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 SEPTEMBER 30, 2017

¨ 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.)

3700 State Street, Suite 350, Santa Barbara, California 93105

(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,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

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

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act o

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

The number of shares of registrant’s common stock outstanding, as of November 13, 2017 was 37,744,151.

CARBON SCIENCES, INC.

INDEX

PART I: FINANCIAL INFORMATION
ITEM 1	FINANCIAL STATEMENTS (Unaudited)	3
	Condensed Balance Sheets	3
	Condensed Statements of Operations	4
	Condensed Statements of Cash Flows	5
	Notes to Condensed Financial Statements	6
ITEM 2	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	21
ITEM 3	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	27
ITEM 4	CONTROLS AND PROCEDURES	27
PART II: OTHER INFORMATION
ITEM 1	LEGAL PROCEEDINGS	29
ITEM 1A	RISK FACTORS	29
ITEM 2	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	29
ITEM 3	DEFAULTS UPON SENIOR SECURITIES	29
ITEM 4	MINE SAFETY DISCLOSURES	29
ITEM 5	OTHER INFORMATION	29
ITEM 6	EXHIBITS	30
SIGNATURES		31

2

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CARBON SCIENCES, INC.
Condensed Balance Sheets
	September 30, 2017			December 31, 2016
	(Unaudited)
ASSETS
Current assets:
Cash	$	32,062		$	39,934
Prepaid expenses		8,686			1,905
Total current assets		40,748			41,839
Property and equipment, net		695			1,194
Total assets	$	41,443		$	43,033
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable	$	117,592		$	108,381
Accrued expenses and other current liabilities		2,807			5,846
Accrued interest, notes payable		120,680			50,964
Derivative liabilities		19,040,203			6,690,697
Convertible notes payable		29,500			39,917
Convertible notes payable, net of discount of $427,425 and $358,981, respectively		909,175			361,619
Total current liabilities		20,219,957			7,257,424
Stockholders’ deficit:
Preferred stock, $0.001 par value; 20,000,000 shares authorized:
Series A, 1,000 and 0 shares issued and outstanding, respectively		1			-
Series B, 16,155 shares issued and outstanding		16			16
Common stock, $0.001 par value; 2,000,000,000 shares authorized, 37,744,151 and 35,178,624 shares issued and outstanding, respectively		37,744			35,179
Additional paid-in capital		20,505,536			20,400,413
Accumulated deficit		(40,721,811	)		(27,649,999	)
Total stockholders’ deficit		(20,178,514	)		(7,214,391	)
Total liabilities and stockholders’ deficit	$	41,443		$	43,033

See notes to condensed financial statements

3

CARBON SCIENCES, INC.

Condensed Statements of Operations

(Unaudited)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2017			2016			2017			2016
Revenue	$	-		$	-		$	-		$	-
Operating Expenses:
General and administrative		228,234			149,607			573,010			476,234
Research and development		32,504			-			65,009			65,497
Depreciation and amortization		149			175			499			443
Total operating expenses		260,887			149,782			638,518			542,174
Loss from operations		(260,887	)		(149,782	)		(638,518	)		(542,174	)
Other income (expense):
Other income		2,500			8,051			2,500			24,154
Gain (loss) on settlement of debt		14,054			-			(29,371	)		(39,005	)
Loss on change in derivative liabilities		(9,820,930	)		(1,356,170	)		(11,759,174	)		(3,808,170	)
Interest expense		(224,313	)		(113,433	)		(647,249	)		(637,739	)
Total other income (expense)		(10,028,689	)		(1,461,552	)		(12,433,294	)		(4,460,760	)
Loss before income taxes		(10,289,576	)		(1,611,334	)		(13,071,812	)		(5,002,934	)
Provision for income taxes		-			-			-			-
Net loss	$	(10,289,576	)	$	(1,611,334	)	$	(13,071,812	)	$	(5,002,934	)
Net loss per common share, basic and diluted	$	(0.28	)	$	(0.05	)	$	(0.36	)	$	(0.14	)
Weighted average number of common shares outstanding, basic and diluted		36,768,082			35,178,624			36,410,439			34,807,850

See notes to condensed financial statements

4

CARBON SCIENCES, INC.
Condensed Statements of Cash Flows
(Unaudited)
	Nine Months Ended September 30,
	2017			2016
Cash flows from operating activities:
Net loss	$	(13,071,812	)	$	(5,002,934	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		499			443
Loss on settlement of debt		29,371			39,005
Amortization of debt discount to interest expense		571,556			586,909
Loss on change in derivative liabilities		11,759,174			3,808,170
Preferred stock issued for services		1			-
Changes in assets and liabilities:
Increase in prepaid expenses		(6,781	)		(6,638	)
Increase (decrease) in:
Accounts payable		9,211			(4,877	)
Accrued expenses and other current liabilities		71,326			50,825
Net cash used in operating activities		(637,455	)		(529,097	)
Cash flows from investing activities:
Purchase of property and equipment		-			(1,472	)
Net cash used in investing activities		-			(1,472	)
Cash flows from financing activities:
Proceeds from convertible notes payable		640,000			537,000
Payments of convertible notes payable		(10,417	)		(8,433	)
Net cash provided by financing activities		629,583			528,567
Net decrease in cash		(7,872	)		(2,002	)
Cash, beginning of period		39,934			37,696
Cash, end of period	$	32,062		$	35,694

See notes to condensed financial statements

5

CARBON SCIENCES, INC.

Notes to Condensed Financial Statements

Nine Months Ended September 30, 2017

(Unaudited)

1. BASIS OF PRESENTATION AND GOING CONCERN

Basis of Presentation

The accompanying unaudited condensed financial statements of Carbon Sciences, Inc. (the “Company”) 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 and nine months ended September 30, 2017 are not necessarily indicative of the results that may be expected for the year ending December 31, 2017. For further information refer to the financial statements and notes thereto included in the Company's Form 10-K for the year ended December 31, 2016.

Going Concern

The accompanying condensed 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 condensed 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 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 is dependent upon, among other things, raising additional capital. Since its inception through September 30, 2017, the Company has obtained funds primarily from the issuance of common stock and debt. Management believes this funding will continue, and is continually seeking new investors. Management believes the existing shareholders and lenders and 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

The significant accounting policies of the Company are disclosed in Note 2 to the Notes to Financial Statements included in the Company’s Annual Report on Form 10-K. The following summary of significant accounting policies of the Company is presented to assist in understanding the Company’s interim 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.

Income (Loss) per Share Calculations

Basic net income or loss per common share (Basic EPS) is computed by dividing net income or loss by the weighted average number of common shares outstanding. Diluted net income or loss per common share (Diluted EPS) is computed by dividing net income or loss by the sum of the weighted average number of common shares outstanding and the dilutive potential common share equivalents then outstanding. Potential dilutive common share equivalents consist of shares issuable upon the exercise of outstanding stock options and warrants to acquire common stock using the treasury stock method and the average market price per share during the period.

6

Since we had no dilutive effect of stock options and warrants for the three months and nine months ended September 30, 2017 and 2016, our basic weighted average number of common shares outstanding is the same as our diluted weighted average number of common shares outstanding. The Company has excluded 1,408,750 common shares for exercisable options, 6,000 common shares for exercisable common stock purchase warrants, approximately 229,567,000 common shares issuable upon exercise of convertible notes payable and approximately 359,000,000 common shares issuable upon the conversion of outstanding shares of Series B preferred stock for the three months and nine months ended September 30, 2017. The Company has excluded 1,410,000 common shares for exercisable options, 46,000 common shares for exercisable common stock purchase warrants, approximately 114,041,000 common shares issuable upon exercise of convertible notes payable and approximately 359,000,000 common shares upon exercise of convertible Series B preferred stock for the three months and nine months ended September 30, 2016.

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 September 30, 2017 and December 31, 2016, the amounts reported for cash, accrued interest and other expenses, and notes payable approximate the fair value because of their short maturities.

We have adopted ASC Topic 820 (originally issued as SFAS 157, “Fair Value Measurements”) for financial instruments measured at 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 1 measurements) 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.

7

We measure certain financial instruments at fair value on a recurring basis. Liabilities measured at fair value on a recurring basis are as follows at September 30, 2017 and December 31, 2016:

	Total		Level 1		Level 2		Level 3
September 30, 2017:
Derivative liabilities	$	19,040,203	$	-	$	-	$	19,040,203
Total liabilities measured at fair value	$	19,040,203	$	-	$	-	$	19,040,203
December 31, 2016:
Derivative liabilities	$	6,690,697	$	-	$	-	$	6,690,697
Total liabilities measured at fair value	$	6,690,697	$	-	$	-	$	6,690,697

During the nine months ended September 30, 2017, the Company had the following activity in its derivative liabilities:

	Convertible Notes Payable			Series B Preferred Stock		Total
Derivative liability at December 31, 2016	$	3,335,906		$	3,354,791	$	6,690,697
Addition to liability for new debt/shares issued		640,000			-		640,000
Elimination of liability on conversion to common shares		(49,668	)		-		(49,668	)
Change in fair value		11,703,807			55,367		11,759,174
Derivative liability at September 30, 2017	$	15,630,045		$	3,410,158	$	19,040,203

Derivative Liabilities

We have identified the conversion features of our convertible notes payable and our Series B preferred stock as derivatives. We estimate the fair value of the derivatives associated with our convertible notes payable using the Black-Scholes pricing model and estimate the fair value of the derivatives associated with our Series B preferred stock using a multinomial lattice model based on projections of various potential future outcomes. We estimate the fair value of the derivative liabilities at the inception of the financial instruments, at the date of conversions to equity and at each reporting date, recording a derivative liability, debt discount, additional paid-in capital and a gain or loss on change in derivative liabilities as applicable. These estimates are based on multiple inputs, including the market price of our stock, interest rates, our stock price volatility, variable conversion prices based on market prices as defined in the respective agreements and probabilities of certain outcomes based on management projections. These inputs are subject to significant changes from period to period and to management’s judgment; therefore, the estimated fair value of the derivative liabilities will fluctuate from period to period, and the fluctuation may be material.

8

Recently Issued Accounting Pronouncements

In July 2017, the FASB issued Accounting Standards Update ("ASU") 2017-11, "Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480) and Derivatives and Hedging (Topic 815): I. Accounting for Certain Financial Instruments with Down Round Features; II. Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Non-controlling Interests with a Scope Exception." Part I of this update addresses the complexity of accounting for certain financial instruments with down round features. Down round features are features of certain equity-linked instruments (or embedded features) that result in the strike price being reduced on the basis of the pricing of future equity offerings. Current accounting guidance creates cost and complexity for entities that issue financial instruments (such as warrants and convertible instruments) with down round features that require fair value measurement of the entire instrument or conversion option. Part II of this update addresses the difficulty of navigating Topic 480, "Distinguishing Liabilities from Equity," because of the existence of extensive pending content in the FASB Accounting Standards Codification. This pending content is the result of the indefinite deferral of accounting requirements about mandatorily redeemable financial instruments of certain nonpublic entities and certain mandatorily redeemable non-controlling interests. The amendments in Part II of this update do not have an accounting effect. This ASU is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018. The Company is currently unable to determine the impact on its consolidated financial statements of the adoption of this new accounting pronouncement.

In January 2017, the FASB issued Accounting Standards Update ("ASU") No. 2017-4, "Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment." This update simplifies how an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. Step 2 measures a goodwill impairment loss by comparing the implied fair value of a reporting unit's goodwill with the carrying amount of that goodwill. Instead, under the amendments in this update, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit's fair value. An entity should apply the amendments in this update on a prospective basis. An entity is required to disclose the nature of and reason for the change in accounting principle upon transition. That disclosure should be provided in the first annual period and in the interim period within the first annual period when the entity initially adopts the amendments in this update. A public business entity that is a Securities and Exchange Commission (“SEC”) filer should adopt the amendments in this update for its annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. The Company is currently unable to determine the impact on its financial statements of the adoption of this new accounting pronouncement.

In January 2017, the FASB issued ASU No. 2017-1, "Business Combinations (Topic 805): Clarifying the Definition of a Business." The amendments in this update clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The definition of a business affects many areas of accounting including acquisitions, disposals, goodwill, and consolidation. The amendments of this ASU are effective for public business entities for annual periods beginning after December 15, 2018, and interim periods within annual periods beginning after December 15, 2019. The amendments in this update are to be applied prospectively on or after the effective date. The Company is currently unable to determine the impact on its financial statements of the adoption of this new accounting pronouncement.

Although there are several other new accounting pronouncements issued or proposed by the FASB, which the Company has adopted or will adopt, as applicable, the Company does not believe any of these accounting pronouncements has had or will have a material impact on its financial position or results of operations.

Reclassifications

Certain amounts in the condensed financial statements for the nine months ended September 30, 2016 have been reclassified to conform to the presentation for the nine months ended September 30, 2017.

9

3. CAPITAL STOCK

At September 30, 2017, the Company’s authorized stock consisted of 2,000,000,000 shares of common stock, with a par value of $0.001 per share. 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.

Series A Preferred Stock

On August 31, 2017, the Company filed a Withdrawal of Certificate of Designation for its original Series A Preferred Stock with the Secretary of State of Nevada. On September 4, 2017, the Board of Directors of the Company authorized (a) the execution and recording with the Nevada Secretary of State of a new Certificate of Designation (the “Series A Certificate”) for its new Series A Preferred Stock, authorizing up to 1,000 shares of it, and (b) the issuance of 1,000 shares of Series A Preferred Stock to the Company’s President and Director, William E. Beifuss, Jr., which shares were issued and outstanding at September 30, 2017.

The shares of Series A Preferred Stock have a par value of $0.001 per share. The shares of Series A Preferred Stock do not have a dividend right or rate, or liquidation preference, and are not convertible into shares of common stock.

For so long as any shares of the Series A Preferred Stock remain issued and outstanding, the holders thereof, voting separately as a class, shall have the right, on or after September 7, 2017, to vote in an amount equal to 51% of the total vote (representing a super majority voting power) with respect to any proposal relating to (a) any amendment to the Company’s Articles of Incorporation changing the name of the Company, (b) increasing the authorized share capital of the Company, and (c) effecting any reverse stock split of the Company’s issued and outstanding shares of capital stock. Such vote shall be determined by the holder(s) of a majority of the then issued and outstanding shares of Series A Preferred Stock.

The shares of the Series A Preferred Stock shall be automatically redeemed by the Company at their par value on the first to occur of the following: (i) a date one 120 days after the effective date of the Series A Certificate, (ii) on the date that Mr. Beifuss ceases, for any reason, to serve as officer, director or consultant of the Company, or (iii) on the date that the Company’s shares of common stock first trade on any national securities exchange provided that the listing rules of any such exchange prohibit preferential voting rights of a class of securities of the Company, or listing on any such national securities exchange is conditioned upon the elimination of the preferential voting rights of the Series A Preferred Stock set forth in Series A Certificate.

Additionally, the Company is prohibited from adopting any amendments to the Company’s Bylaws or Articles of Incorporation, as amended, that adversely affect the Series A Preferred Stock, effect any reclassification of the Series A Preferred Stock, or designate an additional series of preferred stock which adversely affects the Series A Preferred Stock without the affirmative vote of at least 66-2/3% of the outstanding shares of Series A Preferred Stock. However, the Company may, by any means authorized by law and without any vote of the holders of shares of Series A Preferred Stock, make technical, corrective, administrative or similar changes to such Series A Certificate that do not, individually or in the aggregate, adversely affect the rights or preferences of the holders of shares of Series A Preferred Stock.

Series B Preferred Stock

On March 2, 2016, the Company filed a Certificate of Designation for its Series B Preferred Stock (the “Series B Certificate”) with the Secretary of State of Nevada designating 30,000 shares of its authorized preferred stock as Series B Preferred Stock. The shares of Series B Preferred Stock have a par value of $0.001 per share.

10

The total face value of this entire series is three million dollars ($3,000,000). Each share of Series B Preferred Stock has a stated face value of One Hundred Dollars ($100) (“Share Value”), and is convertible into shares of fully paid and non-assessable shares of common stock (“Common Stock”) of the Company.

As of September 30, 2017 and December 31, 2016, the Company had 16,155 shares of Series B Preferred Stock outstanding, with a face value of $1,615,500. These shares were issued in March 2016 for the redemption and cancellation of $1,615,362 of convertible promissory notes and $264,530 of accrued interest payable.

The holders of outstanding shares of the Series B Preferred Stock (the "Holders") are entitled to receive dividends pari passu with the holders of Common Stock, except upon a liquidation, dissolution and winding up of the Company, in which case the Series B Preferred Stock has a preference. Such dividends will be paid equally to all outstanding shares of Series B Preferred Stock and Common Stock, on an as-if-converted basis with respect to the Series B Preferred Stock. The Holders may elect to use the most favorable conversion price for the purpose of determining the as-if-converted number of shares.

In the event of any liquidation, dissolution or winding up of the Company, either voluntary or involuntary, the Holder of each outstanding share of the Series B Preferred Stock shall be entitled to receive, out of the assets of the Company available for distribution to its shareholders upon such liquidation, whether such assets are capital or surplus of any nature, an amount equal to one hundred dollars ($100) for each such share of the Series B Preferred Stock (as adjusted for any combinations, consolidations, stock distributions, stock splits or stock dividends with respect to such shares), plus all dividends, if any, declared and unpaid thereon as of the date of such distribution, before any payment is made or any assets distributed to the holders of the Common Stock. After such payment, the remaining assets of the Company will be distributed to the holders of Common Stock.

If the assets to be distributed to the Holders of the Series B Preferred Stock are insufficient to permit the receipt by such Holders of the full preferential amounts, then all of such assets will be distributed among such Holders ratably in accordance with the number of such shares then held by each such Holder.

The sale of all or substantially all of the Company's assets, any consolidation or merger of the Company with or into any other entity or person, or any other corporate reorganization, in which the stockholders of the Company immediately prior to such consolidation, merger or reorganization, own less than fifty percent (50%) of the Company's voting power immediately after such consolidation, merger or reorganization, or any transaction or series of related transactions to which the Company is a party in which in excess of fifty percent (50%) of the Company's voting power is transferred, excluding any consolidation or merger effected exclusively to change the domicile of the Company, is deemed to be a liquidation, dissolution or winding up.

The Series B Preferred Stock is convertible into Common Stock.

The Holder has the right, at any time, at its election, to convert all or part of the Share Value into shares of Common Stock. The conversion price is the lesser of (1) Fifty Percent (50%) of the lowest trade price of Common Stock recorded on any trade day after December 12, 2012 or (2) the lowest effective price per share granted to any person or entity, including the Holder but excluding officers and directors of the Company, to acquire Common Stock, or adjusted, whether by operation of purchase price adjustment, settlement agreements, exchange agreements, reset provision, floating conversion or otherwise, any outstanding warrant, option or other right to acquire Common Stock or outstanding Common Stock equivalents (the "Conversion Price").

11

The conversion formula is as follows: The number of shares receivable upon conversion equals the Share Value divided by the Conversion Price. A conversion notice (the "Conversion Notice") may be delivered to Company by any method of Holder's choice (including but not limited to email, facsimile, mail, overnight courier, or personal delivery), and all conversions will be cashless and not require further payment from the Holder. If no objection is delivered from the Company to the Holder, with respect to any variable or calculation reflected in the Conversion Notice, within 24 hours of delivery of the Conversion Notice, the Company will thereafter be deemed to have irrevocably confirmed and ratified such notice of conversion and waived any objection. The Company will deliver the shares of Common Stock from any conversion to the Holder (in any name directed by the Holder) within three (3) business days of Conversion Notice delivery. If the Company is participating in the Depository Trust Company ("DTC") Fast Automated Securities Transfer ("FAST") program, then upon request of the Holder and provided that the shares to be issued are eligible for transfer under Rule 144 of the Securities Act of 1933, as amended (the "Securities Act"), or are effectively registered under the Securities Act, the Company will cause its transfer agent to electronically issue the Common Stock issuable upon conversion to the Holder through the DTC Direct Registration System ("DRS"). If the Company is not participating in the DTC FAST program, then the Company agrees in good faith to apply and cause the approval for participation in the DTC FAST program.

The Conversion Price is subject to equitable adjustments for stock splits, stock dividends or rights offerings by the Company relating to the Company's securities or the securities of any subsidiary of the Company, combinations, recapitalization, reclassifications, extraordinary distributions and similar events. No fractional shares of the Common Stock shall be issuable upon the conversion of shares of the Series B Preferred Stock and the Company shall pay the cash equivalent of any fractional share upon such conversion.

If the Company fails to deliver shares in accordance with the required time frame, then for each conversion, a penalty of $1,500 per day will be assessed for each day after the third business day (inclusive of the day of the conversion) until share delivery is made. Such penalty may be converted into Common Stock at the Conversion Price or payable in cash, at the sole option of the Holder (under the Holder's and the Company's expectations that any penalty amounts shall tack back to the original date of the issuance of Series B Preferred Stock, consistent with applicable securities laws).

In no event will the Holder be entitled to convert any Series B Preferred Stock, such that upon conversion the sum of (1) the number of shares of Common Stock beneficially owned by the Holder and its affiliates (other than shares of Common Stock which may be deemed beneficially owned through the ownership of the unconverted portion of this Series B Preferred Stock or the unexercised or unconverted portion of any other security of the Company subject to a limitation on conversion or exercise analogous to these limitations), and (2) the number of shares of Common Stock issuable upon the conversion of Series B Preferred Stock, would result in beneficial ownership by the Holder and its affiliates of more than 4.99% of the outstanding shares of Common Stock. The limitations on conversion may be waived by the Holder upon, at the election of the Holder, not less than 61 days prior notice to the Company, and the provisions of the conversion limitation shall continue to apply until such 61st day (or such later date, as determined by the Holder, as may be specified in such notice of waiver).

Except as required by law, the Holders of Series B Preferred Stock are not entitled to vote, as a separate class or otherwise, on any matter presented to the stockholders of the Company for their action or consideration at any meeting of stockholders of the Company (or by written consent of stockholders in lieu of meeting). Each Holder of outstanding shares of Series B Preferred Stock will be entitled, on the same basis as holders of Common Stock, to receive notice of such action or meeting.

So long as any shares of the Series B Preferred Stock remain outstanding, the Company will not, without first obtaining the approval (by vote or written consent, as provided by law) of the holders of at least a majority of the then outstanding shares of Series B Preferred Stock voting together as one class: (a) alter or change the rights, preferences or privileges of the shares of the Series B Preferred Stock so as to affect materially and adversely such shares; or (b) create any new class of shares having preference over the Series B Preferred Stock.

12

The Holder has the right, at its sole discretion, to elect a fixed conversion price for the Series B Preferred Stock. The Fixed Conversion Price may not be lower than the Conversion Price. The Company will not, by amendment of its Certificate of Incorporation, bylaws or through any reorganization, transfer of assets, consolidation, merger, scheme of arrangement, dissolution, issue or sale of securities, or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of the Series B Certificate, and will at all times carry out all the provisions of the Series B Certificate.

Common Stock

On April 20, 2016, the Company amended its articles of incorporation to reduce the number of authorized shares of common stock from 1,000,000,000 to 100,000,000 and to affect a one-for-ten reverse stock split of its authorized, issued and outstanding shares of common stock. The Company has given retroactive affect for the reverse stock split in all periods presented in the accompanying financial statements.

On April 29, 2016, our Board of Directors and the holder of a majority of the total issued and outstanding voting stock of the Company authorized and approved an amendment to the Company's articles of incorporation to increase the number of authorized shares of common stock from 100,000,000 to 2,000,000,000.

During the nine months ended September 30, 2017, the Company issued a total of 2,565,527 shares of common stock at fair value in consideration for the conversion of $24,000 of convertible promissory notes and accrued interest payable of $4,649. In connection with the debt conversion, the Company increased common stock by $2,565 and additional paid-in capital by $105,123, reduced derivative liabilities by $49,668 and recognized a loss of $29,371 on conversion of the notes.

During the nine months ended September 30, 2016, the Company issued a total of 3,028,018 shares of common stock at fair value in consideration for the conversion of $10,450 of convertible promissory notes and accrued interest payable of $3,176. In connection with the debt conversion, the Company increased common stock by $3,028 and additional paid-in capital by $83,359, reduced derivative liabilities by $33,756 and recognized a loss of $39,005 on conversion of the notes. The Company also increased the number of common shares by 816 shares pursuant to the reverse stock split, increasing common stock by $1 and decreasing additional paid-in capital by $1.

4. STOCK OPTIONS AND WARRANTS

Stock Options

As of September 30, 2017, the Board of Directors of the Company had granted non-qualified stock options exercisable for a total of 1,408,750 shares of common stock to its employees, officers, and consultants. Stock-based compensation cost is measured at the grant date based on the value of the award granted using the Black-Scholes option pricing model, and recognized over the period in which the award vests, which is generally 25 months. We recognized no stock-based compensation expense for the three months and nine months ended September 30, 2017 and 2016. As of September 30, 2017, we had no unrecognized stock-based compensation expense.

13

A summary of the Company’s stock option awards as of September 30, 2017, and changes during the nine months then ended is as follows:

	Shares			Weighted Average Exercise Price		Weighted Average Remaining Contract Term (Years)		Aggregate Intrinsic Value
Outstanding at December 31, 2016		1,410,000		$	0.19
Granted		-		$	-
Exercised		-		$	-
Forfeited or expired		(1,250	)	$	29.20
Outstanding and exercisable at September 30, 2017		1,408,750		$	0.17		2.98	$	-

The aggregate intrinsic value in the preceding table represents the total pretax intrinsic value, based on the closing price of our common stock of $0.054 as of September 30, 2017, which would have been received by the holders of in-the-money options had the option holders exercised their options as of that date.

Warrants

As of September 30, 2017 and December 31, 2016, the Company had 6,000 and 46,000 common stock purchase warrants outstanding, respectively, with an exercise price of $5.00 per share and expiring on various dates in 2017 and 2018.

5. CONVERTIBLE NOTES PAYABLE

Convertible Promissory Notes - Services of $58,600

On December 31, 2012, we entered into 5% convertible promissory notes with two individuals in exchange for services rendered in the aggregate amount of $58,600. The notes are convertible into shares of our common stock at a conversion price equal to the lesser of $2.00 per share or the closing price per share of common stock recorded on the trading day immediately preceding the date of conversion. We recorded a total debt discount of $57,050 related to the conversion feature of the notes, which has been fully amortized to interest expense, along with a derivative liability at inception. One of the notes with a principal balance of $25,980 at September 30, 2017, matured on December 31, 2014 and is currently in default. The maturity date of a second note with a principal balance of $32,620 at September 30, 2017, has been extended to December 31, 2017.

Convertible Promissory Note – Accounts Payable of $29,500

On March 14, 2013, we entered into a 5% convertible promissory note in the principal amount of $29,500, which is convertible into shares of our common stock at a conversion price equal to the lesser of $1.50 per share or the closing price per share of common stock recorded on the trading day immediately preceding the date of conversion. The note matured two years from its effective date, or March 14, 2015, and is currently in default.

14

Convertible Promissory Note – Services of $25,000

On June 4, 2013, we entered into a 5% convertible promissory note with a former member of our Board of Directors in exchange for services rendered in the amount of $25,000. The note is convertible into shares of common stock of the Company at a conversion price equal to the lesser of $0.35 per share or the closing price per share of common stock recorded on the trading day immediately preceding the date of conversion. We entered into an agreement to repay this note with 12 equal monthly payments of principal and interest of $2,352 beginning in June 2016. The note was paid in full as of September 30, 2017.

Convertible Promissory Note – $5,000 Exchanged Note

On September 6, 2013, we exchanged a $5,000 promissory note for a 10% convertible promissory note in the aggregate principal amount of $5,000. The note is convertible into shares of our common stock at a price equal to a conversion price of the lesser of $0.042 per share or fifty percent (50%) of the lowest trade price recorded after the effective date. We recorded a debt discount of $2,536, which has been fully amortized to interest expense, along with a derivative liability at inception. In February 2017, we issued the lender 1,496,499 shares of our common stock in consideration for the conversion of principal of $5,000 and accrued interest of $1,734.

March 2016 Convertible Promissory Note – $1,000,000

On March 4, 2016, we entered into a convertible promissory note in the aggregate principal amount of up to $1,000,000 (the "March 2016 $1,000,000 CPN"). The lender may advance the Company consideration for the note in such amounts as the lender may choose in its sole discretion. The note is convertible into shares of our common stock at a price per share equal to the lesser of: $0.03; 50% of the lowest trade price of our common stock subsequent to the effective date of the note; or the lowest effective price per share granted to any person or entity (exclusive of our officers and directors) to acquire common stock subsequent to the effective date of the note. The note initially matured, with respect to each advance, one year from the effective date of each advance. Subsequently, the lender extended the maturity date, with the note payable upon demand, but in no event later than 60 months from March 4, 2016.

On March 4, 2016, we received proceeds of $25,000 pursuant to the March 2016 $1,000,000 CPN. We recorded a debt discount of $25,000 related to the conversion feature of the note, along with a derivative liability at inception. During the nine months ended September 30, 2017, amortization of debt discount was recorded to interest expense in the amount of $4,315. In September 2017, we issued the lender 1,069,028 shares of our common stock in consideration for the conversion of principal of $19,000 and accrued interest of $2,915.

On March 14, 2016, we received proceeds of $27,000 pursuant to the March 2016 $1,000,000 CPN. We recorded a debt discount of $27,000 related to the conversion feature of the note, along with a derivative liability at inception. During the nine months ended September 30, 2017, amortization of debt discount was recorded to interest expense in the amount of $5,400.

On March 17, 2016, we received proceeds of $33,000 pursuant to the March 2016 $1,000,000 CPN. We recorded a debt discount of $33,000 related to the conversion feature of the note, along with a derivative liability at inception. During the nine months ended September 30, 2017, amortization of debt discount was recorded to interest expense in the amount of $11,392.

On April 11, 2016, we received proceeds of $90,000 pursuant to the March 2016 $1,000,000 CPN. We recorded a debt discount of $90,000 related to the conversion feature of the note, along with a derivative liability at inception. During the nine months ended September 30, 2017, amortization of debt discount was recorded to interest expense in the amount of $24,904.

15

On May 20, 2016, we received proceeds of $60,000 pursuant to the March 2016 $1,000,000 CPN. We recorded a debt discount of $60,000 related to the conversion feature of the note, along with a derivative liability at inception. During the nine months ended September 30, 2017, amortization of debt discount was recorded to interest expense in the amount of $23,014.

On June 22, 2016, we received proceeds of $50,000 pursuant to the March 2016 $1,000,000 CPN. We recorded a debt discount of $50,000 related to the conversion feature of the note, along with a derivative liability at inception. During the nine months ended September 30, 2017, amortization of debt discount was recorded to interest expense in the amount of $23,699.

On July 6, 2016, we received proceeds of $87,000 pursuant to the March 2016 $1,000,000 CPN. We recorded a debt discount of $87,000 related to the conversion feature of the note, along with a derivative liability at inception. During the nine months ended September 30, 2017, amortization of debt discount was recorded to interest expense in the amount of $44,573.

On August 8, 2016, we received proceeds of $60,000 pursuant to the March 2016 $1,000,000 CPN. We recorded a debt discount of $60,000 related to the conversion feature of the note, along with a derivative liability at inception. During the nine months ended September 30, 2017, amortization of debt discount was recorded to interest expense in the amount of $36,164.

On September 13, 2016, we received proceeds of $55,000 pursuant to the March 2016 $1,000,000 CPN. We recorded a debt discount of $55,000 related to the conversion feature of the note, along with a derivative liability at inception. During the nine months ended September 30, 2017, amortization of debt discount was recorded to interest expense in the amount of $38,575.

On October 17, 2016, we received proceeds of $55,000 pursuant to the March 2016 $1,000,000 CPN. We recorded a debt discount of $55,000 related to the conversion feature of the note, along with a derivative liability at inception. During the nine months ended September 30, 2017, amortization of debt discount was recorded to interest expense in the amount of $41,137.

On November 8, 2016, we received proceeds of $55,000 pursuant to the March 2016 $1,000,000 CPN. We recorded a debt discount of $55,000 related to the conversion feature of the note, along with a derivative liability at inception. During the nine months ended September 30, 2017, amortization of debt discount was recorded to interest expense in the amount of $41,137.

On December 6, 2016, we received proceeds of $60,000 pursuant to the March 2016 $1,000,000 CPN. We recorded a debt discount of $60,000 related to the conversion feature of the note, along with a derivative liability at inception. During the nine months ended September 30, 2017, amortization of debt discount was recorded to interest expense in the amount of $41,479.

On January 10, 2017, we received proceeds of $60,000 pursuant to the March 2016 $1,000,000 CPN. We recorded a debt discount of $60,000 related to the conversion feature of the note, along with a derivative liability at inception. During the nine months ended September 30, 2017, amortization of debt discount was recorded to interest expense in the amount of $43,233.

On February 13, 2017, we received proceeds of $60,000 pursuant to the March 2016 $1,000,000 CPN. We recorded a debt discount of $60,000 related to the conversion feature of the note, along with a derivative liability at inception. During the nine months ended September 30, 2017, amortization of debt discount was recorded to interest expense in the amount of $37,644.

On March 9, 2017, we received proceeds of $60,000 pursuant to the March 2016 $1,000,000 CPN. We recorded a debt discount of $60,000 related to the conversion feature of the note, along with a derivative liability at inception. During the nine months ended September 30, 2017, amortization of debt discount was recorded to interest expense in the amount of $33,699.

16

On April 12, 2017, we received proceeds of $95,000 pursuant to the March 2016 $1,000,000 CPN. We recorded a debt discount of $95,000 related to the conversion feature of the note, along with a derivative liability at inception. During the nine months ended September 30, 2017, amortization of debt discount was recorded to interest expense in the amount of $44,507.

On May 8, 2017, we received proceeds of $60,000 pursuant to the March 2016 $1,000,000 CPN. We recorded a debt discount of $60,000 related to the conversion feature of the note, along with a derivative liability at inception. During the nine months ended September 30, 2017, amortization of debt discount was recorded to interest expense in the amount of $23,835.

June 2017 Convertible Promissory Note – $500,000

On June 2, 2017, we entered into a convertible promissory note in the aggregate principal amount of up to $500,000 (the "June 2017 $500,000 CPN"). The lender may advance the Company consideration for the note in such amounts as the lender may choose in its sole discretion. The note is convertible into shares of our common stock at a price per share equal to the lesser of: $0.03; 50% of the lowest trade price of our common stock subsequent to the effective date of the note; or the lowest effective price per share granted to any person or entity (exclusive of our officers and directors) to acquire common stock subsequent to the effective date of the note. The note matures, with respect to each advance, one year from the effective date of each advance.

On June 2, 2017, we received proceeds of $60,000 pursuant to the June 2017 $500,000 CPN. We recorded a debt discount of $60,000 related to the conversion feature of the note, along with a derivative liability at inception. During the nine months ended September 30, 2017, amortization of debt discount was recorded to interest expense in the amount of $19,726.

On July 10, 2017, we received proceeds of $80,000 pursuant to the June 2017 $500,000 CPN. We recorded a debt discount of $80,000 related to the conversion feature of the note, along with a derivative liability at inception. During the nine months ended September 30, 2017, amortization of debt discount was recorded to interest expense in the amount of $17,972.

On August 11, 2017, we received proceeds of $80,000 pursuant to the June 2017 $500,000 CPN. We recorded a debt discount of $80,000 related to the conversion feature of the note, along with a derivative liability at inception. During the nine months ended September 30, 2017, amortization of debt discount was recorded to interest expense in the amount of $10,959.

On September 12, 2017, we received proceeds of $85,000 pursuant to the June 2017 $500,000 CPN. We recorded a debt discount of $85,000 related to the conversion feature of the note, along with a derivative liability at inception. During the nine months ended September 30, 2017, amortization of debt discount was recorded to interest expense in the amount of $4,192.

The total gain on settlement of debt, including conversions to common stock, was $14,054 and $0 for the three months ended September 30, 2017 and 2016, respectively, and the total loss on settlement of debt was $29,371 and $39,005 for the nine months ended September 30, 2017 and 2016, respectively.

6. DERIVATIVE LIABILITIES

The fair value of the Company’s derivative liabilities is estimated at the issuance date and is revalued at each subsequent reporting date. For purpose of estimating the fair value of the derivative liability associated with our convertible notes payable, we used the Black Scholes option valuation model. The significant assumptions used in the Black Scholes valuation of the derivative liability at September 30, 2017 are as follows:

17

Stock price on the valuation date	$0.054
Conversion price for the debt	$0.0045 - $0.0205
Dividend yield	0.00	%
Years to maturity	.78 – 1.00
Risk free rate	1.26% - 1.31	%
Expected volatility	178.30% - 233.90	%

The value of the derivative liability associated with our convertible notes payable at September 30, 2017 and December 31, 2016 was estimated at $15,630,045 and $3,335,906, respectively. These inputs are subject to significant changes and market fluctuations from period to period; therefore, the estimated fair value of the derivative liability will fluctuate from period to period and the fluctuation may be material.

For purpose of estimating the fair value of the derivative liability associated with our Series B preferred stock, we used a multinomial lattice model based on projections of various potential future outcomes. The significant assumptions used in the valuation of the derivative liability at September 30, 2017 are as follows:

Conversion to stock	Monthly
Stock price on the valuation date	$0.054
Conversion price	$0.0045
Years to maturity	15.0
Expected volatility	192.40	%

The value of the derivative liability associated with our Series B convertible stock at September 30, 2017 and December 31, 2016 was estimated at $3,410,158 and $3,354,791, respectively. These inputs are subject to significant changes from period to period and to management’s judgment; therefore, the estimated fair value of the derivative liability will fluctuate from period to period, and the fluctuation may be material.

7. SUPPLEMENTAL STATEMENT OF CASH FLOWS INFORMATION

During the nine months ended September 30, 2017 and 2016, the Company paid no amounts for income taxes.

During the nine months ended September 30, 2017 and 2016, the Company paid $1,328 and $1,063 for interest, respectively.

During the nine months ended September 30, 2017, the Company had the following non-cash investing and financing activities:

· The Company issued a total of 2,565,527 shares of common stock for the conversion of $24,000 in convertible notes payable, plus $4,649 of accrued interest payable, increasing common stock by $2,565, increasing additional paid-in capital by $105,123, decreasing derivative liabilities by $49,668 and recording a loss on settlement of debt of $29,371.

· The Company increased debt discount and derivative liabilities by $640,000 for the issuance of new convertible debt.

18

During the nine months ended September 30, 2016, the Company had the following non-cash investing and financing activities:

· The Company issued a total of 3,028,018 shares of common stock for the conversion of $10,450 in convertible notes payable, plus $3,176 of accrued interest payable, increasing common stock by $3,028, increasing additional paid-in capital by $83,359, decreasing derivative liabilities by $33,756 and recording a loss on settlement of debt of $39,005.

· The Company increased debt discount and derivative liabilities by $537,000 for the issuance of new convertible debt.

· The Company issued a total of 16,155 shares of Series B preferred stock for the conversion of $1,615,362 in convertible notes payable, plus $264,530 of accrued interest payable, increasing Series B preferred stock by $16, increasing additional paid-in capital by $11,630,806 and decreasing derivative liabilities by $9,750,930.

· The Company increased derivative liabilities and decreased additional paid-in capital by $3,908,211 for derivative liabilities associated with the issuance of Series B preferred stock.

· The Company increased common stock and decreased additional paid-in capital by $1 for the par value of additional shares of common stock issued in the reverse stock split.

· The Company decreased convertible notes payable by $185,752, accrued interest payable by $33,199 and derivative liabilities by $106,858 and increased additional paid-in capital by $325,809 for settlement of related party debt recorded as a contribution to capital.

8. RELATED PARTY TRANSACTIONS

See Note 5 for discussion of convertible notes payable to related parties, including multiple lenders who are also shareholders of the Company.

9. RESEARCH AGREEMENTS AND FORMATION OF SUBSIDIARY

On June 18, 2014, we entered into a Sponsored Research Agreement ("SRA #1") with UCSB, pursuant to which UCSB performed research work for the mutual benefit of UCSB and the Company. The purpose of SRA #1 included the development of a low-cost and scalable method to produce large-area graphene for transparent electrode applications. The term of SRA #1 commenced on July 1, 2014 and expired on June 30, 2015. The total cost to the Company was $387,730.

On December 15, 2015, we entered into a second Sponsored Research Agreement ("SRA #2") with UCSB, pursuant to which UCSB performed research work for the mutual benefit of UCSB and the Company. The purpose of SRA #2 included the development of a graphene based optical modulator for the high-speed transmission of digital data in fiber optic networks. The term of SRA #2 commenced on January 1, 2016 and expired on June 30, 2016. The total cost to the Company was $65,497.

On March 9, 2017, we entered into our third Sponsored Research Agreement (“SRA #3”) with UCSB, pursuant to which UCSB will continue the development of a graphene based optical modulator for the high-speed transmission of digital data in fiber optic networks. The term of SRA #3 commenced on April 1, 2017 and concluded on September 30, 2017. The total cost to the Company was $65,009.

19

On January 5, 2015, Carbon Sciences formed Transphene, Inc., a Nevada corporation ("Transphene"), of which the Company owns 50% of the total issued and outstanding capital stock. The remaining 50% is owned by Dr. Kaustav Banerjee ("Banerjee"), a director and Chief Technical Officer of Transphene. Transphene was formed to commercialize any technology that the Company licensed from UCSB as a result of SRA #1. In consideration for its interest in Transphene, the Company agreed to assign the intellectual property rights acquired by the Company from SRA #1 to Transphene. At this time, the Company does not see an opportunity to commercialize the research findings of SRA #1, has not licensed any intellectual property from UCSB, and therefore has not assigned any intellectual property to Transphene. Therefore, we terminated our joint venture through Transphene and wound up and dissolved Transphene in 2016. There have been no financial transactions in Transphene and no impact on our financial statements.

10. SUBSEQUENT EVENTS

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

We received advances under the June 2017 $500,000 CPN of $80,000 on October 13, 2017 and $75,000 on November 8, 2017.

On October 12, 2017, Unleashed Future Holdings, LLC, a limited liability company owned by a retirement account of which Mr. Gerard Hug, the chief executive officer and a director of the Company, is a beneficiary, purchased an option for $7,000 to buy up to 7,000 shares of Series B Preferred Stock (the “Shares”) from the Current Holder (the “Option”). The exercise price of the Option is $100 per Share for a total exercise price of $700,000. The Option may be exercised on a cash or a cashless basis. Each Share is convertible into shares of the Company’s common stock in accordance with the terms and conditions of the Series B Certificate. Unleashed Future Holdings, LLC is eligible to exercise all or part of the Option after the Company’s consolidated gross revenue, calculated in accordance with generally accepted accounting principles, consistently applied, equals or exceeds $2,000,000, on an annualized basis, as reported in the Company’s quarterly or annual financial statements.

On October 30, 2017, we provided UCSB with notice to exercise our right to negotiate a license for use of any invention subject to the March 9, 2017 Sponsored Research Agreement (SAR #3) (see Note 9). We have 90 days from the date of our notice to conclude a license agreement with UCSB. If we successfully conclude a license agreement with UCSB, then we must diligently proceed with the commercial development and early marketing of the invention.

20

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

Certain statements in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” below, and elsewhere in this report, are not related to historical results, and are forward-looking statements. Forward-looking statements present our expectations or forecasts of future events. You can identify these statements by the fact that they do not relate strictly to historical or current facts. These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by such forward-looking statements. Forward-looking statements frequently are accompanied by such words such as “may,” “will,” “should,” “could,” “expects,” “plans,” “intends,” “anticipates,” “believes,” “estimates,” “predicts,” “potential” or “continue,” or the negative of such terms or other words and terms of similar meaning. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance, achievements, or timeliness of such results. Moreover, neither we nor any other person assumes responsibility for the accuracy and completeness of such forward-looking statements. We are under no duty to update any of the forward-looking statements contained herein after the date of this report. Subsequent written and oral forward looking statements attributable to us or to persons acting in our behalf are expressly qualified in their entirety by the cautionary statements and risk factors set forth in our annual report on Form 10-K filed with the SEC on March 21, 2017, and in other reports filed by us with the SEC

You should read the following description of our financial condition and results of operations in conjunction with the condensed financial statements and accompanying notes included in this report.

OVERVIEW

In June 2014, Carbon Sciences, Inc. (“Carbon Sciences,” “we,” “us,” “our,” or the “Company”) entered into its first Sponsored Research Agreement (“SRA #1”) with the University of California at Santa Barbara ("UCSB") to develop a low-cost method to produce graphene. SRA #1 expired on June 30, 2015. In December 2015, we entered into a second Sponsored Research Agreement (“SRA #2”) with UCSB to develop a new graphene-based optical modulator, a critical fiber optics component for enabling ultrafast fiber optics communication in data centers for Cloud computing. SRA #2 expired on June 30, 2016. In March 2017, we entered into a third Sponsored Research Agreement (“SRA #3”) with UCSB to continue the development of a new graphene-based optical modulator. SRA #3 concluded on September 30, 2017.

On October 30, 2017, we provided UCSB with notice to exercise our right to negotiate a license for use of any invention subject to SAR #3. We have 90 days from the date of our notice to conclude a license agreement with UCSB. If we successfully conclude a license agreement with UCSB, then we must diligently proceed with the commercial development and early marketing of the invention.

On January 5, 2015, Carbon Sciences formed a joint venture, Transphene, Inc., a Nevada corporation ("Transphene"), with Dr. Kaustav Banerjee in order to commercialize any technology that the Company licensed from UCSB as a result of SRA #1. At this time, the Company does not see an opportunity to commercialize the research findings of SRA #1 and has not licensed any intellectual property from UCSB. We, therefore, terminated our joint venture through Transphene and wound up and dissolved Transphene in 2016.

On February 9, 2016, we announced a growth-by-acquisition strategy to extend our presence in the information technology ("IT") market. As part this strategy, on September 8, 2017, we reported that we had entered into a term sheet with Glanz, Inc. dba Corner Media, pertaining to the purchase of Glanz’s assets. Glanz is a location-based digital media company in the out-of-home (“OOH”) sector. On October 16, 2017, we determined not to proceed with this transaction.

21

We have not yet generated revenues. We currently have negative working capital and received an opinion from our independent auditors on our financial statements that expressed substantial doubt about our ability to continue as a 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 ability of the Company to continue as a going concern is dependent upon, among other things, raising additional capital. Since our inception through September 30, 2017, the Company has obtained funds primarily from the issuance of common stock and debt. Management believes this funding will continue, and is continually seeking new investors. Management believes the existing shareholders and lenders and prospective new investors will provide the additional cash needed to meet our obligations as they become due, and will allow the development of our core of business. However, there can be no assurance that such financing will be available upon terms that are acceptable to us, if at all.

Critical Accounting Policies

Our significant accounting policies are disclosed in Note 2 to our condensed financial statements and in the notes to our audited financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2016. The following is a summary of those accounting policies that involve significant estimates and judgment of management.

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, 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

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 September 30, 2017 and December 31, 2016, 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 for financial instruments measured at 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 1 measurements) and the lowest priority to unobservable inputs (level 3 measurements). These tiers include:

22

· 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 September 30, 2017 and December 31, 2016:

	Total		Level 1		Level 2		Level 3
September 30, 2017:
Derivative liabilities	$	19,040,203	$	-	$	-	$	19,040,203
Total liabilities measured at fair value	$	19,040,203	$	-	$	-	$	19,040,203
December 31, 2016:
Derivative liabilities	$	6,690,697	$	-	$	-	$	6,690,697
Total liabilities measured at fair value	$	6,690,697	$	-	$	-	$	6,690,697

Derivative Liabilities

We have identified the conversion features of our convertible notes payable and our Series B preferred stock as derivatives. We estimate the fair value of the derivatives associated with our convertible notes payable using the Black-Scholes pricing model and estimate the fair value of the derivatives associated with our Series B preferred stock using a multinomial lattice model based on projections of various potential future outcomes. We estimate the fair value of the derivative liabilities at the inception of the financial instruments, at the date of conversions to equity and at each reporting date, recording a derivative liability, debt discount, additional paid-in capital and a gain or loss on change in derivative liabilities as applicable. These estimates are based on multiple inputs, including the market price of our stock, interest rates, our stock price volatility, variable conversion prices based on market prices as defined in the respective agreements and probabilities of certain outcomes based on management projections. These inputs are subject to significant changes from period to period and to management’s judgment; therefore, the estimated fair value of the derivative liabilities will fluctuate from period to period, and the fluctuation may be material.

Stock-Based Compensation

Stock-based compensation is measured at the grant date based on the value of the award granted using the Black-Scholes option pricing model, and recognized over the period in which the award vests. For stock awards no longer expected to vest, any previously recognized stock compensation expense is reversed in the period of termination. The stock-based compensation expense is included in general and administrative expenses.

23

Recently Issued Accounting Pronouncements

In July 2017, the FASB issued Accounting Standards Update ("ASU") 2017-11, "Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480) and Derivatives and Hedging (Topic 815): I. Accounting for Certain Financial Instruments with Down Round Features; II. Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Non-controlling Interests with a Scope Exception." Part I of this update addresses the complexity of accounting for certain financial instruments with down round features. Down round features are features of certain equity-linked instruments (or embedded features) that result in the strike price being reduced on the basis of the pricing of future equity offerings. Current accounting guidance creates cost and complexity for entities that issue financial instruments (such as warrants and convertible instruments) with down round features that require fair value measurement of the entire instrument or conversion option. Part II of this update addresses the difficulty of navigating Topic 480, "Distinguishing Liabilities from Equity," because of the existence of extensive pending content in the FASB Accounting Standards Codification. This pending content is the result of the indefinite deferral of accounting requirements about mandatorily redeemable financial instruments of certain nonpublic entities and certain mandatorily redeemable non-controlling interests. The amendments in Part II of this update do not have an accounting effect. This ASU is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018. The Company is currently unable to determine the impact on its consolidated financial statements of the adoption of this new accounting pronouncement.

In January 2017, the FASB issued Accounting Standards Update ("ASU") No. 2017-4, "Intangibles – Goodwill and Other (Topic 350): "Simplifying the Test for Goodwill Impairment." This update simplifies how an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. Step 2 measures a goodwill impairment loss by comparing the implied fair value of a reporting unit's goodwill with the carrying amount of that goodwill. Instead, under the amendments in this update, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit's fair value. An entity should apply the amendments in this update on a prospective basis. An entity is required to disclose the nature of and reason for the change in accounting principle upon transition. That disclosure should be provided in the first annual period and in the interim period within the first annual period when the entity initially adopts the amendments in this update. A public business entity that is a Securities and Exchange Commission (“SEC”) filer should adopt the amendments in this update for its annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. The Company is currently unable to determine the impact on its financial statements of the adoption of this new accounting pronouncement.

In January 2017, the FASB issued ASU No. 2017-1, "Business Combinations (Topic 805): Clarifying the Definition of a Business." The amendments in this update clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The definition of a business affects many areas of accounting including acquisitions, disposals, goodwill, and consolidation. The amendments of this ASU are effective for public business entities for annual periods beginning after December 15, 2018, and interim periods within annual periods beginning after December 15, 2019. The amendments in this update are to be applied prospectively on or after the effective date. The Company is currently unable to determine the impact on its financial statements of the adoption of this new accounting pronouncement.

Although there are several other new accounting pronouncements issued or proposed by the FASB, which the Company has adopted or will adopt, as applicable, the Company does not believe any of these accounting pronouncements has had or will have a material impact on its financial position or results of operations.

24

Results of Operations

General and Administrative Expenses

General and administrative expenses increased by $78,627 to $228,234 in the three months ended September 30, 2017 compared to $149,607 in the three months ended September 30, 2016. The increase in general and administrative expenses in the third quarter of the current year is due primarily to increases in salary, professional and consulting fees.

General and administrative expenses increased by $96,776 to $573,010 in the nine months ended September 30, 2017 compared to $476,234 in the nine months ended September 30, 2016. The increase in general and administrative expenses on a year-to-date basis in the current year is due primarily to increases in salary, professional and consulting fees.

Research and Development Expenses

Research and development expenses were $32,504 in the three months ended September 30, 2017 and were incurred under SRA #3. We incurred no research and development expenses in the three months ended September 30, 2016.

Research and development expenses were $65,009 in the nine months ended September 30, 2017 and were incurred under SRA #3. Research and development expenses were $65,497 in the nine months ended September 30, 2016 and were incurred under SRA #2.

Depreciation and Amortization Expense

Depreciation and amortization expense were $149 and $175 in the three months ended September 30, 2017 and 2016, respectively. Depreciation and amortization expense were $499 and $443 in the nine months ended September 30, 2017 and 2016, respectively. Our investment in property and equipment currently is not material to our operations, and substantially all of our property and equipment is fully depreciated at September 30, 2017.

Other Income (Expense)

Total other expense was $10,028,689 in the three months ended September 30, 2017 compared to total other expense of $1,461,552 in the three months ended September 30, 2016. Total other expense was $12,433,294 in the nine months ended September 30, 2017 compared to total other expense of $4,460,760 in the nine months ended September 30, 2016. The significant increases in total other expense result primarily from losses on change in derivative liabilities.

We reported losses on change in derivative liabilities of $9,820,930 and $1,356,170 in the three months ended September 30, 2017 and 2016, respectively, and $11,759,174 and $3,808,170 in the nine months ended September 30, 2017 and 2016, respectively. Our convertible debt continued to increase during the current year resulting in additional derivative liabilities. We estimate the fair value of the derivatives associated with our convertible notes payable using the Black-Scholes pricing model and estimate the fair value of the derivatives associated with our Series B preferred stock using a multinomial lattice model based on projections of various potential future outcomes. These estimates are based on multiple inputs, including the market price of our stock, interest rates, our stock price volatility, variable conversion prices based on market prices as defined in the respective agreements and probabilities of certain outcomes based on management projections. These inputs are subject to significant changes from period to period and to management’s judgment; therefore, the estimated fair value of the derivative liabilities will fluctuate from period to period, and the fluctuation may be material.

25

Our interest expense increased by $110,880 to $224,313 in the three months ended September 30, 2017 from $113,433 in the three months ended September 30, 2016, and increased by $9,510 to $647,249 in the nine months ended September 30, 2017 from $637,739 in the nine months ended September 30, 2016. The increase in interest expense is the result of additional convertible notes payable in the current fiscal year and the amortization of debt discount for the new convertible debt.

The gain (loss) on settlement of debt results from the conversion of convertible debt into equity. We recognized a gain on settlement of debt of $14,054 in the three months ended September 30, 2017 and a loss on settlement of debt of $29,371 and $39,005 in the six months ended September 30, 2017 and 2016, respectively.

We also reported other income of $2,500 and $8,051 for the three months ended September 30, 2017 and 2016, respectively, and $2,500 and $24,154 for the nine months ended September 30, 2017 and 2016, respectively. The other income is not material to our operations and was from the sublease of our office space, which sublease was terminated in the current fiscal year.

Net Loss

As a result of the activity discussed above, we had net losses of $10,289,576 and $1,611,334 in the three months ended September 30, 2017 and 2016, respectively, and $13,071,812 and $5,002,934 in the nine months ended September 30, 2017 and 2016, respectively.

Liquidity and Capital Resources

As of September 30, 2017, we had total current assets of $40,748, including cash of $32,062, and total current liabilities of $20,219,957, resulting in a working capital deficit of $20,179,209. Included in our current liabilities and working capital deficit at September 30, 2017 are derivative liabilities totaling $19,040,203, which we do not anticipate will require cash payments to settle.

During the nine months ended September 30, 2017, we used net cash of $637,455 in operating activities as a result of our net loss of $13,071,812, and increase in prepaid expenses of $6,781, partially offset by non-cash expenses totaling $12,360,601 and increases in accounts payable of $9,211 and accrued expenses and other current liabilities of $71,326.

During the nine months ended September 30, 2016, we used net cash of $529,097 in operating activities as a result of our net loss of $5,002,934, increase in prepaid expenses of $6,638 and decrease in accounts payable of $4,877, partially offset by non-cash expenses totaling $4,434,527 and increase in accrued expenses and other current liabilities of $50,825.

We had no net cash provided by or used in investing activities during the nine months ended September 30, 2017. During the nine months ended September 30, 2016, we had net cash used in investing activities of $1,472 for the purchase of property and equipment.

Net cash provided by financing activities during the nine months ended September 30, 2017 was $629,583, comprised of proceeds from convertible notes payable of $640,000, partially offset by repayment of convertible notes payable of $10,417. Net cash provided by financing activities during the nine months ended September 30, 2016 was $528,567, comprised of proceeds from convertible notes payable of $537,000, partially offset by repayment of convertible notes payable of $8,433.

26

Although most recently proceeds received from the issuance of debt are sufficient to fund our current operating expenses, we will need to raise additional funds in the future to continue our operations and emerge from the development stage. 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 current cash, and our experience in the past of being able to raise money from our investor base. Therefore, 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.

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 any revenue, and has negative cash flows from operations, which raises substantial doubt about the Company's ability to continue as a going concern. The ability of the Company to continue as a going concern is dependent upon, among other things, raising additional capital. Since our inception through September 30, 2017, the Company has obtained funds primarily from the issuance of common stock and debt. Management believes this funding will continue, and is continually seeking new investors. Management believes the existing shareholders and lenders and 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. However, we cannot assure that we will be successful in these endeavors.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed by the Company in the reports that it files under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer that it files under the Exchange Act is accumulated and communicated to the issuer’s management, including its principal executive officer and principal financial officers, or persons performing similar functions as appropriate to allow timely decisions regarding required disclosure. The Company’s president and chief financial officer is responsible for establishing and maintaining disclosure controls and procedures for the Company.

27

As of the end of the period covered by this report, we conducted an evaluation, under the supervision and with the participation of our president 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 president 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 president and chief financial officer, as appropriate to allow timely decisions regarding required disclosure.

Internal Control Over Financial Reporting

The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting, (as defined in Rule 13a-15(f) under the Exchange Act). The Company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes of accounting principles generally accepted in the United States. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance of achieving their control objectives. Furthermore, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate due to change in conditions, or the degree of compliance with the policies or procedures may deteriorate. After evaluating the Company’s internal controls over financial reporting, the Company’s president and chief financial officer concluded that the internal controls over financial reporting are effective as of September 30, 2017.

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 the three month period ended September 30, 2017 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

28

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 our annual report on Form 10-K filed March 21, 2017.

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

During the three months ended September 30, 2017, the Company issued a total of 1,069,028 shares of common stock in consideration for the conversion of $24,000 of convertible promissory notes and accrued interest payable of $4,649. These shares were issued pursuant to the partial conversion of an outstanding convertible promissory note originally issued in a private sale under Rule 506(b) of Regulation D of the Securities Act of 1933, as amended (the “Act”).

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

As further discussed in Note 5 to our condensed financial statements, as of September 30, 2017, we were in default on two convertible notes payable totaling $55,480. We are currently in discussions with the lenders to negotiate extensions of the maturity date of the notes.

ITEM 4. MINE SAFETY DISCLOSURES

Not Applicable.

ITEM 5. OTHER INFORMATION

None.

29

ITEM 6. EXHIBITS

3.1	Articles of Incorporation, dated August 25, 2006 (incorporated by reference to the Company’s Registration Statement on Form SB-2 filed on July 27, 2007).
3.2	Certificate of Amendment to Articles of Incorporation, dated April 9, 2007 (incorporated by reference to the Company’s Registration Statement on Form SB-2 filed on July 27, 2007).
3.3	Certificate of Amendment to Articles of Incorporation, dated May 9, 2011 (incorporated by reference to the Company’s Current Report on Form 8-K filed on May 16, 2011).
3.4	Certificate of Amendment to Articles of Incorporation, dated August 1, 2011 (incorporated by reference to the Company’s Current Report on Form 8-K filed on August 4, 2011).
3.5*	Certificate of Amendment to Articles of Incorporation, dated August 26, 2013.
3.6	Certificate of Correction, dated April 1, 2016 (incorporated by reference to the Company’s Annual Report on Form 10-K filed on March 21, 2017).
3.7	Certificate of Change, dated April 14, 2016 (incorporated by reference to the Company’s Quarterly Report on Form 10-Q filed on November 14, 2016).
3.8	Certificate of Amendment, dated June 15, 2016 (incorporated by reference to the Company’s Annual Report on Form 10-K filed on March 21, 2017).
3.9	Bylaws of Carbon Sciences, Inc. (incorporated by reference to the Company’s Registration Statement on Form SB-2 filed on July 27, 2007).
4.1	Certificate of Designation for Series A Preferred Stock, dated February 12, 2016 (incorporated by reference to the Company’s Current Report on Form 8-K filed on September 7, 2017).
4.2	Certificate of Designation for Series B Preferred Stock, dated March 2, 2016 (incorporated by reference to the Company’s Current Report on Form 8-K filed on February 17, 2014).
10.1	Carbon Sciences, Inc. 2011 Equity Incentive Plan (incorporated by reference to the Company’s Registration Statement on S-1 filed on November 7, 2011).
10.2*	Stock Option Agreement between Carbon Sciences, Inc. and Byron Elton, dated September 23, 2013.
10.3*	Stock Option Agreement between Carbon Sciences, Inc. and William Beifuss, Jr., dated September 23, 2013.
10.4	Consulting Agreement between Carbon Sciences, Inc. and William Beifuss, Jr., dated May 31, 2013 (incorporated by reference to the Company’s Annual Report on Form 10-K for the year ended December 31, 2013 filed on March 31, 2014).
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 of the Chief Executive 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.
31.2*	Certification of the Acting 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 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.
32.2*	Certification of the Acting 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

___________

*Filed herewith

30

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 Santa Barbara, State of California, on November 13, 2017.

CARBON SCIENCES, INC.
By:	/s/ Gerard F. Hug
	Chief Executive Officer (Principal Executive Officer)
By:	/s/ William E. Beifuss, Jr.
	Acting Chief Financial Officer (Principal Financial/Accounting Officer)

31

EX-3.5

EXHIBIT 3.5

 

EX-10.2

EXHIBIT 10.2

 

 

 

 

 

 

 

 

EX-10.3

EXHIBIT 10.3

 

 

 

 

 

 

 

 

EX-31.1

EXHIBIT 31.1

CERTIFICATION

I, Gerard F. Hug, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of Carbon Sciences, Inc. for the quarter ended September 30, 2017;
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.

November 13, 2017

/s/ Gerard F. Hug

Gerard F. Hug

Chief Executive Officer

(Principal Executive Officer)

EX-31.2

EXHIBIT 31.2

CERTIFICATION

I, William E. Beifuss, Jr., certify that:

1.	I have reviewed this quarterly report on Form 10-Q of Carbon Sciences, Inc. for the quarter ended September 30, 2017;
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.

November 13, 2017

/s/ William E. Beifuss, Jr.

William E. Beifuss, Jr.

Acting Chief Financial Officer

(Principal Financial/Accounting 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 September 30, 2017 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Gerard F. Hug, Chief Executive 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.

November 13, 2017	/s/ Gerard F. Hug
	Gerard F. Hug
	Chief Executive Officer
	(Principal Executive Officer)

EX-32.2

EXHIBIT 32.2

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 September 30, 2017 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, William E. Beifuss, Jr., 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.

November 13, 2017	/s/ William E. Beifuss, Jr.
	William E. Beifuss, Jr.
	Acting Chief Financial Officer
	(Principal Financial/Accounting Officer)

XML

Document and Entity Information - shares	9 Months Ended
	Sep. 30, 2017	Nov. 13, 2017
Document And Entity Information
Entity Registrant Name	CARBON SCIENCES, INC.
Entity Central Index Key	0001407878
Document Type	10-Q
Document Period End Date	Sep. 30, 2017
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		37,744,151
Document Fiscal Period Focus	Q3
Document Fiscal Year Focus	2017

XML

Condensed Balance Sheets - USD ($)	Sep. 30, 2017	Dec. 31, 2016
Current assets:
Cash	$ 32,062	$ 39,934
Prepaid expenses	8,686	1,905
Total current assets	40,748	41,839
Property and equipment, net	695	1,194
Total assets	41,443	43,033
Current liabilities:
Accounts payable	117,592	108,381
Accrued expenses and other current liabilities	2,807	5,846
Accrued interest, notes payable	120,680	50,964
Derivative liabilities	19,040,203	6,690,697
Convertible notes payable	29,500	39,917
Convertible notes payable, net of discount of $427,425 and $358,981, respectively	909,175	361,619
Total current liabilities	20,219,957	7,257,424
Stockholders' deficit:
Common stock, $0.001 par value; 2,000,000,000 shares authorized, 37,744,151 and 35,178,624 shares issued and outstanding, respectively	37,744	35,179
Additional paid-in capital	20,505,536	20,400,413
Accumulated deficit	(40,721,811)	(27,649,999)
Total stockholders' deficit	(20,178,514)	(7,214,391)
Total liabilities and stockholders' deficit	41,443	43,033
Preferred Stock Series A [Member]
Stockholders' deficit:
Preferred stock	1
Preferred Stock Series B [Member]
Stockholders' deficit:
Preferred stock	$ 16	$ 16

XML

Condensed Balance Sheets (Parenthetical) - USD ($)	Sep. 30, 2017	Dec. 31, 2016
Current liabilities:
Convertible notes payable, net of discount	$ 427,425	$ 358,981
Stockholders' deficit:
Preferred stock, par value	$ 0.001	$ 0.001
Preferred stock, authorized shares	20,000,000	20,000,000
Common stock, par value	$ 0.001	$ 0.001
Common stock, authorized shares	2,000,000,000	2,000,000,000
Common stock, issued shares	37,744,151	35,178,624
Common stock, outstanding shares	37,744,151	35,178,624
Preferred Stock Series A [Member]
Stockholders' deficit:
Preferred stock, issued shares	1,000	0
Preferred stock, outstanding shares	1,000	0
Preferred Stock Series B [Member]
Stockholders' deficit:
Preferred stock, issued shares	16,155	16,155
Preferred stock, outstanding shares	16,155	16,155

XML

Condensed Statements of Operations (Unaudited) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2017	Sep. 30, 2016	Sep. 30, 2017	Sep. 30, 2016
Condensed Statements Of Operations
Revenue
Operating Expenses:
General and administrative	228,234	149,607	573,010	476,234
Research and development	32,504		65,009	65,497
Depreciation and amortization	149	175	499	443
Total operating expenses	260,887	149,782	638,518	542,174
Loss from operations	(260,887)	(149,782)	(638,518)	(542,174)
Other income (expense):
Other income	2,500	8,051	2,500	24,154
Gain (loss) on settlement of debt	14,054		(29,371)	(39,005)
Loss on change in derivative liabilities	(9,820,930)	(1,356,170)	(11,759,174)	(3,808,170)
Interest expense	(224,313)	(113,433)	(647,249)	(637,739)
Total other income (expense)	(10,028,689)	(1,461,552)	(12,433,294)	(4,460,760)
Loss before income taxes	(10,289,576)	(1,611,334)	(13,071,812)	(5,002,934)
Provision for income taxes
Net loss	$ (10,289,576)	$ (1,611,334)	$ (13,071,812)	$ (5,002,934)
Net loss per common share, basic and diluted	$ (0.28)	$ (0.05)	$ (0.36)	$ (0.14)
Weighted average number of common shares outstanding, basic and diluted	36,768,082	35,178,624	36,410,439	34,807,850

XML

Condensed Statements of Cash Flows (Unaudited) - USD ($)	9 Months Ended
	Sep. 30, 2017	Sep. 30, 2016
Cash flows from operating activities:
Net loss	$ (13,071,812)	$ (5,002,934)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	499	443
Loss on settlement of debt	29,371	39,005
Amortization of debt discount to interest expense	571,556	586,909
Loss on change in derivative liabilities	11,759,174	3,808,170
Preferred stock issued for services	1
Changes in assets and liabilities:
Increase in prepaid expenses	(6,781)	(6,638)
Increase (decrease) in:
Accounts payable	9,211	(4,877)
Accrued expenses and other current liabilities	71,326	50,825
Net cash used in operating activities	(637,455)	(529,097)
Cash flows from investing activities:
Purchase of property and equipment		(1,472)
Net cash used in investing activities		(1,472)
Cash flows from financing activities:
Proceeds from convertible notes payable	640,000	537,000
Payments of convertible notes payable	(10,417)	(8,433)
Net cash provided by financing activities	629,583	528,567
Net decrease in cash	(7,872)	(2,002)
Cash, beginning of period	39,934	37,696
Cash, end of period	$ 32,062	$ 35,694

XML

BASIS OF PRESENTATION AND GOING CONCERN

9 Months Ended

Sep. 30, 2017

Notes to Financial Statements

1. BASIS OF PRESENTATION AND GOING CONCERN

Basis of Presentation

The accompanying unaudited condensed financial statements of Carbon Sciences, Inc. (the “Company”) 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 and nine months ended September 30, 2017 are not necessarily indicative of the results that may be expected for the year ending December 31, 2017. For further information refer to the financial statements and notes thereto included in the Company's Form 10-K for the year ended December 31, 2016.

Going Concern

The accompanying condensed 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 condensed 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 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 is dependent upon, among other things, raising additional capital. Since its inception through September 30, 2017, the Company has obtained funds primarily from the issuance of common stock and debt. Management believes this funding will continue, and is continually seeking new investors. Management believes the existing shareholders and lenders and 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.

XML

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

9 Months Ended

Sep. 30, 2017

Notes to Financial Statements

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The significant accounting policies of the Company are disclosed in Note 2 to the Notes to Financial Statements included in the Company’s Annual Report on Form 10-K. The following summary of significant accounting policies of the Company is presented to assist in understanding the Company’s interim 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.

Income (Loss) per Share Calculations

Basic net income or loss per common share (Basic EPS) is computed by dividing net income or loss by the weighted average number of common shares outstanding. Diluted net income or loss per common share (Diluted EPS) is computed by dividing net income or loss by the sum of the weighted average number of common shares outstanding and the dilutive potential common share equivalents then outstanding. Potential dilutive common share equivalents consist of shares issuable upon the exercise of outstanding stock options and warrants to acquire common stock using the treasury stock method and the average market price per share during the period.

Since we had no dilutive effect of stock options and warrants for the three months and nine months ended September 30, 2017 and 2016, our basic weighted average number of common shares outstanding is the same as our diluted weighted average number of common shares outstanding. The Company has excluded 1,408,750 common shares for exercisable options, 6,000 common shares for exercisable common stock purchase warrants, approximately 229,567,000 common shares issuable upon exercise of convertible notes payable and approximately 359,000,000 common shares issuable upon the conversion of outstanding shares of Series B preferred stock for the three months and nine months ended September 30, 2017. The Company has excluded 1,410,000 common shares for exercisable options, 46,000 common shares for exercisable common stock purchase warrants, approximately 114,041,000 common shares issuable upon exercise of convertible notes payable and approximately 359,000,000 common shares upon exercise of convertible Series B preferred stock for the three months and nine months ended September 30, 2016.

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 September 30, 2017 and December 31, 2016, the amounts reported for cash, accrued interest and other expenses, and notes payable approximate the fair value because of their short maturities.

We have adopted ASC Topic 820 (originally issued as SFAS 157, “Fair Value Measurements”) for financial instruments measured at 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 1 measurements) 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. Liabilities measured at fair value on a recurring basis are as follows at September 30, 2017 and December 31, 2016:

	Total		Level 1		Level 2		Level 3
September 30, 2017:
Derivative liabilities	$	19,040,203	$	-	$	-	$	19,040,203
Total liabilities measured at fair value	$	19,040,203	$	-	$	-	$	19,040,203
December 31, 2016:
Derivative liabilities	$	6,690,697	$	-	$	-	$	6,690,697
Total liabilities measured at fair value	$	6,690,697	$	-	$	-	$	6,690,697

During the nine months ended September 30, 2017, the Company had the following activity in its derivative liabilities:

	Convertible Notes Payable			Series B Preferred Stock		Total
Derivative liability at December 31, 2016	$	3,335,906		$	3,354,791	$	6,690,697
Addition to liability for new debt/shares issued		640,000			-		640,000
Elimination of liability on conversion to common shares		(49,668	)		-		(49,668	)
Change in fair value		11,703,807			55,367		11,759,174
Derivative liability at September 30, 2017	$	15,630,045		$	3,410,158	$	19,040,203

Derivative Liabilities

We have identified the conversion features of our convertible notes payable and our Series B preferred stock as derivatives. We estimate the fair value of the derivatives associated with our convertible notes payable using the Black-Scholes pricing model and estimate the fair value of the derivatives associated with our Series B preferred stock using a multinomial lattice model based on projections of various potential future outcomes. We estimate the fair value of the derivative liabilities at the inception of the financial instruments, at the date of conversions to equity and at each reporting date, recording a derivative liability, debt discount, additional paid-in capital and a gain or loss on change in derivative liabilities as applicable. These estimates are based on multiple inputs, including the market price of our stock, interest rates, our stock price volatility, variable conversion prices based on market prices as defined in the respective agreements and probabilities of certain outcomes based on management projections. These inputs are subject to significant changes from period to period and to management’s judgment; therefore, the estimated fair value of the derivative liabilities will fluctuate from period to period, and the fluctuation may be material.

Recently Issued Accounting Pronouncements

In July 2017, the FASB issued Accounting Standards Update ("ASU") 2017-11, "Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480) and Derivatives and Hedging (Topic 815): I. Accounting for Certain Financial Instruments with Down Round Features; II. Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Non-controlling Interests with a Scope Exception." Part I of this update addresses the complexity of accounting for certain financial instruments with down round features. Down round features are features of certain equity-linked instruments (or embedded features) that result in the strike price being reduced on the basis of the pricing of future equity offerings. Current accounting guidance creates cost and complexity for entities that issue financial instruments (such as warrants and convertible instruments) with down round features that require fair value measurement of the entire instrument or conversion option. Part II of this update addresses the difficulty of navigating Topic 480, "Distinguishing Liabilities from Equity," because of the existence of extensive pending content in the FASB Accounting Standards Codification. This pending content is the result of the indefinite deferral of accounting requirements about mandatorily redeemable financial instruments of certain nonpublic entities and certain mandatorily redeemable non-controlling interests. The amendments in Part II of this update do not have an accounting effect. This ASU is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018. The Company is currently unable to determine the impact on its consolidated financial statements of the adoption of this new accounting pronouncement.

In January 2017, the FASB issued Accounting Standards Update ("ASU") No. 2017-4, "Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment." This update simplifies how an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. Step 2 measures a goodwill impairment loss by comparing the implied fair value of a reporting unit's goodwill with the carrying amount of that goodwill. Instead, under the amendments in this update, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit's fair value. An entity should apply the amendments in this update on a prospective basis. An entity is required to disclose the nature of and reason for the change in accounting principle upon transition. That disclosure should be provided in the first annual period and in the interim period within the first annual period when the entity initially adopts the amendments in this update. A public business entity that is a Securities and Exchange Commission (“SEC”) filer should adopt the amendments in this update for its annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. The Company is currently unable to determine the impact on its financial statements of the adoption of this new accounting pronouncement.

In January 2017, the FASB issued ASU No. 2017-1, "Business Combinations (Topic 805): Clarifying the Definition of a Business." The amendments in this update clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The definition of a business affects many areas of accounting including acquisitions, disposals, goodwill, and consolidation. The amendments of this ASU are effective for public business entities for annual periods beginning after December 15, 2018, and interim periods within annual periods beginning after December 15, 2019. The amendments in this update are to be applied prospectively on or after the effective date. The Company is currently unable to determine the impact on its financial statements of the adoption of this new accounting pronouncement.

Although there are several other new accounting pronouncements issued or proposed by the FASB, which the Company has adopted or will adopt, as applicable, the Company does not believe any of these accounting pronouncements has had or will have a material impact on its financial position or results of operations.

Reclassifications

Certain amounts in the condensed financial statements for the nine months ended September 30, 2016 have been reclassified to conform to the presentation for the nine months ended September 30, 2017.

XML

CAPITAL STOCK

9 Months Ended

Sep. 30, 2017

Notes to Financial Statements

3. CAPITAL STOCK

At September 30, 2017, the Company’s authorized stock consisted of 2,000,000,000 shares of common stock, with a par value of $0.001 per share. 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.

Series A Preferred Stock

On August 31, 2017, the Company filed a Withdrawal of Certificate of Designation for its original Series A Preferred Stock with the Secretary of State of Nevada. On September 4, 2017, the Board of Directors of the Company authorized (a) the execution and recording with the Nevada Secretary of State of a new Certificate of Designation (the “Series A Certificate”) for its new Series A Preferred Stock, authorizing up to 1,000 shares of it, and (b) the issuance of 1,000 shares of Series A Preferred Stock to the Company’s President and Director, William E. Beifuss, Jr., which shares were issued and outstanding at September 30, 2017.

The shares of Series A Preferred Stock have a par value of $0.001 per share. The shares of Series A Preferred Stock do not have a dividend right or rate, or liquidation preference, and are not convertible into shares of common stock.

For so long as any shares of the Series A Preferred Stock remain issued and outstanding, the holders thereof, voting separately as a class, shall have the right, on or after September 7, 2017, to vote in an amount equal to 51% of the total vote (representing a super majority voting power) with respect to any proposal relating to (a) any amendment to the Company’s Articles of Incorporation changing the name of the Company, (b) increasing the authorized share capital of the Company, and (c) effecting any reverse stock split of the Company’s issued and outstanding shares of capital stock. Such vote shall be determined by the holder(s) of a majority of the then issued and outstanding shares of Series A Preferred Stock.

The shares of the Series A Preferred Stock shall be automatically redeemed by the Company at their par value on the first to occur of the following: (i) a date one 120 days after the effective date of the Series A Certificate, (ii) on the date that Mr. Beifuss ceases, for any reason, to serve as officer, director or consultant of the Company, or (iii) on the date that the Company’s shares of common stock first trade on any national securities exchange provided that the listing rules of any such exchange prohibit preferential voting rights of a class of securities of the Company, or listing on any such national securities exchange is conditioned upon the elimination of the preferential voting rights of the Series A Preferred Stock set forth in Series A Certificate.

Additionally, the Company is prohibited from adopting any amendments to the Company’s Bylaws or Articles of Incorporation, as amended, that adversely affect the Series A Preferred Stock, effect any reclassification of the Series A Preferred Stock, or designate an additional series of preferred stock which adversely affects the Series A Preferred Stock without the affirmative vote of at least 66-2/3% of the outstanding shares of Series A Preferred Stock. However, the Company may, by any means authorized by law and without any vote of the holders of shares of Series A Preferred Stock, make technical, corrective, administrative or similar changes to such Series A Certificate that do not, individually or in the aggregate, adversely affect the rights or preferences of the holders of shares of Series A Preferred Stock.

Series B Preferred Stock

On March 2, 2016, the Company filed a Certificate of Designation for its Series B Preferred Stock (the “Series B Certificate”) with the Secretary of State of Nevada designating 30,000 shares of its authorized preferred stock as Series B Preferred Stock. The shares of Series B Preferred Stock have a par value of $0.001 per share.

The total face value of this entire series is three million dollars ($3,000,000). Each share of Series B Preferred Stock has a stated face value of One Hundred Dollars ($100) (“Share Value”), and is convertible into shares of fully paid and non-assessable shares of common stock (“Common Stock”) of the Company.

As of September 30, 2017 and December 31, 2016, the Company had 16,155 shares of Series B Preferred Stock outstanding, with a face value of $1,615,500. These shares were issued in March 2016 for the redemption and cancellation of $1,615,362 of convertible promissory notes and $264,530 of accrued interest payable.

The holders of outstanding shares of the Series B Preferred Stock (the "Holders") are entitled to receive dividends pari passu with the holders of Common Stock, except upon a liquidation, dissolution and winding up of the Company, in which case the Series B Preferred Stock has a preference. Such dividends will be paid equally to all outstanding shares of Series B Preferred Stock and Common Stock, on an as-if-converted basis with respect to the Series B Preferred Stock. The Holders may elect to use the most favorable conversion price for the purpose of determining the as-if-converted number of shares.

In the event of any liquidation, dissolution or winding up of the Company, either voluntary or involuntary, the Holder of each outstanding share of the Series B Preferred Stock shall be entitled to receive, out of the assets of the Company available for distribution to its shareholders upon such liquidation, whether such assets are capital or surplus of any nature, an amount equal to one hundred dollars ($100) for each such share of the Series B Preferred Stock (as adjusted for any combinations, consolidations, stock distributions, stock splits or stock dividends with respect to such shares), plus all dividends, if any, declared and unpaid thereon as of the date of such distribution, before any payment is made or any assets distributed to the holders of the Common Stock. After such payment, the remaining assets of the Company will be distributed to the holders of Common Stock.

If the assets to be distributed to the Holders of the Series B Preferred Stock are insufficient to permit the receipt by such Holders of the full preferential amounts, then all of such assets will be distributed among such Holders ratably in accordance with the number of such shares then held by each such Holder.

The sale of all or substantially all of the Company's assets, any consolidation or merger of the Company with or into any other entity or person, or any other corporate reorganization, in which the stockholders of the Company immediately prior to such consolidation, merger or reorganization, own less than fifty percent (50%) of the Company's voting power immediately after such consolidation, merger or reorganization, or any transaction or series of related transactions to which the Company is a party in which in excess of fifty percent (50%) of the Company's voting power is transferred, excluding any consolidation or merger effected exclusively to change the domicile of the Company, is deemed to be a liquidation, dissolution or winding up.

The Series B Preferred Stock is convertible into Common Stock.

The Holder has the right, at any time, at its election, to convert all or part of the Share Value into shares of Common Stock. The conversion price is the lesser of (1) Fifty Percent (50%) of the lowest trade price of Common Stock recorded on any trade day after December 12, 2012 or (2) the lowest effective price per share granted to any person or entity, including the Holder but excluding officers and directors of the Company, to acquire Common Stock, or adjusted, whether by operation of purchase price adjustment, settlement agreements, exchange agreements, reset provision, floating conversion or otherwise, any outstanding warrant, option or other right to acquire Common Stock or outstanding Common Stock equivalents (the "Conversion Price").

The conversion formula is as follows: The number of shares receivable upon conversion equals the Share Value divided by the Conversion Price. A conversion notice (the "Conversion Notice") may be delivered to Company by any method of Holder's choice (including but not limited to email, facsimile, mail, overnight courier, or personal delivery), and all conversions will be cashless and not require further payment from the Holder. If no objection is delivered from the Company to the Holder, with respect to any variable or calculation reflected in the Conversion Notice, within 24 hours of delivery of the Conversion Notice, the Company will thereafter be deemed to have irrevocably confirmed and ratified such notice of conversion and waived any objection. The Company will deliver the shares of Common Stock from any conversion to the Holder (in any name directed by the Holder) within three (3) business days of Conversion Notice delivery. If the Company is participating in the Depository Trust Company ("DTC") Fast Automated Securities Transfer ("FAST") program, then upon request of the Holder and provided that the shares to be issued are eligible for transfer under Rule 144 of the Securities Act of 1933, as amended (the "Securities Act"), or are effectively registered under the Securities Act, the Company will cause its transfer agent to electronically issue the Common Stock issuable upon conversion to the Holder through the DTC Direct Registration System ("DRS"). If the Company is not participating in the DTC FAST program, then the Company agrees in good faith to apply and cause the approval for participation in the DTC FAST program.

The Conversion Price is subject to equitable adjustments for stock splits, stock dividends or rights offerings by the Company relating to the Company's securities or the securities of any subsidiary of the Company, combinations, recapitalization, reclassifications, extraordinary distributions and similar events. No fractional shares of the Common Stock shall be issuable upon the conversion of shares of the Series B Preferred Stock and the Company shall pay the cash equivalent of any fractional share upon such conversion.

If the Company fails to deliver shares in accordance with the required time frame, then for each conversion, a penalty of $1,500 per day will be assessed for each day after the third business day (inclusive of the day of the conversion) until share delivery is made. Such penalty may be converted into Common Stock at the Conversion Price or payable in cash, at the sole option of the Holder (under the Holder's and the Company's expectations that any penalty amounts shall tack back to the original date of the issuance of Series B Preferred Stock, consistent with applicable securities laws).

In no event will the Holder be entitled to convert any Series B Preferred Stock, such that upon conversion the sum of (1) the number of shares of Common Stock beneficially owned by the Holder and its affiliates (other than shares of Common Stock which may be deemed beneficially owned through the ownership of the unconverted portion of this Series B Preferred Stock or the unexercised or unconverted portion of any other security of the Company subject to a limitation on conversion or exercise analogous to these limitations), and (2) the number of shares of Common Stock issuable upon the conversion of Series B Preferred Stock, would result in beneficial ownership by the Holder and its affiliates of more than 4.99% of the outstanding shares of Common Stock. The limitations on conversion may be waived by the Holder upon, at the election of the Holder, not less than 61 days prior notice to the Company, and the provisions of the conversion limitation shall continue to apply until such 61st day (or such later date, as determined by the Holder, as may be specified in such notice of waiver).

Except as required by law, the Holders of Series B Preferred Stock are not entitled to vote, as a separate class or otherwise, on any matter presented to the stockholders of the Company for their action or consideration at any meeting of stockholders of the Company (or by written consent of stockholders in lieu of meeting). Each Holder of outstanding shares of Series B Preferred Stock will be entitled, on the same basis as holders of Common Stock, to receive notice of such action or meeting.

So long as any shares of the Series B Preferred Stock remain outstanding, the Company will not, without first obtaining the approval (by vote or written consent, as provided by law) of the holders of at least a majority of the then outstanding shares of Series B Preferred Stock voting together as one class: (a) alter or change the rights, preferences or privileges of the shares of the Series B Preferred Stock so as to affect materially and adversely such shares; or (b) create any new class of shares having preference over the Series B Preferred Stock.

The Holder has the right, at its sole discretion, to elect a fixed conversion price for the Series B Preferred Stock. The Fixed Conversion Price may not be lower than the Conversion Price. The Company will not, by amendment of its Certificate of Incorporation, bylaws or through any reorganization, transfer of assets, consolidation, merger, scheme of arrangement, dissolution, issue or sale of securities, or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of the Series B Certificate, and will at all times carry out all the provisions of the Series B Certificate.

Common Stock

On April 20, 2016, the Company amended its articles of incorporation to reduce the number of authorized shares of common stock from 1,000,000,000 to 100,000,000 and to affect a one-for-ten reverse stock split of its authorized, issued and outstanding shares of common stock. The Company has given retroactive affect for the reverse stock split in all periods presented in the accompanying financial statements.

On April 29, 2016, our Board of Directors and the holder of a majority of the total issued and outstanding voting stock of the Company authorized and approved an amendment to the Company's articles of incorporation to increase the number of authorized shares of common stock from 100,000,000 to 2,000,000,000.

During the nine months ended September 30, 2017, the Company issued a total of 2,565,527 shares of common stock at fair value in consideration for the conversion of $24,000 of convertible promissory notes and accrued interest payable of $4,649. In connection with the debt conversion, the Company increased common stock by $2,565 and additional paid-in capital by $105,123, reduced derivative liabilities by $49,668 and recognized a loss of $29,371 on conversion of the notes.

During the nine months ended September 30, 2016, the Company issued a total of 3,028,018 shares of common stock at fair value in consideration for the conversion of $10,450 of convertible promissory notes and accrued interest payable of $3,176. In connection with the debt conversion, the Company increased common stock by $3,028 and additional paid-in capital by $83,359, reduced derivative liabilities by $33,756 and recognized a loss of $39,005 on conversion of the notes. The Company also increased the number of common shares by 816 shares pursuant to the reverse stock split, increasing common stock by $1 and decreasing additional paid-in capital by $1.

XML

STOCK OPTIONS AND WARRANTS

9 Months Ended

Sep. 30, 2017

Notes to Financial Statements

4. STOCK OPTIONS AND WARRANTS

Stock Options

As of September 30, 2017, the Board of Directors of the Company had granted non-qualified stock options exercisable for a total of 1,408,750 shares of common stock to its employees, officers, and consultants. Stock-based compensation cost is measured at the grant date based on the value of the award granted using the Black-Scholes option pricing model, and recognized over the period in which the award vests, which is generally 25 months. We recognized no stock-based compensation expense for the three months and nine months ended September 30, 2017 and 2016. As of September 30, 2017, we had no unrecognized stock-based compensation expense.

A summary of the Company’s stock option awards as of September 30, 2017, and changes during the nine months then ended is as follows:

	Shares			Weighted Average Exercise Price		Weighted Average Remaining Contract Term (Years)		Aggregate Intrinsic Value
Outstanding at December 31, 2016		1,410,000		$	0.19
Granted		-		$	-
Exercised		-		$	-
Forfeited or expired		(1,250	)	$	29.20
Outstanding and exercisable at September 30, 2017		1,408,750		$	0.17		2.98	$	-

The aggregate intrinsic value in the preceding table represents the total pretax intrinsic value, based on the closing price of our common stock of $0.054 as of September 30, 2017, which would have been received by the holders of in-the-money options had the option holders exercised their options as of that date.

Warrants

As of September 30, 2017 and December 31, 2016, the Company had 6,000 and 46,000 common stock purchase warrants outstanding, respectively, with an exercise price of $5.00 per share and expiring on various dates in 2017 and 2018.

XML

CONVERTIBLE NOTES PAYABLE

9 Months Ended

Sep. 30, 2017

Notes to Financial Statements

5. CONVERTIBLE NOTES PAYABLE

Convertible Promissory Notes - Services of $58,600

On December 31, 2012, we entered into 5% convertible promissory notes with two individuals in exchange for services rendered in the aggregate amount of $58,600. The notes are convertible into shares of our common stock at a conversion price equal to the lesser of $2.00 per share or the closing price per share of common stock recorded on the trading day immediately preceding the date of conversion. We recorded a total debt discount of $57,050 related to the conversion feature of the notes, which has been fully amortized to interest expense, along with a derivative liability at inception. One of the notes with a principal balance of $25,980 at September 30, 2017, matured on December 31, 2014 and is currently in default. The maturity date of a second note with a principal balance of $32,620 at September 30, 2017, has been extended to December 31, 2017.

Convertible Promissory Note – Accounts Payable of $29,500

On March 14, 2013, we entered into a 5% convertible promissory note in the principal amount of $29,500, which is convertible into shares of our common stock at a conversion price equal to the lesser of $1.50 per share or the closing price per share of common stock recorded on the trading day immediately preceding the date of conversion. The note matured two years from its effective date, or March 14, 2015, and is currently in default.

Convertible Promissory Note – Services of $25,000

On June 4, 2013, we entered into a 5% convertible promissory note with a former member of our Board of Directors in exchange for services rendered in the amount of $25,000. The note is convertible into shares of common stock of the Company at a conversion price equal to the lesser of $0.35 per share or the closing price per share of common stock recorded on the trading day immediately preceding the date of conversion. We entered into an agreement to repay this note with 12 equal monthly payments of principal and interest of $2,352 beginning in June 2016. The note was paid in full as of September 30, 2017.

Convertible Promissory Note – $5,000 Exchanged Note

On September 6, 2013, we exchanged a $5,000 promissory note for a 10% convertible promissory note in the aggregate principal amount of $5,000. The note is convertible into shares of our common stock at a price equal to a conversion price of the lesser of $0.042 per share or fifty percent (50%) of the lowest trade price recorded after the effective date. We recorded a debt discount of $2,536, which has been fully amortized to interest expense, along with a derivative liability at inception. In February 2017, we issued the lender 1,496,499 shares of our common stock in consideration for the conversion of principal of $5,000 and accrued interest of $1,734.

March 2016 Convertible Promissory Note – $1,000,000

On March 4, 2016, we entered into a convertible promissory note in the aggregate principal amount of up to $1,000,000 (the "March 2016 $1,000,000 CPN"). The lender may advance the Company consideration for the note in such amounts as the lender may choose in its sole discretion. The note is convertible into shares of our common stock at a price per share equal to the lesser of: $0.03; 50% of the lowest trade price of our common stock subsequent to the effective date of the note; or the lowest effective price per share granted to any person or entity (exclusive of our officers and directors) to acquire common stock subsequent to the effective date of the note. The note initially matured, with respect to each advance, one year from the effective date of each advance. Subsequently, the lender extended the maturity date, with the note payable upon demand, but in no event later than 60 months from March 4, 2016.

On March 4, 2016, we received proceeds of $25,000 pursuant to the March 2016 $1,000,000 CPN. We recorded a debt discount of $25,000 related to the conversion feature of the note, along with a derivative liability at inception. During the nine months ended September 30, 2017, amortization of debt discount was recorded to interest expense in the amount of $4,315. In September 2017, we issued the lender 1,069,028 shares of our common stock in consideration for the conversion of principal of $19,000 and accrued interest of $2,915.

On March 14, 2016, we received proceeds of $27,000 pursuant to the March 2016 $1,000,000 CPN. We recorded a debt discount of $27,000 related to the conversion feature of the note, along with a derivative liability at inception. During the nine months ended September 30, 2017, amortization of debt discount was recorded to interest expense in the amount of $5,400.

On March 17, 2016, we received proceeds of $33,000 pursuant to the March 2016 $1,000,000 CPN. We recorded a debt discount of $33,000 related to the conversion feature of the note, along with a derivative liability at inception. During the nine months ended September 30, 2017, amortization of debt discount was recorded to interest expense in the amount of $11,392.

On April 11, 2016, we received proceeds of $90,000 pursuant to the March 2016 $1,000,000 CPN. We recorded a debt discount of $90,000 related to the conversion feature of the note, along with a derivative liability at inception. During the nine months ended September 30, 2017, amortization of debt discount was recorded to interest expense in the amount of $24,904.

On May 20, 2016, we received proceeds of $60,000 pursuant to the March 2016 $1,000,000 CPN. We recorded a debt discount of $60,000 related to the conversion feature of the note, along with a derivative liability at inception. During the nine months ended September 30, 2017, amortization of debt discount was recorded to interest expense in the amount of $23,014.

On June 22, 2016, we received proceeds of $50,000 pursuant to the March 2016 $1,000,000 CPN. We recorded a debt discount of $50,000 related to the conversion feature of the note, along with a derivative liability at inception. During the nine months ended September 30, 2017, amortization of debt discount was recorded to interest expense in the amount of $23,699.

On July 6, 2016, we received proceeds of $87,000 pursuant to the March 2016 $1,000,000 CPN. We recorded a debt discount of $87,000 related to the conversion feature of the note, along with a derivative liability at inception. During the nine months ended September 30, 2017, amortization of debt discount was recorded to interest expense in the amount of $44,573.

On August 8, 2016, we received proceeds of $60,000 pursuant to the March 2016 $1,000,000 CPN. We recorded a debt discount of $60,000 related to the conversion feature of the note, along with a derivative liability at inception. During the nine months ended September 30, 2017, amortization of debt discount was recorded to interest expense in the amount of $36,164.

On September 13, 2016, we received proceeds of $55,000 pursuant to the March 2016 $1,000,000 CPN. We recorded a debt discount of $55,000 related to the conversion feature of the note, along with a derivative liability at inception. During the nine months ended September 30, 2017, amortization of debt discount was recorded to interest expense in the amount of $38,575.

On October 17, 2016, we received proceeds of $55,000 pursuant to the March 2016 $1,000,000 CPN. We recorded a debt discount of $55,000 related to the conversion feature of the note, along with a derivative liability at inception. During the nine months ended September 30, 2017, amortization of debt discount was recorded to interest expense in the amount of $41,137.

On November 8, 2016, we received proceeds of $55,000 pursuant to the March 2016 $1,000,000 CPN. We recorded a debt discount of $55,000 related to the conversion feature of the note, along with a derivative liability at inception. During the nine months ended September 30, 2017, amortization of debt discount was recorded to interest expense in the amount of $41,137.

On December 6, 2016, we received proceeds of $60,000 pursuant to the March 2016 $1,000,000 CPN. We recorded a debt discount of $60,000 related to the conversion feature of the note, along with a derivative liability at inception. During the nine months ended September 30, 2017, amortization of debt discount was recorded to interest expense in the amount of $41,479.

On January 10, 2017, we received proceeds of $60,000 pursuant to the March 2016 $1,000,000 CPN. We recorded a debt discount of $60,000 related to the conversion feature of the note, along with a derivative liability at inception. During the nine months ended September 30, 2017, amortization of debt discount was recorded to interest expense in the amount of $43,233.

On February 13, 2017, we received proceeds of $60,000 pursuant to the March 2016 $1,000,000 CPN. We recorded a debt discount of $60,000 related to the conversion feature of the note, along with a derivative liability at inception. During the nine months ended September 30, 2017, amortization of debt discount was recorded to interest expense in the amount of $37,644.

On March 9, 2017, we received proceeds of $60,000 pursuant to the March 2016 $1,000,000 CPN. We recorded a debt discount of $60,000 related to the conversion feature of the note, along with a derivative liability at inception. During the nine months ended September 30, 2017, amortization of debt discount was recorded to interest expense in the amount of $33,699.

On April 12, 2017, we received proceeds of $95,000 pursuant to the March 2016 $1,000,000 CPN. We recorded a debt discount of $95,000 related to the conversion feature of the note, along with a derivative liability at inception. During the nine months ended September 30, 2017, amortization of debt discount was recorded to interest expense in the amount of $44,507.

On May 8, 2017, we received proceeds of $60,000 pursuant to the March 2016 $1,000,000 CPN. We recorded a debt discount of $60,000 related to the conversion feature of the note, along with a derivative liability at inception. During the nine months ended September 30, 2017, amortization of debt discount was recorded to interest expense in the amount of $23,835.

June 2017 Convertible Promissory Note – $500,000

On June 2, 2017, we entered into a convertible promissory note in the aggregate principal amount of up to $500,000 (the "June 2017 $500,000 CPN"). The lender may advance the Company consideration for the note in such amounts as the lender may choose in its sole discretion. The note is convertible into shares of our common stock at a price per share equal to the lesser of: $0.03; 50% of the lowest trade price of our common stock subsequent to the effective date of the note; or the lowest effective price per share granted to any person or entity (exclusive of our officers and directors) to acquire common stock subsequent to the effective date of the note. The note matures, with respect to each advance, one year from the effective date of each advance.

On June 2, 2017, we received proceeds of $60,000 pursuant to the June 2017 $500,000 CPN. We recorded a debt discount of $60,000 related to the conversion feature of the note, along with a derivative liability at inception. During the nine months ended September 30, 2017, amortization of debt discount was recorded to interest expense in the amount of $19,726.

On July 10, 2017, we received proceeds of $80,000 pursuant to the June 2017 $500,000 CPN. We recorded a debt discount of $80,000 related to the conversion feature of the note, along with a derivative liability at inception. During the nine months ended September 30, 2017, amortization of debt discount was recorded to interest expense in the amount of $17,972.

On August 11, 2017, we received proceeds of $80,000 pursuant to the June 2017 $500,000 CPN. We recorded a debt discount of $80,000 related to the conversion feature of the note, along with a derivative liability at inception. During the nine months ended September 30, 2017, amortization of debt discount was recorded to interest expense in the amount of $10,959.

On September 12, 2017, we received proceeds of $85,000 pursuant to the June 2017 $500,000 CPN. We recorded a debt discount of $85,000 related to the conversion feature of the note, along with a derivative liability at inception. During the nine months ended September 30, 2017, amortization of debt discount was recorded to interest expense in the amount of $4,192.

The total gain on settlement of debt, including conversions to common stock, was $14,054 and $0 for the three months ended September 30, 2017 and 2016, respectively, and the total loss on settlement of debt was $29,371 and $39,005 for the nine months ended September 30, 2017 and 2016, respectively.

XML

DERIVATIVE LIABILITIES

9 Months Ended

Sep. 30, 2017

Notes to Financial Statements

6. DERIVATIVE LIABILITIES

The fair value of the Company’s derivative liabilities is estimated at the issuance date and is revalued at each subsequent reporting date. For purpose of estimating the fair value of the derivative liability associated with our convertible notes payable, we used the Black Scholes option valuation model. The significant assumptions used in the Black Scholes valuation of the derivative liability at September 30, 2017 are as follows:

Stock price on the valuation date	$0.054
Conversion price for the debt	$0.0045 - $0.0205
Dividend yield	0.00	%
Years to maturity	.78 – 1.00
Risk free rate	1.26% - 1.31	%
Expected volatility	178.30% - 233.90	%

The value of the derivative liability associated with our convertible notes payable at September 30, 2017 and December 31, 2016 was estimated at $15,630,045 and $3,335,906, respectively. These inputs are subject to significant changes and market fluctuations from period to period; therefore, the estimated fair value of the derivative liability will fluctuate from period to period and the fluctuation may be material.

For purpose of estimating the fair value of the derivative liability associated with our Series B preferred stock, we used a multinomial lattice model based on projections of various potential future outcomes. The significant assumptions used in the valuation of the derivative liability at September 30, 2017 are as follows:

Conversion to stock	Monthly
Stock price on the valuation date	$0.054
Conversion price	$0.0045
Years to maturity	15.0
Expected volatility	192.40	%

The value of the derivative liability associated with our Series B convertible stock at September 30, 2017 and December 31, 2016 was estimated at $3,410,158 and $3,354,791, respectively. These inputs are subject to significant changes from period to period and to management’s judgment; therefore, the estimated fair value of the derivative liability will fluctuate from period to period, and the fluctuation may be material.

XML

SUPPLEMENTAL STATEMENT OF CASH FLOWS INFORMATION

9 Months Ended

Sep. 30, 2017

Notes to Financial Statements

7. SUPPLEMENTAL STATEMENT OF CASH FLOWS INFORMATION

During the nine months ended September 30, 2017 and 2016, the Company paid no amounts for income taxes.

During the nine months ended September 30, 2017 and 2016, the Company paid $1,328 and $1,063 for interest, respectively.

During the nine months ended September 30, 2017, the Company had the following non-cash investing and financing activities:

· The Company issued a total of 2,565,527 shares of common stock for the conversion of $24,000 in convertible notes payable, plus $4,649 of accrued interest payable, increasing common stock by $2,565, increasing additional paid-in capital by $105,123, decreasing derivative liabilities by $49,668 and recording a loss on settlement of debt of $29,371.

· The Company increased debt discount and derivative liabilities by $640,000 for the issuance of new convertible debt.

During the nine months ended September 30, 2016, the Company had the following non-cash investing and financing activities:

· The Company issued a total of 3,028,018 shares of common stock for the conversion of $10,450 in convertible notes payable, plus $3,176 of accrued interest payable, increasing common stock by $3,028, increasing additional paid-in capital by $83,359, decreasing derivative liabilities by $33,756 and recording a loss on settlement of debt of $39,005.

· The Company increased debt discount and derivative liabilities by $537,000 for the issuance of new convertible debt.

· The Company issued a total of 16,155 shares of Series B preferred stock for the conversion of $1,615,362 in convertible notes payable, plus $264,530 of accrued interest payable, increasing Series B preferred stock by $16, increasing additional paid-in capital by $11,630,806 and decreasing derivative liabilities by $9,750,930.

· The Company increased derivative liabilities and decreased additional paid-in capital by $3,908,211 for derivative liabilities associated with the issuance of Series B preferred stock.

· The Company increased common stock and decreased additional paid-in capital by $1 for the par value of additional shares of common stock issued in the reverse stock split.

· The Company decreased convertible notes payable by $185,752, accrued interest payable by $33,199 and derivative liabilities by $106,858 and increased additional paid-in capital by $325,809 for settlement of related party debt recorded as a contribution to capital.

XML

RELATED PARTY TRANSACTIONS

9 Months Ended

Sep. 30, 2017

Notes to Financial Statements

8. RELATED PARTY TRANSACTIONS

See Note 5 for discussion of convertible notes payable to related parties, including multiple lenders who are also shareholders of the Company.

XML

RESEARCH AGREEMENTS AND FORMATION OF SUBSIDIARY

9 Months Ended

Sep. 30, 2017

Notes to Financial Statements

9. RESEARCH AGREEMENTS AND FORMATION OF SUBSIDIARY

On June 18, 2014, we entered into a Sponsored Research Agreement ("SRA #1") with UCSB, pursuant to which UCSB performed research work for the mutual benefit of UCSB and the Company. The purpose of SRA #1 included the development of a low-cost and scalable method to produce large-area graphene for transparent electrode applications. The term of SRA #1 commenced on July 1, 2014 and expired on June 30, 2015. The total cost to the Company was $387,730.

On December 15, 2015, we entered into a second Sponsored Research Agreement ("SRA #2") with UCSB, pursuant to which UCSB performed research work for the mutual benefit of UCSB and the Company. The purpose of SRA #2 included the development of a graphene based optical modulator for the high-speed transmission of digital data in fiber optic networks. The term of SRA #2 commenced on January 1, 2016 and expired on June 30, 2016. The total cost to the Company was $65,497.

On March 9, 2017, we entered into our third Sponsored Research Agreement (“SRA #3”) with UCSB, pursuant to which UCSB will continue the development of a graphene based optical modulator for the high-speed transmission of digital data in fiber optic networks. The term of SRA #3 commenced on April 1, 2017 and concluded on September 30, 2017. The total cost to the Company was $65,009.

On January 5, 2015, Carbon Sciences formed Transphene, Inc., a Nevada corporation ("Transphene"), of which the Company owns 50% of the total issued and outstanding capital stock. The remaining 50% is owned by Dr. Kaustav Banerjee ("Banerjee"), a director and Chief Technical Officer of Transphene. Transphene was formed to commercialize any technology that the Company licensed from UCSB as a result of SRA #1. In consideration for its interest in Transphene, the Company agreed to assign the intellectual property rights acquired by the Company from SRA #1 to Transphene. At this time, the Company does not see an opportunity to commercialize the research findings of SRA #1, has not licensed any intellectual property from UCSB, and therefore has not assigned any intellectual property to Transphene. Therefore, we terminated our joint venture through Transphene and wound up and dissolved Transphene in 2016. There have been no financial transactions in Transphene and no impact on our financial statements.

XML

SUBSEQUENT EVENTS

9 Months Ended

Sep. 30, 2017

Notes to Financial Statements

10. SUBSEQUENT EVENTS

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

We received advances under the June 2017 $500,000 CPN of $80,000 on October 13, 2017 and $75,000 on November 8, 2017.

On October 12, 2017, Unleashed Future Holdings, LLC, a limited liability company owned by a retirement account of which Mr. Gerard Hug, the chief executive officer and a director of the Company, is a beneficiary, purchased an option for $7,000 to buy up to 7,000 shares of Series B Preferred Stock (the “Shares”) from the Current Holder (the “Option”). The exercise price of the Option is $100 per Share for a total exercise price of $700,000. The Option may be exercised on a cash or a cashless basis. Each Share is convertible into shares of the Company’s common stock in accordance with the terms and conditions of the Series B Certificate. Unleashed Future Holdings, LLC is eligible to exercise all or part of the Option after the Company’s consolidated gross revenue, calculated in accordance with generally accepted accounting principles, consistently applied, equals or exceeds $2,000,000, on an annualized basis, as reported in the Company’s quarterly or annual financial statements.

On October 30, 2017, we provided UCSB with notice to exercise our right to negotiate a license for use of any invention subject to the March 9, 2017 Sponsored Research Agreement (SAR #3) (see Note 9). We have 90 days from the date of our notice to conclude a license agreement with UCSB. If we successfully conclude a license agreement with UCSB, then we must diligently proceed with the commercial development and early marketing of the invention.

XML

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)

9 Months Ended

Sep. 30, 2017

Summary Of Significant Accounting Policies Policies

Income (Loss) per Share Calculations

Basic net income or loss per common share (Basic EPS) is computed by dividing net income or loss by the weighted average number of common shares outstanding. Diluted net income or loss per common share (Diluted EPS) is computed by dividing net income or loss by the sum of the weighted average number of common shares outstanding and the dilutive potential common share equivalents then outstanding. Potential dilutive common share equivalents consist of shares issuable upon the exercise of outstanding stock options and warrants to acquire common stock using the treasury stock method and the average market price per share during the period.

Since we had no dilutive effect of stock options and warrants for the three months and nine months ended September 30, 2017 and 2016, our basic weighted average number of common shares outstanding is the same as our diluted weighted average number of common shares outstanding. The Company has excluded 1,408,750 common shares for exercisable options, 6,000 common shares for exercisable common stock purchase warrants, approximately 229,567,000 common shares issuable upon exercise of convertible notes payable and approximately 359,000,000 common shares issuable upon the conversion of outstanding shares of Series B preferred stock for the three months and nine months ended September 30, 2017. The Company has excluded 1,410,000 common shares for exercisable options, 46,000 common shares for exercisable common stock purchase warrants, approximately 114,041,000 common shares issuable upon exercise of convertible notes payable and approximately 359,000,000 common shares upon exercise of convertible Series B preferred stock for the three months and nine months ended September 30, 2016.

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 September 30, 2017 and December 31, 2016, the amounts reported for cash, accrued interest and other expenses, and notes payable approximate the fair value because of their short maturities.

We have adopted ASC Topic 820 (originally issued as SFAS 157, “Fair Value Measurements”) for financial instruments measured at 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 1 measurements) 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. Liabilities measured at fair value on a recurring basis are as follows at September 30, 2017 and December 31, 2016:

	Total		Level 1		Level 2		Level 3
September 30, 2017:
Derivative liabilities	$	19,040,203	$	-	$	-	$	19,040,203
Total liabilities measured at fair value	$	19,040,203	$	-	$	-	$	19,040,203
December 31, 2016:
Derivative liabilities	$	6,690,697	$	-	$	-	$	6,690,697
Total liabilities measured at fair value	$	6,690,697	$	-	$	-	$	6,690,697

During the nine months ended September 30, 2017, the Company had the following activity in its derivative liabilities:

	Convertible Notes Payable			Series B Preferred Stock		Total
Derivative liability at December 31, 2016	$	3,335,906		$	3,354,791	$	6,690,697
Addition to liability for new debt/shares issued		640,000			-		640,000
Elimination of liability on conversion to common shares		(49,668	)		-		(49,668	)
Change in fair value		11,703,807			55,367		11,759,174
Derivative liability at September 30, 2017	$	15,630,045		$	3,410,158	$	19,040,203

Derivative Liabilities

We have identified the conversion features of our convertible notes payable and our Series B preferred stock as derivatives. We estimate the fair value of the derivatives associated with our convertible notes payable using the Black-Scholes pricing model and estimate the fair value of the derivatives associated with our Series B preferred stock using a multinomial lattice model based on projections of various potential future outcomes. We estimate the fair value of the derivative liabilities at the inception of the financial instruments, at the date of conversions to equity and at each reporting date, recording a derivative liability, debt discount, additional paid-in capital and a gain or loss on change in derivative liabilities as applicable. These estimates are based on multiple inputs, including the market price of our stock, interest rates, our stock price volatility, variable conversion prices based on market prices as defined in the respective agreements and probabilities of certain outcomes based on management projections. These inputs are subject to significant changes from period to period and to management’s judgment; therefore, the estimated fair value of the derivative liabilities will fluctuate from period to period, and the fluctuation may be material.

Recently Issued Accounting Pronouncements

In July 2017, the FASB issued Accounting Standards Update ("ASU") 2017-11, "Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480) and Derivatives and Hedging (Topic 815): I. Accounting for Certain Financial Instruments with Down Round Features; II. Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Non-controlling Interests with a Scope Exception." Part I of this update addresses the complexity of accounting for certain financial instruments with down round features. Down round features are features of certain equity-linked instruments (or embedded features) that result in the strike price being reduced on the basis of the pricing of future equity offerings. Current accounting guidance creates cost and complexity for entities that issue financial instruments (such as warrants and convertible instruments) with down round features that require fair value measurement of the entire instrument or conversion option. Part II of this update addresses the difficulty of navigating Topic 480, "Distinguishing Liabilities from Equity," because of the existence of extensive pending content in the FASB Accounting Standards Codification. This pending content is the result of the indefinite deferral of accounting requirements about mandatorily redeemable financial instruments of certain nonpublic entities and certain mandatorily redeemable non-controlling interests. The amendments in Part II of this update do not have an accounting effect. This ASU is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018. The Company is currently unable to determine the impact on its consolidated financial statements of the adoption of this new accounting pronouncement.

In January 2017, the FASB issued Accounting Standards Update ("ASU") No. 2017-4, "Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment." This update simplifies how an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. Step 2 measures a goodwill impairment loss by comparing the implied fair value of a reporting unit's goodwill with the carrying amount of that goodwill. Instead, under the amendments in this update, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit's fair value. An entity should apply the amendments in this update on a prospective basis. An entity is required to disclose the nature of and reason for the change in accounting principle upon transition. That disclosure should be provided in the first annual period and in the interim period within the first annual period when the entity initially adopts the amendments in this update. A public business entity that is a Securities and Exchange Commission (“SEC”) filer should adopt the amendments in this update for its annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. The Company is currently unable to determine the impact on its financial statements of the adoption of this new accounting pronouncement.

In January 2017, the FASB issued ASU No. 2017-1, "Business Combinations (Topic 805): Clarifying the Definition of a Business." The amendments in this update clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The definition of a business affects many areas of accounting including acquisitions, disposals, goodwill, and consolidation. The amendments of this ASU are effective for public business entities for annual periods beginning after December 15, 2018, and interim periods within annual periods beginning after December 15, 2019. The amendments in this update are to be applied prospectively on or after the effective date. The Company is currently unable to determine the impact on its financial statements of the adoption of this new accounting pronouncement.

Although there are several other new accounting pronouncements issued or proposed by the FASB, which the Company has adopted or will adopt, as applicable, the Company does not believe any of these accounting pronouncements has had or will have a material impact on its financial position or results of operations.

Reclassifications

Certain amounts in the condensed financial statements for the nine months ended September 30, 2016 have been reclassified to conform to the presentation for the nine months ended September 30, 2017.

XML

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Tables)

9 Months Ended

Sep. 30, 2017

Summary Of Significant Accounting Policies Tables

Fair Value Measurements, Assets and Liabilities, Recurring Basis

Liabilities measured at fair value on a recurring basis are as follows at September 30, 2017 and December 31, 2016:

	Total		Level 1		Level 2		Level 3
September 30, 2017:
Derivative liabilities	$	19,040,203	$	-	$	-	$	19,040,203
Total liabilities measured at fair value	$	19,040,203	$	-	$	-	$	19,040,203
December 31, 2016:
Derivative liabilities	$	6,690,697	$	-	$	-	$	6,690,697
Total liabilities measured at fair value	$	6,690,697	$	-	$	-	$	6,690,697

Schedule of Derivative Liabilities at Fair Value

During the nine months ended September 30, 2017, the Company had the following activity in its derivative liabilities:

	Convertible Notes Payable			Series B Preferred Stock		Total
Derivative liability at December 31, 2016	$	3,335,906		$	3,354,791	$	6,690,697
Addition to liability for new debt/shares issued		640,000			-		640,000
Elimination of liability on conversion to common shares		(49,668	)		-		(49,668	)
Change in fair value		11,703,807			55,367		11,759,174
Derivative liability at September 30, 2017	$	15,630,045		$	3,410,158	$	19,040,203

XML

STOCK OPTIONS AND WARRANTS (Tables)

9 Months Ended

Sep. 30, 2017

Stock Options And Warrants Tables

Schedule of Stock Options, Activity

A summary of the Company’s stock option awards as of September 30, 2017, and changes during the nine months then ended is as follows:

	Shares			Weighted Average Exercise Price		Weighted Average Remaining Contract Term (Years)		Aggregate Intrinsic Value
Outstanding at December 31, 2016		1,410,000		$	0.19
Granted		-		$	-
Exercised		-		$	-
Forfeited or expired		(1,250	)	$	29.20
Outstanding and exercisable at September 30, 2017		1,408,750		$	0.17		2.98	$	-

XML

DERIVATIVE LIABILITIES (Tables)

9 Months Ended

Sep. 30, 2017

Series B Preferred Stock [Member]

Fair Value Inputs, Quantitative Information

The significant assumptions used in the valuation of the derivative liability at September 30, 2017 are as follows:

Conversion to stock	Monthly
Stock price on the valuation date	$0.054
Conversion price	$0.0045
Years to maturity	15.0
Expected volatility	192.40	%

Convertible Notes Payable [Member]

Fair Value Inputs, Quantitative Information

The significant assumptions used in the Black Scholes valuation of the derivative liability at September 30, 2017 are as follows:

Stock price on the valuation date	$0.054
Conversion price for the debt	$0.0045 - $0.0205
Dividend yield	0.00	%
Years to maturity	.78 – 1.00
Risk free rate	1.26% - 1.31	%
Expected volatility	178.30% - 233.90	%

XML

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details) - USD ($)	Sep. 30, 2017	Dec. 31, 2016
Derivative liabilities	$ 19,040,203	$ 6,690,697
Total liabilities measured at fair value	19,040,203	6,690,697
Fair Value, Inputs, Level 1 [Member]
Derivative liabilities
Total liabilities measured at fair value
Fair Value, Inputs, Level 2 [Member]
Derivative liabilities
Total liabilities measured at fair value
Fair Value, Inputs, Level 3 [Member]
Derivative liabilities	19,040,203	6,690,697
Total liabilities measured at fair value	$ 19,040,203	$ 6,690,697

XML

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details 1)	9 Months Ended
	Sep. 30, 2017 USD ($)
Derivative liability at December 31, 2016	$ 6,690,697
Addition to liability for new debt/shares issued	640,000
Elimination of liability on conversion to common shares	(49,668)
Change in fair value	11,759,174
Derivative liability at September 30, 2017	19,040,203
Series B Preferred Stock [Member]
Derivative liability at December 31, 2016	3,354,791
Addition to liability for new debt/shares issued
Elimination of liability on conversion to common shares
Change in fair value	55,367
Derivative liability at September 30, 2017	3,410,158
Convertible Notes Payable [Member]
Derivative liability at December 31, 2016	3,335,906
Addition to liability for new debt/shares issued	640,000
Elimination of liability on conversion to common shares	(49,668)
Change in fair value	11,703,807
Derivative liability at September 30, 2017	$ 15,630,045

XML

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details Narrative) - shares	Sep. 30, 2017	Sep. 30, 2016
Common shares excluded for exercisable options	1,408,750	1,410,000
Common shares purchase of warrants	6,000	46,000
Series B Preferred Stock [Member]
Common shares issuable upon exercise	359,000,000	359,000,000
Convertible Notes Payable [Member]
Common shares issuable upon exercise	229,567,000	114,041,000

XML

CAPITAL STOCK (Details Narrative) - USD ($)

1 Months Ended

9 Months Ended

Sep. 30, 2017

Mar. 31, 2016

Sep. 30, 2017

Sep. 30, 2016

Aug. 31, 2017

Dec. 31, 2016

Apr. 29, 2016

Apr. 28, 2016

Mar. 02, 2016

Common stock, par value

$ 0.001

$ 0.001

$ 0.001

Common stock, authorized shares

2,000,000,000

2,000,000,000

2,000,000,000

2,000,000,000

100,000,000

Preferred stock, par value

$ 0.001

$ 0.001

$ 0.001

Preferred stock, authorized shares

20,000,000

20,000,000

20,000,000

Voting power for the merger amount

50.00%

Reverse stock split Description

On April 20, 2016, the Company amended its articles of incorporation to reduce the number of authorized shares of common stock from 1,000,000,000 to 100,000,000 and to affect a one-for-ten reverse stock split of its authorized, issued and outstanding shares of common stock.

Debt Conversion, Converted Instrument, Shares Issued

2,565,527

3,028,018

Stock Issued During Period, Value, Conversion of Convertible Securities

$ 24,000

$ 10,450

Loss on settlement of debt

29,371

39,005

Penalty per day for failer to deliver of shares

$ 1,500

1,500

Convertible Promissory Notes [Member]

Debt conversion original debt amount

$ 1,615,362

2,565

3,028

Accrued Interest Payable [Member]

Debt conversion original debt amount

$ 264,530

$ 4,649

3,176

Series B Preferred Stock [Member]

Preferred stock, par value

$ 100

$ 100

$ 0.001

Preferred stock, authorized shares

30,000

Conversion price description

The conversion price is the lesser of (1) Fifty Percent (50%) of the lowest trade price of Common Stock recorded on any trade day after December 12, 2012 or (2) the lowest effective price per share granted to any person or entity, including the Holder but excluding officers and directors of the Company, to acquire Common Stock, or adjusted, whether by operation of purchase price adjustment, settlement agreements, exchange agreements, reset provision, floating conversion or otherwise, any outstanding warrant, option or other right to acquire Common Stock or outstanding Common Stock equivalents (the "Conversion Price").

Preferred Stock Including Additional Paid In Capital

$ 3,000,000

$ 3,000,000

Preferred stock, outstanding shares

16,155

16,155

16,155

Preferred Stock value outstanding

$ 1,615,500

$ 1,615,500

Debt conversion original debt amount

$ 1,615,362

Debt Conversion, Converted Instrument, Shares Issued

16,155

Stock Issued During Period, Value, Conversion of Convertible Securities

$ 16

Series A Preferred Stock [Member]

Conversion price description

The shares of the Series A Preferred Stock shall be automatically redeemed by the Company at their par value on the first to occur of the following: (i) a date one 120 days after the effective date of the Series A Certificate

Series A Preferred Stock [Member] | Board of Directors [Member]

Preferred stock, par value

$ 0.001

$ 0.001

Stock Issued During Period Shares New Issues

1,000

Series A Preferred Stock [Member] | Board of Directors [Member] | Maximum [Member]

Preferred stock, authorized shares

1,000

Reverse Stock Split [Member] | Common Stock [Member]

Debt Conversion, Converted Instrument, Shares Issued

816

Stock Issued During Period, Value, Conversion of Convertible Securities

$ 1

Derivative liabilities [Member]

Debt conversion original debt amount

49,668

33,756

Additional Paid-in Capital [Member]

Debt conversion original debt amount

$ 105,123

83,359

Additional Paid-in Capital [Member] | Reverse Stock Split [Member]

Stock Issued During Period, Value, Conversion of Convertible Securities

$ 1

XML

STOCK OPTIONS AND WARRANTS (Details)	9 Months Ended
	Sep. 30, 2017 USD ($) shares
Stock Options And Warrants Details
Outstanding shares, Beginning	1,410,000
Granted
Exercised
Forfeited or expired	(1,250)
Outstanding and exercisable shares, Ending	1,408,750
Weighted Average Exercise Price warrants, Beginning	0.19
Weighted Average Exercise Price, Granted
Weighted Average Exercise Price, Exercised
Weighted Average Exercise Price, Forfeited or expired	29.20
Weighted Average Exercise Price, Ending	0.17
Exerciseable weighted Average Remainung Contract Term	2 years 11 months 23 days
Exercisable, Aggregate Intrinsic Value | $

XML

STOCK OPTIONS AND WARRANTS (Details Narrative) - $ / shares

9 Months Ended

Sep. 30, 2017

Dec. 31, 2016

Stock options granted

1,408,750

1,410,000

Warrants, Outstanding

6,000

46,000

Warrant, Exercise Price

$ 5.00

Employee Stock Option [Member]

Stock options granted

1,408,750

Fair Value Assumptions, Method Used

Black-Scholes option pricing model

Vesting Period of Award

25 months

Common Stock [Member]

Stock price on the valuation date

$ 0.0054

XML

CONVERTIBLE NOTES PAYABLE (Details Narrative) - USD ($)						1 Months Ended	3 Months Ended		9 Months Ended
	Jun. 02, 2017	Mar. 04, 2016	Sep. 06, 2013	Jun. 04, 2013	Mar. 14, 2013	Dec. 31, 2012	Sep. 30, 2017	Sep. 30, 2016	Sep. 30, 2017	Sep. 30, 2016	Sep. 12, 2017	Aug. 11, 2017	Jul. 10, 2017	May 08, 2017	Apr. 12, 2017	Mar. 09, 2017	Feb. 28, 2017	Feb. 13, 2017	Jan. 10, 2017	Dec. 06, 2016	Nov. 08, 2016	Oct. 17, 2016	Sep. 13, 2016	Aug. 08, 2016	Jul. 06, 2016	Jun. 22, 2016	May 20, 2016	Apr. 11, 2016	Mar. 17, 2016	Mar. 14, 2016
Debt Conversion, Converted Instrument, Shares Issued									2,565,527	3,028,018
Amortization of debt discount to interest expense									$ 571,556	$ 586,909
Gain (loss) on settlement of debt							$ 14,054		(29,371)	(39,005)
Convertible Notes Payable [Member]
Debt Conversion, Original Debt, Amount									24,000	10,450
Gain (loss) on settlement of debt							14,054	$ 0	29,371	$ 39,005
Convertible Notes Payable 27 [Member] | June 2017 Convertible Promissory Note [Member]
Debt Instrument, Face Amount											$ 85,000
Convertible promissory notes discount											$ 85,000
Amortization of debt discount to interest expense									4,192
Convertible Notes Payable 26 [Member] | June 2017 Convertible Promissory Note [Member]
Debt Instrument, Face Amount												$ 80,000
Convertible promissory notes discount												$ 80,000
Amortization of debt discount to interest expense									10,959
Convertible Notes Payable 25 [Member] | June 2017 Convertible Promissory Note [Member]
Debt Instrument, Face Amount													$ 80,000
Convertible promissory notes discount													$ 80,000
Amortization of debt discount to interest expense									17,972
Convertible Notes Payable 24 [Member] | June 2017 Convertible Promissory Note [Member]
Debt Instrument, Face Amount	$ 60,000
Convertible promissory notes discount	$ 60,000
Amortization of debt discount to interest expense									19,726
Convertible Notes Payable 23 [Member] | June 2017 Convertible Promissory Note [Member]
Debt Instrument, Interest Rate, Stated Percentage	3.00%
Debt Instrument, Face Amount	$ 500,000
Debt Instrument, Convertible, Terms of Conversion Feature	convertible into shares of our common stock at a price per share equal to the lesser of: $0.03; 50% of the lowest trade price of our common stock subsequent to the effective date of the note; or the lowest effective price per share granted to any person or entity (exclusive of our officers and directors) to acquire common stock subsequent to the effective date of the note.
Convertible Notes Payable 22 [Member] | March 2016 Convertible Promissory Note [Member]
Debt Instrument, Face Amount														$ 60,000
Convertible promissory notes discount														$ 60,000
Amortization of debt discount to interest expense									23,835
Convertible Notes Payable 21 [Member] | March 2016 Convertible Promissory Note [Member]
Debt Instrument, Face Amount															$ 95,000
Convertible promissory notes discount															$ 95,000
Amortization of debt discount to interest expense									44,507
Convertible Notes Payable 20 [Member] | March 2016 Convertible Promissory Note [Member]
Debt Instrument, Face Amount																$ 60,000
Convertible promissory notes discount																$ 60,000
Amortization of debt discount to interest expense									33,699
Convertible Notes Payable 19 [Member] | March 2016 Convertible Promissory Note [Member]
Debt Instrument, Face Amount																		$ 60,000
Convertible promissory notes discount																		$ 60,000
Amortization of debt discount to interest expense									37,644
Convertible Notes Payable 18 [Member] | March 2016 Convertible Promissory Note [Member]
Debt Instrument, Face Amount																			$ 60,000
Convertible promissory notes discount																			$ 60,000
Amortization of debt discount to interest expense									43,233
Convertible Notes Payable 17 [Member] | March 2016 Convertible Promissory Note [Member]
Debt Instrument, Face Amount																				$ 60,000
Convertible promissory notes discount																				$ 60,000
Amortization of debt discount to interest expense									41,479
Convertible Notes Payable 16 [Member] | March 2016 Convertible Promissory Note [Member]
Debt Instrument, Face Amount																					$ 55,000
Convertible promissory notes discount																					$ 55,000
Amortization of debt discount to interest expense									41,137
Convertible Notes Payable 15 [Member] | March 2016 Convertible Promissory Note [Member]
Debt Instrument, Face Amount																						$ 55,000
Convertible promissory notes discount																						$ 55,000
Amortization of debt discount to interest expense									41,137
Convertible Notes Payable 14 [Member] | March 2016 Convertible Promissory Note [Member]
Debt Instrument, Face Amount																							$ 55,000
Convertible promissory notes discount																							$ 55,000
Amortization of debt discount to interest expense									38,575
Convertible Notes Payable 13 [Member] | March 2016 Convertible Promissory Note [Member]
Amortization of debt discount to interest expense									36,164
Convertible Notes Payable 13 [Member] | March 2016 Convertible Promissory Note [Member]
Debt Instrument, Face Amount																								$ 60,000
Convertible promissory notes discount																								$ 60,000
Convertible Notes Payable 12 [Member] | March 2016 Convertible Promissory Note [Member]
Amortization of debt discount to interest expense									44,573
Convertible Notes Payable 12 [Member] | March 2016 Convertible Promissory Note [Member]
Debt Instrument, Face Amount																									$ 87,000
Convertible promissory notes discount																									$ 87,000
Convertible Notes Payable 11 [Member] | March 2016 Convertible Promissory Note [Member]
Debt Instrument, Face Amount																										$ 50,000
Convertible promissory notes discount																										$ 50,000
Amortization of debt discount to interest expense									23,699
Convertible Notes Payable 10 [Member] | March 2016 Convertible Promissory Note [Member]
Debt Instrument, Face Amount																											$ 60,000
Convertible promissory notes discount																											$ 60,000
Amortization of debt discount to interest expense									23,014
Convertible Notes Payable 9 [Member] | March 2016 Convertible Promissory Note [Member]
Debt Instrument, Face Amount																												$ 90,000
Convertible promissory notes discount																												$ 90,000
Amortization of debt discount to interest expense									24,904
Convertible Notes Payable 8 [Member] | March 2016 Convertible Promissory Note [Member]
Debt Instrument, Face Amount																													$ 33,000
Convertible promissory notes discount																													$ 33,000
Amortization of debt discount to interest expense									11,392
Convertible Notes Payable 7 [Member] | March 2016 Convertible Promissory Note [Member]
Debt Instrument, Face Amount																														$ 27,000
Convertible promissory notes discount																														$ 27,000
Amortization of debt discount to interest expense									5,400
Convertible Notes Payable 6 [Member] | March 2016 Convertible Promissory Note [Member]
Debt Instrument, Face Amount		$ 1,000,000					19,000		$ 19,000
Debt Instrument, conversion price		$ 0.03
Convertible promissory notes discount		$ 25,000
Debt Instrument, Convertible, Terms of Conversion Feature		convertible into shares of our common stock at a price per share equal to the lesser of: $0.03; 50% of the lowest trade price of our common stock subsequent to the effective date of the note; or the lowest effective price per share granted to any person or entity (exclusive of our officers and directors) to acquire common stock subsequent to the effective date of the note.
Debt Conversion, Converted Instrument, Shares Issued									1,069,028
Accrued interest							2,915		$ 2,915
Amortization of debt discount to interest expense									4,315
Convertible Notes Payable 5 [Member] | Exchanged Note [Member]
Debt Instrument, Interest Rate, Stated Percentage			10.00%
Debt Instrument, Face Amount			$ 5,000														$ 5,000
Debt Instrument, conversion price			$ 0.042
Convertible promissory notes discount			$ 2,536
Debt Conversion, Original Debt, Amount			$ 5,000
Debt Instrument, Convertible, Terms of Conversion Feature			convertible into shares of our common stock at a price equal to a conversion price of the lesser of $0.042 per share or fifty percent (50%) of the lowest trade price recorded after the effective date.
Debt Conversion, Converted Instrument, Shares Issued			1,496,499
Accrued interest																	$ 1,734
Convertible Notes Payable 1 [Member] | Convertible Promissory Notes - Services 1 [Member]
Debt Instrument, Interest Rate, Stated Percentage						5.00%
Debt Instrument, Face Amount						$ 58,600	25,980		25,980
Debt Instrument, conversion price						$ 2.00
Convertible promissory notes discount						$ 57,050
Debt Instrument maturity date						Dec. 31, 2014
Convertible Notes Payable 2 [Member] | Convertible Promissory Notes - Services 1 [Member]
Debt Instrument, Face Amount							32,620		32,620
Convertible Notes Payable 3 [Member] | Accounts Payable [Member]
Debt Instrument, Interest Rate, Stated Percentage					5.00%
Debt Instrument, Face Amount					$ 29,500
Debt Instrument, conversion price					$ 1.50
Debt Instrument maturity date					Mar. 14, 2015
Convertible Notes Payable 4 [Member] | Convertible Promissory Notes - Services 2 [Member]
Debt Instrument, Interest Rate, Stated Percentage				5.00%
Debt Instrument, Face Amount				$ 25,000			$ 2,352		$ 2,352
Debt Instrument, conversion price				$ 0.35
Debt Instrument maturity date				Jun. 30, 2016

XML

DERIVATIVE LIABILITIES (Details) - Convertible Notes Payable [Member]	9 Months Ended
	Sep. 30, 2017 $ / shares
Stock price on the valuation date	$ 0.054
Dividend yield	0.00%
Minimum [Member]
Conversion price for the debt	$ 0.0045
Years to maturity	9 months 11 days
Risk free rate	1.26%
Expected volatility	178.30%
Maximum [Member]
Conversion price for the debt	$ 0.0205
Years to maturity	1 year
Risk free rate	1.31%
Expected volatility	233.90%

XML

DERIVATIVE LIABILITIES (Details 1) - Series B Preferred Stock [Member]	9 Months Ended
	Sep. 30, 2017 $ / shares
Conversion to stock	Monthly
Stock price on the valuation date	$ 0.054
Conversion price	$ 0.0045
Years to maturity	15 years
Expected volatility	192.40%

XML

DERIVATIVE LIABILITIES (Details Narrative) - USD ($)	Dec. 31, 2017	Sep. 30, 2017	Dec. 31, 2016
Derivative liability		$ 19,040,203	$ 6,690,697
Series B Preferred Stock [Member]
Derivative liability	$ 3,354,791	3,410,158	3,354,791
Convertible Notes Payable [Member]
Derivative liability		$ 15,630,045	$ 3,335,906

XML

SUPPLEMENTAL STATEMENT OF CASH FLOWS INFORMATION (Details Narrative) - USD ($)	9 Months Ended
	Sep. 30, 2017	Sep. 30, 2016
Interest Paid	$ 1,328	$ 1,063
Debt Conversion, Converted Instrument, Shares Issued	2,565,527	3,028,018
Stock Issued During Period, Value, Conversion of Convertible Securities	$ 24,000	$ 10,450
(Loss) gain on settlement of debt	29,371	$ 39,005
Series B Preferred Stock [Member]
Debt Conversion, Converted Instrument, Shares Issued		16,155
Debt Conversion, Original Debt, Amount		$ 1,615,362
Stock Issued During Period, Value, Conversion of Convertible Securities		16
Increase (Decrease) in Derivative Liabilities		9,750,930
Series B Preferred Stock [Member] | Additional Paid-in Capital [Member]
Stock Issued During Period, Value, Conversion of Convertible Securities		11,630,806
Convertible Debt [Member]
Stock Issued During Period, Value, Conversion of Convertible Securities		(185,752)
Increase (Decrease) in Derivative Liabilities		106,858
Increase Decrease in Debt Discount for the Period	640,000	537,000
Contribution to capital		325,809
Accrued interest [Member]
Debt Conversion, Original Debt, Amount	4,649	3,176
Accrued interest [Member] | Series B Preferred Stock [Member]
Debt Conversion, Original Debt, Amount		264,530
Accrued interest [Member] | Convertible Debt [Member]
Debt Conversion, Original Debt, Amount		33,199
Convertible Notes Payable [Member]
Debt Conversion, Original Debt, Amount	$ 24,000	$ 10,450
Common Stock [Member]
Debt Conversion, Converted Instrument, Shares Issued	2,565,527	3,028,018
Increase (Decrease) in Derivative Liabilities	$ (49,668)	$ 33,756
Common Stock [Member] | Convertible Notes Payable [Member]
Stock Issued During Period, Value, Conversion of Convertible Securities	2,565	3,028
Additional Paid-in Capital [Member]
Debt Conversion, Original Debt, Amount	105,123	83,359
Additional Paid-in Capital [Member] | Reverse stock split [Member]
Stock Issued During Period, Value, Conversion of Convertible Securities		(1)
Additional Paid-in Capital [Member] | Convertible Notes Payable [Member]
Stock Issued During Period, Value, Conversion of Convertible Securities	$ 105,123	83,359
Preferred Stock [Member]
Increase (Decrease) in Derivative Liabilities		$ 3,908,211

XML

RESEARCH AGREEMENTS AND FORMATION OF SUBSIDIARY (Details Narrative) - USD ($)			1 Months Ended	3 Months Ended		9 Months Ended
	Mar. 09, 2017	Dec. 15, 2015	Jun. 18, 2014	Sep. 30, 2017	Sep. 30, 2016	Sep. 30, 2017	Sep. 30, 2016	Jan. 05, 2015
Research and devlopment cost				$ 32,504		$ 65,009	$ 65,497
SRA 1 [Member]
Research and devlopment cost			$ 387,730
Research agreement commencement date			Jul. 01, 2014
Research agreement expire date			Jun. 30, 2015
SRA 2 [Member]
Research and devlopment cost		$ 65,497
Research agreement commencement date		Jan. 01, 2016
Research agreement expire date		Jun. 30, 2016
SRA 3 [Member]
Research and devlopment cost	$ 65,009
Research agreement commencement date	Apr. 01, 2017
Research agreement expire date	Sep. 30, 2017
Dr. Kaustav Banerjee [Member] | Board of Directors [Member]
Noncontrolling interest, ownership percentage by noncontrolling owners								50.00%

XML

SUBSEQUENT EVENTS (Details Narrative) - USD ($)

Oct. 12, 2017

Nov. 08, 2017

Oct. 13, 2017

Sep. 30, 2017

Jun. 30, 2017

Dec. 31, 2016

Advances received against convertible promissory note

$ 500,000

Convertible promissory note

$ 29,500

$ 39,917

Subsequent Event [Member]

Advances received against convertible promissory note

$ 75,000

$ 80,000

Convertible promissory note

$ 500,000

Subsequent Event [Member] | Equity Option [Member] | Chief Executive Officer | Series B Preferred Stock [Member]

Option description

Purchased an option for $7,000 to buy up to 7,000 shares of Series B Preferred Stock (the “Shares”) from the Current Holder (the “Option”).

Exercise price per share

$ 100

Total exercise price

$ 700,000

Subsequent Event [Member] | Equity Option [Member] | Chief Executive Officer | LLC [Member]

Eligible revenue for exercise of option

$ 2,000,000