Analyst: Victor Sula, Ph.D.

Report Updated
September 29th, 2008

CABN daily 9/28/2008

0.40

0.35

0.30

0.25

0.20

0.15

Carbon Sciences Inc. 0.10

5511-C Ekwill Street 0.05

Santa Barbara, CA 93111 volume © BigCharts.com
400

Thousands
Tel.: (805) 456-7000 300

200
Fax: (805) 681-1300
100
E-mail: info@carbonsciences.com 0
Website: www.carbonsciences.com Jul Aug Sep

MARKET DATA Company Introduction

Carbon Sciences Inc. (OTCBB: CABN) is developing a breakthrough
technology for transforming harmful carbon dioxide (CO2) emis-
Symbol CABN
sions into high value products such as fuel and industrial chemical
Exchanges OTC BB
Current Price $0.15
compounds.
Price Target $2.30
Rating Speculative Buy In September 2008, CABN announced an innovative new technolo-
Outstanding Shares 148.34 Million gy for transforming CO2 into gasoline and other fuels. At the recent
Market Cap. $22.25 Million First International Summit on Policy, Technology and Investment
hosted by Cambridge University, CABN’s CEO described the Com-
pany’s program to use CO2 as a feedstock for producing portable
Source: Yahoo Finance, Analyst Estimates fuels and simultaneously addressing the world’s energy and envi-
ronmental challenges. CABN’s CO2-to-fuel technology takes CO2
from power plants and transforms it into basic building blocks for
producing gasoline, diesel fuel, jet fuel and other 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 pre-
viously unimagined levels and in the process released billions of
tons of CO2 into the atmosphere. The U.S. Energy Information Ad-
ministration projects that global energy consumption will increase
50% by 2020 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
 Analyst: Victor Sula, Ph.D.
Report Updated
September 29th, 2008

powered by portable fuels are crucial to our way of life. Alternative 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.

The Company’s technical development efforts are based on its proprietary CO2-to-Carbonate technology that has
been in development over the past year. In May 2008, the Company announced initial applications for its CO2-to-
Carbonate technology in a near-term, multi-billion dollar market. The application involves a process for transform-
ing CO2 emissions into a high-value chemical compound called Precipitated Calcium Carbonate (PCC), which is
used in large quantities in the manufacture of paper, pharmaceuticals and plastics. Unlike existing methods, CABN’s
innovative process is carbon-neutral, uses less energy, and results in lower product costs. The Company has com-
pleted its initial technology development and is currently engaged in discussions with potential strategic partners
regarding licensing and further co-development efforts for its CO2-to-Carbonate technology.

Recent Developments
New research and development center

In August 2008, CABN announced the opening of a new research and development center designed to expedite
the development and commercialization of its technology. CABN decided to move into a new, larger facility that
could accelerate the research and development process by putting all of the Company’s research and engineering
team under one roof. Research at the center will focus on further development of CABN’s innovative technology for
transforming CO2 into high value products such as fuel and industrial chemical compounds, with a strong focus on
transformation to fuel.

New CO2-to-fuel technology

n September 2008, CABN announced its program to develop a technology for transforming CO2 into the basic
building blocks required to produce gasoline, diesel fuel, jet fuel and other portable fuels. By transforming CO2 into
fuel, the Company’s technology could provide the solution for sustainable fuel consumption and climate stability.
CABN’s technology could be used to transform CO2 emitted from fossil fuel power plants into gasoline.

With more than 28 billion tons of CO2 emitted into the atmosphere each year, there is an abundant supply of raw
materials available to produce sustainable fuels for global energy consumption.

Carbon Sciences Inc. (OTCBB: CABN) 2

 Analyst: Victor Sula, Ph.D.
Report Updated
September 29th, 2008

CO2-to-Fuel Technology

CABN is focused on its new technology, which 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.

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) 3

 Analyst: Victor Sula, Ph.D.
Report Updated
September 29th, 2008

The biocatalyst employed in each stage of the process helps to create an intermediate, carbon-infused compound
that can be acted upon in the next step with less energy. At the end of the process, the various carbon-infused com-
pounds 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 pro-
duce 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 emit-
ter 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 commer-
cially available catalytic converters.

CO2-to-fuel transformation plant

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

Carbon Sciences Inc. (OTCBB: CABN) 4

 Analyst: Victor Sula, Ph.D.
Report Updated
September 29th, 2008

Financial Results

CABN is still in an early-development stage, has yet to report any revenues, and is not likely to report revenues for
at least three years. Management anticipates completing research and development and building its technology
demonstration prototype by year-end 2010.

During the first six months of 2008, CABN recognized expenses of $484,965, consisting mainly of selling, marketing,
general and administrative, and research and development costs. The Company’s net loss declined to $470,638 in the
first six months of 2008 from $543,870 in the same period of 2007.

Operating results, $ thousands

H1 2007 H1 2008 %Chg

Revenue - - -
Operating expenses 542,668 484,965 -11%
Sales & marketing 409,047 308,082 -25%
General and administrative 125,194 78,008 -38%
Research and development 5,500 90,451 1545%
Depreciation expense 2,927 8,424 188%

Other Income (Expense) (1,202) 14,327 n/m

Net Income (543,870) (470,638) n/m

Diluted EPS, $ (0.004) (0.003) n/m

Source: SEC Filings

Liquidity and capital resources

As of June 30, 2008, CABN had working capital of $477,568, down from $942,782 at year-end 2007. During the first six
months of 2008, the Company financed its operations with cash raised earlier through equity private placements.

Carbon Sciences Inc. (OTCBB: CABN) 5

 Analyst: Victor Sula, Ph.D.
Report Updated
September 29th, 2008

Balance sheet items, $ thousands

30-Sep-07 3 1-Dec-07 31-Mar-0 30-Jun-08

Cash and equivalents 910.5 831.0 632.8 320.4

Net Working Capital 1,122.4 942.8 720.7 477.6
Total Assets 1,212.1 1,202.3 792.1 545.4

Liabilities, including 37.6 10.5 6.9 4.4

Debt - - - -
Equity 1,174.4 1,011.6 785.2 545.4

Source: SEC Filings

The Company expects to continue its research and development activities through 2010. Management anticipates
CABN’s existing capital will be sufficient to support research and development efforts over the next 12 months.
However, additional financing will likely be sought in the fourth quarter of 2008.

Carbon Sciences Inc. (OTCBB: CABN) 6

 Analyst: Victor Sula, Ph.D.
Report Updated
September 29th, 2008

Analyst Summary

Since our last update, CABN’s stock price has declined from $0.31 in mid-June to $0.15 at September 25, 2008. The
major reasons for the price decline are uncertainties regarding its technology’s future commercial success and gen-
eral market volatility.

The Company is developing and commercializing two technologies:

1. 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 bond-
ing 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 con-
sumption projected to increase 50% by 2030. The continuing depletion of fossil fuels resources and rising 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.

2. Transforming CO2 emissions into high value carbonate products (Precipitated Calcium Carbonate or PCC)
used in the production of paper, pharmaceuticals and plastics. Unlike existing methods, CABN’s proprietary process
is carbon neutral, uses less energy, and results in lower product costs. The multi-billion dollar global PCC market is
projected to grow to 10 million tons by 2010 as a result of increased worldwide paper consumption and construction.
Of the forecasted total, approximately 70% of the PCC produced will be used by the paper industry as a brightness
coating and filler.

We regard CABN as a long-term investment play whose value lies in its innovative technology, multiple technology
applications and huge potential markets. Exciting new application 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 and PCC and longer-term growth as a fuel processor and supplier.

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

Carbon Sciences Inc. (OTCBB: CABN) 7

 Analyst: Victor Sula, Ph.D.
Report Updated
September 29th, 2008

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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 posi-
tions 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) 8