**UNITED        STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

**FORM        10-K**

 

*(Mark        One)*

þ          Annual        report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the        fiscal year ended**December 31,        2007**.

o       Transition report pursuant to        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.**

(Exact        name of registrant as specified in its charter)

| **NEVADA**

(State or other jurisdiction of

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

(I.R.S. Employer

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

 

**145-925 West Georgia Street, Vancouver, British Columbia, Canada V6C        3L2**

(Address        of principal executive offices) (Zip Code)

 

**(604) 669-4771**

(Issuer’s telephone number, including area code)

 

Securities registered under Section 12(b) of the Exchange Act:        none.

Securities registered under Section 12(g) of the Exchange Act: common stock        (title of class), $0.0001 par value.

Indicate        by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of        the Securities Act of 1933: Yeso     Noþ.

Indicate        by check mark if the registrant is not required to file reports pursuant to Section 13 or        Section 15(d) of the Exchange Act: Yeso     Noþ.

Indicate        by check mark whether the registrant: (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 registrant was required to file such reports), and (2) has been subject to such filing        requirements for the past 90 days: Yesþ     Noo.

Indicate        by check mark if disclosure of delinquent filers in response to Item 405 of Regulation S-K        is not contained herein, and will not be contained, to the best of registrant's knowledge,        in definitive proxy or information statements incorporated by reference in Part III of this        Form 10-K or any amendment to this Form 10-Ko.

Indicate        by check mark whether the registrant is a large accelerated filer, an accelerated filer, a        non-accelerated filer, or a smaller reporting company as defined by Rule 12b-2 of the        Exchange Act: smaller reporting companyþ.

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

The        aggregate market value of the registrant's common stock, $0.001 par value, held by        non-affiliates (38,623,873 shares) was approximately $579,358 based on the average closing        bid and asked prices ($0.015) for the common stock on April 25, 2008.

At April        25, 2008, the number of shares outstanding of the registrant's common stock, $0.001 par        value (the only class of voting stock), was 84,751,838.

 

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**TABLE        OF CONTENTS**

 

**PART        I**

 

| Item1. | Business | 3 |
|--------|----------|---|

| Item 1A. | Risk Factors | 8 |
|----------|--------------|---|

| Item 1B. | Unresolved Staff Comments | 10 |
|----------|---------------------------|----|

| Item 2. | Properties | 10 |
|---------|------------|----|

| Item 3. | Legal Proceedings | 11 |
|---------|-------------------|----|

| Item 4. | Submission of Matters to a Vote of                        Security-Holders | 11 |
|---------|----------------------------------------------------------------------------|----|

         

**PART II**

         

| Item 5. | Market for Registrant’s Common Equity, Related                        Stockholder Matters, and Issuer Purchases of Equity                        Securities                                                                                                                                                                                                         11 |
|---------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| Item 6. | Selected Financial Data | 13 |
|---------|-------------------------|----|

| Item 7. | Management's Discussion and Analysis of Financial Condition                        and Results of Operations | 13 |
|---------|--------------------------------------------------------------------------------------------------------------|----|

| Item 7A. | Quantitative and Qualitative Disclosures about Market                        Risk | 17 |
|----------|-----------------------------------------------------------------------------------|----|

| Item 8. | Financial Statements and Supplementary Data | 18 |
|---------|---------------------------------------------|----|

| Item 9. | Changes in and Disagreements with Accountants on Accounting                        and Financial Disclosure | 19 |
|---------|-------------------------------------------------------------------------------------------------------------|----|

| Item 9A. | Controls and Procedures (Item 9A (T)) | 19 |
|----------|---------------------------------------|----|

| Item 9B. | Other Information | 21 |
|----------|-------------------|----|

         

**PART III**

         

| Item 10. Directors, Executive Officers, and Corporate                        Governance | 21 |
|-----------------------------------------------------------------------------------------|----|

| Item 11. | Executive Compensation | 24 |
|----------|------------------------|----|

| Item 12. | Security Ownership of Certain Beneficial Owners and                        Management and Related Stockholder                        Matters                                                                                                                                                                                                                              25 |
|----------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| Item 13. | Certain Relationships and Related Transactions, and Director                        Independence | 25 |
|----------|--------------------------------------------------------------------------------------------------|----|

| Item 14. | Principal Accountant Fees and Services | 26 |
|----------|----------------------------------------|----|

| Item 15. | Exhibits and Financial Statement Schedules | 26 |
|----------|--------------------------------------------|----|

| Signatures | 27 |
|------------|----|

 

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**PART        I**

 

| **ITEM 1.** | **BUSINESS** |
|-------------|--------------|

 

***As        used herein the terms “Company,” “we,” “our,” and        “us” refer to Planktos Corp., and its subsidiaries and predecessors, unless        context indicates otherwise.***

 

**Corporate History**

 

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.”

 

Due to the        significance of recent events, including those subsequent to the year ended December 31,        2007, our corporate history, from this point forward, is presented in reverse chronological        order.

 

In December        2007 the Company suspended its “iron-fertilization” prove out efforts and        commenced efforts to wind down its business subsequent to December 31, 2007. The Company        has terminated all employees and is in the process of closing its Foster City, California        office. Our principal place of business has moved to 145-925 West Georgia Street,        Vancouver, British Columbia, Canada V6C 3L2, and its telephone number is (604)        669-4771.

 

Despite        vigorous efforts to finance, implement and conduct our “iron-fertilization”        prove-out program a combination of poor market conditions, international condemnation from        certain environmental groups and local opposition to the prospective site of the ocean        research caused the Company to place its efforts to sustain research and development        operations on hold.

 

On February        22, 2008 the Company entered into a Settlement and Release Agreement with Russ George,        Solar Energy Limited (“Solar”), and Nelson Skalbania for the purposes of        separating the services and know-how of Russ George, from the Company. The agreement        provided that Russ George resign his positions as the Company’s chief executive        officer, chief financial officer and principal accounting officer, resign from the        Company’s board of directors and return to Solar for cancellation 3,500,000 shares of        Solar that were issued to him for his ownership interest in Planktos, Inc.        (“Planktos”) (and his interest in D2Fusion, Inc., a wholly owned subsidiary of        Solar) in exchange for his right to the exclusive use of the name “Planktos”        and the non-exclusive use of the proprietary know-how associated with        “iron-fertilization”.

 

On February        21, 2008 the Company executed an Agreement to sell its sixty percent (60%) interest in        Klimafa S.A. (“Klimafa”) to Dr. David Gazdag in exchange for two hundred and        fifty thousand dollars ($250,000) in the form of a convertible debenture with a repayment        term being the earlier of ten years or Klimafa’s generation of cash flow, bearing        four percent (4%) per annum, convertible into sequestered tones of carbon dioxide        (“CO2”) credits.

 

On January        21, 2008, the Company entered into a letter of intent with the St Petersburg Environmental        Research Center (“SPERC”) to sell its research vessel the Weatherbird II        according to certain terms and conditions in exchange for a purchase price of $1,000,000 of        which $100,000 was paid on acceptance of the letter of intent. Further to mutual agreement,        the terms of the letter of intent were subsequently assigned to Sperc Explorer, Inc. The        balance of the purchase price was paid to the Company on February 29, 2008 at which time        title to the Weatherbird II passed to Sperc Explorer, Inc.

 

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Due to        delays in initiating a planned “iron-fertilization” prove-out program by        Planktos, the Company determined to acquire Planktos as a subsidiary from Solar. On January        12, 2007, we entered into an agreement to acquire Planktos in exchange for 45,000,000        shares of our common stock, and the fulfillment of certain conditions on or before closing.        On August 9, 2007, we acquired Planktos and its majority owned subsidiary KlimaFA. Since        the shares issued to Solar as consideration for the acquisition effectively changed control        of the Company, Planktos was deemed, for financial reporting purposes, to have acquired the        Company in a reverse acquisition.

 

On August        17, 2005, the Company entered into an Iron-Fertilization Prove-Out and Purchase Agreement        with Planktos and Solar) to provide developmental funding for Planktos’        “iron-fertilization” prove out program of its CO2 sequestration        process. We agreed to provide up to 25% of that program’s cost in exchange for        exclusive marketing and intellectual property rights to Planktos’ marine based        sequestration process.

 

**The        Company**

 

**Summary of Operations during the Year Ended December 31,        2007**

 

In December        2007 the Company suspended “iron-fertilization” prove-out efforts and commenced        efforts to wind down its business. The Company has terminated all employees and is in the        process of closing its Foster City, California office. Our principal place of business has        moved to 145-925 West Georgia Street, Vancouver, British Columbia, Canada V6C        3L2.

 

The Company        was a Foster City, California based business focused on reviving marine as well as land        based ecosystem health and biodiversity with the intention of slowing global climate        change. We had launched a two year pilot project series to restore hundreds of millions of        tons of missing plankton plant life in the open seas to sequester tens of millions of tons        of CO2 in the deep ocean for centuries or more. On land, KlimaFa, our majority        owned subsidiary, had intended to plant thousands of hectares of new, permanently        protected, native forests 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, the        Company’ business model was to restore the planet’s most vital biological        systems while generating what it believed would be the largest volume of lowest cost        greenhouse gas offsets or “carbon credits” available to commercial,        governmental and green consumer clients.

 

***Forests of the Ocean***

 

Plankton in        our oceans is well documented in its utilization of photosynthesis to absorb        CO2. The Company’s commercial objective was to produce CER credits        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.

 

During        November of 2007 our former research vessel, the Weatherbird II, embarked on a voyage        devoted to ocean research at the invitation of the University of Las Palmas Ocean Science        Department. The mission was to begin research andexperiments        dedicated to the study of ocean plankton blooms in the region. However, in early December        of 2007, the Weatherbird II was denied entry to Spanish waters upon arrival at Las Palmas,        Gran Canaria, in the Canary Islands due to certain administrative and permit issues. Since        port authorities could not be moved to permit the Weatherbird II entry, the vessel was        redirected north into Portuguese waters at Funchal, Madeira. Consequently,        the research mission was abandoned and the Weatherbird II returned to the United        States.

 

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***Forests of the Land***

 

A tree is        composed of about 50% carbon which is produced by removing CO2 from the air        through photosynthesis. KlimaFa, formerly our majority owned subsidiary, was dedicated to a        forestation and reforestation projects in Europe and the Americas. Studies were underway to        develop an ecologically sound indigenous species mix and planting model for flora to        maximize wildlife habitat and biodiversity in the respective regions. KlimaFa was involved        in the development of several government-assisted carbon forest projects in Hungary        designed to restore native mixed growth forests in national parks and then afforest vast        tracts of retired agricultural lands.

 

**Summary of Current Operations** 

 

Due to the        suspension of its business activities and the liquidation of all its assets, the Company is        now considering the future of “iron fertilization” of the oceans and the        prospective of other business opportunities either through merger or acquisition that might        create value for its shareholders. The Company has limited day-to-day operations at the        present time. Our sole officer and directors devote limited time and attention to the        affairs of the Company.

 

***Selection of a Business***

 

Management        has adopted a policy of seeking opportunities that it considers to be of exceptional        quality. As a result of this policy, the Company may have to wait some time before        consummating a suitable transaction. Management recognizes that due to its limited        resources that it may be at a competitive disadvantage when vying with other acquiring        interests or entities.

 

The Company        does not intend to restrict its consideration to any particular business or industry        segment, and the Company may consider, among others, finance, brokerage, insurance,        transportation, communications, research and development, biotechnology, service, natural        resources, manufacturing or high-technology. However, due to the Company’s limited        financial resources, the scope and number of suitable business venture candidates is        limited, and most likely the Company will not be able to participate in more than a single        business venture. Accordingly, it is anticipated that the Company will not be able to        diversify, but may be limited to one merger or acquisition. This lack of diversification        will not permit the Company to offset potential losses from one business opportunity        against profits from another.

 

The        decision to participate in a specific business opportunity will be made upon        management’s analysis of the quality of the other firm’s management and        personnel, the anticipated acceptability of new products or marketing concepts, the merit        of technological changes and numerous other factors which are difficult, if not impossible,        to analyze through the application of any objective criteria. In many instances, it is        anticipated that the historical operations of a specific venture may not necessarily be        indicative of the potential for the future because of the necessity to substantially shift        a marketing approach, expand operations, change product emphasis, change or substantially        augment management, or make other changes. The Company will be dependent upon the        management of a business opportunity to identify such problems and to implement, or be        primarily responsible for the implementation of, required changes.

Since the        Company may participate in a business opportunity with a newly organized business or with a        business which is entering a new phase of growth, it should be emphasized that the Company        may incur risk due to the failure of the target’s management to have proven its        abilities or effectiveness, or the failure to establish a market for the target’s        products or services, or the failure to realize profits.

 

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The Company        will not acquire or merge with any company for which audited financial statements cannot be        obtained. It may be anticipated that any opportunity in which the Company participates will        present certain risks. Many of these risks cannot be adequately identified prior to        selection of the specific opportunity, and the Company’s shareholders must,        therefore, depend on the ability of management to identify and evaluate such risk. In the        case of some of the opportunities available to the Company, it may be anticipated that the        founders thereof have been unable to develop a going concern or that such business is in        its development stage in that it has not generated significant revenues from its principal        business activities prior to the Company’s participation.

 

***Acquisition of Business***

 

While no        suitable business candidate has been identified, the Company may become a party to a        merger, consolidation, reorganization, joint venture, franchise or licensing agreement with        another corporation or entity. It may also purchase stock or assets of an existing        business. On the consummation of a transaction, it is possible that the present management        and shareholders of the Company will not be in control of the Company. In addition, the        Company’s sole officer and director may, as part of the terms of the acquisition        transaction, resign and be replaced by new officers and directors without a vote of the        Company’s shareholders.

 

The Company        anticipates that any securities issued in any such reorganization would be issued in        reliance on exemptions from registration under applicable federal and state securities        laws. In some circumstances, however, as a negotiated element of this transaction, the        Company may agree to register such securities either at the time the transaction is        consummated, under certain conditions, or at a specified time thereafter. The issuance of        substantial additional securities and their potential sale into any trading market will        likely have a depressive effect on the Company’s stock price.

 

While the        actual terms of a transaction to which the Company may be a party cannot be predicted, it        may be expected that the parties to the business transaction will find it desirable to        avoid the creation of a taxable event and thereby structure the acquisition in a so called        “tax-free” reorganization under Section 368(a)(1) of the Internal Revenue Code        of 1986, as amended (the “Code”). In order to obtain tax-free treatment under        the Code, it may be necessary for the owners of the acquired business to own 80% or more of        the voting stock of the surviving entity. In such event, the shareholders of the Company        would retain less than 20% of the issued and outstanding shares of the surviving entity,        which could result in significant dilution in the equity of such shareholders.

 

In the        event a merger were to occur, the Company’s shareholders would in all likelihood hold        a lesser percentage ownership interest in the Company following any merger or acquisition.        The percentage ownership may be subject to significant reduction in the event the Company        acquires a target company with substantial assets. Any merger or acquisition effected by        the Company can be expected to have a significant substantial dilutive effect on the        percentage of shares held by the Company’s then shareholders.

 

***Operation of Business After Acquisition***

 

The        Company’s operation following any future merger or acquisition of a business cannot        be predicted at the present time.

 

**Competition**

 

In the event a merger or acquisition were to incur the        Company would encounter intense competition with other business entities, many of which        will have a competitive edge over the Company by virtue of their stronger financial        resources and prior experience in business. There is no assurance that the Company will be        successful in obtaining suitable business opportunities.

 

 

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**Patents, Trademarks, Licenses, Franchises, Concessions, Royalty        Agreements and Labor Contracts**

 

The Company        currently operates under and holds no patents, trademarks, licenses, franchises,        concessions, or royalty agreements. The Company is not subject to any labor        contracts.

 

**Governmental and Environmental Regulation**

 

The Company        cannot anticipate the government regulations, if any, to which the Company may be subject        until it has acquired an interest in a business. The use of assets to conduct a business        that the Company may acquire could subject it to environmental, public health and safety,        land use, trade, or other governmental regulations and state or local taxation. In        selecting a business in which to acquire an interest, management will endeavor to        ascertain, to the extent of the limited resources of the Company, the effects of such        government regulation on the prospective business of the Company. In certain circumstances,        however, such as the acquisition of an interest in a new or start-up business activity, it        may not be possible to predict with any degree of accuracy the impact of government        regulation.

 

**Research and Development**

 

During the        years ended December 31, 2007 and 2006, the Company spent $225,000 and $42,660,        respectively, on research and development activities which activities have been included in        discontinued operations. We cannot anticipate the amount of spending on research and        development, if any, in the future; such level will depend upon the nature of the business        we acquire, if any.

 

**Employees**

 

In December        2007, the Company suspended operations and has since terminated all employees. Our sole        executive officer devotes as much time to the affairs of the Company as he deems        appropriate. Management of the Company uses consultants, attorneys, and contract        accountants as necessary, and does not anticipate a need to engage any full-time employees        as long as business needs are being identified and evaluated. The need for employees and        their availability will be addressed in connection with a decision concerning whether or        not to acquire or participate in a specific business venture.

 

**Reports to Security Holders**

 

The        Company’s annual report contains audited financial statements. We are not required to        deliver an annual report to security holders and will not automatically deliver a copy of        the annual report to our security holders unless a request is made for such delivery. We        file all of our required reports and other information with the Securities and Exchange        Commission (the “Commission”). The public may read and copy any materials that        are filed by the Company with the Commission at the Commission’s Public Reference        Room at 450 Fifth Street, N.W., Washington, D.C. 20549. The public may obtain information        on the operation of the Public Reference Room by calling the Commission at 1-800-SEC-0330.        The statements and forms filed by us with the Commission have also been filed        electronically and are available for viewing or copy on the Commission maintained Internet        site that contains reports, proxy and information statements, and other information        regarding issuers that file electronically with the Commission. The Internet address for        this site can be found at*http://www.sec.gov*.

 

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| **ITEM 1A.** | **RISK FACTORS** |
|--------------|------------------|

 

The        Company’s operations and securities are subject to a number of risks. Below we have        identified and discussed the material risks that we are likely to face. Should any of the        following risks occur, they will adversely affect our operations, business, financial        condition and/or operating results as well as the future trading price and/or the value of        our securities.

 

***We        have suspended all operations and our ability to continue is in doubt.***

 

In December        2007 the Company suspended its “iron-fertilization” prove out efforts and        commenced efforts to wind down its business including the sale of assets and termination of        employees. The Company’s limited financial resources and absence of ongoing business        operations place its ongoing operation in doubt.

 

***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 $3,678,870 at December 31, 2007. The        Company has never realized revenue from operations. We will continue to incur operating        losses as we maintain our search for a suitable business opportunity and satisfy our        ongoing disclosure requirements with the Commission. Such continuing losses could result in        a decrease in share value.

 

***The        Company’s limited financial resources cast severe doubt on our ability to acquire a        profitable business opportunity.***

 

The        Company’s future operation is dependent upon the acquisition of a profitable business        opportunity. However, the prospect of such an acquisition is doubtful due to the        Company’s limited financial resources. Since we have no current business opportunity,        the Company is not in a position to improve this financial condition through debt or equity        offerings. Therefore, this limitation may act as a deterrent in future negotiations with        prospective acquisition candidates. Should we be unable to acquire a profitable business        opportunity the Company will, in all likelihood, be forced to cease operations.

 

***The        Company will require additional capital funding.***

 

The Company        will require additional funds, either through equity offerings or debt placements to        develop our operations. Such additional capital may result in dilution to our current        shareholders. Our ability to meet short-term and long-term financial commitments depends on        future cash. There can be no assurance that future income will generate sufficient funds to        enable us to meet our financial commitments.

 

***Corporate control lies in the hands of one        shareholder.***

 

Solar        Energy Limited owns and controls voting power over approximately 54% of the Company’s        issued and outstanding stock. The concentration of such a large percentage of the        Company’s stock in the hands of one shareholder may have a disproportionate effect on        the voting power of minority shareholders’ upon any and all matters presented to the        Company’s shareholders.

 

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***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 selling        shares at attractive prices when they want to. 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.

 

***The        Company does not pay cash dividends.***

 

The Company        does not pay cash dividends. We have not paid any cash dividends since inception and have        no intention of paying any cash dividends in the foreseeable future. Any future dividends        would be at the discretion of our board of directors and would depend on, among other        things, future earnings, our operating and financial condition, our capital requirements,        and general business conditions. Therefore, shareholders should not expect any type of        cash flow from their investment.

 

***We        incur significant expenses as a result of being registered under the Securities Exchange        Act of 1934, as amended, which may negatively impact our financial        performance.***

 

We incur        significant legal, accounting and other expenses as a result of being registered under the        Securities Exchange Act of 1934, as amended. 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 Sarbanes-Oxley Act of 2002, 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 in the future,        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 we are required to furnish a report by our        management on our internal controls over financial reporting. Such report must 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 continue to assert that our internal controls        are effective, our investors could lose confidence in the accuracy and completeness of our        financial reports, which in turn could cause our stock price to decline.

 

***The        Company’s shareholders may face significant restrictions on their        stock.***

 

The        Company’s stock differs from many stocks in that it is a “penny stock.”        The Commission has adopted a number of rules to regulate “penny stocks”        including, but not limited to, those rules from the Securities Act as follows:

 

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|   | 3a51-1 | which defines penny stock as, generally speaking, those                        securities which are not listed on either NASDAQ or a national securities                        exchange and are priced under $5, excluding securities of issuers that have                        net tangible assets greater than $2 million if they have been in operation                        at least three years, greater than $5 million if in operation less than                        three years, or average revenue of at least $6 million for the last three                        years; |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 15g-1 | which outlines transactions by broker/dealers which are                        exempt from 15g-2 through 15g-6 as those whose commissions from traders are                        lower than 5% total commissions; |
|--------|-------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 15g-2 | which details that brokers must disclose risks of penny                        stock on Schedule 15G; |
|--------|-------|-------------------------------------------------------------------------------------------------------|

|   | 15g-3 | which details that broker/dealers must disclose quotes and                        other information relating to the penny stock market; |
|--------|-------|-----------------------------------------------------------------------------------------------------------------------------------------|

|   | 15g-4 | which explains that compensation of broker/dealers must be                        disclosed; |
|--------|-------|----------------------------------------------------------------------------------------------|

|   | 15g-5 | which explains that compensation of persons associated in                        connection with penny stock sales must be disclosed; |
|--------|-------|---------------------------------------------------------------------------------------------------------------------------------------|

|   | 15g-6 | which outlines that broker/dealers must send out monthly                        account statements; and |
|--------|-------|---------------------------------------------------------------------------------------------------------|

|   | 15g-9 | which defines sales practice requirements. |
|--------|-------|--------------------------------------------|

Since the        Company’s securities constitute a “penny stock” within the meaning of the        rules, the rules would apply to us and our securities. Because these rules provide        regulatory burdens upon broker-dealers, they may affect the ability of shareholders to sell        their securities in any market that may develop; the rules themselves may limit the market        for penny stocks. Additionally, the market among dealers may not be active. Investors in        penny stock often are unable to sell stock back to the dealer that sold them the stock. The        mark-ups or commissions charged by the broker-dealers may be greater than any profit a        seller may make. Because of large dealer spreads, investors may be unable to sell the stock        immediately back to the dealer at the same price the dealer sold the stock to the investor.        In some cases, the stock may fall quickly in value. Investors may be unable to reap any        profit from any sale of the stock, if they can sell it at all.

 

Shareholders should be aware that, according to Commission Release No.        34-29093 dated April 17, 1991, the market for penny stocks has suffered from patterns        of fraud and abuse. These patterns include:

 

|   | **•** | control of the market for the security by one or a few                        broker-dealers that are often related to the promoter or issuer; |
|--------|------------|------------------------------------------------------------------------------------------------------------------------------------------------|

|   | **•** | manipulation of prices through prearranged matching of                        purchases and sales and false and misleading press releases; |
|--------|------------|--------------------------------------------------------------------------------------------------------------------------------------------|

|   | **•** | “boiler room” practices involving high pressure                        sales tactics and unrealistic price projections by inexperienced sales                        persons; |
|--------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | **•** | excessive and undisclosed bid-ask differentials and markups                        by selling broker-dealers; and |
|--------|------------|-------------------------------------------------------------------------------------------------------------------|

|   | **•** | the wholesale dumping of the same securities by promoters                        and broker-dealers after prices have been manipulated to a desired level,                        along with the inevitable collapse of those prices with consequent investor                        losses. |
|--------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

| **ITEM 1B.** | **UNRESOLVED STAFF COMMENTS** |
|--------------|-------------------------------|

 

Not        applicable.

 

| **ITEM 2.** | **PROPERTIES** |
|-------------|----------------|

 

The Company        maintains an office located at 1151 Triton Drive, Suite C, Foster City, California 94404 of        approximately 4,800 square feet, which office it shared with D2Fusion, Inc. The Company        paid $30,444.88 during 2007 and $21,340 during 2006 for the use of this space. The lease is        now on a month to month basis that is to terminate as of April 30, 2008.

The Company        also maintains executive office space located at 145-925 West Georgia Street, Vancouver,        British Columbia, Canada, of approximately 1,100 square feet, which office is shared with        Solar Energy Limited. The Company has no lease payment obligation for the use of these        premises.

         

 

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| **ITEM 3.** | **LEGAL PROCEEDINGS** |
|-------------|-----------------------|

 

Legal        proceedings were initiated by Mary Ruth Ladd against the Company, Planktos and certain        individuals affiliated to the Company on October 3, 2007 in the Superior Court of the State        of California, County of San Francisco in connection with allegations of discrimination and        retaliation against a whistle blower, wrongful termination, fraud, breach of contract,        wrongful business acts and intentionally causing injury in the workplace. The claim seeks        $58,280 in lost wages in addition to certain employee benefits and punitive damages. The        Company has retained counsel to respond to these allegations and denies any liability for        these alleged causes of action.

 

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

 

No matter        was submitted to a vote of the security holders, through the solicitation of proxies or        otherwise, during the fourth quarter ended December 31, 2007.

 

**PART        II**

 

| **ITEM 5.** | **MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS,                        AND ISSUER PURCHASES OF EQUITY SECURITIES** |
|-------------|-----------------------------------------------------------------------------------------------------------------------------|

 

The        Company’s common stock is quoted on the Pink Sheets LLC over-the-counter securities        market under the symbol “PLKT.” Trading in the common stock over-the-counter        market has been limited and sporadic and the quotations set forth below are not necessarily        indicative of actual market conditions. These prices reflect inter-dealer prices without        retail mark-up, mark-down, or commission, and may not necessarily reflect actual        transactions. The high and low bid prices for the common stock for each quarter of the        years ended December 31, 2007 and 2006 are as follows:

 

| ***Year*** | ***Quarter Ending*** | ***High*** | ***Low*** |
|------------|----------------------|------------|-----------|
| 2007       | December 31          | $0.70      | $0.06     |
|       | September 30         | $1.40      | $0.46     |
|       | June 30              | $1.95      | $0.71     |
|       | March 31*            | $2.56      | $0.51     |
| 2006       | December 31          | $0.75      | $0.11     |
|       | September 30         | $0.22      | $0.08     |

|   | June 30  | $0.32 | $0.12 |
|--------|----------|-------|-------|
|   | March 31 | $0.35 | $0.08 |

 

*The        Company effected a 1.5 for 1 forward split on March 8, 2007.

 

 

 

11

 

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On November        20, 2007, the Company was notified by the Financial Industry Regulatory Authority        (“FINRA”) that pursuant to NASD Rule 6530(e), the Company had been delinquent        in reporting obligations under the Securities Exchange Act of 1934 three times over a 24        month period. As a result, the Company is ineligible for trading on the Over-the-Counter        Bulletin Board (the “OTCBB”) for a period of 12 months beginning November 29,        2007 subject to the filing of current disclosure obligations in a timely manner.

 

The Company        intends to comply in a timely manner with all Commission reporting rules and expects to        reapply for quotation of the Company’s common stock on the OTCBB.

 

**Capital Stock**

 

The        following is a summary of the material terms of the Company’s capital stock. This        summary is subject to and qualified by our articles of incorporation and bylaws.

 

***Common Stock***

 

As of April        25, 2008, there were approximately 45 stockholders of record holding a total of there were        84,751,838 shares of the Company’s common stock of the 250,000,000 common shares        authorized. The board of directors believes that the number of beneficial owners is        substantially greater than the number of record holders because a portion of our        outstanding common stock is held in broker “street names” for the benefit of        individual investors. The holders of the common stock are entitled to one vote for each        share held of record on all matters submitted to a vote of stockholders. Holders of the        common stock have no preemptive rights and no right to convert their common stock into any        other securities. There are no redemption or sinking fund provisions applicable to the        common stock.

 

***Preferred Stock***

 

There are        no authorized preferred shares of the Company.

 

***Warrants***

 

As of April        25, 2008, the Company has (i) 1,257,500 common share purchase warrants exercisable at $0.50        per share at any time until April 5, 2009, (ii) 4,267,500 common share purchase warrants        exercisable at $0.27 per share at any time until January 11, 2009.

 

***Stock        Options***

 

As of April        25, 2008, the Company had no outstanding stock options to purchase shares of our common        stock.

 

***Dividends***

 

The Company        has not declared any cash dividends since inception and does not anticipate paying any        dividends in the near future. The payment of cash dividends is within the discretion of the        board of directors and will depend on our earnings, capital requirements, financial        condition, and other relevant factors. There are no restrictions that currently limit the        Company's ability to pay cash dividends on its common stock other than those generally        imposed by applicable state law.

 

12

 

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**Transfer Agent and Registrar**

 

Our        transfer agent is Michael Ajzernman at Madison Stock Transfer Agency, 1688 East 16th        Street, Suite 7, Brooklyn, NY 11229 (718) 627-4453.

 

**Purchases of Equity Securities made by the Issuer and Affiliated        Purchasers**

 

None.

 

**Recent        Sales of Unregistered Securities**

 

None.

 

| **ITEM 6.** | **SELECTED FINANCIAL DATA** |
|-------------|-----------------------------|

 

Not        required.

 

| **ITEM 7.** | **MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL                        CONDITION AND RESULTS OF OPERATIONS** |
|-------------|------------------------------------------------------------------------------------------------------------------------|

 

This*Management’s Discussion and Analysis of Financial Condition        and**Results of Operations*and other        parts of this current report contain forward-looking statements that involve risks and        uncertainties. Forward-looking statements can also be identified by words such as        “anticipates,” “expects,” “believes,”        “plans,” “predicts,” and similar terms. Forward-looking statements        are not guarantees of future performance and our actual results may differ significantly        from the results discussed in the forward-looking statements. Factors that might cause such        differences include but are not limited to those discussed in the subsection        entitled*Forward-Looking Statements and Factors That May Affect        Future Results and Financial Condition*below. The following        discussion should be read in conjunction with our financial statements and notes thereto        included in this current report. Our fiscal year end is December 31.

 

**Discussion and Analysis**

 

During the        year ended December 31, 2007, the Company was involved in activities dedicated to        implementing sea trials for the “iron-fertilization” prove-out program to        confirm the effectiveness of the Planktos’ CO2 sequestration process that        included several private placements of common stock, purchasing the Weatherbird II research        vessel, and closing the acquisition of Planktos, engaging the University of Miami/Harbor        Branch Oceanographic Institute (“HBOI”) to provide services and equipment in        addition to launching the Weatherbird II on a voyage dedicated to proving the efficacy of        “iron-fertilization”.

 

Despite        vigorous efforts to finance, implement and conduct Planktos’        “iron-fertilization” prove out program a combination of poor market conditions,        international condemnation from certain environmental groups and local opposition to the        prospective site of the ocean research caused the Company to place its research operations        on hold. Subsequent to the year ended December 31, 2007 the Company’s decided to        suspend “iron-fertilization” prove out efforts and commenced efforts to wind        down the business.

 

The Company        has terminated all employees and is in the process of closing its Foster City, California        office. Our principal place of business has moved to 145-925 West Georgia Street,        Vancouver, British Columbia, Canada V6C 3L2, and its telephone number is (604)        669-4771.

 

 

13

 

----

 

 

 

We are        currently evaluating the future of “iron fertilization” of the oceans, seeking        to identify a new business opportunity and satisfying continuous public disclosure        requirements. We have not yet entered into any agreement, nor do we have any commitment or        understanding to enter into or become engaged in any transaction, as of the date of this        filing.

 

The        Company’s plan of operation will require $100,000 in funding over the next 12 months        to continue the search for a suitable business opportunity, which funding is not currently        available. Should, we acquire a business within the next 12 months our funding requirements        will change.

 

**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. Substantially all of the capital raised to date        has been allocated in some manner for a prove-out of Planktos’ “iron        fertilization” program including the purchase of the research vessel Weatherbird        II.

 

***Net        Losses***

 

For the        period from inception until December 31, 2007, the Company incurred a net loss of        $3,678,870. Net losses for the year period ended December 31, 2007 were $2,937,599 as        compared to $615,058 for the year ended December 31, 2006. The Company’s net losses        are primarily attributable to the loss from discontinued operations (to $2,575,491 from        $42,660) in connection with the suspension of further efforts dedicated to the        sequestration of CO2 in marine and terrestrial environments.

 

We did not        generate any revenues during this period.

 

Since the        Company has suspended operations and has no ability to generate revenue it expects to        continue to incur losses for the foreseeable future.

 

***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***

 

During the        year ended December 31, 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        December 31, 2007, the Company had current assets totaling $56,560 and a working capital        deficit of $689,476. These assets consist solely of cash on hand of $56,560.        Stockholders’ equity in the Company was $77,506 at December 31, 2007. We are in the        development stage and, since inception, have experienced significant changes in liquidity,        capital resources, and stockholders’ equity.

 

14

 

----

 

 

Cash flow        used in operating activities was $3,382,919 for the period from inception to December 31,        2007. Cash flow used in operating activities for the year ended December 31, 2007 was        $2,678,439 as compared to $574,610 for the year ended December 31, 2006. The increase in        cash flow used in operating activities in the current period was due primarily to cash used        for discontinued operations.

 

Net cash        used in investing activities was $750,606 for the period from inception to December 31,        2007. Cash flow used for investing activities for the year ended December 31, 2007 was        $750,606 as compared to $0 for the year ended December 31, 2006. Cash flow used for        investing activities in the current period is primarily attributed to the purchase of the        Weatherbird II and related equipment.

 

Net cash        flow provided by financing activities was $4,190,085 for the period from inception to        December 31, 2007. Cash flow provided by financing activities for the year ended December        31, 2007 was $3,331,367 as compared to $703,958 for the year ended December 31, 2006. Cash        flow provided by financing activities in the current period can be primarily 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 its plan of operation over the        next twelve (12) months and it will have to seek debt or equity financing to fund minimum        operations. The Company has no current commitments or arrangements with respect to, or        immediate sources of funding. Further, no assurances can be given that funding, if needed,        would be available or available to the Company on acceptable terms. The Company’s        shareholders would 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 the Company has        no agreement formal or otherwise. The Company’s inability to obtain funding would        have a material adverse affect on its plan of operation. The Company projects that if no        acquisition candidate is found within the next twelve months its operating requirements        will not exceed $100,000.

 

Subsequent        to the year ended December 31, 2007, the Company sold its research vessel the Weatherbird        II to Sperc Explorer, Inc. for a sale price of $1,000,000. The Company has no current plans        for the purchase or sale of any plant or equipment.

 

The Company        has terminated all employees and has no current plans to hire employees.

 

***Off        Balance Sheet Arrangements***

 

As of        December 31, 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 is material to stockholders.

 

***Going        Concern***

 

The        Company’s auditors have expressed an opinion as to our ability to continue as a going        concern as a result of an accumulated deficit of $3,678,870 as of December 31, 2007. Our        ability to continue as a going concern is subject to the ability of the Company to obtain        the necessary funding from outside sources. Management’s plan to address the        Company’s ability to continue as a going concern, includes (i) obtaining funding from        private placement sources; (ii) obtaining additional funding from the sale of the        Company’s securities; (iii) establishing revenues from a suitable business        opportunity that has not yet been identified; (iv) obtaining loans and grants from various        financial institutions where possible. Although management believes that it will be able to        obtain the necessary funding to allow the Company to remain a going concern through the        methods discussed above, there can be no assurances that such methods will prove        successful.

 

 

15

 

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

 

The        statements contained in the section titled “*Results of        Operations”*and*“Description        of Business”*, with the exception of historical facts, are        forward looking statements. A safe-harbor provision may not be applicable to the forward        looking statements made in this current report. 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; |
|--------|------------|------------------------------------------------|

|   | **•** | 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; |
|--------|------------|---------------------------------------------------------------------------------------------------|

|   | **•** | the volatility of the stock market and; and |
|--------|------------|---------------------------------------------|

|   | **•** | general economic conditions. |
|--------|------------|------------------------------|

 

We wish to        caution readers that our 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.

 

***Stock-Based Compensation***

 

On January        1, 2006, we 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        Commission 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 generally requires that such transactions be accounted for using a fair-value-based        method. We use 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.        We have 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, the first day of our        fiscal year 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.

 

 

16

 

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Prior to        the adoption of SFAS No 123R, we measured compensation expense for our employee stock-based        compensation plans using the intrinsic value method prescribed by APB Opinion No. 25. We        applied the disclosure provisions of SFAS No. 123 as amended by SFAS No. 148, Accounting        for Stock-Based Compensation – Transition and Disclosure, as if the fair-value-based        method had been applied in measuring compensation expense. Under APB Opinion No. 25, when        the exercise price of our employee stock options was equal to the market price of the        underlying stock on the date of the grant, no compensation expense was        recognized.

 

We account        for equity instruments issued in exchange for the receipt of goods or services from other        than employees in accordance with SFAS No. 123 and the conclusions reached by the Emerging        Issues Task Force (“EITF”) in Issue No. 96-18. Costs are measured at the        estimated fair market value of the consideration received or the estimated fair value of        the equity instruments issued, whichever is more reliably measurable. The value of equity        instruments issued for consideration other than employee services is determined on the        earliest of a performance commitment or completion of performance by the provider of goods        or services as defined by EITF 96-18.

 

***Recent Accounting Pronouncements***

 

In December        2007, the FASB issued SFAS 160, “Noncontrolling interests in Consolidated Financial        Statements – an amendment of ARB No. 51”. This Statement amends ARB 51 to        establish accounting and reporting standards for the noncontrolling interest in a        subsidiary and for the deconsolidation of a subsidiary. It clarifies that a noncontrolling        interest in a subsidiary is an ownership interest in the consolidated entity that should be        reported as equity in the consolidated financial statements. This Statement is effective        for fiscal years beginning on or after December 15, 2008. Early adoption is not permitted.        Management is currently evaluating the effects of this statement, but it is not expected to        have any impact on the Company’s financial statements.

         

In January        2007, we adopted FIN 48. FIN 48 clarifies the accounting for uncertain taxes        recognized in an enterprise's financial statements in accordance with SFAS No. 109,        "*Accounting for Income Taxes."*FIN 48 prescribes a recognition threshold and measurement of a tax        position taken or expected to be taken in an enterprise's tax return. In addition,        FIN 48 provides guidance on derecognition, classification, interest and penalties,        accounting in interim periods and disclosure related to uncertain income tax        positions.

 

In February        2007, the FASB issued SFAS 159, “The Fair Value Option for Financial Assets and        Financial Liabilities. SFAS 159 creates a fair value option allowing an entity to        irrevocably elect fair value as the initial and subsequent measurement attribute for        certain financial assets and financial liabilities, with changes in fair value recognized        in earnings as they occur. SFAS 159 also requires an entity to report thosefinancial assets and financial liabilities measured at fair value in a        manner that separates those reported fair values from the carrying amounts of assets and        liabilities measured using another measurement attribute on the face of the statement of        financial position. Lastly, SFAS 159 requires an entity to provide information that would        allow users to understand the effect on earnings of changes in the fair value on those        instruments selected for the fair value election. SFAS 159 is effective for fiscal years        beginning after November 15, 2007 with early adoption permitted. The Company is continuing        to evaluate SFAS 159 and to assess the impact on our results of operations and financial        condition if an election is made to adopt the standard.

         

| **ITEM 7A.** | **QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET                        RISK** |
|--------------|---------------------------------------------------------------------------------------|

         

Not required.

         

 

17

 

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| **ITEM 8.** | **FINANCIAL STATEMENTS AND SUPPLEMENTARY                        DATA** |
|-------------|------------------------------------------------------------------------|

 

Our        audited financial statements for the years ended December 31, 2007 and 2006 are attached        hereto as F-1 through F-17.

 

18

 

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**PLANKTOS CORP.**

**(A        Development Stage Company)**

**INDEX        TO CONSOLIDATED FINANCIAL STATEMENTS**

**December 31, 2007 and 2006**

 

 

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

 

|   | Report of Independent Registered Public Accounting                        Firm | F-2 |
|--------|--------------------------------------------------------------------------------|-----|

 

|   | Consolidated Balance Sheets | F-3 |
|--------|-----------------------------|-----|

 

|   | Consolidated Statements of Operations | F-4 |
|--------|---------------------------------------|-----|

 

|   | Consolidated Statements of Stockholders’                        Equity | F-5 |
|--------|------------------------------------------------------------------------------|-----|

 

|   | Consolidated Statements of Cash Flows | F-6 |
|--------|---------------------------------------|-----|

 

|   | Notes to Consolidated Financial Statements | F-8 |
|--------|--------------------------------------------|-----|

 

                                                                                                                                                                   

 

 

 

 

 

 

 

 

 

 

 

 

F-1

 

----

 

Board of        Directors

Planktos        Corp.

Vancouver, British Columbia

CANADA

 

**REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING        FIRM**

 

We have        audited the accompanying consolidated balance sheets of Planktos Corp. (a development stage        company) as of December 31, 2007 and 2006, and the related consolidated statements of        operations, consolidated statement of stockholders’ equity (deficit) and consolidated        statement of cash flows for the years then ended and for the period from February 11, 2005        (Inception) to December 31, 2007. These financial statements are the responsibility of the        Company’s management. Our responsibility is to express an opinion on these financial        statements based on our audit.

 

We        conducted our audit in accordance with the standards of the Public Company Accounting        Oversight Board (United States). Those standards require that we plan and perform the audit        to obtain reasonable assurance about whether the financial statements are free of material        misstatement. The Company is not required to have, nor were we engaged to perform, an audit        of its internal control over financial reporting. Our audit included consideration of        internal control over financial reporting as a basis for designing audit procedures that        are appropriate in the circumstances, but not for the purpose of expressing an opinion on        the effectiveness of the Company’s internal control over financial reporting.        Accordingly, we express no such opinion. An audit includes examining, on a test basis,        evidence supporting the amounts and disclosures in the financial statements. An audit also        includes assessing the accounting principles used and significant estimates made by        management, as well as evaluating the overall financial statement presentation. We believe        that our audit provides a reasonable basis for our opinion.

 

In our        opinion, the financial statements referred to above present fairly, in all material        respects, the financial position of Planktos Corp. (a development stage company) as of        December 31, 2007 and 2006, and the results of its operations, consolidated statement of        stockholders equity (deficit) and its consolidated statement of cash flows for the years        then ended and for the period from February 11, 2005 (Inception) to December 31, 2007 in        conformity with accounting principles generally accepted in the United States of        America.

 

The        accompanying financial statements have been prepared assuming that the Company will        continue as a going concern. As discussed in Note 2 to the financial statements, the        Company’s significant operating losses and negative working capital raise substantial        doubt about its ability to continue as a going concern. Management’s plans regarding        the resolution of this issue are also discussed in Note 2. The financial statements do not        include any adjustments that might result from the outcome of this uncertainty.

 

/s/        Williams & Webster, P.S.

 

Williams        & Webster, P.S.

Certified Public Accountants

Spokane,        Washington

April        25, 2008

 

 

 

F-2

 

----

 

 

                                                                                      

| **PLANKTOS CORP.**

**(formerly Diatom Corporation)**

**(A Development Stage Company)**

**CONSOLIDATED BALANCE SHEETS** |
|---------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                      |   |   |   |   |   | December 31, |   | December 31, |
|                                                                                                                      |   |   |   |   |   | 2007 |   | 2006 |
|                                                                                                                      |   |   |   |   |   |   |   |   |
| **ASSETS**                                                                                                                |   |   |   |   |   |   |
|                                                                                                                      | CURRENT ASSETS |   |   |   |   |   |
|                                                                                                                      |   | Cash |   | $ | 56,560 | $ | 154,238 |
|                                                                                                                      |   | Prepaid expenses |   |   | - |   | 7,162 |
|                                                                                                                      |   | Advances receivable |   |   | - |   | 86,956 |
|                                                                                                                      |   |   |   |   |   |   |   |   |
|                                                                                                                      |   |   | Total Current Assets |   |   | 56,560 |   | 248,356 |
|                                                                                                                      |   |   |   |   |   |   |   |   |
|                                                                                                                      | OTHER ASSETS |   |   |   |   |   |
|                                                                                                                      |   | Vessels and other fixed assets, net of                        depreciation |   |   | 787,561 |   | - |
|                                                                                                                      |   | Deposits |   |   | 4,720 |   | 4,720 |
|                                                                                                                      |   |   |   |   |   |   |   |   |
|                                                                                                                      |   |   | Total Other Assets |   |   | 792,281 |   | 4,720 |
|                                                                                                                      |   |   |   |   |   |   |   |   |
|                                                                                                                      | **TOTAL ASSETS** |   | $ | 848,841 | $ | 253,076 |
|                                                                                                                      |   |   |   |   |   |   |   |   |
| **LIABILITIES AND STOCKHOLDERS' EQUITY                        (DEFICIT)**                                                 |   |   |
|                                                                                                                      | CURRENT LIABILITIES |   |   |   |   |   |
|                                                                                                                      |   | Accounts payable |   | $ | 187,968 | $ | 1,071 |
|                                                                                                                      |   | Other accrued liabilities |   |   | 3,242 |   | 6,501 |
|                                                                                                                      |   | Accrued interest payable – related parties |   |   | 32,614 |   | - |
|                                                                                                                      |   | Payable to affiliates |   |   | - |   | 5,824 |
|                                                                                                                      |   | Loan payable – related parties |   |   | 547,511 |   | 939,750 |
|                                                                                                                      |   |   |   |   |   |   |   |   |
|                                                                                                                      |   |   | Total Current Liabilities |   |   | 771,335 |   | 953,146 |
|                                                                                                                      |   |   |   |   |   |   |   |   |
|                                                                                                                      | COMMITMENTS AND CONTINGENCIES |   |   | - |   | - |
|                                                                                                                      |   |   |   |   |   |   |   |   |
|                                                                                                                      | STOCKHOLDERS' EQUITY (DEFICIT) |   |   |   |   |   |
|                                                                                                                      |   | Common stock, authorized 250,000,000 shares |   |   |   |   |   |
|                                                                                                                      |   | of $0.001 par value, issued and outstanding |   |   |   |   |
|                                                                                                                      |   | 84,751,838 at December 31, 2007 and 77,438,838 shares at                        December 31, 2006 |   |   |   |   |
|                                                                                                                      |   |   | 84,752 |   | 100 |
|                                                                                                                      |   | Additional paid-in capital |   |   | 3,671,624 |   | 41,101 |
|                                                                                                                      |   | Deficit accumulated during development stage |   |   | (3,678,870) |   | (741,271) |
|                                                                                                                      |   |   |   |   |   |   |   |   |
|                                                                                                                      |   |   | Total Stockholders' Equity (Deficit) |   |   | 77,506 |   | (700,070) |
|                                                                                                                      | **TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                        (DEFICIT)** |   |   |   |   |
|                                                                                                                      | $ | 848,841 | $ | 253,076 |

 

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

 

F-3

 

----

 

 

| **PLANKTOS CORP.**                                                          |                        |                         |          |                             |        |               |
|-----------------------------------------------------------------------------|-----------------------------|------------------------------|---------------|----------------------------------|-------------|--------------------|
| **(formerly Diatom Corporation)**                                           |                        |                         |          |                             |        |               |
| **(A Development Stage Company)**                                           |                        |                         |          |                             |        |               |
| **CONSOLIDATED STATEMENTS OF OPERATIONS**                                   |                        |                         |          |                             |
|                                                                        |                        |                         |          |                             |        | From Inception     |
|                                                                        |                        |                         |          | For the Years Ended December 31, |        | (February 11, 2005 |
|                                                                        |                        |                         |          | 2007                             |        | 2006               |   | to December 31, 2007) |
| REVENUES                                                                    |                        | $ -                          |          | $ -                              |        | $ -                |
|                                                                        |                        |                         |          |                             |        |               |   |   |
| OPERATING EXPENSES                                                          |                        |                         |          |                             |        |               |
|                                                                        | Vessel operating expenses   |                         | -             |                             | -           |               | - |
|                                                                        | Research and development    |                         | -             |                             | -           |               | - |
|                                                                        | Bad debt expense            |                         | 32,876        |                             | -           |               | 32,876 |
|                                                                        | General and administrative  |                         | 296,618       |                             | 568,101     |               | 1,029,769 |
|                                                                        |                        | Total Operating Expenses     |          | 329,494                          |        | 568,101            |   | 1,062,645 |
|                                                                        |                        |                         |          |                             |        |               |   |   |
| LOSS FROM OPERATIONS                                                        |                        | (329,494)                    |          | (568,101)                        |        | (1,062,645)        |
|                                                                        |                        |                         |          |                             |        |               |   |   |
| OTHER INCOME (EXPENSE)                                                      |                        |                         |          |                             |        |               |
|                                                                        | Other income                |                         | -             |                             | 11,119      |               | 11,119 |
|                                                                        | Other income- related party |                         | -             |                             | 21,000      |               | 61,000 |
|                                                                        | Interest income             |                         | -             |                             | 3,522       |               | 3,522 |
|                                                                        | Interest expense            |                         | (32,614)      |                             | (39,938)    |               | (73,715) |
|                                                                        |                        | Total Other Income (Expense) |          | (32,614)                         |        | (4,297)            |   | 1,926 |
|                                                                        |                        |                         |          |                             |        |               |   |   |
| NET LOSS BEFORE INCOME TAX                                                  |                        | (362,108)                    |          | (572,398)                        |        | (1,060,719)        |
| INCOME TAX EXPENSE                                                          |                        | -                            |          | -                                |        | -                  |
| NET LOSS FROM CONTINUING OPERATIONS                                         |                        | (362,108)                    |          | (572,398)                        |        | (1,060,719)        |
| LOSS ON DISCONTINUED OPERATIONS                                             |                        | (2,575,491)                  |          | (42,660)                         |        | (2,618,151)        |
|                                                                        | NET LOSS                    |                         | $ (2,937,599) |                             | $ (615,058) |               | $ (3,678,870) |
|                                                                        |                        |                         |          |                             |        |               |   |
| NET LOSS PER SHARE                                                          |                        | $ 0.03                       |          | $ 0.01                           |        | $ 0.09             |
| WEIGHTED AVERAGE NUMBER OF COMMON SHARES                        OUTSTANDING |                        |                         |          |                             |        |
| 84,751,838                                                                  | 77,438,838                  | 41,982,579                   |
|                                                                             |                             |                              |               |                                  |             |                    |  |  |  |  |  |  |  |  |  |

 

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

 

F-4

 

----

 

 

| **PLANKTOS CORP.**                                                     |                                                                              |         |        |        |          |        |              |                |              |
|------------------------------------------------------------------------|-----------------------------------------------------------------------------------|--------------|-------------|-------------|---------------|-------------|-------------------|---------------------|-------------------|
| **(formerly Diatom Corporation)**                                      |                                                                              |         |        |        |          |        |              |                |              |
| **(A Development Stage Company)**                                      |                                                                              |         |        |        |          |        |              |                |              |
| **STATEMENT OF STOCKHOLDER'S EQUITY                        (DEFICIT)** |                                                                              |         |        |        |          |        |              |                |              |
|                                                                   |                                                                              |         |        |        |          |        |              | Deficit Accumulated |              |   |
|                                                                   |                                                                              |         |        |        |          | Additional  |              | During              |              | Total |
|                                                                   |                                                                              | Common Stock |        | Paid-in     |          | Development |              | Stockholder's       |
|                                                                   |                                                                              | Shares       |        | Amount      |          | Capital     |              | Stage               |              | Equity |
| Balance, February 11, 2005 (Inception)                                 | -                                                                                 |         | $ -         |        | $ -           |        | $ -               |                | $ -               |
|                                                                   | Shares issued for cash                                                            | 45,000,100   |        |  

100 |          |  

-   |              |  

-           |              |  

100 |
|                                                                   |                                                                              |         |        |        |          |        |              |                |              |   |
|                                                                   | Contribution of capital by shareholders in                                        |         |        |        |          |        |              |                |              |   |
|                                                                   | form of foregone interest                                                         | -            |        | -           |          | 1,163       |              | -                   |              | 1,163 |
|                                                                   |                                                                              |         |        |        |          |        |              |                |              |   |
|                                                                   | Net loss for the year ended December 31, 2005                                     | -            |        | -           |          | -           |              | (126,213)           |              | (126,213) |
|                                                                   |                                                                              |         |        |        |          |        |              |                |              |   |
| Balance, December 31, 2005                                             | 45,000,100                                                                        |         |  

100 |        |  

1,163 |        |  

(126,213) |                |  

(124,950) |
|                                                                   | Contribution of capital by shareholders in                                        |         |        |        |          |        |              |                |              |   |
|                                                                   | form of foregone interest                                                         | -            |        | -           |          | 39,938      |              | -                   |              | 39,938 |
|                                                                   |                                                                              |         |        |        |          |        |              |                |              |   |
|                                                                   | Net loss for the year ended December 31, 2006                                     | -            |        | -           |          | -           |              | (615,058)           |              | (615,058) |
|                                                                   |                                                                              |         |        |        |          |        |              |                |              |   |
| Balance, December 31, 2006                                             | 45,000,100                                                                        |         | 100         |        | 41,101        |        | (741,271)         |                | (700,070)         |
|                                                                   | Recapitalization Adjustment                                                       | 32,438,738   |        | 77,339      |          | 760,850     |              | -                   |              | 838,189 |
|                                                                   | Balance post recapitalization (Note 1)                                            | 77,438,838   |        | 77,439      |          | 801,951     |              | (741,271)           |              | 138,119 |
|                                                                   |                                                                              |         |        |        |          |        |              |                |              |   |
|                                                                   | Common stock issued for cash from $0.16 to $1.00 per                        share | 7,263,000    |        | 7,263       |          | 2,826,722   |              | -                   |              | 2,833,985 |
|                                                                   |                                                                              |         |        |        |          |        |              |                |              |   |
|                                                                   | Common stock issued for services                                                  | 50,000       |        | 50          |          | 42,950      |              | -                   |              | 43,000 |
|                                                                   |                                                                              |         |        |        |          |        |              |                |              |   |

|   | Net loss for the year ended December 31, 2007 | -          |   | -        |   | -          |   | (2,937,599)  |   |  (2,937,599)                             |
|--------|-----------------------------------------------|------------|--------|----------|--------|------------|--------|--------------|--------|-----------------------------------------------|
|   | Balance, December 31, 2007                    | 84,751,838 |   | $ 84,752 |   | $3,671,623 |   | $(3,678,870) |   |        $ 77,506 |

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

 

F-5

 

----

 

 

| **PLANKTOS CORP.**                            |                                                                                |                                                                                                          |          |                             |      |                                |
|-----------------------------------------------|-------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------|---------------|----------------------------------|-----------|-------------------------------------|
| **(formerly Diatom Corporation)**             |                                                                                |                                                                                                          |          |                             |      |                                |
| **(A Development Stage Company)**             |                                                                                |                                                                                                          |          |                             |      |                                |
| **CONSOLIDATED STATEMENTS OF CASH FLOWS**     |                                                                                |                                                                                                          |          |                             |      |                                |
|                                          |                                                                                |                                                                                                          |          |                             |      | From Inception (February11, 2005 to |
|                                          |                                                                                |                                                                                                          |          | For the Years Ended December 31, |      | December 31,                        |
|                                          |                                                                                |                                                                                                          |          | 2007                             |      | 2006                                |   | 2007) |
| CASH FLOWS FROM OPERATING ACTIVITIES:         |                                                                                |                                                                                                          |          |                             |      |
| Net loss from continuing operations           | $                                                                                   | (336,809)                                                                                                     | $             | (572,398)                        | $         | (1,035,420)                         |
| Adjustments to reconcile net loss to net cash |                                                                                |                                                                                                          |          |                             |      |                                |
| (Used) in operating activities:               |                                                                                |                                                                                                          |          |                             |      |                                |
|                                          | Depreciation                                                                        |                                                                                                          | 35,745        |                             | -         |                                | 35,745 |
|                                          | Expenses paid through contribution of paid in                        capital        |                                                                                                          | -             |                             | 39,938    |                                | 41,101 |
|                                          | (Increase) decrease in deposits                                                     |                                                                                                          | -             |                             | 100       |                                | (4,720) |
|                                          | (Increase) decrease in prepaid expense & misc                        receivable |                                                                                                          |  

7,162 |                             | (7,162)   |                                |  

- |
|                                          | Increase (decrease) in accounts payable                                             |                                                                                                          | 186,898       |                             | 1,071     |                                | 187,969 |
|                                          | Increase (decrease) in other liabilities                                            |                                                                                                          | (3,259)       |                             | 6,501     |                                | 3,242 |
|                                          | Increase (decrease) in accrued interest payable                                     |                                                                                                          | 32,614        |                             | -         |                                | 32,614 |
|                                          | Net Cash (Used in) Continuing Operating                        Activities           |                                                                                                          | (102,948)     |                             | (531,950) |                                | (764,768) |
|                                          | Net Cash (Used in) Discontinued Operating                        Activities         |                                                                                                          | (2,575,491)   |                             | (42,660)  |                                | (2,618,151) |
|                                          | Net Cash (Used in) Operating Activities                                             |                                                                                                          | (2,678,439)   |                             | (574,610) |                                | (3,382,919) |
| CASH FLOWS FROM INVESTING ACTIVITIES:         |                                                                                |                                                                                                          |          |                             |      |
|                                          | Purchase of vessel and other fixed asset                                            |                                                                                                          | (823,306)     |                             | -         |                                | (823,306) |
|                                          | Acquisition of business                                                             |                                                                                                          | 72,700        |                             | -         |                                | 72,700 |
|                                          |                                                                                | Net Cash (Used in) Investing Activities                                                                       |          | (750,606)                        |      | -                                   |   | (750,606) |
| CASH FLOWS FROM FINANCING ACTIVITIES:         |                                                                                |                                                                                                          |          |                             |      |
|                                          | Issued common stock for cash                                                        |                                                                                                          | 2,876,985     |                             | -         |                                | 2,877,085 |
|                                          | Affiliate receivable                                                                |                                                                                                          | 86,956        |                             | (85,952)  |                                | 5,824 |
|                                          | Affiliate payable                                                                   |                                                                                                          | (5,824)       |                             | -         |                                | (5,824) |
|                                          | Proceeds from payable - related party                                               | 650,000                                                                                                       |          | 789,910                          |      | 1,589,750                           |
|                                          | Loan principal repayments                                                           |                                                                                                          | (276,750)     |                             | -         |                                | (276,750) |
|                                          |                                                                                | Net Cash Provided by Financing Activities                                                                     | 3,331,367     |                             | 703,958   |                                | 4,190,085 |
| NET INCREASE (DECREASE) IN CASH AND           |                                                                                |                                                                                                          |          |                             |      |
| CASH EQUIVALENTS                              |                                                                                | (97,678)                                                                                                      |          | 129,348                          |      | 56,560                              |
| CASH AT BEGINNING OF PERIOD                   |                                                                                | 154,238                                                                                                       |          | 24,890                           |      | -                                   |
| CASH AT END OF PERIOD                         |                                                                                |              $                        56,560 |          | $ 154,238                        |      | $ 56,560                            |
| SUPPLIMENTAL CASH FLOW INFORMATION            |                                                                                |                                                                                                          |          |                             |      |
|                                          | CASH PAID FOR:                                                                      |                                                                                                          |          |                             |      |                                |   |
|                                               |                                                                                     |                                                                                                               |               |                                  |           |                                     |  |  |  |  |

|   |   | Interest     |   | $ - |   | $ - |   | $ - |
|--------|--------|--------------|--------|-----|--------|-----|--------|-----|
|   |   | Income taxes |   | $ - |   | $ - |   | $ - |

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

 

 

 

F-6

 

 

----

 

 

 

**PLANKTOS        CORP.**

**(formerly Diatom Corporation)**

**(A        Development Stage Company)**

**CONSOLIDATED STATEMENTS OF CASH FLOWS**

***(Continued)***

 

NON-CASH        FINANCING AND INVESTING TRANSACTIONS:

 

During        2005, the Company issued 78,711,311 shares of common stock to satisfy debt of        $997,010.

During        2006, the Company converted $99,541 of accounts payable – related party to loan        payable – related party.

During        2007, the Company issued 50,000 shares of common stock for services provided by one of our        directors valued at $46,000.

F-7

 

 

----

 

**PLANKTOS        CORP.**

**(formerly Diatom Corporation)**

**(A        Development Stage Company)**

**NOTES TO        AUDITED CONSOLIDATED FINANCIAL STATEMENTS**

**December 31, 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. On September 23, 2002, the Company        changed its name to “GYK Ventures, Inc.” and on July 8, 2005, the Company        changed its name to “Diatom Corporation”. The Company was originally organized        to provide internet-based travel services.

 

On        August 17, 2005, the Company executed an Iron-Fertilization Prove-Out and Purchase        Agreement with Solar Energy Limited (“Solar”) and its wholly owned subsidiary        Planktos, Inc. (“Planktos”) whereby the Company committed to assist Planktos in        providing developmental funding for a marine “iron-fertilization” prove out        program designed to take advantage of the Kyoto Protocol which enables companies and        governments to offset regulated greenhouse emission restrictions with certified emission        reduction (“CER”) credits in exchange for exclusive marketing and intellectual        property rights to Planktos’ CO2 sequestration process. Planktos expected        the cost of the prove out program to be $1,290,000 of which Solar agreed to provide up to        25%. Solar was responsible for funding the remainder of the developmental funding. The        agreement also provided for a royalty agreement which would have entitled Planktos and        Solar up to 75% of net sales revenue generated by the Company from the sale of CER credits        created from the sequestration process until Solar and Planktos had recouped their costs.        Thereafter, Solar and Planktos were entitled to 25% of net sales revenue generated by the        Company from the sale of CERs. The Company paid $250,000 in cash for the exclusive        marketing and intellectual property rights.

 

On        August 9, 2007 the Company purchased 100% of the issued and outstanding shares of Planktos        to acquire the proprietary greenhouse emission technology associated with the        CO2 sequestration process. The Company issued 45,000,000 restricted shares of        common stock to Solar which represented 54% of the outstanding common stock of the        Company.

 

In        December 2007, Planktos’ “iron-fertilization” prove out program was        suspended and efforts are underway to wind down its operations. The Company has since        terminated all employees, liquidated substantially all of its assets and is in the process        of closing its Foster City, California office. As of December 31, 2007 this prove out        program was suspended and $2,575,491 has been recognized as a loss in discontinued        operations.

 

The        Company is a development stage company as defined in Financial Accounting Standards Board        Statement No. 7. It is concentrating substantially all of its efforts in raising capital        and defining its business operation in order to generate revenues.

 

The        consolidated financial statements at December 31, 2007 and 2006 assume the acquisition of        Planktos by the Company occurred January 1, 2005 (date of inception of development stage).        Because the shares issued in the acquisition of Planktos represent control of the total        shares of the Company’s common stock issued and outstanding immediately following the        acquisition, Planktos is deemed for financial reporting purposes to have acquired the        Company in a reverse acquisition. The business combination has been accounted for as a        recapitalization of the Company giving effect to the acquisition of 100% of the outstanding        common shares of Planktos. The surviving entity reflects the assets and liabilities of        Planktos and the Company at their historical book value. The issued common stock is that of        the Company, the accumulated deficit is that of Planktos, and the statements of operations        is that of the Company for the year

 

F-8

 

 

----

 

**PLANKTOS        CORP.**

**(formerly Diatom Corporation)**

**(A        Development Stage Company)**

**NOTES TO        AUDITED CONSOLIDATED FINANCIAL STATEMENTS**

**December 31, 2007**

 

ended        December 31, 2007 and 2006 and cumulative amounts, plus that of Planktos from August 9,        2007 through 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.

 

Bad        Debt Expenses

The        Company’s bad debt expenses for the years ended December 31, 2007 and 2006 were        $32,870 and $0 respectively.

 

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.

 

Concentrations

The        Company maintains its cash accounts in a single commercial bank. During the year, the        Company may maintain balances in excess of the federally insured amounts in the accounts        that are maintained in the United States.

 

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        December 31, 2007 and 2006, the Company has not engaged in any transactions that would        be

 

F-9

 

 

----

 

**PLANKTOS        CORP.**

**(formerly Diatom Corporation)**

**(A        Development Stage Company)**

**NOTES TO        AUDITED CONSOLIDATED FINANCIAL STATEMENTS**

**December 31, 2007**

 

considered derivative instruments or hedging activities.

 

 

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

 

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 December 31, 2007 and December        31, 2006.

 

Going        Concern 

As shown        in the accompanying financial statements, the Company had a negative working capital of        $714,775 and an accumulated deficit of $3,678,870 incurred through December 31, 2007. The        Company is currently evaluating its “iron-fertilization” program and is        currently seeking out a new business opportunity that might, if successful, mitigate those        factors which raise substantial doubt about the Company’s ability to continue as a        going concern. 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.

 

The        Company plans on continuing to reduce expenses, and in the event that a new revenue        producing business is acquired, believes that it will eventually be able to reverse the        present deficit. Management plans include negotiations to convert significant portions of        existing debt into equity.

 

An        estimated $100,000 is believed necessary to continue operations until such time as a new        business opportunity is acquired. In the event that we acquire a new business opportunity,        the timing and amount of capital requirements will depend on a number of factors, including        the demand for products or services, the availability of opportunities for expansion        through affiliations and other business relationships. Management intends to seek        additional capital from new equity securities offerings that will provide the funds needed        to increase liquidity, fund internal growth and fully implement its business        plan.

 

Principles of Consolidation

The        consolidated financial statements include the accounts of the Company and its        subsidiaries.  All significant intercompany balances and transactions have been        eliminated.

 

F-10

 

 

----

 

**PLANKTOS        CORP.**

**(formerly Diatom Corporation)**

**(A        Development Stage Company)**

**NOTES TO        AUDITED CONSOLIDATED FINANCIAL STATEMENTS**

**December 31, 2007**

 

 

 

 

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

 

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        December 2007, the FASB issued SFAS 160, “Noncontrolling interests in Consolidated        Financial Statements – an amendment of ARB No. 51”. This Statement amends ARB        51 to establish accounting and reporting standards for the noncontrolling interest in a        subsidiary and for the deconsolidation of a subsidiary. It clarifies that a noncontrolling        interest in a subsidiary is an ownership interest in the consolidated entity that should be        reported as equity in the consolidated financial statements. This Statement is effective        for fiscal years beginning on or after December 15, 2008. Early adoption is not permitted.        Management is currently evaluating the effects of this statement, but it is not expected to        have any impact on the Company’s financial statements.

 

In        February 2007, the FASB issued SFAS 159, “The Fair Value Option for Financial Assets        and Financial Liabilities. SFAS 159 creates a fair value option allowing an entity to        irrevocably elect fair value as the initial and subsequent measurement attribute for        certain financial assets and financial liabilities, with changes in fair value recognized        in earnings as they occur. SFAS 159 also requires an entity to report those financial        assets and financial liabilities measured at fair value in a manner that separates those        reported fair values from the carrying amounts of assets and liabilities measured using        another measurement attribute on the face of the statement of financial position. Lastly,        SFAS 159 requires an entity to provide information that would allow users to understand the        effect on earnings of changes in the fair value on those instruments selected for the fair        value election. SFAS 159 is effective for fiscal years beginning after November 15, 2007        with early adoption permitted. The Company is continuing to evaluate SFAS 159 and to assess        the impact on the Company’s results of operations and financial condition if an        election is made to adopt the standard.

 

In        January 2007, we adopted FIN 48. FIN 48 clarifies the accounting for uncertain        taxes recognized in an enterprise's financial statements in accordance with SFAS        No. 109, "*Accounting for Income Taxes."*FIN 48 prescribes a recognition threshold and measurement of a tax        position taken or expected to be taken in an enterprise's tax return. In addition,        FIN 48 provides guidance on derecognition, classification, interest and penalties,        accounting in interim periods and disclosure related to uncertain income tax        positions.

 

F-11

 

 

----

 

**PLANKTOS        CORP.**

**(formerly Diatom Corporation)**

**(A        Development Stage Company)**

**NOTES TO        AUDITED CONSOLIDATED FINANCIAL STATEMENTS**

**December 31, 2007**

 

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.

 

 

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

 

Stock        Options and Warrants Granted to Employees and Nonemployees

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.

 

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, net 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

 

F-12

 

 

----

 

**PLANKTOS        CORP.**

**(formerly Diatom Corporation)**

**(A        Development Stage Company)**

**NOTES TO        AUDITED CONSOLIDATED FINANCIAL STATEMENTS**

**December 31, 2007**

 

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 – ACQUISITION OF PLANKTOS, INC.**

Effective January 12, 2007, the Company entered into an a Securities and        Exchange Agreement and Plan of Exchange to acquire 100% of the issued and outstanding        shares of Planktos from Solar in exchange for 45,000,000 restricted shares of the        Company’s common stock, the cancellation of 45,000,000 outstanding restricted shares        held by certain shareholders of the Company and a commitment to provide Planktos with no        less than $1,000,000 on or before closing.  Effective August 9, 2007, the acquisition        of Planktos was completed. As a result of the completion of this acquisition and the other        related transactions, the former shareholder of Planktos owned approximately 54% of the        outstanding shares of common stock of the Company representing 45,000,000 of the then        83,673,873 total issued and outstanding shares of common stock of the Company.

Accordingly, the acquisition has been accounted for as a recapitalization        using accounting principles applicable to reverse acquisitions whereby the financial        statements subsequent to the date of the transaction are presented as a continuation of        Planktos. Under reverse acquisition accounting Planktos (the legal subsidiary) has been        treated as the accounting parent (acquirer) and the Company (the legal parent) has been        treated as the accounting subsidiary (acquiree). The value assigned to the common stock of        the consolidated Company on acquisition of Planktos is equal to the book value of the        common stock of Planktos plus the book value of the net assets of the Company as at the        date of the acquisition as adjusted for certain concurrent transactions.

As at        the date of the acquisition, the book value of the net assets of the Company made up as        follows:

| Cash                                                                               | $      | 67,121    |
|------------------------------------------------------------------------------------|--------|-----------|
| Advances receivable                                                                |   | 5,821     |
| Accounts payable                                                                   |   | (245)     |
| Due to related party                                                               |   | (174,511) |
| Preliminary net assets (liabilities)                                               |   | (101,811) |
| Concurrent share issuance on settlement of debt (see                        above) |   | 940,000   |
| Adjusted Company net assets                                                        | $      | 838,189   |

The        consolidated capital stock of the Company immediately following the acquisition is        determined as follows:

| Planktos - book value of capital stock | $ | (700,000) |
|----------------------------------------|---|-----------|

 

 

F-13

 

 

----

 

**PLANKTOS        CORP.**

**(formerly Diatom Corporation)**

**(A        Development Stage Company)**

**NOTES TO        AUDITED CONSOLIDATED FINANCIAL STATEMENTS**

**December 31, 2007**

 

 

| Company – adjusted book value of net assets                                      |   | 838,189   |
|----------------------------------------------------------------------------------------|--------|-----------|
| Consolidated capital stock accounts post reverse                        acquisition    | $      | 138,119   |
| Allocated as follows:                                                                  |   |      |
| Common Stock – 77,438,838 common shares, $0.001 par                        value | $      | 77,439    |
| Additional paid in capital                                                             |   | 801,951   |
| Deficit-post recapitalization                                                          |   | (741,271) |
|                                                                                   | $      | 138,119   |

 

 

 

 

 

 

 

 

 

 

 

 

**NOTE        4 - VESSEL AND OTHER FIXED ASSETS**

 

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

 

|   |                                         |              |   |              |
|--------|----------------------------------------------|-------------------|--------|-------------------|
|   |                                         | December 31, 2007 |   | December 31, 2006 |
|   |                                         |              |   |              |
|   | Research Vessel “Weatherbird II” | $ 800,000         |   | $ -               |
|   | Marine Equipment                             | 23,306            |   | -                 |
|   |                                         | 823,306           |   | -                 |
|   | Accumulated Depreciation                     | (35,745)          |   | -                 |
|   | Net Vessel & Equipment                   | $ 787,561         |   | $ -               |

                

 

**NOTE 5        – INCOME TAXES**

 

The        Company accounts for income taxes and the related accounts under the liability method.        Deferred tax assets and liabilities are determined based on the difference between the        financial statement carrying amounts and the income tax basis of assets and liabilities. A        valuation allowance is applied against any net deferred tax asset if, based on available        evidence, it is more likely than not that some or all of the deferred tax assets will not        be realized.

 

At December        31, 2007 and 2006 the Company had gross deferred tax assets calculated at the expected rate        of 34% of approximately $1,251,000 and $252,000, respectively, 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 of $1,251,000 and $252,000 has been established        at December 31, 2007 and 2006, respectively.

 

F-14

 

 

----

 

**PLANKTOS        CORP.**

**(formerly Diatom Corporation)**

**(A        Development Stage Company)**

**NOTES TO        AUDITED CONSOLIDATED FINANCIAL STATEMENTS**

**December 31, 2007**

 

The        significant components of the Company’s net deferred tax asset (liabilities) at        December 31, 2007 and 2006 are as follows:

 

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

| Net operating loss carryforwards |   $3,678,870 |   $741,000 |
|----------------------------------|-------------------|-----------------|

 

Gross        deferred tax assets (liabilities):

|   | Deferred Tax Asset | $1,251,000 | $252,000 |
|--------|--------------------|------------|----------|

|   | Valuation Allowance | (1,251,000) | (252,000) |
|--------|---------------------|-------------|-----------|

 

 

At        December 31, 2007 and 2006, the Company has net operating loss carryforwards of        approximately $3,679,000 and $741,000 respectively, which will expire in the years 2020        through 2021. The net change in the allowance account was an increase of        $999,000.

 

 

**NOTE        6 – RELATED PARTY TRANSACTIONS**

 

During        the year ended December 31, 2007, the Company recognized a bad debt expense of $32,876 in        connection with amounts loaned to D2Fusion, Inc., a wholly owned subsidiary of Solar Energy        Limited, our majority shareholder.

 

During        the year ended December 31, 2007, the Company issued 50,000 common shares to a director for        services rendered valued at $43,000.

 

During        the year ended December 31, 2007, the Company received $100,000 in loans from a related        party. Additionally, the Company paid back $162,000 in previous loans during the year ended        December 31, 2007. As of December 31, 2007 the Company owes the related party        $97,511.

 

During        the year ended December 31, 2007, the Company received $450,000 in loans from related        parties and has recorded accrued interest payable of $32,614 related to these        loans.

 

During        the year ended December 31, 2006, the Company received loan advances of $74,970 from a        related party. These loans bear no interest and are unsecured. During December 2006, this        related party purchased the debt of $99,541 from a former related party, as described        above. The Company plans on repaying these loans from future equity financings.

 

**NOTE        7 – 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.

 

F-15

 

 

----

 

**PLANKTOS        CORP.**

**(formerly Diatom Corporation)**

**(A        Development Stage Company)**

**NOTES TO        AUDITED CONSOLIDATED FINANCIAL STATEMENTS**

**December 31, 2007**

 

 

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 the Company increased 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. Holders of more than 50% of our common stock could 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.

**NOTE        7 – CAPITAL STOCK - continued**

 

During the        six months period ended December 31, 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.

 

Warrants

A summary        of the Company’s warrants at December 31, 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                          |   | 5,585,000   |   | 0.32     |   | 1.05       |
| Exercised / Cancelled / Expired |   | (600,000)   |   | 0.16     |   | -          |
|                            |   |        |   |     |   |       |
| Balance December 31, 2007       |   | 5,525,000   |   | $ 0.32   |   | 1.05 years |

 

 

**NOTE        8 – DISCONTINUED OPERATIONS**

In        December 2007, the Company suspended its Iron-Fertilization Prove-Out operations and        initiated negotiations for the sale of the related assets (See Notes 1 and 9).         Accordingly, this business component has been presented as discontinued operations within        the consolidated financial statements in accordance with SFAS No. 144, “ Accounting        for the Impairment or Disposal of Long-Lived Assets” and EITF 03-13. As discussed in        Note 1, the Company was engaged in research related to creation and sales of “Kyoto        Protocol” certified emission reduction credits.

 

F-16

 

 

----

 

**PLANKTOS        CORP.**

**(formerly Diatom Corporation)**

**(A        Development Stage Company)**

**NOTES TO        AUDITED CONSOLIDATED FINANCIAL STATEMENTS**

**December 31, 2007**

 

Since        the Company commenced operations during January of 2007 there is no restatement of the 2006        Statement of Operations for comparability purposes due to the discontinuation of        operations. However, the 2006 Statement of Operations would have included the captions        "Vessel Operating Expenses" and "Research and Development" had operations not been        discontinued.

The loss        from disposal of discontinued operations for the year ended December 31, 2007 was        $2,575,491. 

Had        discontinued operations not been presented, Statement of Operation expense captions for        2007 of “Vessel Operating Expenses” would have been $2,350,491 and        “Research and Development” would have been $225,000, for 2006 “Research        and Development” would have been $42,660.

 

 

 

**NOTE 9        – SUBSEQUENT EVENTS**

 

The        Company has terminated all employees and is in the process of closing its Foster City,        California office. The Company’s principal place of business has moved to 145-925        West Georgia Street, Vancouver, British Columbia, Canada V6C 3L2, and its telephone number        is (604) 669-4771.

 

On        January 21, 2008, the Company entered into a letter of intent with the St Petersburg        Environmental Research Center (“SPERC”) to sell its research vessel the        Weatherbird II according to certain terms and conditions in exchange for a purchase price        of $1,000,000 of which $100,000 was paid on acceptance of the letter of intent. Further to        mutual agreement, the terms of the letter of intent were subsequently assigned to Sperc        Explorer, Inc. The balance of the purchase price was paid to the Company on February 29,        2008 at which time title to the Weatherbird II passed to Sperc Explorer, Inc.

 

On        February 21, 2008 Planktos executed an Agreement to sell its sixty percent (60%) interest        in Klimafa to Dr. David Gazdag in exchange for two hundred and fifty thousand dollars        ($250,000) in the form of a convertible debenture with a repayment term being the earlier        of ten years or Klimafa’s generation of cash flow, bearing four percent (4%) per        annum, convertible into sequestered tones of carbon dioxide credits.

 

On        February 22, 2008 the Company and Planktos entered into a Settlement and Release Agreement        with Russ George, Solar, and Nelson Skalbania for the purposes of separating the services        and know-how of Russ George, from each of the Company and Planktos. The agreement provided        that Russ George resign his positions as the Company’s chief executive officer, chief        financial officer and principal accounting officer, resign from the Company’s board        of directors and return to Solar for cancellation 3,500,000 shares of Solar that were        issued to him for his ownership interest in Planktos (and his interest in D2Fusion, Inc., a        wholly owned subsidiary of Solar) in exchange for his right to the exclusive use of the        name “Planktos” and the non-exclusive use of the proprietary know-how        associated with “iron-fertilization”.

 

 

F-17

 

 

----

 

 

| **ITEM 9.** | **CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON                        ACCOUNTING AND FINANCIAL DISCLOSURE** |
|-------------|-----------------------------------------------------------------------------------------------------------------|

 

None.

 

| **ITEM 9A.** | **CONTROLS AND PROCEDURES (ITEM 9A (T))** |
|--------------|-------------------------------------------|

 

Evaluation of Disclosure Controls and Procedures

 

In        connection with the preparation of this annual report on Form 10-K, an evaluation was        carried out by the Company’s management, with the participation of the chief        executive officer and the chief financial officer, of the effectiveness of the        Company’s 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        December 31, 2007. Disclosure controls and procedures are designed to ensure that        information required to be disclosed in reports filed or submitted under the Exchange Act        is recorded, processed, summarized, and reported within the time periods specified in the        Commission’s rules and forms and that such information is accumulated and        communicated to management, including the chief executive officer and the chief financial        officer, to allow timely decisions regarding required disclosures.

 

Based on        that evaluation, the Company’s management concluded, as of the end of the period        covered by this report, that the Company’s disclosure controls and procedures were        ineffective in recording, processing, summarizing, and reporting information required to be        disclosed, within the time periods specified in the Commission’s rules and        forms.

 

Management’s Report on Internal Control over Financial        Reporting

 

Management        of the Company is responsible for establishing and maintaining adequate internal control        over financial reporting. The Company’s internal control over financial reporting is        a process, under the supervision of the chief executive officer and the chief financial        officer, designed to provide reasonable assurance regarding the reliability of financial        reporting and the preparation of the Company’s financial statements for external        purposes in accordance with United States generally accepted accounting principles (GAAP).        Internal control over financial reporting includes those policies and procedures        that:

 

|   | **•** | Pertain to the maintenance of records that in reasonable                        detail accurately and fairly reflect the transactions and dispositions of                        the Company’s assets; |
|--------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | **•** | Provide reasonable assurance that transactions are recorded                        as necessary to permit preparation of the financial statements in                        accordance with generally accepted accounting principles, and that receipts                        and expenditures are being made only in accordance with authorizations of                        management and the board of directors; and |
|--------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | **•** | Provide reasonable assurance regarding prevention or timely                        detection of unauthorized acquisition, use, or disposition of the                        Company’s assets that could have a material effect on the financial                        statements. |
|--------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

Because of        its inherent limitations, internal control over financial reporting may not prevent or        detect misstatements. Also, projections of any evaluation of effectiveness to future        periods are subject to the risk that controls may become inadequate because of changes in        conditions or that the degree of compliance with the policies or procedures may        deteriorate.

 

 

 

19

 

----

 

The        Company’s management conducted an assessment of the effectiveness of the        Company’s internal control over financial reporting as of December 31, 2007, based on        criteria established in*Internal Control – Integrated        Framework*issued by the Committee of Sponsoring Organizations of        the Treadway Commission (“COSO”). As a result of this assessment, management        identified material weaknesses in internal control over financial reporting.

 

A material        weakness is a control deficiency, or a combination of deficiencies, in internal control        over financial reporting such that there is a reasonable possibility that a material        misstatement of the Company’s annual or interim financial statements will not be        prevented or detected on a timely basis.

 

The        material weaknesses identified are disclosed below.

 

*Lack of        Appropriate Independent Oversight.*  The board of directors        has not provided an appropriate level of oversight of the Company’s consolidated        financial reporting and procedures for internal control over financial reporting, including        appropriate authorization of transactions and subsidiary operations.  There are, at        present, no independent directors who could provide an appropriate level of oversight,        including challenging management’s accounting for and reporting of        transactions. 

 

*Sufficiency of Accounting Personnel.*         There are insufficient personnel in key accounting positions within the Company with the        appropriate knowledge, skills, and experience to prepare the Company’s financial        statements in accordance with generally accepted accounting principles, including the        appropriate accounting presentation and disclosure of discontinued operations in the        financial statements.  This led to the identification by the auditors of required        material adjustments to the financial statements.

 

As a result        of the material weaknesses in internal control over financial reporting described above,        the Company’s management has concluded that, as of December 31, 2007, that the        Company’s internal control over financial reporting was not effective based on the        criteria in*Internal Control – Integrated        Framework*issued by the COSO.

 

Independent Registered Public Accounting Attestation        Report

 

This annual        report does not include an attestation report of our independent registered public        accounting firm regarding internal control over financial reporting. We were not required        to have, nor have we, engaged our independent registered public accounting firm to perform        an audit of internal control over financial reporting pursuant to the rules of the        Commission that permit us to provide only management’s report in this annual        report.

 

Remediation of Material Weaknesses in Internal Control over Financial        Reporting 

 

The Company        intends to remedy our material weaknesses by:

 

|   | **•** | Forming an audit committee made up of independent directors                        that will oversee management (we have begun this process by seeking out                        individuals who might act as independent directors). |
|--------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | **•** | Engaging an individual to serve as chief financial officer                        and principal accounting officer to segregate the duties of chief executive                        officer and chief financial officer as a means to ensure accountability in                        day to day management of the Company. |
|--------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | **•** | Engaging an experienced accounting person independent of                        related party affiliations. |
|--------|------------|-------------------------------------------------------------------------------------------------------------|

|   | **•** | Improving the management and control of key financial                        spreadsheets used by the Company. |
|--------|------------|----------------------------------------------------------------------------------------------------------------|

 

 

20

 

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Changes        in Internal Control over Financial Reporting

 

As of the        end of the period covered by this report, there have been no changes in internal control        over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) during the year        ended December 31, 2007, that materially affected, or are reasonably likely to materially        affect, the Company’s internal control over financial reporting.

 

| **9B.** | **OTHER INFORMATION** |
|---------|-----------------------|

 

None.

 

**PART        III**

 

| **ITEM 10.** | **DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE                        GOVERNANCE** |
|--------------|------------------------------------------------------------------------------------|

 

**Officers and Directors**

 

The        following table sets forth the name, age and position of each director and executive        officer of the Company:

 

| ***Name***                                            | ***Age***                                  | ***Year***

***Elected/Appointed***          | ***Positions Held***                                               |
|-------------------------------------------------------|--------------------------------------------|----------------------------------------------|--------------------------------------------------------------------|
|  

Robert Fisher

                          |  

58

                          |  

2008

                          |  

CEO, CFO, PAO and Director

                          |
| Joel Dumaresq                                         | 43                                         | 2007                                         | Director                                                           |

 

***Robert Fisher***was appointed as chief        executive officer, chief financial officer and principal accounting officer on March 3,        2008. Mr. Fisher has served as a director of the Company since December 15, 2006 and acted        as the Company’s chief executive officer, chief financial officer and principal        accounting officer from December 15, 2006 until March 13, 2007.

 

Mr. Fisher graduated from Trinity College Dublin University with MA, BA        and B.Comm degrees and qualified as a Canadian Chartered Accountant. He has over 20 years        experience working in real estate development and the hospitality industry. Most recently        Mr. Fisher was a principal of International RV Resort Consultant Associates, based in        Vancouver, British Columbia and Spokane, Washington and was responsible for the development        and management of RV parks in Washington and California. Prior to that, he was        vice-president of development for Onterra RV Resorts, a Vancouver, British Columbia and San        Francisco, California based company that acquired and repositioned RV resorts in several        California locations. He has also acted as a partner and consultant to various retail,        investment and hotel development projects in Canada and the United States.

 

***Joel        Dumaresq***was appointed to the Company’s board of        directors on March 13, 2007.

 

Mr. Dumaresq is currently a senior partner at Matrix Partners, Inc. a        Vancouver, British Columbia based merchant banking and private equity firm with over twenty        years experience in the finance sector. Working with Matrix, Mr. Dumaresq has been involved        in financings, buyouts, mergers, and the acquisition of small, medium and large business        enterprises. Prior to joining Matrix, Mr. Dumaresq was involved in public sector corporate        financings and has prior public company experience.

 

21

 

----

 

No other        persons are expected to make any significant contributions to the Company’s executive        decisions who are not executive officers or directors of the Company.

 

***Term        of Office***

 

Our        directors are appointed for a one (1) year term to hold office until the next annual        meeting of our shareholders or until removed from office in accordance with our bylaws. Our        executive officers are appointed by our board of directors and hold office until removed by        the board.

 

***Family Relationships***

 

There are        no family relationships between or among the directors or executive officers.

 

***Director Independence***

 

The Company        is quoted on the Pink Sheets LLC over-the-counter securities market, which does not have        director independence requirements. However, for purposes of determining director        independence, we have applied the definitions set out in NASDAQ Rule 4200(a)(15). NASDAQ        Rule 4200(a)(15) states that a director is not considered to be independent if he or she is        also an executive officer or employee of the corporation. Accordingly, none of our        directors can be considered independent.

 

***Involvement in Certain Legal Proceedings***

 

To the best        of our knowledge, during the past five years, none of the following occurred with respect        to a present or former director, executive officer, or employee: (1) any bankruptcy        petition filed by or against any business of which such person was a general partner or        executive officer either at the time of the bankruptcy or within two years prior to that        time; (2) any conviction in a criminal proceeding or being subject to a pending criminal        proceeding (excluding traffic violations and other minor offences); (3) being subject to        any order, judgment or decree, not subsequently reversed, suspended or vacated, of any        court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending        or otherwise limiting his or her involvement in any type of business, securities or banking        activities; and (4) being found by a court of competent jurisdiction (in a civil action),        the Commission or the Commodities Futures Trading Commission to have violated a federal or        state securities or commodities law, and the judgment has not been reversed, suspended or        vacated.

 

**Compliance with Section 16(A) of the Exchange Act**

 

Based        solely upon a review of Forms 3, 4 and 5 furnished to the Company, we are aware of the        following persons who, during the period ended December 31, 2007, failed to file, on a        timely basis, reports required by Section 16(a) of the Securities Exchange Act of        1934.

| **•** | Robert Fisher failed to timely file a Form 3 despite being                        an officer and director. |
|------------|------------------------------------------------------------------------------------------------------------|

| **•** | Joel Dumaresq failed to timely file a Form 3 or 5 despite                        being a director. |
|------------|----------------------------------------------------------------------------------------------------|

 

**Code        of Ethics**

 

The Company        has adopted a Code of Ethics within the meaning of Item 406(b) of Regulation S-B of the        Securities Exchange Act of 1934. The Code of Ethics applies to directors and senior        officers, such as the principal executive officer, principal financial officer, controller,        and persons performing similar functions. The Company has incorporated a copy of its Code        of Ethics as Exhibit 14 to this form 10-K. Further, our Code of Ethics is available in        print, at no charge, to any security holder who requests such information by contacting        us.

 

22

 

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**Board        of Directors Committees**

 

The board        of directors has not established an audit committee. An audit committee typically reviews,        acts on and reports to the board of directors with respect to various auditing and        accounting matters, including the recommendations and performance of independent auditors,        the scope of the annual audits, fees to be paid to the independent auditors, and internal        accounting and financial control policies and procedures. Certain stock exchanges currently        require companies to adopt a formal written charter that establishes an audit committee        that specifies the scope of an audit committee’s responsibilities and the means by        which it carries out those responsibilities. In order to be listed on any of these        exchanges, the Company will be required to establish an audit committee. The board of        directors has not established a compensation committee.

 

The        Company’s board of directors has not established a compensation committee.

 

**Director Compensation**

 

Directors        currently are not reimbursed for out-of-pocket costs incurred in attending meetings nor are        they typically compensated for their service as directors. However, the Company did agree        to compensate Robert Fisher with shares of its common stock for his services rendered as        the sole director of Company prior to subsequent appointments to the board (see the*Summary Compensation Table,*below). The Company        may adopt a provision for compensating directors for their attendance at meetings of the        board of directors in the future.

 

The        following table provides summary information for the year 2007 concerning cash and non-cash        compensation paid or accrued by the Company to or on behalf of our directors.

 

| ***Summary Compensation Table*** |
|----------------------------------|
|  

Name                     |  

Fees earned or paid in cash

($) |  

Stock awards

($) |  

Option

Awards

($) |  

Non-equity incentive plan compensation

($) |  

Nonqualified deferred compensation

($) |  

All other compensation

($)

                          |  

Total

($) |
| Robert Fisher*                   |  

10,000 |  

46,000 |  

-

                          |  

-

                          |  

-

                          |  

-

                          |  

56,000 |

 

| * | Robert Fisher was issued 50,000 shares of the                        Company’s common stock on March 13, 2007 for services                        rendered. |
|---|-------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

 

 

 

 

 

 

 

 

23

 

----

 

| **ITEM 11.** | **EXECUTIVE COMPENSATION** |
|--------------|----------------------------|

 

**Compensation Discussion and Analysis**

 

The        objective of the Company’s compensation program is to provide compensation for        services rendered by our executive officers. Salaries paid are designed to retain the        services of our executive officers as are certain stock awards. Salary is currently the        only type of compensation used in our executive compensation program. We use this form of        compensation because we feel that it is adequate to retain and motivate our executive        officers.

 

The amounts        we deem appropriate to compensate our executive officers are determined in accordance with        market forces; we have no specific formula to determine compensatory amounts at this time.        While we have deemed that our current compensatory program and the decisions regarding        compensation are easy to administer and are appropriately suited for our objectives, we may        expand our compensation program to future employees to include options and other equity        compensatory elements.

 

**Tables**

 

The        following table provides summary information for the years 2007, and 2006 concerning cash        and non-cash compensation paid or accrued by the Company to or on behalf of (i) the chief        executive officer and (ii) any other employee to receive compensation in excess of        $100,000.

 

 

| ***Summary Compensation Table***            |
|---------------------------------------------|
| Name and Principal Position                 | Year | Salary

($) | Bonus

($) | Stock Awards

($) | Option

Awards

($) | Non-Equity Incentive Plan Compensation

($) | Change in Pension Value and Nonqualified Deferred                        Compensation

($) | All Other Compensation

($)

                          | Total

($) |
| Robert Fisher*

CEO, CFO, PAO, and director | 2007

2006

                         

                          | -

-

                          | -

-

                          | -

-

                         

                          | -

-

                          | -

-

                          | -

-

                          | -

-

                          | -

-

                          |
| Russ George*

CEO, CFO, PAO, and director   | 2007

2006

                          | 180,000

- | -

- | -

- | -

- | -

- | -

- | -

- | 180,000

- |

         

| * | Chief executive officer, chief financial officer and                        principal accounting officer from December 15, 2006 until March 13, 2007                        and March 3, 2008 to present. |
|---|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ** | Chief executive officer, chief financial officer and                        principal accounting officer from March 13, 2007 to March 3,                        2008. |
|----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

We have no        “Grants of Plan-Based Awards”, “Outstanding Equity Awards at Fiscal        Year-End”, “Option Exercises and Stock Vested”, “Pension        Benefits”, or “Nonqualified Deferred Compensation”. Nor do we have any        “Post Employment Payments” to report.

         

         

 

24

 

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| **ITEM 12.** | **SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND                        MANAGEMENT AND RELATED STOCKHOLDER MATTERS** |
|--------------|---------------------------------------------------------------------------------------------------------------------------|

 

The        following table sets forth certain information concerning the ownership of the        Company’s 84,751,838 shares of common stock issued and outstanding as of April 25,        2008, with respect to: (i) all directors; (ii) each person known by us to be the beneficial        owner of more than five percent of our common stock; and (iii) our directors and executive        officers as a group.

 

 

| ***Names and Addresses of Managers and Beneficial                        Owners*** | ***Title of Class*** | ***Number of Shares*** | ***Percent of***

***Class*** |
|------------------------------------------------------------------------------------|----------------------|------------------------|-------------------------------|
| Robert Fisher

145-925 West Georgia Street

Vancouver, B.C. Canada V6C 3L2         | Common               | 50,000                 | <1%                        |
| Joel Dumaresq

145-925 West Georgia Street

Vancouver, B.C. Canada V6C 3L2         | Common               | 0                      | 0                             |
| Solar Energy Limited

145-925 West Georgia Street

Vancouver, B.C. Canada V6C 3L2  | Common               | 45,000,000             | 53.09%                        |
|  

Officer and Directors as a Group (2)

                                | Common               | 50,000                 | <1%                        |

         

| **ITEM 13.** | **CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND                        DIRECTOR INDPENDENCE** |
|--------------|----------------------------------------------------------------------------------------------------|

 

None of our        directors or executive officers, nor any proposed nominee for election as a director, nor        any person who beneficially owns, directly or indirectly, shares carrying more than 5% of        the voting rights attached to all of our outstanding shares, nor any members of the        immediate family (including spouse, parents, children, siblings, and in-laws) of any of the        foregoing persons has any material interest, direct or indirect, in any transaction in the        period covered by this report or in any presently proposed transaction which, in either        case, has or will materially affect us, except as follows:

 

On March        13, 2007, the board of directors of the Company authorized the issuance of 50,000 shares of        common stock valued at $0.86 per share to Robert Fisher, officer and a director the        Company, in consideration of services valued at $43,000.

 

On July 22,        2007 the board of directors of the Company authorized the issuance of 45,000,000 shares of        restricted common stock to Solar, causing Solar to hold approximately 54% of our issued and        outstanding shares in exchange for all of the outstanding shares of Planktos.

 

On July 17,        2007 the Company entered into a loan agreement with Matrix Partners, a corporate entity for        whom Joel Dumaresq, a member of our board of directors, acts as a principal, pursuant to        which we borrowed $100,000 at 12% per annum. Principal and interest on the loan were repaid        to Mr. Dumaresq subsequent to the year ended December 31, 2007.

 

 

 

25

 

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| **ITEM 14.** | **PRINCIPAL ACCOUNTANT FEES AND SERVICES** |
|--------------|--------------------------------------------|

 

***Audit        Fees***

Williams        & Webster, P.S., provided audit services in connection with its annual report for the        fiscal years ended December 31, 2007 and 2006. The aggregate fees billed by Williams &        Webster for an audit of our financial statements were $25,182 and $15,000 in 2007 and 2006,        respectively.

 

***Audit        Related Fees***

Williams        & Webster, P.S., billed to the Company no fees in 2007 or 2006 for professional        services that are reasonably related to the audit of the Company’s financial        statements that are not disclosed in “Audit Fees” above.

 

***Tax        Fees***

Williams        & Webster, P.S., billed to the Company no fees in 2007 or 2006 for professional        services rendered in connection with the preparation of the Company's tax return for the        period.

 

***All        Other Fees***

Williams        & Webster, P.S., billed to the Company no fees in 2007 or 2006 for professional        services rendered or any other services not disclosed above.

 

***Audit        Committee Pre-Approval***

The Company        did not have a standing audit committee at the time its respective auditors were engaged.        Therefore, all services provided to the Company by Williams & Webster, P.S., as        detailed above, were pre-approved by the Company’s board of directors. Williams &        Webster, P.S., performed all work only with their permanent full time employees.

 

| **ITEM 15.** | **EXHIBITS AND FINANCIAL STATEMENT SCHEDULES** |
|--------------|------------------------------------------------|

 

***(a)        Consolidated Financial Statements***

 

The        following documents are filed under “*Item 8. Financial        Statements and Supplementary Data,*” pages F-1 through F-17,        and are included as part of this Form 10-K:

 

Financial Statements of The Company for the years ended December 31, 2007        and 2006:

|   | Report of Independent Registered Public Accounting                        Firm |
|--------|--------------------------------------------------------------------------------|

ConsolidatedBalance Sheets

ConsolidatedStatements of Income

Consolidated Statementsof Stockholders’ Equity

ConsolidatedStatements of Cash Flows

Notes to Consolidated Financial        Statements                                                            

***(b)        Exhibits***

 

The        exhibits required to be attached by Item 601 of Regulation S-K are listed in the Index to        Exhibits on page 28 of this Form 10-K, and are incorporated herein by this        reference.

         

***(c)        Financial Statement Schedules***

 

We are not        filing any financial statement schedules as part of this Form 10-K because such schedules        are either not applicable or the required information is included in the financial        statements or notes thereto.

 

26

 

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**SIGNATURES**

 

In        accordance with the requirements of the Securities Exchange Act of 1934, the registrant        caused this report to be signed on its behalf by the undersigned, thereunto duly authorized        this 25th day of April, 2008.

 

**PLANKTOS CORP.**

 

 

/s/ Robert Fisher

Robert Fisher

Chief Executive Officer, Chief Financial Officer, and Principal Accounting        Officer

 

 

In        accordance with the Exchange Act, this report has been signed below by the following        persons on behalf of the registrant and in the capacities and on the dates        indicated.

 

|   | ***Signature*** | ***Title*** | ***Date*** |
|--------|-----------------|-------------|------------|

         

         

|   | /s/ Robert Fisher | Director | April 25, 2008 |
|--------|-------------------|----------|----------------|

Robert Fisher

         

|   | /s/ Joel Dumaresq | Director | April 25, 2008 |
|--------|-------------------|----------|----------------|

Joel Dumaresq

         

 

27

 

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**INDEX        TO EXHIBITS**

 

| ***Exhibit*** | ***Description*** |
|---------------|-------------------|

         

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

         

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

         

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

         

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

         

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

         

| 3(ii) * | By-laws (incorporated herein by reference to the                        Company’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                        Company’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                        Company’s Form 8-K filed with the Commission on January 19,                        2007) |
|----------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

         

| 10(iii) * | Settlement and Release Agreement between the Company,                        Planktos, Russ George, Solar, and Nelson Skalbania dated February 22, 2008                        (incorporated by reference to the Company’s Form 8-K filed with the                        Commission on March 31, 2008) |
|-----------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

         

| 14 | Code of Ethics adopted April 1,                        2008. |
|----|--------------------------------------------------------------|

         

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

         

| 32 | 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. |
|----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

         

|   | * | Incorporated by reference to previous filings of the                        Company. |
|--------|---|--------------------------------------------------------------------------------------|

 

28

 

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