Carbon Sciences Inc.

Analyst: Victor Sula, Ph.D. Report Update March 2nd, 2009

2/27/09

CABN daily

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Carbon Sciences Inc. 5511-C Ekwill Street Santa Barbara, CA 93111

0.16 0.15 volume

© BigCharts.com 400 300 200 100

Thousands

Tel.: (805) 456-7000 Fax: (805) 681-1300 E-mail: info@carbonsciences.com Website: www.carbonsciences.com

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Company Introduction

MARKET DATA

Symbol Exchanges Current Price Rating Outstanding shares Market Cap.

Feb

CABN OTC BB $0.25 Speculative Buy 148.34 Million $37.09 Million

Source: Yahoo Finance, Analyst Estimates

Carbon Sciences Inc. (OTCBB: CABN) is developing a breakthrough technology for transforming harmful carbon dioxide (CO2) emissions into the basic fuel building blocks required to produce gasoline, diesel fuel, jet fuel and other portable fuels.

In September 2008, CABN announced this innovative new technology at the First International Summit on Policy, Technology and Investment, hosted by Cambridge University. CABN’s CEO described the Company’s program to use CO2 as a feedstock for producing portable fuels and simultaneously address the world’s energy and environmental challenges. CABN’s CO2-to-fuel technology takes CO2 from coal-fired power plants and other large CO2 emitters and transforms it into portable fuels.

Since the beginning of the industrial revolution, low cost fossil fuels such as oil and coal have powered the world’s economic growth.

Today, industrialization has accelerated on a global scale and the world is consuming more fossil fuel than ever before. Demand for depleting fossil fuel resources has driven the price of energy to previously unimagined levels and in the process released billions of tons of CO2 into the atmosphere. The U.S. Energy Information Administration projects that global energy consumption will increase 50% by 2030 to over 112 million barrels of crude oil per day; nearing a critical point many energy analysts call Peak Oil. This dual crisis of energy depletion and climate change threatens living standards and the security of nations.

The world is highly dependent on the existing transportation and fuel delivery infrastructure. Automobiles, trucks, trains and planes powered by portable fuels are crucial to our way of life. Alternative

Carbon Sciences Inc. (OTCBB: CABN)

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Analyst: Victor Sula, Ph.D. Report Update March 2nd, 2009

fuel technologies being developed by others such as fuel cells and hydrogen will require substantial infrastructure changes to be deployed on a large scale. CABN’s technology, which transforms harmful byproducts of fossil fuel usage (CO2) into additional usable fuel, holds tremendous potential since it reduces harmful CO2 emissions while creating fuel that can be distributed through the existing infrastructure. CABN’s solution simultaneously addresses the problems of sustainable fuel supplies and climate stability.

Recent Developments Working prototype The Company just announced the completion of its highly anticipated prototype, engineered to demonstrate CABN’s proprietary biocatalytic CO2-to-fuel process.

Applying CABN’s patent-pending technology in a laboratory scale prototype, the Company has successfully transformed a stream of CO2 gas into methanol fuel. The demonstration prototype uses Carbon Sciences’ innovative biocatalytic process to break down CO2 and water, then combines the carbon and hydrogen to form methanol, a low level liquid fuel. The resulting methanol is directly usable as a fuel, or it can be used to build higher-level fuels such as gasoline, butanol and jet fuel. The Company is in the process of designing and developing expanded biocatalytic process technologies to create these higher-level fuels from CO2.

Patent Application After successfully completing technology design and simulations, CABN submitted a patent application, “A Biocatalytic Process and System to Transform Carbon Dioxide into Methanol” to the U.S. Patent and Trademark Office on February 17, 2009.

National media coverage The Company’s CO2-to-fuel technology has been recognized in the national media. In a recent article in USA Today, author Paul Davidson recognized Carbon Sciences as “running ahead” of all other CO2-to-fuel technologies and included the following graphic illustrating the process:

Turning carbon dioxide into fuel Carbon Sciences uses recyclable biocatalysts to break down CO2 and water, then combine the carbon and hydrogen to form liquid fuel.

The Santa Barbara, Calif., start-up says the catalysts can perform the reaction with just a small amount of energy, and should make CO2-to-fuels economically viable. A simplified example of how the process is designed to work:

Oxygen atoms removed

Carbon dioxide (CO2) molecules are taken from carbon-dioxide source.

Fossil fuel power plant

Carbon atom

Oxygen atoms (2) Water (H2O) molecules are taken from water source.

Water source

Oxygen atom

Hydrogen atoms (2) Sources: Carbon Sciences, USA TODAY research

The molecules are put through a catalytic process in which oxygen atoms are removed from CO2 and H20.

Biocatalysts transform carbon and hydrogen atoms into basic hydrocarbons.

Carbon and hydrogen atoms combined.

Gasoline

Hydrocarbons transformed into a variety of fuels:

How much to make gasoline?

About 65 cubic feet of carbon dioxide and ten gallons of water are needed to make one gallon of gasoline.

Jet fuel

65 cubic feet

Diesel fuel

Methanol

of carbon dioxide

Ten gallons of water

Propane

Butane

One gallon

of gasoline

By Karl Gelles, USA TODAY

Carbon Sciences Inc. (OTCBB: CABN)

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Analyst: Victor Sula, Ph.D. Report Update March 2nd, 2009

CO2-to-Fuel Technology Described CABN’s technology entails transforming CO2 emissions into the basic building blocks for producing gasoline and other fuels. The Company is developing a scalable biocatalytic process that leverages its expertise in chemical engineering and bio-engineering.

To produce fuel, hydrogen and carbon atoms must be bonded to create hydrocarbon molecules. In general, the greater the number of carbon atoms in the hydrocarbon molecule, the greater the energy content of that fuel. Due to high reactivity, carbon atoms do not usually exist in a pure form, but rather as components of other molecules.

CO2 is one of the most prevalent sources of carbon atoms; however, significant amounts of energy are required to break CO2 apart and extract carbon atoms for new hydrocarbons. Because of the energy required, CO2-to-fuel transformation technologies have not been economically viable in the past. However, CABN is developing a new highly scalable process requiring significantly less energy that may make the process economical.

With more than 43 billion tons of annual CO2 emissions projected by the year 2030, up from 28 billion tons in 2005, there is an abundant supply of raw materials available to produce sustainable fuels for global energy consumption.

Biocatalytic process Current approaches for CO2-to-fuel transformation include: 1. Direct photolysis, which uses intense light energy to break off oxygen atoms from CO2; and 2. Chemically reacting CO2 gas with hydrogen to create methane or methanol.

Both of these engineering approaches require immense energy to drive high pressure and high temperature chemical processes.

CABN’s CO2-to-fuel approach relies on a proprietary multi-step biocatalytic process. Instead of using expensive catalysts such as zinc, gold or zeolite with traditional catalytic chemical processes, the Company’s process uses inexpensive, renewable bio-molecules to catalyze chemical reactions that transform CO2 into basic hydrocarbon building blocks. The Company’s process occurs at low temperature and low pressure, thereby requiring far less energy than other approaches.

CABN biocatalytic process

Source: http://www.carbonsciences.com/01/technology_co2fuel.html

Carbon Sciences Inc. (OTCBB: CABN)

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Analyst: Victor Sula, Ph.D. Report Update March 2nd, 2009

The biocatalyst employed in each stage of the process helps to create an intermediate, hydrogen-carbon compound that can be acted upon in the next step with less energy. At the end of the process, the various hydrogencarbon compounds are assembled into basic hydrocarbons such as C1 (one carbon atom - e.g. methane), C2 (two carbon atoms - e.g. ethane) and C3 (three carbon atoms - e.g. propane). These fundamental hydrocarbons can then be used to produce more complex fuels such as gasoline (C7-C10) and jet fuel (C10-C16), with already available technology.

CO2-to-fuel transformation plant CABN’s CO2-to-fuel technology will be deployed in a complete plant level process that takes CO2 from a large emitter such as a power plant, and produces usable fuels as the output.

The complete process includes the following major components: 1. CO2 Flue Gas Processor, to purify the CO2 stream and remove heavy particulates. The Company’s process does not require high purity CO2, hence low cost CO2 capture and processing; 2. Biocatalyst Unit, to regenerate the biocatalysts for the CO2 transformation process; 3. Biocatalytic Reactor Matrix, the primary and largest part of the plant where mass quantities of biocatalysts work in a matrix of liquid reaction chambers, where the multi-stage breakdown of CO2 and its transformation into basic gas and liquid hydrocarbons happens. These reactors are inexpensive, low temperature and low-pressure vessels. The number of reactors determines the size and output capacity of the plant; 4. Filtration, to filter liquid solutions through membrane units to extract liquid fuels. Gaseous fuels are extracted through condensers; and 5. Conversion and Polishing. The output from the filtration stage consists of simple hydrocarbons (C1-C3).

These hydrocarbons can be easily processed into more complex fuels such as gasoline and jet fuel through commercially available catalytic converters.

CO2-to-fuel transformation plant

Source: http://www.carbonsciences.com/01/technology_co2fuel.html

Carbon Sciences Inc. (OTCBB: CABN)

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Analyst: Victor Sula, Ph.D. Report Update March 2nd, 2009

Financial Results Income statement CABN is still in an early development stage, has yet to report any revenues and is unlikely to report revenues for at least three years. Management recently announced the completion of the Company’s technology demonstration prototype, which will be introduced in the first quarter of 2009, and anticipates building a small scale pilot plant by year-end 2010.

During the first nine months of 2008, CABN recognized expenses of $776,284 relating mainly to selling, marketing, general and administrative costs, and research and development.

Income statement, $ 9 months 2007

9 months 2008

679,796 483,228 151,253 40,925 4,390

776,284 441,694 127,012 194,943 12,635

14% -9% -16% 376% 188%

Other Income (Expense) Net Income

9,015 -670,781

17,615 -758,669

95% n/m

Diluted EPS, $

($0.005)

($0.005)

n/m

Revenue Operating expenses Sales & marketing General and administrative Research and development Depreciation expense

% Chg

Source: SEC Filings

Liquidity and capital resources As of September 30, 2008, CABN had working capital of $140,424, down from $942,782 at year-end 2007. During the first nine months of 2008, the Company financed its operations with cash raised through the sale of commons stock.

Balance sheet items, $ thousands 30-Sep-07

31-Dec-07

31-Mar-08

30-Jun-08

30-Sep-08

Cash and equivalents Net Working Capital Total Assets

910.5 1,122.4 1,212.1

831.0 942.8 1,202.3

632.8 720.7 792.1

320.4 477.6 545.4

165.9 140.4 289.9

Liabilities, including Debt Equity

37.6 1,174.4

10.5 1,011.6

6.9 785.2

4.4 545.4

37.0 252.9

Source: SEC Filings

Carbon Sciences Inc. (OTCBB: CABN)

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Analyst: Victor Sula, Ph.D. Report Update March 2nd, 2009

The Company expects to extend its research and development activities through 2010. Management anticipates CABN’s existing resources will be sufficient to support research and development efforts over the next 12 months. However, additional financing will likely be sought in the first half of 2009.

Analyst Summary Since our last update, CABN’s stock price has increased from $0.15 at September 25, 2008 to $0.25 currently. The major reason for the price increase is the anticipation of the Company’s CO2-to-fuel technology.

The Company is developing and commercializing a new technology for transforming CO2 emissions into the basic building blocks required to produce gasoline, diesel fuel, jet fuel and other fuels. CABN’s CO2-to-fuel process can be configured to produce a variety of hydrocarbon fuels by bonding together hydrogen and carbon atoms, and requires significantly less energy than conventional approaches. The CO2-to-fuel process potentially represents a multi-billion dollar market opportunity with worldwide energy consumption projected to increase 50% by 2030. The continuing depletion of fossil fuels resources and the expected increase of crude oil prices make renewable fuel produced from CO2 feedstock an attractive alternative. We believe this is a very exciting direction and development for CABN. We regard CABN as a long-term investment play whose value lies in its innovative technology and huge potential markets. Exciting new applications for the Company’s technology in multi-billion dollar energy markets position CABN to capitalize on near-term opportunities associated with greenhouse gas emissions mitigation.

As a result, we are reiterating our Speculative Buy rating for CABN shares. We plan to re-evaluate our revenue forecasts and price target as more information becomes available about planned technology deployments in the energy markets.

Carbon Sciences Inc. (OTCBB: CABN)

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Analyst: Victor Sula, Ph.D. Report Update March 2nd, 2009

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The report is a service of BlueWave Advisors, LLC, a financial public relations firm that has been compensated by the companies profiled. All direct and third party compensation received has been disclosed within each individual profile in accordance with section 17(b) of the Securities Act of 1933. This compensation constitutes a conflict of interest as to our ability to remain objective in our communication regarding the profiled companies. BlueWave Advisors, LLC, and/or its affiliated will hold, buy, and sell securities in the companies profiled. When compensated in shares, all readers should be aware that is our policy to liquidate all shares immediately. We reserve the right to buy or sell the shares of any the companies mentioned in any materials we produce at any time. This compensation constitutes a conflict of interest as to our ability to remain objective in our communication regarding the profiled companies. Principals of BlueWave Advisors, LLC have purchased three hundred thousand shares of restricted stock from CABN at fifteen cents per share, and one million shares of restricted stock from CABN at ten cents per share; additionally, BlueWave Advisors, LLC and its affiliates have been compensated a total of sixty-thousand dollars directly from Carbon Sciences Inc. as a marketing budget to manage a comprehensive investor awareness program including the creation and distribution of this report as well as other investor relations efforts.

Information contained in our report will contain “forward looking statements” as defined under Section 27A of the Securities Act of 1933 and Section 21B of the Securities Exchange Act of 1934. Subscribers are cautioned not to place undue reliance upon these forward looking statements. These forward looking statements are subject to a number of known and unknown risks and uncertainties outside of our control that could cause actual operations or results to differ materially from those anticipated. Factors that could affect performance include, but are not limited to, those factors that are discussed in each profiled company’s most recent reports or registration statements filed with the SEC. You should consider these factors in evaluating the forward looking statements included in the report and not place undue reliance upon such statements.

We are committed to providing factual information on the companies that are profiled. However, we do not provide any assurance as to the accuracy or completeness of the information provided, including information regarding a profiled company’s plans or ability to effect any planned or proposed actions. We have no first-hand knowledge of any profiled company’s operations and therefore cannot comment on their capabilities, intent, resources, nor experience and we make no attempt to do so. Statistical information, dollar amounts, and market size data was provided by the subject company and related sources which we believe to be reliable.

To the fullest extent of the law, we will not be liable to any person or entity for the quality, accuracy, completeness, reliability, or timeliness of the information provided in the report, or for any direct, indirect, consequential, incidental, special or punitive damages that may arise out of the use of information we provide to any person or entity (including, but not limited to, lost profits, loss of opportunities, trading losses, and damages that may result from any inaccuracy or incompleteness of this information).

We encourage you to invest carefully and read investment information available at the websites of the SEC at http://www.sec.gov and FINRA at http://www.finra.org.

All decisions are made solely by the analyst and independent of outside parties or influence.

I, Victor Sula, Ph.D, the author of this report, certify that the material and views presented herein represent my personal opinion regarding the content and securities included in this report. In no way has my opinion been influenced by outside parties, nor has my compensation been either directly or indirectly tied to the performance of any security listed. I certify that I do not currently own, nor will own and shares or securities in any of the companies featured in this report.

Victor Sula, Ph.D. - Senior Analyst Victor Sula, Ph.D. has held the position of Senior Analyst with several independent investment research firms since 2004. Prior to 2004, Mr. Sula held Senior Financial Consultant positions within the World Bank sponsored Agency for Restructuring and Enterprise Assistance and TACIS sponsored Center for Productivity and Competitiveness of Moldova, where he was involved in corporate reorganization and liquidation. He is also employed as Associate Professor at the Academy of Economic Studies of Moldova. Mr. Sula earned his Ph.D. degree in 2001 and bachelor’s degree in Finance in 1997 from the Academy of Economic Studies of Moldova. Mr. Sula is currently a level III candidate in the CFA program.

Carbon Sciences Inc. (OTCBB: CABN)

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