013 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, William Beifuss, Chief Executive Officer and Acting Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities and Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

May 20, 2013	/s/ William Beifuss
	William Beifuss
	Chief Executive Officer and
	Acting Chief Financial Officer (Principal Executive Officer and Principal Accounting and Financial Officer)

XML

7. Subsequent Events (Details) (USD $)	Apr. 23, 2013 RelatedPartyPromissoryNoteMember	Mar. 31, 2013 RelatedPartyPromissoryNoteMember	May 01, 2013 RelatedPartyPromissoryNote2Member	Apr. 23, 2013 RelatedPartyPromissoryNote2Member
Debt Instrument, Face Amount	$ 10,000	$ 10,000	$ 10,000
Debt Instrument, Interest Rate, Effective Percentage	5.00%	5.00%		5.00%

XML

3. Capital Stock

3 Months Ended

Mar. 31, 2013

Notes

3. Capital Stock

3.      CAPITAL STOCK

At March 31, 2013, the Company’s authorized stock consisted of 100,000,000 shares of common stock, with $0.001 par value.  The Company is also authorized to issue 20,000,000 shares of preferred stock with a par value of $0.001 per share.  The rights, preferences and privileges of the holders of the preferred stock will be determined by the Board of Directors prior to issuance of such shares.

XML

2. Summary of Significant Accounting Policies

3 Months Ended

Mar. 31, 2013

Notes

2. Summary of Significant Accounting Policies

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 no revenues. A development stage activity is one in which all efforts are devoted substantially to establishing a new business and even if planned principal operations have commenced, revenues are insignificant.

Revenue Recognition

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

Cash and Cash Equivalents

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

Loss per Share Calculations

The Company adopted the accounting pronouncement for loss per share, which dictates the calculation of basic earnings per share and diluted earnings per share. Basic earnings per share are computed by dividing income available to common shareholders by the weighted-average number of common shares available. Diluted earnings per share is computed similar to basic earnings per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive. The Company’s diluted loss per share is the same as the basic loss per share for the three months ended March 31, 2013 as the inclusion of any potential shares would have had an anti-dilutive effect due to the Company generating a loss.

Stock-Based Compensation

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

Fair Value of Financial Instruments

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, 2012, the amounts reported for cash, accrued interest and other expenses, and notes payable approximate the fair value because of their short maturities.

We adopted ASC Topic 820 (originally issued as SFAS 157, “Fair Value Measurements”) as of January 1, 2008 for financial instruments measured as fair value on a recurring basis. ASC Topic 820 defines fair value, established a framework for measuring fair value in accordance with accounting principles generally accepted in the United States and expands disclosures about fair value measurements.

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC Topic 820 established a three-tier fair value hierarchy which prioritizes the inputs used in measuring fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1measurements) and the lowest priority to unobservable inputs (level 3 measurements). These tiers include:

·       Level 1, defined as observable inputs such as quoted prices for identical instruments in active markets;

·       Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable such as quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in markets that are not active; and

·       Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions, such as valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.

We measure certain financial instruments at fair value on a recurring basis. Assets and liabilities measured at fair value on a recurring basis are as follows at March 31, 2013:

	Total	(Level 1)	(Level 2)	(Level 3)
Assets	-	-	-	-
Total assets measured at fair value	-	-	-	-
Liabilities
Derivative liability	767,907	-	-	767,907
Convertible promissory note	245,683	-	-	245,683
Total liabilities measured at fair value	$1,013,590	-	-	$1,013,590

Recently Issued Accounting Pronouncements

Management reviewed accounting pronouncements issued during the three months ended March 31, 2013, and no pronouncements were adopted during the period.

XML

Balance Sheets (USD $)	Mar. 31, 2013	Dec. 31, 2012
CURRENT ASSETS
Cash	$ 913	$ 14,257
Prepaid expenses	21,257	12,888
TOTAL CURRENT ASSETS	22,170	27,145
PROPERTY & EQUIPMENT, at cost
Computer equipment	9,740	9,740
Furniture & fixtures	1,459	1,459
GROSS PROPERTY AND EQUIPMENT	11,199	11,199
Less accumulated depreciation	(8,527)	(7,663)
NET PROPERTY AND EQUIPMENT	2,672	3,536
OTHER ASSETS
Patents	1,784	1,584
TOTAL ASSETS	26,626	32,265
CURRENT LIABILITIES
Accounts payable	307,369	274,485
Accrued expenses	16,311	16,244
Accrued interest, notes payable	38,599	22,408
Rent deposit	1,500
Unearned income	2,250
Promissory notes payable, shareholders	5,000	5,000
Derivative liability	767,907	753,971
Convertible promissory notes, net of beneficial conversion feature of $8,986	1,014
Convertible promissory notes, net of discount of $523,949	244,669	86,182
TOTAL CURRENT LIABILITIES	1,384,619	1,158,290
SHAREHOLDERS' DEFICIT
Common Stock, $0.001 par value; 100,000,000 authorized common shares 11,576,680 and 11,576,680 shares issued and outstanding, respectively	11,578	11,578
Additional paid in capital	9,895,157	9,814,227
Accumulated deficit during the development stage	(11,264,728)	(10,951,830)
TOTAL SHAREHOLDERS' DEFICIT	(1,357,993)	(1,126,025)
TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT	$ 26,626	$ 32,265

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Statements of Cash Flows (Unaudited) (USD $)	3 Months Ended		79 Months Ended
	Mar. 31, 2013	Mar. 31, 2012	Mar. 31, 2013
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss	$ (312,898)	$ (887,189)	$ (11,264,728)
Adjustment to reconcile net loss to net cash used in operating activities
Depreciation expense	864	6,026	110,284
Common stock issuance for services		76,000	417,038
Common stock issuance for incentive fees		258,400	1,079,800
Stock compensation cost	70,930	155,959	2,210,505
Impairment of intangible assets			88,147
Loss on sale of asset			69,033
Loss on shares issued for debt			705
Gain on forgiveness of debt			(102,000)
Amortization of debt discount and beneficial conversion feature recorded as interest expense	146,988		191,930
Loss on change in derivative liability	(8,550)		64,709
Changes in Assets and Liabilities
(Increase) Decrease in Prepaid expenses	(8,369)	(30,723)	(21,257)
Increase (Decrease) in Accounts payable	32,883	159,091	424,368
Increase (Decrease) in Accrued expenses	16,258	91,134	299,362
Increase (Decrease) in Rent deposit	1,500		1,500
Increase (Decrease) in Unearned income	2,250		2,250
NET CASH USED IN OPERATING ACTIVITIES	(58,144)	(171,302)	(6,428,354)
CASH FLOWS USED IN INVESTING ACTIVITIES:
Proceeds from sale of vehicle			24,500
Patent expenditures	(200)		(89,931)
Purchase of equipment			(206,489)
NET CASH USED IN INVESTING ACTIVITIES	(200)		(271,920)
CASH FLOWS IN FINANCING ACTIVITIES:
Advances from officer			113,000
Loans from investors		120,000	625,000
Proceeds received for convertible promissory notes	45,000		437,500
Repayment of advances and loans			(383,000)
Proceeds from subscriptions payable			362,775
Proceeds from issuance of common stock, net		55,000	5,545,912
NET CASH PROVIDED BY FINANCING ACTIVITIES	45,000	175,000	6,701,187
NET INCREASE/(DECREASE) IN CASH	(13,344)	3,698	913
CASH, BEGINNING OF PERIOD	14,257	7,265
CASH, END OF PERIOD	913	10,963	913
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Interest paid	1,535	491	11,065
Taxes paid
SUPPLEMENTAL DISCLOSURES OF NON CASH ACTIVITIES
During the three month period ended March 31, 2012, the Company issued 69,737 shares of common stock for converted debt in the amount of $265,000, at fair value of $3.80 per share.

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5. Related Party Transaction (Details) (RelatedPartyPromissoryNoteMember, USD $)	Apr. 23, 2013	Mar. 31, 2013
RelatedPartyPromissoryNoteMember
Debt Instrument, Face Amount	$ 10,000	$ 10,000
Debt Instrument, Interest Rate, Effective Percentage	5.00%	5.00%

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6. Convertible Promissory Notes: Derivative Liability Fair Valuation Assumptions (Details) (USD $)	0 Months Ended
	Mar. 31, 2013
Share-based Goods and Nonemployee Services Transaction, Valuation Method, Expected Dividend Rate	0.00%
Minimum
Stock price on the valuation dates	0.14
Debt Instrument, Convertible, Conversion Price	0.06
Share-based Goods and Nonemployee Services Transaction, Valuation Method, Expected Term	1 year
Share-based Goods and Nonemployee Services Transaction, Valuation Method, Risk Free Interest Rate	0.11%
Share-based Goods and Nonemployee Services Transaction, Valuation Method, Expected Volatility Rate	90.93%
Maximum
Stock price on the valuation dates	0.77
Debt Instrument, Convertible, Conversion Price	0.50
Share-based Goods and Nonemployee Services Transaction, Valuation Method, Expected Term	2 years
Share-based Goods and Nonemployee Services Transaction, Valuation Method, Risk Free Interest Rate	0.25%
Share-based Goods and Nonemployee Services Transaction, Valuation Method, Expected Volatility Rate	313.78%

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1. Basis of Presentation

3 Months Ended

Mar. 31, 2013

Notes

1. Basis of Presentation

1.      Basis of Presentation

The accompanying unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X.  Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all normal recurring adjustments considered necessary for a fair presentation have been included.  Operating results for the three months ended March 31, 2013 are not necessarily indicative of the results that may be expected for the year ending December 31, 2013.  For further information refer to the financial statements and footnotes thereto included in the Company's Form 10-K for the year ended December 31, 2012.

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 has not generated any revenue, and has negative cash flows from operations, which raise substantial doubt about the Company’s ability to continue as a going concern.  The ability of the Company to continue as a going concern and appropriateness of using the going concern basis is dependent upon, among other things, additional cash infusion.  The Company has obtained funds from its shareholders since its inception , and believes this funding will continue, and is also actively seeking new investors.  Management believes the existing shareholders and the prospective new investors will provide the additional cash needed to meet the Company’s obligations as they become due, and will allow the development of its core of business.

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Balance Sheets (Parenthetical) (USD $)	Mar. 31, 2013	Dec. 31, 2012
Statement of Financial Position
Preferred Stock, par or stated value	$ 0.001	$ 0.001
Preferred Stock, shares authorized	20,000,000	20,000,000
Common Stock, par or stated value	$ 0.001	$ 0.001
Common Stock, shares authorized	100,000,000	100,000,000
Common Stock, shares issued	11,576,680	11,576,680
Common Stock, shares outstanding	11,576,680	11,576,680
Convertible promissory notes discount	$ 523,949
Convertible promissory notes, beneficial conversion feature	$ 8,986

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6. Convertible Promissory Notes: Derivative Liability Fair Valuation Assumptions (Tables)

3 Months Ended

Mar. 31, 2013

Tables/Schedules

Derivative Liability Fair Valuation Assumptions

Stock price on the valuation dates	$0.14 - $0.77
Conversion price for the debt	$0.06 - $0.50
Dividend yield	0.00%
Years to Maturity	1 - 2
Risk free rate	.11% - .25%
Expected volatility	90.93% - 313.78%

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Document And Entity Information	3 Months Ended
	Mar. 31, 2013	May 17, 2013
Document And Entity Information
Entity Registrant Name	CARBON SCIENCES, INC.
Entity Central Index Key	0001407878
Document Type	10-Q
Document Period End Date	Mar. 31, 2013
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Is Entity a Well-known Seasoned Issuer?	No
Is Entity a Voluntary Filer?	No
Is Entity's Reporting Status Current?	Yes
Entity Filer Category	Smaller Reporting Company
Entity Common Stock, Shares Outstanding		11,576,680
Document Fiscal Period Focus	Q1
Document Fiscal Year Focus	2013

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2. Summary of Significant Accounting Policies: Fair Value of Financial Instruments: Schedule of Fair Value, Assets and Liabilities Measured on Recurring Basis (Details) (USD $)	Mar. 31, 2013
Convertible promissory note	$ 1,013,590
Fair Value, Inputs, Level 3
Convertible promissory note	1,013,590
Derivative Financial Instruments, Liabilities
Convertible promissory note	767,907
Derivative Financial Instruments, Liabilities | Fair Value, Inputs, Level 3
Convertible promissory note	767,907
ConvertiblePromissoryNoteMember
Convertible promissory note	245,683
ConvertiblePromissoryNoteMember | Fair Value, Inputs, Level 3
Convertible promissory note	$ 245,683

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Statements of Operations (Unaudited) (USD $)	3 Months Ended		79 Months Ended
	Mar. 31, 2013	Mar. 31, 2012	Mar. 31, 2013
Income Statement
REVENUE
OPERATING EXPENSES
General and administrative expenses	155,619	521,742	8,503,540
Research and development	2,439	98,746	1,247,808
Depreciation and amortization expense	864	6,026	110,284
TOTAL OPERATING EXPENSES	158,922	626,514	9,861,632
LOSS FROM OPERATIONS BEFORE OTHER INCOME/(EXPENSES)	(158,922)	(626,514)	(9,861,632)
OTHER INCOME/(EXPENSE)
Interest income			39,521
Rental income	2,250		2,250
Loss on sale of asset			(69,033)
Loss on foreign exchange			(2,327)
Impairment of intangible assets			(88,147)
Loss on shares issued for debt			(705)
Gain on forgiveness of debt			102,000
Common stock issued for incentive fees		(258,400)	(1,079,800)
Gain/(loss) on change in derivative liability	8,550		(64,709)
Penalties			(382)
Interest expense	(164,776)	(2,275)	(241,764)
TOTAL OTHER INCOME/(EXPENSES)	(153,976)	(260,675)	(1,403,096)
NET LOSS	$ (312,898)	$ (887,189)	$ (11,264,728)
BASIC AND DILUTED LOSS PER SHARE	$ (0.03)	$ (0.09)
WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING BASIC AND DILUTED	11,576,680	9,644,818

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6. Convertible Promissory Notes

3 Months Ended

Mar. 31, 2013

Notes

6. Convertible Promissory Notes

6.   CONVERTIBLE PROMISSORY NOTES

The Company received funds for two (2) securities purchase agreement entered into on September 19, 2012 and December 21, 2012, for the sale of two (2) 8% convertible promissory notes in the aggregate principal amount of $75,000. The notes are convertible into shares of common stock of the Company at a price equal to a variable conversion price of 58% multiplied by the market price representing a discount of 42%. The market price means the average of the lowest three (3) trading prices for the common stock during a ten (10) trading day period ending on the latest complete trading day prior to the conversion date. The notes mature on June 21, 2013, and September 14, 2013.  The Company recorded a debt discount of $60,382 related to the conversion feature of the note, along with a derivative liability at inception.  During the three months ended March 31, 2013, total amortization was recorded in amount of $20,636 resulting in a debt discount of $26,386 at March 31, 2013.

On December 12, 2012, the Company exchanged certain promissory notes in the aggregate amount of $327,500 to convertible promissory notes. The Company entered into securities purchase agreements for the sale of 10% convertible promissory notes in the aggregate principal amount of $327,500, which are convertible into shares of common stock of the Company at a conversion price equal to (a) the lesser of $0.54 per share or (b) 50% of the lowest trade price recorded on any trade date after the effective date, or (c) the lowest effective price per share granted to any person after the effective date. The notes mature one (1) year from the effective date of each of the notes. The Company recorded a debt discount of $327,500 related to the conversion feature of the notes, along with a derivative liability at inception.  During the three months ended March 31, 2013, total amortization was recorded in amount of $80,753 resulting in a debt discount of $228,648 at March 31, 2013.

On December 31, 2012, the Company entered into promissory notes in exchange for services rendered in the aggregate amount of $244,452 for   convertible promissory notes. The Company entered into securities purchase agreements for the sale of 5% convertible promissory notes in the principal amount of $244,452, which are convertible into shares of common stock of the Company at a conversion price equal to the lesser of $0.20 per share or the closing price per share of common stock recorded on the trading day immediately preceding the date of conversion. The notes mature two (2) years from their effective dates. The Company recorded a debt discount of $237,742 related to the conversion feature of the note, along with a derivative liability at inception.  During the three months ended March 31, 2013, total amortization was recorded in amount of $29,341 resulting in a debt discount of $208,075 at March 31, 2013.

On February 22, 2013, the Company received in consideration upon execution of a note in the sum of $10,000 on a securities purchase agreement for the sale of a 10% convertible promissory note in the aggregate principal amount of $100,000. The Company received an advance in the amount of $10,000 on February 25, 2013. The note is convertible into shares of common stock of the Company at a price equal to a variable conversion price of the lesser of $0.09 per share or fifty percent (50%) of the lowest trade price recorded after the effective date. The note matures one (1) year from the effective date. The Company recorded a debt discount of $10,000 related to the beneficial conversion feature of the note.  As of March 31, 2013, total amortization was recorded in the amount of $1,014 resulting in a discount of $8,986 at March 31, 2013.

On October 8, 2012, the Company received in consideration upon execution of a note in the sum of $75,000 on a securities purchase agreement for the sale of 10% convertible promissory notes in aggregate principal amount of $335,000 with a 10% Original Issue Discount (OID) of $35,000.  The principal amount of $81,784 outstanding on the note as of December 31, 2012 included the payment of $75,000 plus the unamortized original issue discount of $6,784.  The Company recorded a debt discount of $54,843 related to the conversion feature of the note and $6,784 related to the original issue discount, along with a derivative liability at inception.  During the three months ended March 31, 2013, total amortization was recorded in the amount of $15,680 resulting in a discount of $28,999 at March 31, 2013.  On February 27, 2013, the Company received additional proceeds of $25,000 on this securities purchase agreement, with an original issue discount of $2,917 for total principal owed of $27,917.  The Company recorded a debt discount of $22,487 related to the conversion feature of the note and $2,917 related to the original issue discount, along with a derivative liability at inception.  During the three months ended March 31, 2013, total amortization was recorded in the amount of $2,227 resulting in a discount of $23,176 at March 31, 2013. If the notes are repaid before 90 days, the interest rate will be zero percent (0%), otherwise a one-time interest rate of five percent (5%) will be applied to the principal sums outstanding. The note is convertible into shares of common stock of the Company at a price equal to the lesser of $0.72 or 70% of the lowest trade price in the 25 trading days previous to the conversion. The notes mature one (1) year from the effective date of each advance.

For purpose of determining the fair market value of the derivative liability, the Company used Black Scholes option valuation model. The significant assumptions used in the Black Scholes valuation of the derivative are as follows:

Stock price on the valuation dates	$0.14 - $0.77
Conversion price for the debt	$0.06 - $0.50
Dividend yield	0.00%
Years to Maturity	1 - 2
Risk free rate	.11% - .25%
Expected volatility	90.93% - 313.78%

The value of the derivative liability balance at March 31, 2013 was $767,907.

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5. Related Party Transaction

3 Months Ended

Mar. 31, 2013

Notes

5. Related Party Transaction

5.   RELATED PARTY TRANSACTION

During the three months ended March 31, 2013, the Company signed a promissory note for funds received on January 17, 2013 in the amount of $10,000 for operating expenses from an existing shareholder. The note bears interest at 5% per annum, and is due within one year from the effective date.

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6. Convertible Promissory Notes (Details) (USD $)			0 Months Ended	12 Months Ended		12 Months Ended			0 Months Ended			3 Months Ended	0 Months Ended	3 Months Ended		0 Months Ended	3 Months Ended
	Mar. 31, 2013	Dec. 31, 2012	Dec. 31, 2012 ConvertiblePromissoryNote1Member	Dec. 31, 2012 ConvertiblePromissoryNote1Member	Mar. 31, 2013 ConvertiblePromissoryNote1Member	Dec. 31, 2012 ConvertiblePromissoryNote2Member	Dec. 31, 2012 ConvertiblePromissoryNote3Member	Mar. 31, 2013 ConvertiblePromissoryNote3Member	Mar. 31, 2013 ConvertiblePromissoryNote6Member	Dec. 31, 2012 ConvertiblePromissoryNote6Member	Feb. 22, 2013 ConvertiblePromissoryNote4Member	Mar. 31, 2013 ConvertiblePromissoryNote4Member	Oct. 08, 2012 ConvertiblePromissoryNote5Member	Mar. 31, 2013 ConvertiblePromissoryNote5Member	Dec. 31, 2012 ConvertiblePromissoryNote5Member	Feb. 27, 2013 SecuritiesPurchaseAgreementMember	Mar. 31, 2013 SecuritiesPurchaseAgreementMember
Debt Conversion, Converted Instrument, Rate				8.00%			10.00%			5.00%	10.00%		10.00%
Debt Instrument, Face Amount			$ 75,000	$ 75,000			$ 327,500			$ 244,452	$ 10,000		$ 75,000			$ 25,000
Debt Instrument, Convertible, Terms of Conversion Feature				The notes are convertible into shares of common stock of the Company at a price equal to a variable conversion price of 58% multiplied by the market price representing a discount of 42%. The market price means the average of the lowest three (3) trading prices for the common stock during a ten (10) trading day period ending on the latest complete trading day prior to the conversion date			convertible into shares of common stock of the Company at a conversion price equal to (a) the lesser of $0.54 per share or (b) 50% of the lowest trade price recorded on any trade date after the effective date, or (c) the lowest effective price per share granted to any person after the effective date			convertible into shares of common stock of the Company at a conversion price equal to the lesser of $0.20 per share or the closing price per share of common stock recorded on the trading day immediately preceding the date of conversion		The note is convertible into shares of common stock of the Company at a price equal to a variable conversion price of the lesser of $0.09 per share or fifty percent (50%) of the lowest trade price recorded after the effective date. The note matures one (1) year from the effective date.		The note is convertible into shares of common stock of the Company at a price equal to the lesser of $0.72 or 70% of the lowest trade price in the 25 trading days previous to the conversion. The notes mature one (1) year from the effective date of each advance.
Debt Instrument, Maturity Date				Jun. 21, 2013		Sep. 14, 2013
Convertible promissory notes discount	523,949		60,382	60,382				80,753	237,742				6,784			2,917
Amortization of Debt Discount (Premium)			20,636						29,341			1,014		15,680			2,227
Debt Instrument Discount Amortized					26,386			228,648	208,075			8,986		28,999			23,176
Debt Instrument, Maturity Date, Description							The notes mature one (1) year from the effective date of each of the notes			The notes mature two (2) years from their effective dates
Debt Instrument, Issuance Date											Feb. 22, 2013		Oct. 08, 2012			Feb. 27, 2013
Long-term Debt, Gross											100,000		335,000		81,784	27,917
Proceeds from Issuance of Debt												10,000
Debt Instrument Unatmortized Discount, Conversion Feature											10,000					22,487
Original Issue Discount													35,000
Repayments of Debt													75,000
Debt Instrument Discount														54,843
Debt Instrument, Interest Rate, Basis for Effective Rate														If the notes are repaid before 90 days, the interest rate will be zero percent (0%), otherwise a one-time interest rate of five percent (5%) will be applied to the principal sums outstanding.
Derivative liability	$ 767,907	$ 753,971

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3. Capital Stock (Details) (USD $)	Mar. 31, 2013	Dec. 31, 2012
Details
Common Stock, shares authorized	100,000,000	100,000,000
Common Stock, par or stated value	$ 0.001	$ 0.001
Preferred Stock, shares authorized	20,000,000	20,000,000
Preferred Stock, par or stated value	$ 0.001	$ 0.001

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2. Summary of Significant Accounting Policies: Fair Value of Financial Instruments: Schedule of Fair Value, Assets and Liabilities Measured on Recurring Basis (Tables)

3 Months Ended

Mar. 31, 2013

Tables/Schedules

Schedule of Fair Value, Assets and Liabilities Measured on Recurring Basis

	Total	(Level 1)	(Level 2)	(Level 3)
Assets	-	-	-	-
Total assets measured at fair value	-	-	-	-
Liabilities
Derivative liability	767,907	-	-	767,907
Convertible promissory note	245,683	-	-	245,683
Total liabilities measured at fair value	$1,013,590	-	-	$1,013,590

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7. Subsequent Events

3 Months Ended

Mar. 31, 2013

Notes

7. Subsequent Events

7.    SUBSEQUENT EVENTS

Management has evaluated subsequent events according to the requirements of ASC TOPIC 855, and has reported the following:

On April 23, 2013, the Company signed a promissory note for funds received in the amount of $10,000 for operating expenses from an existing shareholder. The note bears interest at 5% per annum, and is due with one year from the effective date.

On May 1, 2013, the Company signed a promissory note for funds received in the amount of $10,000 for operating expenses from an existing shareholder. The note bears interest at 5% per annum, and is due with one year from the effective date.

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2. Summary of Significant Accounting Policies (Policies)

3 Months Ended

Mar. 31, 2013

Policies

Development Stage Activities and Operations

Development Stage Activities and Operations

The Company is in its initial stages of formation and has no revenues. A development stage activity is one in which all efforts are devoted substantially to establishing a new business and even if planned principal operations have commenced, revenues are insignificant.

Revenue Recognition

Revenue Recognition

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

Cash and Cash Equivalents

Cash and Cash Equivalents

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

Loss Per Share Calculations

Loss per Share Calculations

The Company adopted the accounting pronouncement for loss per share, which dictates the calculation of basic earnings per share and diluted earnings per share. Basic earnings per share are computed by dividing income available to common shareholders by the weighted-average number of common shares available. Diluted earnings per share is computed similar to basic earnings per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive. The Company’s diluted loss per share is the same as the basic loss per share for the three months ended March 31, 2013 as the inclusion of any potential shares would have had an anti-dilutive effect due to the Company generating a loss.

Stock-based Compensation

Stock-Based Compensation

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

Fair Value of Financial Instruments

Fair Value of Financial Instruments

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, 2012, the amounts reported for cash, accrued interest and other expenses, and notes payable approximate the fair value because of their short maturities.

We adopted ASC Topic 820 (originally issued as SFAS 157, “Fair Value Measurements”) as of January 1, 2008 for financial instruments measured as fair value on a recurring basis. ASC Topic 820 defines fair value, established a framework for measuring fair value in accordance with accounting principles generally accepted in the United States and expands disclosures about fair value measurements.

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC Topic 820 established a three-tier fair value hierarchy which prioritizes the inputs used in measuring fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1measurements) and the lowest priority to unobservable inputs (level 3 measurements). These tiers include:

·       Level 1, defined as observable inputs such as quoted prices for identical instruments in active markets;

·       Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable such as quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in markets that are not active; and

·       Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions, such as valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.

We measure certain financial instruments at fair value on a recurring basis. Assets and liabilities measured at fair value on a recurring basis are as follows at March 31, 2013:

	Total	(Level 1)	(Level 2)	(Level 3)
Assets	-	-	-	-
Total assets measured at fair value	-	-	-	-
Liabilities
Derivative liability	767,907	-	-	767,907
Convertible promissory note	245,683	-	-	245,683
Total liabilities measured at fair value	$1,013,590	-	-	$1,013,590

Recently Issued Accounting Pronouncements

Recently Issued Accounting Pronouncements

Management reviewed accounting pronouncements issued during the three months ended March 31, 2013, and no pronouncements were adopted during the period.

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4. Stock Options: Schedule Of Share Based Compensation Stock Options Activity (Tables)

3 Months Ended

Mar. 31, 2013

Tables/Schedules

Schedule Of Share Based Compensation Stock Options Activity

	3/31/2013
		Weighted
	Number	average
	of	exercise
	Options	price
Outstanding, beginning of period	1,137,500	$2.39
Granted	-	-
Exercised	-	-
Expired	-	-
Outstanding, end of period	1,137,500	$2.39
Exercisable at the end of period	759,000	$2.22
Weighted average fair value of
options granted during the period		-

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4. Stock Options: Schedule Of Share Based Compensation Stock Options Activity (Details) (USD $)	Mar. 31, 2013	Dec. 31, 2012
Details
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Number	1,137,500	1,137,500
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Weighted Average Exercise Price	$ 2.39	$ 2.39
Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercisable, Number	759,000
Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercisable, Weighted Average Exercise Price	$ 2.22

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Statement of Shareholders' Equity/(Deficit) (Unaudited) (USD $)	Total	Preferred stock	Common stock	Additional Paid-in Capital	Deficit Accumulated during the Development Stage
Stockholders' Equity at Dec. 31, 2012	$ (1,126,025)		$ 11,578	$ 9,814,227	$ (10,951,830)
Shares, Outstanding at Dec. 31, 2012			11,576,680
Beneficial conversion feature	10,000			10,000
Stock compensation cost	70,930			70,930
Net Loss	(312,898)				(312,898)
Stockholders' Equity at Mar. 31, 2013	$ (1,357,993)		$ 11,578	$ 9,895,157	$ (11,264,728)
Shares, Outstanding at Mar. 31, 2013		11,576,680

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4. Stock Options

3 Months Ended

Mar. 31, 2013

Notes

4. Stock Options

4.      STOCK OPTIONS

As of March 31, 2013, the Company had non-qualified stock options outstanding of 1,137,500 shares of common stock which were granted to its employees. Each Option shall be exercisable to the nearest whole share, in installments or otherwise, as the respective Option agreements may provide. Notwithstanding any other provisions of the Option agreement, each Option expires on the date specified in the Option agreement, which date shall not be later than the seventh (7th) anniversary from the grant date of the options. The stock options vested immediately, and are exercisable for a period of seven  to ten years from the date of grant at exercise prices between $0.95 and $4.31 per share, which represented the market price of the Company’s common stock on the date of grant.

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

	3/31/2013
		Weighted
	Number	average
	of	exercise
	Options	price
Outstanding, beginning of period	1,137,500	$2.39
Granted	-	-
Exercised	-	-
Expired	-	-
Outstanding, end of period	1,137,500	$2.39
Exercisable at the end of period	759,000	$2.22
Weighted average fair value of
options granted during the period		-

Stock-based compensation expense recognized during the period is based on the value of the portion of stock-based payment awards that is ultimately expected to vest. Stock-based compensation expense recognized in the financial statements of operations during the three months ended March 31, 2013, included compensation expense for the stock-based payment awards granted prior to, but not yet vested, as of March 31,2013 based on the grant date fair value estimated, and compensation expense for the stock-based payment awards granted subsequent to March 31, 2013, based on the grant date fair value estimated. We account for forfeitures as they occur. The stock-based compensation expense recognized in the statement of income during the three months ended March 31, 2013 and 2012 is $70,930 and $155,959, respectively.

Warrants

As of March 31, 2013, the Company had 460,000 common stock purchase warrants outstanding.

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4. Stock Options (Details) (USD $)	3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012
Details
Stock options, minimum exercise price	$ 0.95
Stock options, maximum exercise price	$ 4.31
Stock compensation cost	$ 70,930	$ 155,959
Class of Warrant or Right, Outstanding	460,000