**SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

**FORM        10-QSB**

 

*(Mark        One)*

|   | þ | Quarterly report under Section 13 or 15(d) of the Securities                        Exchange Act of 1934 for the quarterly period ended**September 30, 2007** |
|--------|---------|---------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

|   |  ̈ | Transition report under Section 13 or 15(d) of the                        Securities Exchange Act of 1934 for the transition period from to                        . |
|--------|-------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

Commission file number:**000-28429**

 

**PLANKTOS CORP**

**(formerly “Diatom Corporation”)**

 

(Exact        name of small business issuer as specified in its charter)

 

 

| **Nevada**

(State or other jurisdiction of

incorporation or organization) | **68-0423301**

(I.R.S. Employer

Identification No.) |
|-----------------------------------------------------------------------------|-------------------------------------------------------|

 

 

**1151 Triton Drive, Suite C, Foster City, California        94404** 

(Address        of principal executive office) (Zip Code)

 

**(650) 638-1975**

(Issuer’s telephone number)

 

Check        whether the Company: (1) filed all reports required to be filed by Section 13 or 15(d) of        the Exchange Act during the past 12 months (or for such shorter period that the Company was        required to file such reports), and (2) has been subject to such filing requirements for        the past 90 days.

 

|   | Yes  þ | No   ̈ |
|--------|------------------------|---------------------|

 

 

Indicate by        check mark whether the Company is a shell company (as defined in Rule 12b-2 of the Exchange        Act).

|   | Yes   ̈ | No  þ |
|--------|----------------------|-----------------------|

         

 

The        number of outstanding shares of the registrant’s common stock, $0.001 par value (the        only class of voting stock) as of December 7, 2007 was 84,751,838.

 

1

         

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**TABLE OF CONTENTS**

**           **Page**    **PART I.**     **ITEM 1.                    FINANCIAL STATEMENTS**  3   Unaudited Consolidated Balance Sheets as                            of September 30, 2007  4   Unaudited Consolidated Statements of                            Operations for the three and nine month periods ended September 30,                            2007 and 2006  5   Unaudited Consolidated Statements of                            Cash Flows for the nine month periods ended September 30, 2007 and                            2006  6   Notes to Unaudited Financial                            Statements  7                 **ITEM 2. MANAGEMENT'S PLAN OF                            OPERATION**  17  **ITEM 3.                    CONTROLS AND PROCEDURES**  24 **PART II.**     **ITEM 1.                    LEGAL PROCEEDINGS**  25  **ITEM 2.                    UNREGISTERED SALES OF EQUITY SECURITIES**  25  **ITEM 3.                    DEFAULTS UPON SENIOR SECURITIES**  25  **ITEM 4.                    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS**  25  **ITEM 5.                    OTHER INFORMATION**  25  **ITEM 6.                    EXHIBITS**  26  **SIGNATURES**  27 **INDEX TO                    EXHIBITS**  28 **
**            2        **

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**PART        I**

 

| **ITEM 1.** | **FINANCIAL STATEMENTS** |
|-------------|--------------------------|

 

As used        herein, the terms “Company,” “we,” “our,” and        “us” refers to Planktos Corp. (formerly “Diatom Corporation”), a        Nevada corporation, and our subsidiaries and predecessors, unless otherwise indicated. In        the opinion of management, the accompanying unaudited financial statements included in this        Form 10-QSB reflect all adjustments (consisting only of normal recurring accruals)        necessary for a fair presentation of the results of operations for the periods presented.        The results of operations for the periods presented are not necessarily indicative of the        results to be expected for the full year.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3

         

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| **PLANKTOS CORP**

**(formerly Diatom Corporation)**

**(A Development Stage Company)**

**CONSOLIDATED BALANCE SHEETS** |
|--------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                     |   |   |   |   |   | September 30, |   | December 31, |
|                                                                                                                     |   |   |   |   |   | 2007 |   | 2006 |
|                                                                                                                     |   |   |   |   |   | (unaudited) |   |   |
| **ASSETS**                                                                                                               |   |   |   |   |   |   |
|                                                                                                                     | CURRENT ASSETS |   |   |   |   |   |
|                                                                                                                     |   | Cash |   | $ | 586,712 | $ | 154,238 |
|                                                                                                                     |   | Misc receivables |   |   | 4,567 |   | - |
|                                                                                                                     |   | Prepaid expenses |   |   | 3,374 |   | 7,162 |
|                                                                                                                     |   | Advances receivable |   |   | 76,045 |   | 86,956 |
|                                                                                                                     |   |   |   |   |   |   |   |   |
|                                                                                                                     |   |   | Total Current Assets |   |   | 670,698 |   | 248,356 |
|                                                                                                                     |   |   |   |   |   |   |   |   |
|                                                                                                                     | OTHER ASSETS |   |   |   |   |   |
|                                                                                                                     |   | Vessels and other fixed assets, net of                        depreciation |   |   | 796,727 |   | - |
|                                                                                                                     |   | Deposits |   |   | 4,720 |   | 4,720 |
|                                                                                                                     |   |   |   |   |   |   |   |   |
|                                                                                                                     |   |   | Total Other Assets |   |   | 801,447 |   | 4,720 |
|                                                                                                                     |   |   |   |   |   |   |   |   |
|                                                                                                                     | **TOTAL ASSETS** |   | $ | 1,472,145 | $ | 253,076 |
|                                                                                                                     |   |   |   |   |   |   |   |   |
| **LIABILITIES AND STOCKHOLDERS' EQUITY                        (DEFICIT)**                                                |
|                                                                                                                     | CURRENT LIABILITIES |   |   |   |   |   |
|                                                                                                                     |   | Accounts payable |   | $ | 49,159 | $ | 1,071 |
|                                                                                                                     |   | Other accrued liabilities |   |   | 2,494 |   | 6,501 |
|                                                                                                                     |   | Accrued interest payable – related parties |   |   | 17,951 |   | - |
|                                                                                                                     |   | Payable to affiliates |   |   | - |   | 5,824 |
|                                                                                                                     |   | Loan payable – related parties |   |   | 497,511 |   | 939,750 |
|                                                                                                                     |   |   |   |   |   |   |   |   |
|                                                                                                                     |   |   | Total Current Liabilities |   |   | 567,115 |   | 953,146 |
|                                                                                                                     |   |   |   |   |   |   |   |   |
|                                                                                                                     | COMMITMENTS AND CONTINGENCIES |   |   | - |   | - |
|                                                                                                                     |   |   |   |   |   |   |   |   |
|                                                                                                                     | STOCKHOLDERS' EQUITY (DEFICIT) |   |   |   |   |   |
|                                                                                                                     |   | Common stock, authorized 250,000,000 shares of

$0.001 par value, 84,751,838 and 77,438,838

issued and outstanding respectively |   |   |  

                         

84,752 |   |  

                         

77,439 |
|                                                                                                                     |   | Additional paid-in capital |   |   | 3,433,014 |   | (36,238) |
|                                                                                                                     |   | Deficit accumulated during development stage |   |   | (2,612,736) |   | (741,271) |
|                                                                                                                     |   |   |   |   |   |   |   |   |
|                                                                                                                     |   |   | Total Stockholders' Equity (Deficit) |   |   | 905,030 |   | (700,070) |
|                                                                                                                     | **TOTAL LIABILITIES AND STOCKHOLDERS'**

**EQUITY (DEFICIT)** |   | $ | 1,472,145 | $ | 253,076 |

 

 

 

The        accompanying condensed notes are an integral part of these interim financial        statements.

 

4

         

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| **PLANKTOS CORP**

**(formerly Diatom Corporation)**

**(A Development Stage Company)**

**CONSOLIDATED STATEMENTS OF OPERATIONS** |
|------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                               |   |   |   |   |   |   |   | From Inception |
|                                                                                                                               |   |   |   |   |   |   |   | (February 11, 2005 |
|                                                                                                                               |   |   |   | For the Three Months Ended September 30, |   | For the Nine Months Ended September 30, |   | to September 30, 2007) |
|                                                                                                                               |   | (unaudited) | (unaudited) | (unaudited) |
|                                                                                                                               |   |   |   | 2007 |   | 2006 |   | 2007 |   | 2006 |   |   |
| REVENUES                                                                                                                           | $ | - | $ | - | $ | - | $ | - | $ | - |
|                                                                                                                               |   |   |   |   |   |   |   |   |   |   |   |   |
| OPERATING EXPENSES                                                                                                                 |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                               | Vessel operating expenses |   | 172,702 |   | - |   | 690,469 |   | - |   | 690,469 |
|                                                                                                                               | Research and development |   | 100,000 |   | 5,000 |   | 225,000 |   | 30,400 |   | 267,660 |
|                                                                                                                               | General and administrative |   | 281,408 |   | 143,688 |   | 934,138 |   | 407,611 |   | 1,667,288 |
|                                                                                                                               |   | Total Operating Expenses |   | 554,110 |   | 148,688 |   | 1,849,607 |   | 438,011 |   | 2,625,417 |
|                                                                                                                               |   |   |   |   |   |   |   |   |   |   |   |   |
| LOSS FROM OPERATIONS                                                                                                               |   | (554,110) |   | (148,688) |   | (1,849,607) |   | (438,011) |   | (2,625,417) |
|                                                                                                                               |   |   |   |   |   |   |   |   |   |   |   |   |
| OTHER INCOME (EXPENSE)                                                                                                             |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                               | Other income (expense) |   | 13,606 |   | - |   | 23,258 |   | 8,742 |   | 34,377 |
|                                                                                                                               | Other income- related party |   | - |   | - |   | - |   | 21,000 |   | 61,000 |
|                                                                                                                               | Interest income |   | 328 |   | 1,423 |   | 334 |   | 1,423 |   | 3,856 |
|                                                                                                                               | Interest expense |   | (17,951) |   | (7,061) |   | (17,951) |   | (29,954) |   | (59,052) |
|                                                                                                                               | Other expenses |   | - |   | - |   | (27,500) |   |   |   | (27,500 |
|                                                                                                                               |   | Total Other Income (Expense) | (4,017) |   | (5,638) |   | (21,859) |   | 1,211 |   | 12,681 |
|                                                                                                                               |   |   |   |   |   |   |   |   |   |   |   |   |
| NET LOSS BEFORE INCOME TAX                                                                                                         |   | (558,127) |   | (154,326) |   | (1,871,466) |   | (436,800) |   | (2,612,736) |
| INCOME TAX EXPENSE                                                                                                                 |   | - |   | - |   | - |   | - |   | - |
| NET LOSS                                                                                                                           | $ | (558,127) | $ | (154,326) | $ | (1,871,466) | $ | (436,800) | $ | (2,612,736) |
|                                                                                                                               |   |   |   |   |   |   |   |   |   |   |   |   |
| NET LOSS PER SHARE                                                                                                                 | $ | 0.01 | $ | nil | $ | 0.02 | $ | 0.01 | $ |   |
| WEIGHTED AVERAGE NUMBER OF

COMMON SHARES OUTSTANDING                                                                              |   |   |   |   |   |   |   |   |   |
| 84,751,838                                                                                                                         | 77,438,838 | 84,751,838 | 77,751,838 |
|                                                                                                                                    |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

 

The        accompanying condensed notes are an integral part of these interim financial        statements.

5

         

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| **PLANKTOS CORP**

**(formerly Diatom Corporation)**

**(A Development Stage Company)**

**CONSOLIDATED STATEMENTS OF CASH FLOWS** |
|------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                               |   |   |   | From Inception |
|                                                                                                                               |   |   |   |   |   | (February 11, 2005 |
|                                                                                                                               |   |   |   | For the Nine Months Ended September 30, |   | to September 30, 2007) |
| (unaudited)                                                                                                                        | (unaudited) |
|                                                                                                                               |   |   |   | 2007 |   | 2006 |   |   |
| CASH FLOWS FROM OPERATING ACTIVITIES:                                                                                              |   |   |   |   |   |
| Net loss                                                                                                                           | $ | (1,871,466) | $ | (436,800) | $ | (2,612,736) |
| Adjustments to reconcile net loss to net cash                                                                                      |   |   |   |   |   |   |
| (Used) in operating activities:                                                                                                    |   |   |   |   |   |   |
|                                                                                                                               | Depreciation |   | 9,165 |   | - |   | 9,165 |
|                                                                                                                               | Expenses paid through contribution of paid in                        capital |   |  

- |   |  

29,954 |   |  

41,101 |
|                                                                                                                               | (Increase) decrease in deposits |   | - |   | (4,820) |   | (4,720) |
|                                                                                                                               | (Increase) decrease in prepaid expense & misc.                        receivable |   |  

(779) |   |  

(1,427) |   |  

(7,941) |
|                                                                                                                               | Increase (decrease) in accounts payable |   | 31,281 |   | 535 |   | 32,351 |
|                                                                                                                               | Increase (decrease) in other liabilities |   | (4,007) |   | 55 |   | 2,494 |
|                                                                                                                               | Increase (decrease) in related accounts payable | 17,951 |   | - |   | 17,951 |
|                                                                                                                               |   | Net Cash (Used in) Operating Activities | (1,817,855) |   | (412,503) |   | (2,522,335) |
|  

CASH FLOWS FROM INVESTING ACTIVITIES:                                                                                      |   |   |   |   |   |
|                                                                                                                               |   |   |   |   |   |   |   |   |
|                                                                                                                               | Acquisition of business, net of cash acquired |   | 1,104,892 |   | - |   | 1,104,892 |
|                                                                                                                               |   |   |   |   |   |   |   |
|                                                                                                                               |   | Net Cash (Used in) Investing Activities | 1,104,892 |   | - |   | 1,104,892 |
|  

CASH FLOWS FROM FINANCING ACTIVITIES:                                                                                      |   |   |   |   |   |
|                                                                                                                               |   |   |   |   |   |   |   |
|                                                                                                                               | Issued common stock for cash |   | 853,000 |   | - |   | 853,100 |
|                                                                                                                               | Affiliate receivable |   | (2,089) |   | (96,252) |   | (83,221) |
|                                                                                                                               | Affiliate payable |   | (5,824) |   | - |   | (5,824) |
|                                                                                                                               | Proceeds from payable - related party | 300,350 |   | 789,910 |   | 1,240,100 |
|                                                                                                                               |   |   |   |   |   |   |   |
|                                                                                                                               |   | Net Cash Provided by Financing Activities | 1,145,437 |   | 693,658 |   | 2,004,155 |
|  

NET INCREASE (DECREASE) IN CASH AND                                                                                        |   |   |   |   |   |
| CASH EQUIVALENTS                                                                                                                   |   | 432,474 |   | 281,155 |   | 586,712 |
| CASH AT BEGINNING OF PERIOD                                                                                                        |   | 154,238 |   | 24,890 |   | - |
| CASH AT END OF PERIOD                                                                                                              | $ | 586,712 | $ | 306,045 | $ | 586,712 |
|  

SUPPLIMENTAL CASH FLOW INFORMATION                                                                                         |   |   |   |   |   |
|                                                                                                                               | CASH PAID FOR: |   |   |   |   |   |   |
|                                                                                                                               |   | Interest | $ | - | $ | - |   | - |
|                                                                                                                               |   | Income taxes | $ | - | $ | - | $ | - |

 

The        accompanying condensed notes are an integral part of these interim financial        statements.

 

6

         

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**PLANKTOS CORP**

**(Formerly Diatom Corporation)**

**CONDENSED FOOTNOTES TO INTERIM FINANCIAL STATEMENTS**

**SEPTEMBER 30, 2007**

 

**NOTE        1 – ORGANIZATION AND BASIS OF PRESENTATION**

Planktos        Corp. (the “Company”) was incorporated as “eWorld Travel Corp” on        December 10, 1998 under the laws of the state of Nevada to provide internet-based travel        services. On September 23, 2002, the Company changed its name to “GYK Ventures,        Inc.” and on July 8, 2005 to “Diatom Corporation”. On March 8, 2007, the        Company changed its name to “Planktos Corp.” in anticipation of the business        acquisition of Planktos, Inc. (“Planktos”).

On January 12, 2007, the Company entered into an agreement with Solar Energy        Limited (“Solar”)to acquire 100% of the issued and outstanding shares of        Planktos (a development stage enterprise), a California corporation incorporated on        February 11, 2005, in exchange for 45,000,000 restricted shares of the Company’s        common stock, the cancellation of 45,000,000 outstanding restricted shares and a commitment        to provide Planktos with no less than $1,000,000 on or before closing.  

In        anticipation of closing the agreement to acquire Planktos and as part of its commitment to        fund Planktos’ business operations, the Company purchased the Weatherbird II shipping        vessel as a platform from which Planktos could conduct sea trials designed to validate its        oceanic carbon sequestration process. 

On August        9, 2007 the agreement to acquire Planktos closed with the Company’s issuance of        45,000,000 shares to Solar, the completion of a private equity placement in the aggregate        amount of $1,078,000 and the cancellation of 45,000,000 outstanding restricted shares        submitted for cancellation by certain of the Company’s stockholders in satisfaction        of the terms of the acquisition.  

On        completion of the acquisition, the Company’s stockholders prior to the acquisition        retained approximately 46% of the outstanding common shares while Solar acquired        approximately 54% of the Company’s outstanding common shares. Accordingly, this        acquisition is in essence a recapitalization of the Company and has been accounted for in        accordance with the principles applicable to accounting for reverse acquisitions with        Planktos, the legal subsidiary, being treated as the accounting parent and the Company, the        legal parent, being treated as the accounting subsidiary. The results of operations and        cash flows of the Company include those of Planktos for all periods presented and those of        the Company subsequent to the date of the reverse acquisition. 

 

Planktos is        an emerging biotechnology company engaged in the discovery and development of marketable        opportunities attendant to the Kyoto Protocol. Planktos’ near term commercial        objective is to produce carbon credits utilizing proprietary technology designed to restore        the world’s oceans and forests as a means by which to sequester CO2 in the        environment. Since Planktos is in the development stage, it has not realized any revenues        from its planned operations. 

As shown in the accompanying financial statements, the Company has incurred        significant losses since inception and has not generated any revenues to date.  The        future of the Company is dependent upon its ability to obtain sufficient financing and upon        achieving future profitable operations.  These factors, among others, raise        substantial doubt about the Company's ability to continue as a going concern.  The        accompanying consolidated financial statements do not include any adjustments that might        result from the outcome of this uncertainty.

 

7

         

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**PLANKTOS CORP**

**(Formerly Diatom Corporation)**

**CONDENSED FOOTNOTES TO INTERIM FINANCIAL STATEMENTS**

**SEPTEMBER 30, 2007**

 

**NOTE        1 – ORGANIZATION AND BASIS OF PRESENTATION- continued**

 

**Unaudited Financial Statements**

 

The        accompanying unaudited interim consolidated financial statements have been prepared in        accordance with generally accepted principals for interim financial information and with        the instruction to Form 10-QSB of Regulation S-B. They do not include all information and        footnotes required by United States generally accepted accounting principles for complete        financial statements. However, except as disclosed herein, there has been no material        changes in the information disclosed in the notes to the financial statements for the year        ended December 31, 2006 included in the Company’s Annual Report on Form 10-KSB filed        with the Securities and Exchange Commission. The interim unaudited financial statements        should be read in conjunction with those financial statements included in the Form 10-KSB        and the Form 8-K dated August 10, 2007. In the opinion of Management, all adjustments        considered necessary for a fair presentation, consisting solely of normal recurring        adjustments, have been made. Operating results for the nine months ended September 30, 2007        are not necessarily indicative of the results that may be expected for the year ending        December 31, 2007.

 

**NOTE 2        – SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES**

 

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

 

Accounting Method

The        Company’s financial statements are prepared using the accrual basis of accounting in        accordance with accounting principles generally accepted in the United States of        America.

 

Cash and        Cash Equivalents

For        purposes of the statement of cash flows, the Company considers all highly liquid        investments with original maturities of three months or less to be cash        equivalents.

 

 

 

 

 

 

 

 

8

         

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**PLANKTOS CORP**

**(Formerly Diatom Corporation)**

**CONDENSED FOOTNOTES TO INTERIM FINANCIAL STATEMENTS**

**SEPTEMBER 30, 2007**

 

**NOTE        2 – SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES - continued**

 

Derivative Instruments

The        Financial Accounting Standards Board issued Statement of Financial Accounting Standards No.        133, “Accounting for Derivative Instruments and Hedging Activities”        (hereinafter “SFAS No. 133”), as amended by SFAS No. 137, “Accounting for        Derivative Instruments and Hedging Activities – Deferral of the Effective Date of        FASB No. 133”, and SFAS No. 138, “Accounting for Certain Derivative Instruments        and Certain Hedging Activities”, and SFAS No. 149, “Amendment of Statement 133        on Derivative Instruments and Hedging Activities”. These statements establish        accounting and reporting standards for derivative instruments, including certain derivative        instruments embedded in other contracts, and for hedging activities. They require that an        entity recognize all derivatives as either assets or liabilities in the balance sheet and        measure those instruments at fair value.

 

If certain        conditions are met, a derivative may be specifically designated as a hedge, the objective        of which is to match the timing of gain or loss recognition on the hedging derivative with        the recognition of (i) the changes in the fair value of the hedged asset or liability that        are attributable to the hedged risk or (ii) the earnings effect of the hedged forecasted        transaction. For a derivative not designated as a hedging instrument, the gain or loss is        recognized in income in the period of change.

 

At        September 30, 2007 and 2006, the Company has not engaged in any transactions that would be        considered derivative instruments or hedging activities.

 

If certain        conditions are met, a derivative may be specifically designated as a hedge, the objective        of which is to match the timing of gain or loss recognition on the hedging derivative with        the recognition of (i) the changes in the fair value of the hedged asset or liability that        are attributable to the hedged risk or (ii) the earnings effect of the hedged forecasted        transaction. For a derivative not designated as a hedging instrument, the gain or loss is        recognized in income in the period of change.

 

At        September 30, 2007 and 2006, the Company has not engaged in any transactions that would be        considered derivative instruments or hedging activities.

 

Earnings        Per Share

The Company        has adopted Statement of Financial Accounting Standards No. 128, which provides for        calculation of “basic” and “diluted” earnings per share. Basic        earnings per share includes no dilution and

is computed        by dividing net income (loss) available to common shareholders by the weighted average        common shares outstanding for the period. Diluted earnings per share reflect the potential        dilution of securities that could share in the earnings of an entity similar to fully        diluted earnings per share. Basic and diluted loss per share was the same, at the reporting        dates, as there were no common stock equivalents outstanding.

 

Fair        Value of Financial Instruments

The        Company’s financial instruments as defined by Statement of Financial Accounting        Standards No. 107, “Disclosures about Fair Value of Financial Instruments,”        include cash, trade accounts receivable, and accounts payable and accrued expenses. All        instruments are accounted for on a historical cost basis, which, due to the short maturity        of these financial instruments, approximates fair value at September 30, 2007 and December        31, 2006.

 

 

9

         

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**PLANKTOS CORP**

**(Formerly Diatom Corporation)**

**CONDENSED FOOTNOTES TO INTERIM FINANCIAL STATEMENTS**

**SEPTEMBER 30, 2007**

 

**NOTE        2 – SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES - continued**

 

Going        Concern 

As shown in        the accompanying financial statements at September 30, 2007 and December 31, 2006, the        Company had no revenues and an accumulated deficit. The Company is currently putting        operations in place which will, if successful, mitigate these factors which raise        substantial doubt about the Company’s ability to continue as a going        concern.

 

An        estimated $2,000,000 is believed necessary to continue operations and increase development        through the next fiscal year. The timing and amount of capital requirements will depend on        a number of factors, including the creation and demand for its products.

 

Management’s plans are to seek additional capital from new equity        securities offerings that will provide funds needed to increase liquidity, fund internal        growth and fully implement its business plan.

 

The        financial statements do not include any adjustments relating to the recoverability and        classification of recorded assets, or the amounts and classification of liabilities that        might be necessary in the event the Company cannot continue in existence.

 

Provision for Taxes

Income        taxes are provided based upon the liability method of accounting pursuant to Statement of        Financial Accounting Standards No. 109 “Accounting for Income Taxes.” Under        this approach, deferred income taxes are recorded to reflect the tax consequences in future        years of differences between the tax basis of assets and liabilities and their financial        reporting amounts at each year-end. A valuation allowance is recorded against deferred tax        assets if management does not believe the Company has met the “more likely than        not” standard imposed by SFAS No. 109 to allow recognition of such an        asset.

 

Recent Accounting Pronouncements

In February        2007, the Financial Accounting Standards Board issued Statement of Financial Accounting        Standards No. 159, “The Fair Value Option for Financial Assets and Financial        Liabilities – Including an amendment of FASB Statement No. 115” (hereinafter        “SFAS No. 159”). This statement permits entities to choose to measure many        financial instruments and certain other items at fair value. The objective is to improve        financial reporting by providing entities with the opportunity to mitigate volatility in        reported earnings cause by measuring related assets and liabilities differently without        having to apply complex hedge accounting provisions. This Statement is expected to expand        the use of fair value measurement, which is consistent with the Board’s long-term        measurement objectives for accounting for financial instruments. This statement is        effective as of the beginning of an entity’s first fiscal year that begins after        November 15, 2007, although earlier adoption is permitted. Management has not determined        the effect that adopting this statement would have on the Company’s financial        condition for results of operations.

 

In        June 2006, the Financial Accounting Standards Board (FASB) issued FASB Interpretation        No. 48, “Accounting for Uncertainty in Income Taxes—an interpretation of        FASB Statement No. 109.” This statement clarifies the accounting for uncertainty        in income tax positions.  The Company adopted the provisions of FIN 48 on January 1,        2007. The Company did not make any adjustment to opening retained earnings as a result of        the implementation. The Company recognizes interest accrued related to unrecognized tax        benefits along with penalties in operating expenses. During the nine months ended September        30, 2007, the Company did not recognize any interest or penalties relating to income        taxes.

 

10

         

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**PLANKTOS CORP**

**(Formerly Diatom Corporation)**

**CONDENSED FOOTNOTES TO INTERIM FINANCIAL STATEMENTS**

**SEPTEMBER 30, 2007**

 

**NOTE        2 – SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES - continued**

 

Reclassification

Certain        amounts from prior periods have been reclassified to conform to the current period        presentation. This reclassification has resulted in no changes to the Company’s        accumulated deficit or net losses presented.

 

Use        of Estimates

The process        of preparing financial statements in conformity with accounting principles generally        accepted in the United States of America requires the use of estimates and assumptions        regarding certain types of assets, liabilities, revenues, and expenses. Such estimates        primarily relate to unsettled transactions and events as of the date of the financial        statements. Accordingly, upon settlement, actual results may differ from estimated        amounts.

 

Vessels

Vessels and        other fixed assets are stated at cost less accumulated depreciation. Vessels and other        fixed assets are depreciated when the asset is ready for its intended use.

 

Depreciation is calculated, based on cost, less estimated residual value,        using the straight-line method, over the remaining economic life of each asset. The costs        of significant replacements, renewals and betterments are capitalized and depreciated over        the shorter of the assets remaining estimated useful life or the estimated life of the        renewal or betterment. Expenditures for routine maintenance and repairs are expensed as        incurred.

 

Following        are the estimated useful lives of vessels and other fixed assets:

| i.   | Vessels - on a straight line basis from date of acquisition                        over a period of 25 years. |
|----------------|--------------------------------------------------------------------------------------------------------------------|

| ii.   | Marine equipment on a straight line basis from date of                        acquisition over a period of five years. |
|-----------------|------------------------------------------------------------------------------------------------------------------------|

 

 

**NOTE        3 - VESSEL AND OTHER FIXED ASSETS**

 

On        January 23, 2007 the Company purchased the Weatherbird II shipping vessel in anticipation        of closing the agreement to acquire Planktos. The acquisition closed on August 9,        2007.

 

Vessel        and other fixed assets consist of the following at September 30, 2007 and December 31,        2006:

 

|   | September 30, | December 31, |
|--------|---------------|--------------|

|   | 2007 | 2006 |
|--------|------|------|

 

|   | Research Vessel “Weatherbird II” | $ | 800,000 | $ | - |
|--------|----------------------------------------------|---|---------|---|---|

|   | Marine Equipment | 23,306 | - |
|--------|------------------|--------|---|

|   | 823,306 | - |
|--------|---------|---|

|   | Accumulated Depreciation | 26,579 | - |
|--------|--------------------------|--------|---|

|   | Net Vessel & Equipment | $ | 796,727 | $ | - |
|--------|----------------------------|---|---------|---|---|

 

 

 

11

         

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**PLANKTOS CORP**

**(Formerly Diatom Corporation)**

**CONDENSED FOOTNOTES TO INTERIM FINANCIAL STATEMENTS**

**SEPTEMBER 30, 2007**

 

**NOTE        4 – RELATED PARTY TRANSACTIONS**

 

On March        13, 2007, the Company issued 50,000 common shares to a director for services valued at        $43,000.

 

During the        nine months ended September 30, 2007, the Company received an additional $98,000 from a        related party. The Company additionally paid back $162,000 in previous loans during the        nine months ended September 30, 2007. As of September 30, 2007 the Company owes this        related party $97,511.

 

During        2007, the Company received an additional $400,000 from related parties and has recorded        accrued interest payable of $17,951 related to these loans.

 

**NOTE        5 – CAPITAL STOCK**

 

Common Stock 

In January        2007 the Company completed a private placement for 4,327,500 units at $0.27 per unit for        cash proceeds of $1,154,000. Each unit consists of one common share and one share purchase        warrant exercisable into one common share at $0.27 for a period of two years.

 

In February        2007 the Company completed a private placement for 1,257,500 units at $0.40 per unit for        cash proceeds of $502,000. Each unit consists of one common share and one share purchase        warrant exercisable into one common share at $0.50 for a period of two years.

 

On March 8,        2007, the Company effected a 1:1.5 forward split of its common stock. All references in the        financial statements to shares, share prices, per share amounts and stock plans have been        adjusted retroactively for the 1:1.5 forward stock split.

 

On March        13, 2007, the Company issued 50,000 common shares for services valued at        $43,000.

 

On May 31,        2007 a requisite number of shareholders authorized the amendment to the Articles of        Incorporation of the Company to increase the number of shares authorized for issuance to        250,000,000 shares of common stock. All shares have equal voting rights, are non-assessable        and have one vote per share. Voting rights are not cumulative and, therefore, the holders        of more than 50% of the common stock could, if they choose to do so, elect all of the        directors of the Company.

 

On June 26,        2007, the Company issued 600,000 common shares on the exercise of 600,000 purchase warrants        at $0.1667 share for cash proceeds of $100,000.

 

In August        2007, the Company cancelled 45,000,000 shares of common stock and issued 45,000,000 shares        of common stock in exchange for all of the outstanding stock of Planktos, Inc.

 

During the        three months period ended September 30, 2007, the Company issued a total of 1,078,000        common shares at $1.00 per share for the cash proceeds of $1,078,000.

 

12

         

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**PLANKTOS CORP**

**(Formerly Diatom Corporation)**

**CONDENSED FOOTNOTES TO INTERIM FINANCIAL STATEMENTS**

**SEPTEMBER 30, 2007**

 

**NOTE        5 – CAPITAL STOCK - continued**

 

Warrants

A summary        of the Company’s warrants at September 30, 2007 and December 31, 2006 and the changes        for 2007 are as follows:

 

|                                              |   |        |   | Weighted |   | Weighted   |
|---------------------------------------------------|--------|-------------|--------|----------|--------|------------|
|                                              |   |        |   | Average  |   | Average    |
|                                              |   | Warrants    |   | Exercise |   | Remaining  |
|                                              |   | Outstanding |   | Price    |   | Life       |
|                                              |   |        |   |     |   |       |
| Balance, December 31, 2006                        |   | 600,000     |   | $ 0.16   |   | -          |
| Issued                                            |   | 5,525,000   |   | 0.32     |   | 1.30       |
| Exercised / Cancelled / Expired                   |   | (600,000)   |   | 0.16     |   | -          |
|                                              |   |        |   |     |   |       |
| Balance                        September 30, 2007 |   | 5,525,000   |   | $ 0.32   |   | 1.30 years |

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

13

         

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**PLANKTOS CORP**

**(Formerly Diatom Corporation)**

**CONDENSED FOOTNOTES TO INTERIM FINANCIAL STATEMENTS**

**SEPTEMBER 30, 2007**

 

**NOTE 6        – PRO FORMA**

 

The        following pro forma information for the three and nine months ended September 30, 2007, as        if the reverse acquisition of Planktos was consummated on January 1, 2007. The pro forma        information is not necessarily indicative of the combined financial position or results of        operations, which would have been realized had the acquisition been consummated during the        period for which the pro forma financial information is presented.

 

| **CONSOLIDATED STATEMENT OF OPERATIONS – PRO                        FORMA** |
|-----------------------------------------------------------------------------------|
|                                                                              |   |   |   |   |   |   |   |   |   |
|                                                                              |   |   | **For the Three Months Ended September 30,                        2007** |
|                                                                              |   |   |   |   |   |   |   |   |   |
|                                                                              |   |   | **Planktos Corp. July 1 – Aug 8,** |   |   |   |   |   |   |
|                                                                              |   |   | **Combined**

**Aug 9 – Sept 30** |   | **Planktos, Inc. July 1 - Aug 8** |   | **Eliminations** |   | **Pro Forma Consolidated** |
|                                                                              |   |   |   |   |   |   |   |   |   |
|                                                                              |   |   |   |   |   |   |   |   |   |
| REVENUES                                                                          | $ - |   | $ - |   | $ - |   | $ - |
|                                                                              |   |   |   |   |   |   |   |   |   |
| OPERATING EXPENSES                                                                |   |   |   |   |   |   |   |
|                                                                              | General and administrative | 281,408 |   | 30,298 |   |   |   | 311,706 |
|                                                                              | Marketing and selling | - |   | - |   |   |   | - |
|                                                                              | Research and development | 100,000 |   | - |   |   |   | 100,000 |
|                                                                              | Vessel operating costs | 172,702 |   | - |   |   |   | 172,702 |
|                                                                              |   | Total Operating Expenses | 554,110 |   | 30,298 |   | - |   | 584,408 |
| LOSS FROM OPERATIONS                                                              | (554,110) |   | (30,298) |   | - |   | (584,408) |
|                                                                              |   |   |   |   |   |   |   |   |   |
| OTHER INCOME (EXPENSE)                                                            |   |   |   |   |   |   |   |
|                                                                              | Other income | 13,606 |   | - |   |   |   | 13,606 |
|                                                                              | Interest income | 328 |   | - |   |   |   | 328 |
|                                                                              | Charitable contribution | - |   | - |   |   |   | - |
|                                                                              | Interest expense | (17,951) |   | - |   |   |   | (17,951) |
|                                                                              | Write down of marketing rights | - |   | - |   |   |   | - |
|                                                                              |   | Total Other Income (Expense) | (4,017) |   | - |   | - |   | (4,017) |
| NET LOSS BEFORE INCOME TAX                                                        | (558,127) |   | (30,298) |   | - |   | (588,425) |
|                                                                              |   |   |   |   |   |   |   |   |   |
| INCOME TAX EXPENSE                                                                | - |   | - |   | - |   | - |
|                                                                              |   |   |   |   |   |   |   |   |   |
| NET LOSS                                                                          | $ (558,127) |   | $ (30,298) |   | $ - |   | $ (588,425) |

 

 

 

 

 

 

14

         

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**PLANKTOS CORP**

**(Formerly Diatom Corporation)**

**CONDENSED FOOTNOTES TO INTERIM FINANCIAL STATEMENTS**

**SEPTEMBER 30, 2007**

 

**NOTE 6        – PRO FORMA - continued**

 

| **CONSOLIDATED STATEMENT OF OPERATIONS -                        PROFORMA** |
|----------------------------------------------------------------------------|
|                                                                       |   |   |   |   |   |   |   |   |   |
|                                                                       |   |   | **For the Nine Months Ended September 30, 2007                        (Unaudited)** |
|                                                                       |   |   |   |   |   |   |   |   |   |
|                                                                       |   |   | **Planktos Corp. Jan 1 – Aug 8,** |   |   |   |   |   |   |
|                                                                       |   |   | **Combined**

**Aug 9 – Sept 30** |   | **Planktos, Inc. Jan 1 - Aug 8** |   | **Eliminations** |   | **Pro Forma Consolidated** |
|                                                                       |   |   |   |   |   |   |   |   |   |
|                                                                       |   |   |   |   |   |   |   |   |   |
| REVENUES                                                                   | $ - |   | $ - |   | $ - |   | $ - |
|                                                                       |   |   |   |   |   |   |   |   |   |
| OPERATING EXPENSES                                                         |   |   |   |   |   |   |   |
|                                                                       | General and administrative | 934,138 |   | 169,856 |   |   |   | 1,103,994 |
|                                                                       | Marketing and selling | - |   | - |   |   |   | - |
|                                                                       | Research and development | 225,000 |   | - |   |   |   | 225,000 |
|                                                                       | Vessel operating costs | 690,469 |   | 68,754 |   |   |   | 759,223 |
|                                                                       |   | Total Operating Expenses | 1,849,607 |   | 238,610 |   | - |   | 2,088,217 |
| LOSS FROM OPERATIONS                                                       | (1,849,607) |   | (238,610) |   | - |   | (2,088,217) |
|                                                                       |   |   |   |   |   |   |   |   |   |
| OTHER INCOME (EXPENSE)                                                     |   |   |   |   |   |   |   |
|                                                                       | Other income | 23,258 |   | - |   |   |   | 23,258 |
|                                                                       | Interest income | 334 |   | - |   |   |   | 334 |
|                                                                       | Charitable contribution | (27,500) |   | - |   |   |   | (27,500) |
|                                                                       | Interest expense | (17,951) |   | - |   |   |   | (17,951) |
|                                                                       | Write down of marketing rights | - |   | - |   |   |   | - |
|                                                                       |   | Total Other Income (Expense) | (21,859) |   | - |   | - |   | (21,859) |
| NET LOSS BEFORE INCOME TAX                                                 | (1,871,466) |   | (238,610) |   | - |   | (2,110,076) |
|                                                                       |   |   |   |   |   |   |   |   |   |
| INCOME TAX EXPENSE                                                         | - |   | - |   | - |   | - |
|                                                                       |   |   |   |   |   |   |   |   |   |
| NET LOSS                                                                   | $ (1,871,466) |   | $ (238,610) |   | $ - |   | $ (2,110,076) |

         

 

 

 

 

 

 

 

15

         

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**PLANKTOS CORP**

**(Formerly Diatom Corporation)**

**CONDENSED FOOTNOTES TO INTERIM FINANCIAL STATEMENTS**

**SEPTEMBER 30, 2007**

 

**NOTE 7        – INCOME TAXES**

 

At        September 30, 2007 the Company had deferred tax assets calculated at an expected rate of        34% of approximately $1,765,920 principally arising from net operating loss carryforwards        for income tax purposes. As management of the Company cannot determine that it is more        likely than not that the Company will realize the benefit of the deferred tax asset, a        valuation allowance equal to the net deferred tax asset has been established at September        30, 2007 and December 31, 2006. The significant components of the deferred tax asset at        September 30, 2007 and December 31, 2006 were as follows:

 

|                                   |   | September 30, 2007 |   | December 31, 2006 |
|----------------------------------------|--------|--------------------|--------|-------------------|
| Net operating loss carryforward        | $      | 1,765,920          | $      | 1,129,615         |
|                                   |   |               |   |              |
| Deferred tax asset valuation allowance |   | (1,765,920)        |   | (1,129,615)       |
| Deferred tax asset                     | $      | -                  | $      | -                 |

 

At        September 30, 2007, the Company has net operating loss carryforwards of approximately        $5,193,884 which will expire in the years 2019 through 2022. The Company recognized        approximately $250,000 of the losses from the write down of marketing rights in fiscal        2006, which are not deductible for tax purposes and are not included in the above        calculation of deferred tax assets. The change in the allowance account from prior year to        current was $636,305.

 

**NOTE 9        – SUBSEQUENT EVENTS**

 

On October        1, 2007, Planktos entered into a services and equipment rental agreement with the        University of Miami/Harbor Branch Oceanographic Institute (“HBOI”). This        agreement consists of a yearly rental of approximately $325,000 in science equipment and        technical assistance. On October 23, 2007, Planktos paid HBOI $93,954.75 as a pre-payment        for the first three months of rental service.

 

On November        14, 2007, the Company authorized the issuance of 1,078,000 shares of common stock for cash        consideration of $1.00 per share for the cash proceeds of $1,078,000 received within the        three months ended September 30, 2007 pursuant to the exemptions from registration provided        by Section 4(2) and Regulation S of the Securities Act of 1933, as amended.

 

 

 

 

 

 

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**ITEM 2.        MANAGEMENT'S PLAN OF OPERATIONS**

 

The        following plan of operations and results of operation should be read in conjunction with        the financial statements and accompanying notes and the other financial information        appearing elsewhere in this report. The Company’s fiscal year end is December        31.

 

**General**

 

The Company        was incorporated as “eWorld Travel Corp” on December 10, 1998 to provide        internet-based travel services. We changed our name to “GYK Ventures, Inc.” on        September 23, 2002, and to “Diatom Corporation” on July 8, 2005. On March 7,        2007, we changed our name to “Planktos Corp.”

 

**Description of Business**

 

On August        17, 2005, the Company entered into an Iron-Fertilization Prove-Out and Purchase Agreement        with Planktos, Inc. (“Planktos”) and Planktos’ parent company, Solar        Energy Limited (“Solar”) to provide developmental funding for Planktos’        “iron-fertilization” prove out program of its carbon dioxide        (“CO2”) sequestration process. The process is designed to capture        CO2 from the earth’s marine environment using a proprietary “iron        fertilization” process to generate commercial quantities of verifiable carbon credits        to meet global demands for CO2 reduction made part of international agreements        such as the Kyoto Protocol. We agreed to provide up to 25% of the program’s cost in        exchange for exclusive marketing and intellectual property rights to Planktos’ marine        based sequestration process.

 

On January        12, 2007, we entered into a Securities Exchange Agreement and Plan of Exchange (the        “Agreement”) with Solar to acquire 100% ownership of Planktos, in exchange for        an aggregate of 45,000,000 shares of our common stock, and the fulfillment of certain        conditions on or before closing. We obtained shareholder approval of the acquisition on May        31, 2007. On August 9, 2007, the Company concluded the terms of the Agreement, pursuant to        which we acquired Planktos from Solar. Because the shares issued in the acquisition changed        control of the Company, Planktos is deemed for financial reporting purposes to have        acquired the Company in a reverse acquisition.

 

***Planktos, Inc. and Carbon Credits***

 

Planktos is        a Foster City, California based business focused on reviving marine as well as land based        ecosystem health and biodiversity with the intention to slow global climate change.        Planktos has launched a two year pilot project series to restore hundreds of millions of        tons of missing plankton plant life in the open seas that will sequester tens of millions        of tons of CO2 in the deep ocean for centuries or more. On land, Planktos’        Hungarian partner KlimaFa (translated as “Climate Forest”) is planting        thousands of hectares of new, permanently protected, native forests or “climate        parks” in the national parks system of the European Union and elsewhere.

 

Both ocean        plankton and forest ecorestoration projects remove huge quantities of global warming        CO2 from the atmosphere. Long term CO2 reductions can now be banked        and traded like a commodity in international carbon markets. Consequently, Planktos’        business model will not only restore the planet’s most vital biological systems but        will generate the largest volume of lowest cost greenhouse gas offsets or “carbon        credits” available to commercial, governmental and green consumer clients.

 

Planktos is        pioneering natural science intensive marine and terrestrial ecorestoration programs that        affordably offer unprecedented gains for the climate, the biosphere and the company’s        commercial

 

17

         

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objectives.        Simply, restoring ocean plankton plant life to 1980’s levels of health will remove        3-4 billion tons of global warming CO2 and generate tens of billions of dollars        in tradable carbon credit value.

 

The advent        of the Kyoto Protocol, the enormous carbon sequestration potential of this work, and the        developing global trade in carbon credits, has become the focus of the Planktos business        model.

 

The Kyoto        Protocol enables companies and governments to offset regulated greenhouse emission        restrictions by investing in CO2 reduction programs in exchange for Carbon        Emission Reduction (“CER”) credits.European nations began tradingCER credits as of January 2005. CER credits are traded much like commodities        with an average value of between $6 and $16 per CER (which represents one ton of        CO2 or equivalent) dependent on whether the carbon credit is certified or not        and depending on the date and origin of the carbon credit. The Kyoto Protocol became law        effective February 16, 2005, the result of which should be a rapidly expanding        multi-billion-dollar market for CER credits.

 

Planktos        has cultivated working partnerships with government labs and ocean science institutions to        assist with measurement and verification procedures and to optimize project designs.        Bankable, tradable investment grade CER credits for corporate buyers and fund managers will        be verified and certified with satellite & aerial mapping, underwater analysis methods,        and bloom measuring sensors on Planktos’ proprietary autonomous ocean        rovers.

 

Russ        George, the president of Planktos, has been involved with ocean restoration and        CO2 sequestration since 1997 and was responsible for establishing the Planktos        Foundation. Planktos’ management team is supported by an Advisory Group headed by Dr.        Noel Brown (formerly the United Nations Environmental Program director) and Dr. Scott Chubb        (US Naval Research Laboratory).

 

***Forests of the Ocean***

 

Plankton in        our oceans is well documented in its utilization of photosynthesis to absorb        CO2. Planktos’ near-term commercial objective is to produce CER credits at        a cost of less than $1 per ton utilizing proprietary technology designed to stimulate        plankton growth in the world’s oceans as a means by which to sequester (isolate from        the atmosphere) CO2.

 

Specifically, Planktos expects to implement its program of sequestration by        “iron fertilization” of the ocean, restoring this micronutrient that is vital        for ocean plant growth and photosynthesis which is now scarce in marine waters. The iron is        similar to that which nature has delivered to sustain the oceans throughout history, but        that has been on the decline for thirty years. The fertilization process is intended to        trigger vast plankton blooms which will absorb the carbon in CO2, 30-40% of        which sinks deep enough to be verified as sequestered.

 

Planktos’ initial calculations have determined that the introduction        of one ton of iron results in the biological fixation of up to 100,000 tons of        CO2. Moreover, this process has three additional benefits that help to restore        ecosystems of the open ocean:

 

|   | § | Support and restore diminished fish populations (additional                        plankton means more food) |
|--------|--------|--------------------------------------------------------------------------------------------------------------|

|   | § | Adds to global O2 levels (more plankton results                        in more oxygen as some 60% of the earth’s O2 is produced                        by plankton) |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | § | Preserves coral reefs by reducing the acidity of the                        oceans. |
|--------|--------|-------------------------------------------------------------------------------------|

 

Our        research vessel, the Weatherbird II, is equipped with state of the art research equipment        which is available to us from a leading ocean research technology group that routinely        equips US research vessels. The ship is fully equipped to embark on ocean ecorestoration        and other science missions.

Over the        coming years, work aboard the Weatherbird will provide the critical data and knowledge        required by project development documents and methodologies, which will lead to verifiable        certifiable

 

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climate        change projects among those nations who are signatories to the Kyoto Accord. Beginning in        2008, the public will be able to follow the progress of the Weatherbird’s research        via web casts and regular updates on Planktos’ website.

***Forests of the Land***

 

A tree is        composed of about 50% carbon which is produced by removing CO2 from the air        through photosynthesis. KlimaFa is dedicated to afforestation and reforestation projects in        Europe and the Americas. Studies are now underway to develop an ecologically sound        indigenous species mix and planting model of flora to maximize wildlife habitat and        biodiversity in the respective regions. KlimaFa is currently involved in several        government-assisted carbon forest projects in Hungary that intend to restore native mixed        growth forests in national parks and then afforest vast tracts of retired agricultural        lands.

 

The Kyoto        Protocol recognizes a variety of mechanisms to reduce atmospheric CO2 and other        greenhouse gases, and has approved carbon sequestration from new forests. The development        of forests ultimately produces valuable carbon credits. KlimaFa estimates that carbon        credits produced in this manner will cost approximately $4.00 per ton. KlimaFa’s        target is to plant up to 100,000 hectares over the next 24 months.

 

KlimaFa’s first project is near the Bukk National Park in northeastern        Hungary. The area is a large tract of environmentally degraded, abandoned land, one of many        in former Eastern bloc countries. The land was originally called Forest Island, cleared in        the Middle Ages for farming and currently overgrown with weeds. As a forest grows to        replace this wasteland, we expect to absorb 10 times the carbon that is currently        absorbed.

 

**Plan        of Operation**

 

During the        nine months ended September 30, 2007, the Company was involved in monitoring Solar’s        efforts to implement the sea trials contemplated in the Iron-Fertilization Prove-Out and        Purchase Agreement to confirm the effectiveness of the Planktos CO2        sequestration process, conducting a private placement of common stock, purchasing the        Weatherbird II research vessel, and closing the acquisition of Planktos. We are now intent        on the development our business plan.

 

The        Company, through Planktos, is currently working with US and European marine research teams        to plan and launch significant ocean iron fertilization projects. Initial efforts will be        modest in scope and research-intensive, but are still designed to verifiably sequester        carbon between hundreds of thousands and millions of tonnage per voyage.

 

Subsequent        to the period ended September 30, 2007, our Weatherbird II research vessel began its first        effort, the “Voyage of Recovery.” This voyage is intended to enable the first        of a series of up to 6 commercial scale ocean plankton blooms over the next 24 months        designed to verifiably sequester a total of between 24 and 30 million tons of        CO2. Post 2008 projects include additional ships and larger blooms with a target        of 250 million tons of verified CO2 sequestration by 2010.

 

The        Company, through KlimaFa, has initiated the planting of thousands of hectares of new,        permanently protected, native forests or “climate parks” in Europe. Subsequent        to the period ended September 30, 2007, KlimaFa, using local labor, has cleared weeds in        our first project near the Bukk National Park. In cleared areas we have begun planting        native saplings like willows, beeches, ash, certain poplars, and oaks.

 

The Company        is approaching this work with an array of qualifications:

|   | **•** | Years of experience in the basic science of the                        field; |
|--------|------------|-------------------------------------------------------------------------------|

|   | **•** | Collaborative arrangements and working relationships with                        internationally recognized marine science project partners required for                        certification; |
|--------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | **•** | Sustainable resource maximization plan designs; |
|--------|------------|-------------------------------------------------|

|   | **•** | Expertise in resource value computation and certification                        procedures; |
|--------|------------|----------------------------------------------------------------------------------------------|

 

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|   | **•** | Market access for resource monetization and trade;                        and |
|--------|------------|-------------------------------------------------------------------------------|

|   | **•** | Experience in structuring all preceding factors into viable                        binding business plans. |
|--------|------------|------------------------------------------------------------------------------------------------------------|

         

Our plan of        operation will require $2,000,000 in funding over the next 12 months, over $1,000,000 of        which has been raised by an equity financing of our common stock as of the period ending        September 30, 2007. We are confident that the remainder of the $1,400,000 slated for the        Weatherbird II and the $600,000 devoted to the completion of the first stage of our        planting efforts in Hungary through KlimaFa will be made available from additional debt or        equity financings tied to sales of our common stock.

 

**Results of Operations**

 

The Company        has been funded since inception from public or private debt or equity placements or by        major shareholders in the form of loans. Virtually all of the capital raised to date has        been allocated for general and administrative costs, financial obligations tied to the        Iron-Fertilization Prove-Out and Purchase Agreement, the Securities Exchange Agreement and        Plan of Exchange, and the purchase of the research vessel Weatherbird II.

 

**Net        Losses**

 

For the        period from inception until September 30, 2007, the Company incurred a net loss of        $2,612,736. Net losses for the three month period ended September 30, 2007 were $558,127 as        compared to $154,326 for the three months ended September 30, 2006. Net losses for the nine        month period ended September 30, 2007 were $1,871,466 as compared to $436,800 for the nine        months ended September 30, 2006. The Company’s net losses are attributable to vessel        operating expenses, research and development costs, and general and administrative        expenses. The vessel operating expenses and R & D have been incurred in connection with        the first voyage of the Weatherbird II, which set sail subsequent to the period ended        September 30, 2007. General and administrative expenses include financing costs, accounting        costs, consulting fees, leases, employment costs, professional fees and costs associated        with the preparation of disclosure documentation. We did not generate any revenues during        this period.

 

The Company        expects to continue to incur losses through the year ended 2008.

 

**Income Tax Expense (Benefit)**

 

The Company        has a prospective income tax benefit resulting from a net operating loss carryforward and        start up costs that may offset any future operating profit.

 

**Impact        of Inflation**

         

The Company        believes that inflation has had a negligible effect on operations over the past three        years.

 

**Capital        Expenditures**

 

In the nine        months ended September 30, 2007, the Company expended $800,000 on the Weatherbird II        research vessel and $23,306 on marine equipment. We expended no significant amounts on        capital expenditures for the period from inception to December 31, 2006.

 

**Liquidity and Capital Resources**

 

As of        September 30, 2007, the Company had current assets totaling $670,698 and a working capital        surplus of $103,583. These assets consist of cash on hand of $586,712 as well as prepaid        expenses and a receivable. Net stockholders’ equity in the Company was $905,030 at        September 30, 2007. We are in the

 

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development        stage and, since inception, have experienced significant changes in liquidity, capital        resources, and shareholders’ equity.

 

Cash flow        used in operating activities was $2,522,335 for the period from inception to September 30,        2007. Cash flow used in operating activities for the nine month period ended September 30,        2007 was $1,817,855 as compared to $412,503 for the nine months ended September 30, 2006.        The increase in cash flow used in operating activities in the current nine month period was        due primarily to an increase in net losses from operations.

 

Cash flow        used for investing activities was $1,104,892 for the period from inception to September 30,        2007. Cash flow used for investing activities for the nine month period ended September 30,        2007 was $1,104,892 as compared to $0 for the nine months ended September 30, 2006. Cash        flow used for investing activities is attributed to the acquisition of Planktos.

 

Cash flow        provided by financing activities was $2,004,155 for the period from inception to September        30, 2007. Cash flow provided by financing activities for the nine month period ended        September 30, 2007 was $1,145,437 as compared to $693,658 for the nine months ended        September 30, 2006. Cash flow provided by financing activities in the current nine month        period can be attributed to the sale of common stock on a private placement basis as well        as related party loans.

 

The        Company’s current assets are insufficient to conduct our plan of operation over the        next twelve (12) months and we will have to seek debt or equity financing to fund        operations. We have no current commitments or arrangements with respect to, or immediate        sources of funding. Further, no assurances can be given that funding will be available or        available to us on acceptable terms. In addition, any equity financing would result in        dilution to the Company shareholders and any debt financing could involve restrictive        covenants with respect to future capital raising activities or other financial or        operational matters. The Company’s shareholders will be the most likely source of new        funding in the form of loans or equity placements though none have made any commitment for        future investment and we have no agreement formal or otherwise. Our inability to obtain        adequate funds will adversely affect our operations and the Company’s ability to        implement its plan of operation.

 

The Company        has no current plans for the purchase or sale of any plant or equipment. We have no current        plans to make any changes in the number of employees.

 

**Off        Balance Sheet Arrangements**

 

As of        September 30, 2007, the Company has no significant off-balance sheet arrangements that have        or are reasonably likely to have a current or future effect on our financial condition,        changes in financial condition, revenues or expenses, results of operations, liquidity,        capital expenditures, or capital resources that are material to stockholders.

 

**Forward        Looking Statements and Factors That May Affect Future Results and Financial        Condition**

 

The        statements contained in the section titled*Management’s Plan        of Operation*, with the exception of historical facts, are forward        looking statements within the meaning of Section 27A of the Securities Act. A safe-harbor        provision may not be applicable to the forward looking statements made in this prospectus        because of certain exclusions under Section 27A (b). Forward looking statements reflect our        current expectations and beliefs regarding our future results of operations, performance,        and achievements. These statements are subject to risks and uncertainties and are based        upon assumptions and beliefs that may or may not materialize. These statements include, but        are not limited to, statements concerning:

|   | **•** | our anticipated financial performance and business                        plan; |
|--------|------------|---------------------------------------------------------------------------------|

|   | **•** | the sufficiency of existing capital resources; |
|--------|------------|------------------------------------------------|

 

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|   | **•** | our ability to raise additional capital to fund cash                        requirements for future operations; |
|--------|------------|-----------------------------------------------------------------------------------------------------------------|

|   | **•** | uncertainties related to the Company’s future business                        prospects; |
|--------|------------|------------------------------------------------------------------------------------------------|

|   | **•** | the ability of the Company to generate revenues to fund                        future operations; and |
|--------|------------|-------------------------------------------------------------------------------------------------------|

|   | **•** | the volatility of the stock market. |
|--------|------------|-------------------------------------|

We wish to        caution readers that the Company’s operating results are subject to various risks and        uncertainties that could cause our actual results to differ materially from those discussed        or anticipated including the factors set forth in the section entitled*Risk Factors*included elsewhere in this report.        We also wish to advise readers not to place any undue reliance on the forward looking        statements contained in this report, which reflect our beliefs and expectations only as of        the date of this report. We assume no obligation to update or revise these forward looking        statements to reflect new events or circumstances or any changes in our beliefs or        expectations, other than is required by law.

 

**Critical        Accounting Policies**

 

In the        notes to the audited consolidated financial statements for the year ended December 31, 2006        included in the Company’s Form 10-KSB, we discuss those accounting policies that are        considered to be significant in determining the results of operations and our financial        position. The Company believes that the accounting principles utilized by us conform to        accounting principles generally accepted in the United States of America.

 

The        preparation of financial statements requires management to make significant estimates and        judgments that affect the reported amounts of assets, liabilities, revenues and expenses.        By their nature, these judgments are subject to an inherent degree of uncertainty. On an        on-going basis, the Company evaluates our estimates, including those related to bad debts,        inventories, intangible assets, warranty obligations, product liability, revenue, and        income taxes. We base our estimates on historical experience and other facts and        circumstances that are believed to be reasonable, and the results form the basis for making        judgments about the carrying value of assets and liabilities. The actual results may differ        from these estimates under different assumptions or conditions.

 

**Stock-Based Compensation**

 

On January        1, 2006, the Company adopted SFAS No. 123 (revised 2004) (SFAS No. 123R),        “Share-Based Payment,” which addresses the accounting for stock-based payment        transactions in which an enterprise receives employee services in exchange for        (a) equity instruments of the enterprise or (b) liabilities that are based on the        fair value of the enterprise’s equity instruments or that may be settled by the        issuance of such equity instruments. In January 2005, the Securities and Exchange        Commission (SEC) issued Staff Accounting Bulletin (SAB) No. 107, which provides        supplemental implementation guidance for SFAS No. 123R. SFAS No. 123R eliminates        the ability to account for stock-based compensation transactions using the intrinsic value        method under Accounting Principles Board (APB) Opinion No. 25, “Accounting for        Stock Issued to Employees,” and instead requires that such transactions be accounted        for using a fair-value-based method. The Company uses the Black-Scholes-Merton        (“BSM”) option-pricing model to determine the fair-value of stock-based awards        under SFAS No. 123R, consistent with that used for pro forma disclosures under SFAS        No. 123, “Accounting for Stock-Based Compensation.” The Company has        elected the modified prospective transition method as permitted by SFAS No. 123R and        accordingly prior periods have not been restated to reflect the impact of SFAS        No. 123R. The modified prospective transition method requires that stock-based        compensation expense be recorded for all new and unvested stock options, restricted stock,        restricted stock units, and employee stock purchase plan shares that are ultimately        expected to vest as the requisite service is rendered beginning on January 1,        2006.

 

Stock-based        compensation expense for awards granted prior to January 1, 2006 is based on the grant date        fair-value as determined under the pro-forma provisions of SFAS No. 123.

 

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**Risks        Related to Our Business**

 

Our future        operating results are highly uncertain. Before deciding to invest in us or to maintain or        increase your investment, you should carefully consider the risks described below, in        addition to the other information contained in this quarterly report. If any of these risks        actually occur, our business, financial condition or results of operations could be        seriously harmed. In that event, the market price for our common stock could decline and        you may lose all or part of your investment.

 

*We have        a history of significant operating losses and such losses may continue in the        future.*

 

Since the        beginning or our development stage, our operations have resulted in a continuation of        losses and an accumulated deficit which reached $741,271 at December 31, 2006 and had        increased to $2,612,736 at September 30, 2007. Our net loss for the nine month period ended        September 30, 2007 was $1,871,466. The Company has never realized revenue from operations.        Our only expectation of future profitability is dependent upon the successful        implementation of the company’s business model. Therefore, we may never be able to        achieve profitability.

 

*Planktos        will not likely be profitable in the next twelve months and may never be        profitable.*

 

Planktos is        in the process of implementing its iron-fertilization prove-out program and is not expected        to be profitable within the next twelve months. While the prove out program can        hypothetically produce profits, we cannot be assured that iron-fertilization will live up        to our expectations or that revenue will ever be produced as a result of our attempts to        sequester carbon credits.

 

*We will        need additional financing to fund Planktos.*

 

We will        need additional capital to fund Planktos to completion of its iron-fertilization prove-out        program. In our efforts to raise capital or obtain additional financing, we may be        obligated to issue additional shares of common stock or warrants or other rights to acquire        common stock on terms that will result in dilution to existing shareholders or place        restrictions on operations. If adequate funds are not available our ability to fund        Planktos will be significantly limited.

 

*The        market for our stock is limited and our stock price may be volatile.*

 

The market        for our common stock has been limited due to low trading volume and the small number of        brokerage firms acting as market makers. Because of the limitations of our market and        volatility of the market price of our stock, investors may face difficulties in their        selling shares. The average daily trading volume for our stock has varied significantly        from week to week and from month to month, and the trading volume often varies widely from        day to day.

 

*We may        incur significant expenses as a result of being quoted on the Over the Counter Bulletin        Board, which may negatively impact our financial performance.*

 

We may        incur significant legal, accounting and other expenses as a result of being listed on the        Over the Counter Bulletin Board. The Sarbanes-Oxley Act of 2002, as well as related rules        implemented by the Commission, has required changes in corporate governance practices of        public companies. We expect that compliance with these laws, rules and regulations,        including compliance with Section 404 of the

 

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Sarbanes-Oxley Act of 2002 as discussed in the following risk factor, may        substantially increase our expenses, including our legal and accounting costs, and make        some activities more time-consuming and costly. As a result, there may be a substantial        increase in legal, accounting and certain other expenses in the future, which would        negatively impact our financial performance and could have a material adverse effect on our        results of operations and financial condition.

 

*Our        internal controls over financial reporting may not be considered effective, which could        result in a loss of investor confidence in our financial reports and in turn have an        adverse effect on our stock price.*

 

Pursuant to        Section 404 of the Sarbanes-Oxley Act of 2002, beginning with our annual report for the        year ending December 31, 2007, we may be required to furnish a report by our management on        our internal controls over financial reporting. Such report will contain, among other        matters, an assessment of the effectiveness of our internal controls over financial        reporting as of the end of the year, including a statement as to whether or not our        internal controls over financial reporting are effective. This assessment must include        disclosure of any material weaknesses in our internal controls over financial reporting        identified by management. If we are unable to assert that our internal controls are        effective as of December 31, 2007, investors could lose confidence in the accuracy and        completeness of our financial reports, which in turn could cause our stock price to        decline.

 

**Going        Concern**

Due to the        uncertainty of our ability to meet our current operating expenses and the capital expenses        noted above, in their report on the annual financial statements for the year ended December        31, 2006, our independent auditors included an explanatory paragraph regarding concerns        about our ability to continue as a going concern. Our financial statements contain        additional note disclosures describing the circumstances that lead to this disclosure by        our independent auditors.

The        Company’s ability to continue as a going concern is subject to our ability to realize        a profit and /or obtain funding from outside sources. Management’s plan to address        our ability to continue as a going concern, include: (a) obtaining funding from private        placement sources; (b) obtaining additional funding from the sale of the Company’s        securities; and (c) obtaining loans and grants from various financial institutions, where        possible. Although management believes that we will be able to obtain the necessary funding        to allow us to remain a going concern through the methods discussed above, there can be no        assurances that such methods will prove successful.

 

**ITEM 3.        CONTROLS AND PROCEDURES**

 

The        Company’s president acts both as our chief executive officer and chief financial        officer and is responsible for establishing and maintaining disclosure controls and        procedures for the Company.

 

(a)        Evaluation of Disclosure Controls and Procedures

 

Under the        supervision and with the participation of our management, including our principal executive        officer and principal financial officer, we evaluated the effectiveness of the design and        operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and        15d-15(e) under the Securities Exchange Act of 1934 (“Exchange Act”), as of        September 30, 2007 Based on this evaluation, our principal executive officer and our        principal financial officer concluded that, as of the end of the period covered by this        report, our disclosure controls and procedures were effective and adequately designed to        ensure that the information required to be disclosed by us in the reports we submit under        the Exchange Act is recorded, processed, summarized and reported within the time periods        specified in the applicable rules and forms and that such information was accumulated and        communicated to our chief executive

 

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officer and        chief financial officer, in a manner that allowed for timely decisions regarding required        disclosure.

 

(b) Changes        in Internal Controls

 

During the        period ended September 30, 2007, there has been no change in internal control over        financial reporting that has materially affected, or is reasonably likely to materially        affect our internal control over financial reporting.

**PART        II**

 

| **ITEM 1.** | **LEGAL PROCEEDINGS** |
|-------------|-----------------------|

 

None.

 

| **ITEM 2.** | **UNREGISTERED SALES OF EQUITY SECURITIES** |
|-------------|---------------------------------------------|

 

On November        14, 2007, the Company authorized the issuance of 1,078,000 shares of common stock for cash        consideration of $1.00 per share for the cash proceeds of $1,078,000 received within the        three months ended September 30, 2007 pursuant to the exemptions from registration provided        by Section 4(2) and Regulation S of the Securities Act of 1933, as amended, to the        following subscribers:

 

| Date of Subscription Agreement | Subscriber

                          | Number Of Shares | Consideration |
|--------------------------------|--------------------------------------------|------------------|---------------|
| July 19, 2007                  | Lorenz Consulting                          | 150,000          | $150,000      |
| July 25, 2007                  | TCE Source                                 | 75,000           | $75,000       |
| August 15, 2007                | Urs Angst                                  | 853,000          | $853,000      |

 

The Company        complied with Section 4(2) based on the following factors: (1) the issuances were isolated        private transactions that did not involve a public offering; (2) there were three offerees        who were issued the stock for cash consideration; (3) the offerees stated an intention not        to resell the stock; (4) there were no subsequent or contemporaneous public offerings of        the stock; (5) the stock was not broken down into smaller denominations; and (6) the        negotiations that that led to the subscription of the stock took place directly between the        offerees and the Company.

 

Regulation        S provides generally that any offer or sale that occurs outside of the United States is        exempt from the registration requirements of the Securities Act, provided that certain        conditions are met. Regulation S has two safe harbors. One safe harbor applies to offers        and sales by issuers, securities professionals involved in the distribution process        pursuant to contract, their respective affiliates, and persons acting on behalf of any of        the foregoing (the “issuer safe harbor”), and the other applies to resales by        persons other than the issuer, securities professionals involved in the distribution        process pursuant to contract, their respective affiliates (except certain officers and        directors), and persons acting on behalf of any of the forgoing (the “resale safe        harbor”). An offer, sale or resale of securities that satisfied all conditions of the        applicable safe harbor is deemed to be outside the United States as required by Regulation        S. The distribution compliance period for shares sold in reliance on Regulation S is one        year.

 

The Company        complied with the requirements of Regulation S by: (1) having made no directed offering        efforts in the United States; (2) offering only to offerees who were outside the United        States at the time the stock was offered and authorized; and (3) ensuring that the offerees        to whom the stock will be issued are non-U.S. offerees with addresses in foreign        countries. 

 

| **ITEM 3.** | **DEFAULTS UPON SENIOR SECURITIES** |
|-------------|-------------------------------------|

 

 

None.

 

| **ITEM 4.** | **SUBMISSION OF MATTERS TO A VOTE OF SECURITY                        HOLDERS** |
|-------------|--------------------------------------------------------------------------------|

 

None.

 

| **ITEM 5.** | **OTHER INFORMATION** |
|-------------|-----------------------|

 

None.

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| **ITEM 6.** | **EXHIBITS** |
|-------------|--------------|

         

Exhibits        required to be attached by Item 601 of Regulation SB are listed in the Index to Exhibits on        page 28 of this Form 10-QSB and are incorporated herein by this reference.

         

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**SIGNATURES**

 

In        accordance with the requirements of the Exchange Act, the registrant caused this report to        be signed on its behalf by the undersigned, hereunto duly authorized, this 7th        day of December 2007.

 

 

**PLANKTOS        CORP.**

 

| /s/ Russ George |
|-----------------|

| Russ George |
|-------------|

Chief        Executive Officer, Chief Financial Officer and Principal Accounting Officer

 

 

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**EXHIBITS**

 

| ***Exhibit*** | ***Page*** |
|---------------|------------|

| ***No.*** | ***No.*** | ***Description*** |
|-----------|-----------|-------------------|

 

| 3(i)(a) | * Articles of Incorporation (incorporated by reference                        to the Corporation’s      Form 10-SB                        filed with the Commission on January 31, 2000) |
|---------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

         

| 3(i)(b) | * Amendment of the Corporation’s Articles of                        Incorporation (incorporated by reference to the Corporation’s Form                        8-K filed with the Commission on September 24, 2002) |
|---------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

         

| 3(i)(c) | * Amendment of the Corporation’s Articles of                        Incorporation (incorporated by reference to the Corporation’s Form                        8-K filed with the Commission on August 10, 2007) |
|---------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

         

| 3(i)(d) | * Amendment of the Corporation’s Articles of                        Incorporation (incorporated by reference to the Corporation’s Form                        8-K filed with the Commission on August 10, 2007) |
|---------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

         

| 3(i)(e) | * Amendment of the Corporation’s Articles of                        Incorporation (incorporated by reference to the Corporation’s Form                        8-K filed with the Commission on August 10, 2007) |
|---------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

         

| 3(ii) | * By-laws (incorporated herein by reference to the                        Corporation’s Form 10-SB filed with the Commission on January 31,                        2000) |
|-------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

         

| 10(i) | * Iron-Fertilization Prove-Out and Purchase Agreement                        with Solar, dated August 17, 2005 (incorporated by reference to the                        Corporation’s Form 10-QSB/A filed with the Commission on September 7,                        2005) |
|-------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

         

| 10(ii) | * Securities Exchange Agreement and Plan of Exchange with                        Solar, dated January 12, 2007 (incorporated by reference to the                        Corporation’s Form 8-K filed with the Commission on January 19,                        2007) |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

         

| 31 | Attached  Certification of the Chief Executive                        Officer and Chief Financial Officer pursuant to Section 302 of the                        Sarbanes-Oxley Act of 2002. |
|----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

         

| 32 | Attached Certification of the Chief Executive Officer and                        Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted                        pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
|----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

         

 

 

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