**UNITED
        STATES**
 **SECURITIES
        AND EXCHANGE COMMISSION**
 **Washington,
        D.C. 20549**
 
 **FORM
        10-QSB**
 
 (Mark
        One)
 [X]
              QUARTERLY
                  REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
                  OF
                  1934
  **For
        the quarterly period ended June 30, 2007**
  [  
                    ]
                TRANSITION
                    REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE
                    ACT
  For
        the
        transition period from ________________ to _______________
 
 **000-49620**
 (Commission
        file number)
 
 **COBALIS
        CORP.**
 (Exact
        name of small business issuer as specified in its charter)
  **Nevada**
                (State
                  or other
                  jurisdiction
                of
                  incorporation or organization)
              **91-1868007**
                (IRS
                  Employer
                Identification
                  No.)
 
 **2445
        McCabe Way, Suite 150, Irvine, California 92614**
 (Address
        of principal executive offices)
 
 **(949)
        757-0001**
 (Issuer's
        telephone number)
 
 **N/A**
 (Former
        name, former address and former fiscal year, if changed since last
        report)
 
 Check
        whether the issuer (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. Yes [ X ] No [  
]
 
 State
        the number of shares outstanding of each of the issuer's classes of common
        equity, as of the latest practicable date: As of July 27, 2007 - 43,896,098shares of common stock.
  Indicate
        by check mark whether the registrant is a shell company (as defined in Rule
        12b-2 of the Exchange Act). Yes [   ] No [X]
 
 Transitional
        Small Business Disclosure Format (check one): Yes [   ] No
        [X]
  1
 **COBALIS
          CORP.**
 **Index**
  **Page****PART
                    I.**
                **FINANCIAL
                    INFORMATION**
                3Item
                    1.
                Financial
                    Statements
                3Consolidated
                    Balance Sheet as of June 30, 2007 (unaudited)
                3Consolidated
                    Statements of Operations for the three months ended June 30,
                    2007 and
                    2006 (unaudited)
                4Consolidated
                    Statements of Stockholders’ Deficit for the three months
                    ended June 30, 2007 (unaudited)
                5Consolidated
                    Statements of Cash Flows for the three months ended June 30, 2007 and
                    2006 (unaudited)
                7Notes
                    to Consolidated Financial Statements (unaudited)
                8Item
                    2.
                Management's
                    Discussion and Analysis or Plan of Operations
                22Item
                    3.
                Controls
                    and Procedures
                30**PART
                    II.**
                **OTHER
                    INFORMATION**
                30Item
                    1.
                Legal
                    Proceedings
                30Item
                    2.
                Unregistered
                    Sales of Equity Securities and Use of Proceeds
                33Item
                    3.
                Defaults
                    Upon Senior Securities
                33Item
                    4.
                Submission
                    of Matters to a Vote of Security Holders
                33Item
                    5.
                Other
                    Information
                33Item
                    6.
                Exhibits
                33**SIGNATURES**
                34
 2




**PART
      I.**  **FINANCIAL
      INFORMATION**





**Item
      1.**  **Financial
      Statements**


**Cobalis
        Corp. and Subsidiary** **(A
          Development Stage Company)** **Consolidated
            Balance Sheet**
  **June
                        30,****2007****ASSETS**CURRENT
                        ASSETSCash
                        and cash equivalents
                    
                    $
                    38,494Prepaid
                        expenses and other current
                        assets
                    
                    
                    14,715TOTAL
                        CURRENT
                        ASSETS
                    
                    
                    53,209PROPERTY
                        AND EQUIPMENT, net of
                        accumulated depreciation of $113,018
                    
                    
                    2,305WEBSITE
                        DEVELOPMENT COSTS, net of
                        accumulated amortization of $33,898
                    
                    
                    709PATENTS,
                        net of accumulated
                        amortization of $347,643
                    
                    
                    605,796TOTAL
                        ASSETS
                    
                    $
                    662,019**LIABILITIES
                        AND STOCKHOLDERS'
                        DEFICIT**CURRENT
                        LIABILITIESAccounts
                        payable
                    
                    $
                    374,146Accrued
                        expenses
                    
                    
                    755,605Accrued
                        clinical trial
                        costs
                    
                    
                    591,229Accrued
                        legal
                        settlements
                    
                    
                    1,689,683Accrued
                        salaries
                    
                    
                    254,625Warrant
                        liability
                    
                    
                    2,861,922Accrued
                        derivative
                        liabililty
                    
                    
                    2,637,971Promissory
                        notes
                    
                    
                    46,813Notes
                        payable
                    
                    
                    150,000Senior
                        Debenture, net
                        of discount of $21,234
                    
                    
                    228,766Convertible
                        debenture
                    
                    
                    3,300,000TOTAL
                        CURRENT
                        LIABILITIES
                    
                    
                    12,890,760TOTAL
                        LIABILITIES
                    
                    
                    12,890,760COMMITMENTS
                        AND
                        CONTINGENCIES
                    
                    
                    -STOCKHOLDERS'
                        DEFICITCommon
                        stock; $0.001 par value; 100,000,000 sharesauthorized; 40,290,263 shares issued and
                        outstanding
                    
                    
                    40,290Additional paid-in capital
                    
                    
                    28,825,452Prepaid
                        expenses
                    
                    
                    (11,719
                    )Deficit
                        accumulated
                        during the development stage
                    
                    
                    (41,082,764
                    )TOTAL
                        STOCKHOLDERS'
                        DEFICIT
                    
                    
                    (12,228,741
                    )TOTAL
                        LIABILITIES AND
                        STOCKHOLDERS' DEFICIT
                    
                    $
                    662,019


**The
        accompanying notes are an integral part of these unaudited consolidated
        financial statements**
  3


**Cobalis
        Corp. and Subsidiary**
 **(A
        Development Stage Company)**


**Consolidated
        Statements of Operations**
  **Cumulative
                    from****Three
                    Months
                    Ended**
                
                
                **November
                    21,****June
                    30,**
                
                
                **June
                    30,**
                
                
                **2000
                    (inception)
                    to****2007**
                
                
                **2006**
                
                
                **June
                    30,
                    2007**NET
                    SALES
                
                $
                -
                
                
                $
                -
                
                
                $
                5,589COST
                    OF
                    SALES
                
                
                -
                
                
                
                -
                
                
                
                31,342GROSS
                    LOSS
                
                
                -
                
                
                
                -
                
                
                
                (25,753
                )OPERATING
                    EXPENSES:Professional
                    fees
                
                
                1,149,707
                
                
                
                916,905
                
                
                
                13,110,566Salary
                    and
                    wages
                
                
                210,461
                
                
                
                185,302
                
                
                
                5,184,559Rent
                    expense
                
                
                37,640
                
                
                
                63,076
                
                
                
                779,884Marketing
                    and
                    research
                
                
                -
                
                
                
                25,809
                
                
                
                5,553,516Depreciation and amortization
                
                
                13,783
                
                
                
                16,762
                
                
                
                603,188Impairment
                    expense
                
                
                -
                
                
                
                -
                
                
                
                2,331,522Stock
                    option
                    expense
                
                
                478,865
                
                
                
                128,908
                
                
                
                2,046,444Other
                    operating
                    expenses
                
                
                193,463
                
                
                
                133,795
                
                
                
                2,511,649Legal
                    settlements
                
                
                -
                
                
                
                -
                
                
                
                919,718TOTAL
                    OPERATING
                    EXPENSES
                
                
                2,083,919
                
                
                
                1,470,557
                
                
                
                33,041,046LOSS
                    FROM
                    OPERATIONS
                
                
                (2,083,919
                )
                
                
                (1,470,557
                )
                
                
                (33,066,799
                )OTHER
                    EXPENSEInterest expense and financing costs
                
                
                (3,906,954
                )
                
                
                (131,795
                )
                
                
                (9,175,882
                )Convertible debenture financing cost
                
                
                -
                
                
                
                -
                
                
                
                (3,136,214
                )Loss
                    on conversion of debt
                
                
                -
                
                
                
                -
                
                
                
                (88,839
                )Change in fair value of warrant and accrued derivative
                    liabilities
                
                
                5,427,491
                
                
                
                -
                
                
                
                5,269,970TOTAL
                    OTHER
                    EXPENSE
                
                
                1,520,537
                
                
                
                (131,795
                )
                
                
                (7,130,965
                )LOSS
                    BEFORE PROVISION FOR INCOME
                    TAXES
                
                
                (563,382
                )
                
                
                (1,602,352
                )
                
                
                (40,197,764
                )PROVISION
                    FOR INCOME
                    TAXES
                
                
                -
                
                
                
                -
                
                
                
                -NET
                    LOSS
                
                
                (563,382
                )
                
                
                (1,602,352
                )
                
                
                (40,197,764
                )PREFERRED
                    STOCK
                    DIVIDENDS
                
                
                -
                
                
                
                -
                
                
                
                1,110,000NET
                    LOSS ATTRIBUTED TO COMMON
                    STOCKHOLDERS
                
                $
                (563,382
                )
                
                $
                (1,602,352
                )
                
                $
                (41,307,764
                )NET
                    LOSS PER
                    SHARE:BASIC AND DILUTED
                
                $
                (0.01
                )
                
                $
                (0.06
                )
                
                $
                (1.80
                )WEIGHTED
                    AVERAGE SHARES
                    OUTSTANDING:BASIC AND DILUTED
                
                
                38,955,104
                
                
                
                27,755,567
                
                
                
                22,928,106


**The
        accompanying notes are an integral part of these unaudited consolidated
        financial statements.**
  4


**Cobalis
        Corp. and Subsidiary**


**(A
          Development Stage Company)**
 **Consolidated
          Statements of Stockholders' Deficit**
 **For
          the Period From November 21, 2000 (inception) to March 31,
          2007**
  ****
                  ****
                  ****
                  ****
                  ****
                  **Deficit**
                  ****
                  ****
                  ****
                  ********
                  ****
                  ****
                  ****
                  ****
                  ****
                  ****
                  ****
                  ****
                  ****
                  ****
                  ****
                  ****
                  ****
                  **accumulated**
                  ****
                  ****
                  **Total**
                  ********
                  ****
                  ****
                  ****
                  ****
                  ****
                  ****
                  ****
                  **Additional**
                  ****
                  ****
                  **during
                      the**
                  ****
                  ****
                  **stockholders'**
                  ********
                  ****
                  **Common
                      stock**
                  ****
                  **paid-in**
                  ****
                  ****
                  **Prepaid**
                  ****
                  ****
                  **development**
                  ****
                  ****
                  **equity**
                  ********
                  ****
                  **Shares**
                  ****
                  **Amount**
                  ****
                  **capital**
                  ****
                  ****
                  **Expenses**
                  ****
                  ****
                  **stage**
                  ****
                  ****
                  **(deficit)**Balance
                      at inception (November 21,
                      2000)
                  
                  
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  -Issuance
                      of founder’s shares in
                      exchangefor
                      property and
                      equipment
                  
                  
                  16,300,000
                  
                  
                  
                  16,300
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  16,300Issuance
                      of common stock for cash
                      - November 2000 @ $1.00
                  
                  
                  30,000
                  
                  
                  
                  30
                  
                  
                  
                  29,970
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  30,000Issuance
                      of common stock for cash
                      - December 2000 @ $1.00
                  
                  
                  15,000
                  
                  
                  
                  15
                  
                  
                  
                  14,985
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  15,000Issuance
                      of common stock for cash
                      - February 2001 @ $1.00
                  
                  
                  12,000
                  
                  
                  
                  12
                  
                  
                  
                  11,988
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  12,000Issuance
                      of common stock for cash
                      - March 2001 @ $1.00
                  
                  
                  125,000
                  
                  
                  
                  125
                  
                  
                  
                  124,875
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  125,000Issuance
                      of common stock for
                      services - March 2001 @ $1.00
                  
                  
                  10,000
                  
                  
                  
                  10
                  
                  
                  
                  9,990
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  10,000Contributed
                      capital
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  62,681
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  62,681Net
                      loss for the period from
                      inception
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  -(November
                      21, 2000) to March 31,
                      2001
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (223,416
                  )
                  
                  
                  (223,416
                  )Balance
                      at March 31, 2001, as
                      restated
                  
                  
                  16,492,000
                  
                  
                  
                  16,492
                  
                  
                  
                  254,489
                  
                  
                  
                  -
                  
                  
                  
                  (223,416
                  )
                  
                  
                  47,565Issuance
                      of common stock for cash
                      - April 2001 @ $1.00
                  
                  
                  10,000
                  
                  
                  
                  10
                  
                  
                  
                  9,990
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  10,000Issuance
                      of common stock for
                      telephone equipment -April
                      2001 @
                      $1.00
                  
                  
                  6,750
                  
                  
                  
                  7
                  
                  
                  
                  6,743
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  6,750Issuance
                      of common stock for cash
                      - May 2001 @ $1.00
                  
                  
                  11,000
                  
                  
                  
                  11
                  
                  
                  
                  10,989
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  11,000Issuance
                      of common stock for
                      website development -May
                      2001 @
                      $1.00
                  
                  
                  17,000
                  
                  
                  
                  17
                  
                  
                  
                  16,983
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  17,000Issuance
                      of common stock for legal
                      services -May
                      2001 @
                      $1.00
                  
                  
                  1,000
                  
                  
                  
                  1
                  
                  
                  
                  999
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  1,000Issuance
                      of common stock for cash
                      - June 2001 @ $1.00
                  
                  
                  23,500
                  
                  
                  
                  24
                  
                  
                  
                  23,476
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  23,500Issuance
                      of common stock for cash
                      - July 2001 @ $1.00
                  
                  
                  20,000
                  
                  
                  
                  20
                  
                  
                  
                  19,980
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  20,000Issuance
                      of common stock for cash
                      - August 2001 @ $1.00
                  
                  
                  25,000
                  
                  
                  
                  25
                  
                  
                  
                  24,975
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  25,000Issuance
                      of common stock for
                      services, related party -September
                      2001 @
                      $1.00
                  
                  
                  65,858
                  
                  
                  
                  66
                  
                  
                  
                  65,792
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  65,858Issuance
                      of common stock for cash
                      - September 2001 @ $1.00
                  
                  
                  15,000
                  
                  
                  
                  15
                  
                  
                  
                  14,985
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  15,000Issuance
                    of common stock for services -September
                      2001 @
                      $1.00
                  
                  
                  11,000
                  
                  
                  
                  11
                  
                  
                  
                  10,989
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  11,000Issuance
                      of stock options for
                      services - September 2001
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  32,000
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  32,000Issuance
                      of common stock for cash
                      - October 2001 @ $1.00
                  
                  
                  5,000
                  
                  
                  
                  5
                  
                  
                  
                  4,995
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  5,000Issuance
                      of common stock for cash
                      - December 2001 @ $1.00
                  
                  
                  30,000
                  
                  
                  
                  30
                  
                  
                  
                  29,970
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  30,000Issuance
                      of common stock for
                      services -December
                      31, 2001 @
                      $1.00
                  
                  
                  33,000
                  
                  
                  
                  33
                  
                  
                  
                  32,967
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  33,000Issuance
                      of common stock for
                      services, related party -December
                      2001 @
                      $1.00
                  
                  
                  117,500
                  
                  
                  
                  118
                  
                  
                  
                  117,382
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  117,500Issuance
                      of common stock for
                      prepaid advertising -December
                      2001 @
                      $1.00
                  
                  
                  15,600
                  
                  
                  
                  15
                  
                  
                  
                  15,585
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  15,600Issuance
                      of common stock for
                      property and equipment -January
                      2002 @
                      $3.00
                  
                  
                  1,000
                  
                  
                  
                  1
                  
                  
                  
                  2,999
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  3,000Issuance
                      of common stock for
                      services, related party -January
                      2002 @
                      $1.00
                  
                  
                  33,000
                  
                  
                  
                  33
                  
                  
                  
                  32,967
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  33,000Issuance
                      of common stock for cash
                      - February 2002 @ $2.00
                  
                  
                  20,000
                  
                  
                  
                  20
                  
                  
                  
                  39,980
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  40,000Issuance
                      of common stock for cash
                      - March 2002 @ $2.00
                  
                  
                  12,500
                  
                  
                  
                  12
                  
                  
                  
                  24,988
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  25,000Contributed
                      capital
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  211,269
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  211,269Deferred
                      compensation
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (60,108
                  )
                  
                  
                  -
                  
                  
                  
                  (60,108
                  )Net
                      loss
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (1,144,249
                  )
                  
                  
                  (1,144,249
                  )Balance
                      at March 31, 2002, as
                      restated
                  
                  
                  16,965,708
                  
                  
                  
                  16,966
                  
                  
                  
                  1,005,492
                  
                  
                  
                  (60,108
                  )
                  
                  
                  (1,367,665
                  )
                  
                  
                  (405,315
                  )Issuance
                      of common stock for
                      services - April 2002 @ $2.00
                  
                  
                  3,000
                  
                  
                  
                  3
                  
                  
                  
                  5,997
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  6,000Issuance
                      of common stock for cash
                      - April 2002 @ $1.00
                  
                  
                  10,000
                  
                  
                  
                  10
                  
                  
                  
                  9,990
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  10,000Issuance
                      of common stock for cash
                      - April 2002 @ $2.00
                  
                  
                  17,500
                  
                  
                  
                  17
                  
                  
                  
                  34,983
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  35,000Issuance
                      of common stock for cash
                      - May 2002 @ $1.00
                  
                  
                  10,000
                  
                  
                  
                  10
                  
                  
                  
                  9,990
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  10,000Issuance
                      of common stock for cash
                      - May 2002 @ $2.00
                  
                  
                  16,000
                  
                  
                  
                  16
                  
                  
                  
                  31,984
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  32,000Issuance
                      of stock options for
                      services - May 2002
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  350,000
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  350,000Contributed
                      capital - bonus
                      expense
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  50,000
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  50,000Issuance
                      of common stock for cash
                      - June 2002 @ $1.00
                  
                  
                  5,000
                  
                  
                  
                  5
                  
                  
                  
                  4,995
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  5,000Issuance
                      of common stock for cash
                      - June 2002 @ $2.00
                  
                  
                  5,000
                  
                  
                  
                  5
                  
                  
                  
                  9,995
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  10,000Issuance
                      of common stock for cash
                      - July 2002 @ $1.00
                  
                  
                  5,000
                  
                  
                  
                  5
                  
                  
                  
                  4,995
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  5,000Issuance
                      of common stock for cash
                      - August 2002 @ $2.00
                  
                  
                  10,000
                  
                  
                  
                  10
                  
                  
                  
                  19,990
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  20,000Issuance
                      of common stock for cash
                      - September 2002 @ $2.00
                  
                  
                  10,000
                  
                  
                  
                  10
                  
                  
                  
                  19,990
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  20,000Issuance
                    of stock options below fair market value -November
                      2002
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  250,000
                  
                  
                  
                  (250,000
                  )
                  
                  
                  -
                  
                  
                  
                  -Issuance
                    of common stock for conversion of note -December
                      2002 @
                      2.00
                  
                  
                  50,000
                  
                  
                  
                  50
                  
                  
                  
                  99,950
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  100,000Issuance
                      of common stock for cash
                      - December 2002 @ $2.00
                  
                  
                  20,000
                  
                  
                  
                  20
                  
                  
                  
                  39,980
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  40,000Issuance
                    of common stock for services -December
                      2002 @
                      $2.00
                  
                  
                  15,000
                  
                  
                  
                  15
                  
                  
                  
                  29,985
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  30,000Issuance
                    of common stock for patents -December
                      2002 @
                      $2.00
                  
                  
                  2,000,000
                  
                  
                  
                  2,000
                  
                  
                  
                  1,285,917
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  1,287,917Contributed
                      capital
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  292,718
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  292,718Issuance
                      of common stock for exercise of options -December
                      2002
                  
                  
                  574,000
                  
                  
                  
                  574
                  
                  
                  
                  574,028
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  574,602Deferred
                      compensation
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  60,108
                  
                  
                  
                  
                  
                  
                  
                  60,108Contributed
                      capital
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  5,000
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  5,000Issuance
                      of common stock for
                      services - January 2003
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  25,000
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  25,000Issuance
                      of common stock for cash
                      February 2003 @ $2.00
                  
                  
                  11,500
                  
                  
                  
                  12
                  
                  
                  
                  22,988
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  23,000Issuance
                      of common stock for cash
                      March 2003 @ $2.00
                  
                  
                  5,000
                  
                  
                  
                  5
                  
                  
                  
                  9,995
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  10,000Deferred
                      compensation
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  54,000
                  
                  
                  
                  -
                  
                  
                  
                  54,000Net
                      loss
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  -
                  
                  
                  
                  (2,148,008
                  )
                  
                  
                  (2,148,008
                  )Balance
                      at March 31, 2003, as
                      restated
                  
                  
                  19,732,708
                  
                  
                  
                  19,733
                  
                  
                  
                  4,193,962
                  
                  
                  
                  (196,000
                  )
                  
                  
                  (3,515,673
                  )
                  
                  
                  502,022Issuance
                      of common stock for cash
                      April 2003 @ $2.00
                  
                  
                  70,000
                  
                  
                  
                  70
                  
                  
                  
                  139,930
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  140,000Issuance
                      of common stock for cash
                      May 2003 @ $2.00
                  
                  
                  30,000
                  
                  
                  
                  30
                  
                  
                  
                  59,970
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  60,000Acquisition
                      by Biogentech Corp of
                      ("Togs for Tykes")
                  
                  
                  1,032,000
                  
                  
                  
                  1,032
                  
                  
                  
                  (101,032
                  )
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (100,000
                  )Issuance
                      of common stock for
                      penalties  January 2004 @ $2.80
                  
                  
                  135,000
                  
                  
                  
                  135
                  
                  
                  
                  377,865
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  378,000Issuance
                      of common stock for
                      services February 2004 @ $2.20
                  
                  
                  100,000
                  
                  
                  
                  100
                  
                  
                  
                  219,900
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  220,000Issuance
                      of common stock for
                      services February 2004 @ $1.85
                  
                  
                  20,000
                  
                  
                  
                  20
                  
                  
                  
                  36,980
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  37,000Value
                      of beneficial converstion
                      feature of convertibledebenture
                      issued in September
                      2003
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  346,870
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  346,870Fair
                      value allocated to warrant
                      liability for detachablewarrants
                      issued with preferred
                      stock
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  (181,849
                  )
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (181,849
                  )Dividend
                      on preferred
                      stock
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  885,000
                  
                  
                  
                  -
                  
                  
                  
                  (885,000
                  )
                  
                  
                  -Deferred
                      compensation
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  196,000
                  
                  
                  
                  -
                  
                  
                  
                  196,000Net
                      loss
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  -
                  
                  
                  
                  (5,703,639
                  )
                  
                  
                  (5,703,639
                  )Balance
                      at March 31,
                      2004
                  
                  
                  21,119,708
                  
                  
                  
                  21,120
                  
                  
                  
                  5,977,596
                  
                  
                  
                  -
                  
                  
                  
                  (10,104,312
                  )
                  
                  
                  (4,105,596
                  )Issuance
                      of common stock for
                      penalties  May 2004 @ $1.85
                  
                  
                  170,000
                  
                  
                  
                  170
                  
                  
                  
                  314,330
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  314,500Issuance
                      of common stock for
                      services June 2004 @ $1.75
                  
                  
                  10,000
                  
                  
                  
                  10
                  
                  
                  
                  17,490
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  17,500Issuance
                    of common stock for conversion of debtJune
                      2004 @
                      $1.60
                  
                  
                  371,317
                  
                  
                  
                  371
                  
                  
                  
                  593,736
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  594,107Issuance
                      of common stock for
                      services July 2004 @ $1.35
                  
                  
                  7,489
                  
                  
                  
                  8
                  
                  
                  
                  10,101
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  10,109Issuance
                      of common stock for
                      services July 2004 @ $1.10
                  
                  
                  75,000
                  
                  
                  
                  75
                  
                  
                  
                  82,425
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  82,500Issuance
                      of common stock for
                      services August 2004 @ $0.75
                  
                  
                  100,000
                  
                  
                  
                  100
                  
                  
                  
                  74,900
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  75,000Conversion
                      of debt to common stock
                      September 2004 @ 2.22
                  
                  
                  857,143
                  
                  
                  
                  857
                  
                  
                  
                  1,902,000
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  1,902,857Issuance
                      of common stock for
                      services October 2004 @ $2.20
                  
                  
                  4,758
                  
                  
                  
                  5
                  
                  
                  
                  10,463
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  10,468Issuance
                      of common stock for
                      services October 2004 @ $2.55
                  
                  
                  375,000
                  
                  
                  
                  375
                  
                  
                  
                  955,875
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  956,250Issuance
                      of common stock for
                      services December 2004 @ $1.45
                  
                  
                  5,000
                  
                  
                  
                  5
                  
                  
                  
                  7,245
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  7,250Issuance
                      of common stock for
                      services December 2004 @ $1.30
                  
                  
                  63,676
                  
                  
                  
                  63
                  
                  
                  
                  82,715
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  82,778Issuance
                      of common stock for
                      services January 2005 @ $1.05
                  
                  
                  1,250
                  
                  
                  
                  1
                  
                  
                  
                  1,312
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  1,313
  5
  Issuance
                      of common stock for
                      services January 2005 @ $1.18
                  
                  
                  75,000
                  
                  
                  
                  75
                  
                  
                  
                  88,425
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  88,500Issuance
                      of common stock for
                      services February 2005 @ $1.10
                  
                  
                  155,000
                  
                  
                  
                  155
                  
                  
                  
                  170,345
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  170,500Issuance
                      of common stock for
                      services February 2005 @ $1.06
                  
                  
                  100,000
                  
                  
                  
                  100
                  
                  
                  
                  105,900
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  106,000Issuance
                      of common stock for
                      services February 2005 @ $0.95
                  
                  
                  30,000
                  
                  
                  
                  30
                  
                  
                  
                  28,470
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  28,500Issuance
                      of common stock for
                      services February 2005 @ $1.05
                  
                  
                  80,628
                  
                  
                  
                  81
                  
                  
                  
                  84,578
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  84,659Issuance
                      of common stock for
                      services February 2005 @ $1.00
                  
                  
                  467,159
                  
                  
                  
                  467
                  
                  
                  
                  466,692
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  467,159Issuance
                      of common stock for
                      services February 2005 @ $0.96
                  
                  
                  350,000
                  
                  
                  
                  350
                  
                  
                  
                  335,650
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  336,000Issuance
                    of common stock for financing costsMarch
                      2005 @
                      $0.81
                  
                  
                  50,000
                  
                  
                  
                  50
                  
                  
                  
                  40,450
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  40,500Issuance
                      of common stock for
                      services March 2005 @ $0.80
                  
                  
                  5,000
                  
                  
                  
                  5
                  
                  
                  
                  3,995
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  4,000Issuance
                      of common stock for
                      services March 2005 @ $0.75
                  
                  
                  120,000
                  
                  
                  
                  120
                  
                  
                  
                  89,880
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  90,000Issuance
                      of common stock for
                      services March 2005 @ $0.68
                  
                  
                  37,500
                  
                  
                  
                  38
                  
                  
                  
                  25,462
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  25,500Fair
                      value of warrants issued to
                      consultants
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  553,715
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  553,715-Net
                      loss
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  (8,101,014
                  )
                  
                  
                  (8,101,014
                  )Balance
                      at March 31,
                      2005
                  
                  
                  24,630,628
                  
                  
                  
                  24,631
                  
                  
                  
                  12,023,750
                  
                  
                  
                  -
                  
                  
                  
                  (18,205,326
                  )
                  
                  
                  (6,156,945
                  )Cancelation
                      of common stock
                      previously issued
                  
                  
                  (105,000
                  )
                  
                  
                  (105
                  )
                  
                  
                  (113,895
                  )
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  (114,000
                  )Issuance
                      of common stock for
                      services April 2005 @ $0.59
                  
                  
                  100,000
                  
                  
                  
                  100
                  
                  
                  
                  58,900
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  59,000Issuance
                      of common stock for
                      services April 2005 @ $0.62
                  
                  
                  162,500
                  
                  
                  
                  162
                  
                  
                  
                  100,587
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  100,749Issuance
                      of common stock for
                      services May 2005 @ $0.60
                  
                  
                  39,836
                  
                  
                  
                  40
                  
                  
                  
                  23,862
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  23,902Issuance
                      of common stock for
                      services June 2005 @ $0.65
                  
                  
                  110,000
                  
                  
                  
                  110
                  
                  
                  
                  71,390
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  71,500Issuance
                      of common stock for
                      services June 2005 @ $0.45
                  
                  
                  200,000
                  
                  
                  
                  200
                  
                  
                  
                  89,800
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  90,000Issuance
                      of common stock for
                      services July 2005 @ $0.60
                  
                  
                  10,000
                  
                  
                  
                  10
                  
                  
                  
                  5,990
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  6,000Issuance
                      of common stock for
                      services July 2005 @ $0.61
                  
                  
                  125,000
                  
                  
                  
                  125
                  
                  
                  
                  76,125
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  76,250Issuance
                      of common stock for
                      interest July 2005 @ $0.61
                  
                  
                  50,000
                  
                  
                  
                  50
                  
                  
                  
                  30,450
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  30,500Cancelation
                      of common stock
                      previously issued
                  
                  
                  (150,000
                  )
                  
                  
                  (150
                  )
                  
                  
                  (143,850
                  )
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  (144,000
                  )Issuance
                      of common stock for
                      services August 2005 @ $0.48
                  
                  
                  100,000
                  
                  
                  
                  100
                  
                  
                  
                  47,900
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  48,000Issuance
                    of common stock for servicesSeptember
                      2005 @
                      $0.50
                  
                  
                  30,000
                  
                  
                  
                  30
                  
                  
                  
                  14,970
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  15,000Issuance
                    of common stock for servicesSeptember
                      2005 @
                      $0.42
                  
                  
                  50,000
                  
                  
                  
                  50
                  
                  
                  
                  20,950
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  21,000Issuance
                    of common stock for servicesSeptember
                      2005 @
                      $0.50
                  
                  
                  75,000
                  
                  
                  
                  75
                  
                  
                  
                  37,425
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  37,500Issuance
                    of common stock for servicesOctober
                      2005 @
                      $0.53
                  
                  
                  220,000
                  
                  
                  
                  220
                  
                  
                  
                  115,280
                  
                  
                  
                  (58,750
                  )
                  
                  
                  
                  
                  
                  
                  56,750Issuance
                    of common stock for prepaid interestOctober
                      2005 @
                      $0.58
                  
                  
                  125,000
                  
                  
                  
                  125
                  
                  
                  
                  72,375
                  
                  
                  
                  (72,500
                  )
                  
                  
                  
                  
                  
                  
                  -Issuance
                    of common stock for conversion of debtOctober
                      2005 @
                      $1.75
                  
                  
                  150,000
                  
                  
                  
                  150
                  
                  
                  
                  262,350
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  262,500Issuance
                      of common stock for
                      services November 2005 @ $0.78
                  
                  
                  822,706
                  
                  
                  
                  823
                  
                  
                  
                  644,847
                  
                  
                  
                  (26,700
                  )
                  
                  
                  
                  
                  
                  
                  618,970Issuance
                      of common stock for
                      services January 2006 @ $1.54
                  
                  
                  335,000
                  
                  
                  
                  335
                  
                  
                  
                  515,165
                  
                  
                  
                  (119,500
                  )
                  
                  
                  
                  
                  
                  
                  396,000Issuance
                      of common stock for
                      services February 2006 @ $1.42
                  
                  
                  62,000
                  
                  
                  
                  62
                  
                  
                  
                  87,738
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  87,800Issuance
                      of common stock for
                      services March 2006 @ $1.58
                  
                  
                  121,467
                  
                  
                  
                  121
                  
                  
                  
                  192,237
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  192,358Issuance
                    of common stock for conversion of notespayable
                        and accrued interest March 2006
                  
                  
                  105,250
                  
                  
                  
                  105
                  
                  
                  
                  173,557
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  173,662Cancelation
                      of common stock
                      previously issued
                  
                  
                  (3,000
                  )
                  
                  
                  (3
                  )
                  
                  
                  (4,797
                  )
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  (4,800
                  )Amortization
                      of prepaid
                      expenses
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  112,025
                  
                  
                  
                  
                  
                  
                  
                  112,025Value
                      of warrants issued with
                      debt
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  131,365
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  131,365Repricing
                      of
                      warrants
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  301,155
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  301,155Amortization
                      of fair value of
                      warrants issued to consultants
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  1,541,628
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  1,541,628-Net
                      loss
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  (6,603,454
                  )
                  
                  
                  (6,603,454
                  )Balance
                      at March 31,
                      2006
                  
                  
                  27,366,387
                  
                  
                  
                  27,366
                  
                  
                  
                  16,377,254
                  
                  
                  
                  (165,425
                  )
                  
                  
                  (24,808,780
                  )
                  
                  
                  (8,569,585
                  )Issuance
                    of common stock for converstion of notepayable
                      and accrued
                      interest  April 2006
                  
                  
                  27,200
                  
                  
                  
                  27
                  
                  
                  
                  51,109
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  51,136Issuance
                      of common stock for
                      services April 2006 @ $1.46
                  
                  
                  115,000
                  
                  
                  
                  115
                  
                  
                  
                  167,835
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  167,950Issuance
                      of common stock for
                      cashless exercise of warrants
                  
                  
                  192,997
                  
                  
                  
                  193
                  
                  
                  
                  (193
                  )
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  -Issuance
                      of common stock for
                      services May 2006 @ $1.37
                  
                  
                  150,000
                  
                  
                  
                  150
                  
                  
                  
                  204,450
                  
                  
                  
                  (165,600
                  )
                  
                  
                  
                  
                  
                  
                  39,000Issuance
                    of common stock for conversion of accountspayable
                      May 2006 @
                      $1.28
                  
                  
                  111,416
                  
                  
                  
                  112
                  
                  
                  
                  142,501
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  142,613Issuance
                    of common stock for conversion of preferredstock
                      July 2006 @
                      $2.12
                  
                  
                  208,333
                  
                  
                  
                  208
                  
                  
                  
                  442,292
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  442,500Issuance
                    of common stock for conversion of relatedparty
                      debt July 2006 @
                      $1.30
                  
                  
                  3,995,806
                  
                  
                  
                  3,996
                  
                  
                  
                  5,190,558
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  5,194,554Issuance
                      of common stock for
                      services July 2006 @ $0.99
                  
                  
                  30,000
                  
                  
                  
                  30
                  
                  
                  
                  29,820
                  
                  
                  
                  (14,850
                  )
                  
                  
                  
                  
                  
                  
                  15,000Issuance
                    of common stock for conversion of convertiblenote
                      debt July 2006 @
                      $1.01
                  
                  
                  200,000
                  
                  
                  
                  200
                  
                  
                  
                  201,800
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  202,000Issuance
                      of common stock for
                      services August 2006 @ $0.97
                  
                  
                  20,000
                  
                  
                  
                  20
                  
                  
                  
                  19,380
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  19,400Issuance
                    of common stock for services September 2006@
                      $0.92
                  
                  
                  156,000
                  
                  
                  
                  156
                  
                  
                  
                  143,684
                  
                  
                  
                  (94,000
                  )
                  
                  
                  
                  
                  
                  
                  49,840Issuance
                      of common stock for cash
                      September 2006 @ $0.50
                  
                  
                  400,000
                  
                  
                  
                  400
                  
                  
                  
                  199,600
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  200,000Issuance
                      of common stock for
                      services October 2006 @ $0.99
                  
                  
                  360,000
                  
                  
                  
                  360
                  
                  
                  
                  356,440
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  356,800Issuance
                      of common stock for cash
                      October 2006 @ $0.50
                  
                  
                  1,150,000
                  
                  
                  
                  1,150
                  
                  
                  
                  573,850
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  575,000Issuance
                      of common stock for
                      services November 2006 @ $0.93
                  
                  
                  1,163,695
                  
                  
                  
                  1,164
                  
                  
                  
                  1,081,846
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  1,083,010Issuance
                      of common stock for cash
                      December 2006 @ $0.50
                  
                  
                  50,000
                  
                  
                  
                  50
                  
                  
                  
                  24,950
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  25,000Issuance
                      of common stock for
                      converion of note payableand
                      accrued interest
                      February 2007 @ $0.85
                  
                  
                  127,838
                  
                  
                  
                  128
                  
                  
                  
                  108,534
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  108,662Issuance
                    of common stock for conversion of preferred stockMarch
                      2007 @
                      $2.12
                  
                  
                  208,334
                  
                  
                  
                  208
                  
                  
                  
                  442,292
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  442,500Issuance
                    of common stock for conversion of convertibledebenture
                      March 2007 @
                      $0.76
                  
                  
                  33,025
                  
                  
                  
                  33
                  
                  
                  
                  24,967
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  25,000Issuance
                      of common stock for
                      services March 2007 @ $0.80
                  
                  
                  225,000
                  
                  
                  
                  225
                  
                  
                  
                  179,775
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  180,000Payment
                      of equity offering
                      costs
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  (57,500
                  )
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  (57,500
                  )Amortization
                      of prepaid
                      expenses
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  419,118
                  
                  
                  
                  
                  
                  
                  
                  419,118Value
                      of warrants issued with
                      debt
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  112,533
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  112,533Fair
                    value of vested stock options
                    issued to employees
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  1,567,579
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  1,567,579Fair
                    value of warrants issued for
                    extension of debt
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  15,307
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  15,307Amortization
                    of fair value of
                    warrants issued to consultants
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  961,818
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  961,818Value
                      of re-priced
                      warrants
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  1,599
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  1,599Value
                      of warrants transferred to
                      liability
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  (3,545,880
                  )
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  (3,545,880
                  )-Net
                      loss
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  (15,710,602
                  )
                  
                  
                  (15,710,602
                  )**Balance
                      at March
                      31,2007**
                  
                  ****
                  **36,291,031**
                  
                  
                  **$**
                  **36,291**
                  
                  
                  **$**
                  **25,018,200**
                  
                  
                  **$**
                  **(20,757**
                  **)**
                  
                  **$**
                  **(40,519,382**
                  **)**
                  
                  **$**
                  **(15,485,648**
                  **)**Issuance
                    of common stock for conversion of convertibledebenture,
                      April 2007 @
                      $0.68
                  
                  
                  767,319
                  
                  
                  
                  768
                  
                  
                  
                  524,232
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  525,000Issuance
                    of common stock for conversion of accountspayable,
                      April 2007 @
                      $0.98
                  
                  
                  343,184
                  
                  
                  
                  343
                  
                  
                  
                  334,077
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  334,420Issuance
                    of common stock for conversion of note payableof
                      $600,000, April 2007 @
                      $2.00
                  
                  
                  300,000
                  
                  
                  
                  300
                  
                  
                  
                  599,700.00
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  600,000Issuance
                    of common stock for exercise of warrants,April
                      2007,
                      $0.75
                  
                  
                  1,333,333
                  
                  
                  
                  1,333
                  
                  
                  
                  998,667.00
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  1,000,000Issuance
                      of common stock for
                      services, April 2007 @ $1.18
                  
                  
                  450,000
                  
                  
                  
                  450
                  
                  
                  
                  530,050
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  530,500Issuance
                      of common stock for
                      services, May 2007 @ $1.10
                  
                  
                  67,896
                  
                  
                  
                  67
                  
                  
                  
                  74,618
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  74,685Issuance
                      of common stock for
                      services, June 2007 @ $0.36
                  
                  
                  737,500
                  
                  
                  
                  738
                  
                  
                  
                  267,013
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  267,751Fair
                    value of vested stock options
                    issued to employees
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  478,895
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  478,895Amortization
                      of prepaid
                      expenses
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  9,038
                  
                  
                  
                  
                  
                  
                  
                  9,038Net
                      loss
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  $
                  (563,382
                  )
                  
                  
                  (563,382
                  )**Balance
                      at June
                      30,2007**
                  
                  ****
                  **40,290,263**
                  
                  
                  ****
                  **40,290**
                  
                  
                  ****
                  **28,825,452**
                  
                  
                  ****
                  **(11,719**
                  **)**
                  
                  ****
                  **(41,082,764**
                  **)**
                  
                  ****
                  **(12,228,741**
                  **)**


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




6





**Cobalis
        Corp. and Subsidiary**
 **(A
        Development Stage Company)**
 **Consolidated
        Statements of Cash Flows**




**Cumulative
                  from****Three
                  Months
                  ended**
              
              
              **November
                  21,****June
                  30,**
              
              
              **June
                  30,**
              
              
              **2000
                  (inception)
                  to****2007**
              
              
              **2006**
              
              
              **June
                  30,
                  2007**CASH
                  FLOWS FROM OPERATING
                  ACTIVITIES:Net
                  loss
              
              $
              (563,382
              )
              
              $
              (1,602,352
              )
              
              $
              (40,197,764
              )Adjustment
                  to reconcile net loss
                  to net cashused
                  in operating
                  activities:Depreciation
                  and amortization
                  expense
              
              
              13,783
              
              
              
              16,762
              
              
              
              603,188Common
                  stock issued for
                  services
              
              
              770,936
              
              
              
              206,950
              
              
              
              7,528,259Common
                  stock issued for
                  penalty
              
              
              112,000
              
              
              
              -
              
              
              
              804,500Common
                  stock issued for financing
                  costs
              
              
              -
              
              
              
              -
              
              
              
              115,743Change
                  in value of warrant and
                  accrued derivative liabilities
              
              
              (5,427,491
              )
              
              
              -
              
              
              
              (5,269,970
              )Amortization
                  of debt issue
                  costs
              
              
              368,878
              
              
              
              16,376
              
              
              
              526,572Exercise
                  of stock options for
                  services
              
              
              -
              
              
              
              -
              
              
              
              26,960Amortization
                  of discounts on
                  notes
              
              
              3,339,813
              
              
              
              -
              
              
              
              4,608,961Issuance
                  of stock options/warrants
                  for services/debt extension
              
              
              -
              
              
              
              421,498
              
              
              
              3,639,296Capital
                  contribution - bonus
                  (related party)
              
              
              -
              
              
              
              -
              
              
              
              50,000Amortization
                  of prepaid
                  expenses
              
              
              9,038
              
              
              
              100,540
              
              
              
              555,781Amortization
                  of deferred
                  compensation
              
              
              -
              
              
              
              -
              
              
              
              250,000Discount
                  on common stock issued
                  for settlement of debt
              
              
              -
              
              
              
              -
              
              
              
              50,000Impairment
                  expense
              
              
              -
              
              
              
              -
              
              
              
              2,331,522Re-pricing
                  of
                  warrants
              
              
              -
              
              
              
              -
              
              
              
              302,754Value
                  of vested stock options
                  issued to employees
              
              
              478,895
              
              
              
              128,908
              
              
              
              2,046,474Non-cash
                  financing
                  costs
              
              
              -
              
              
              
              -
              
              
              
              3,136,214Changes
                  in assets and
                  liabilities:
              
              
              
              
              
              
              
              
              
              
              -Prepaid
                  expenses and other
                  assets
              
              
              9,870
              
              
              
              4,680
              
              
              
              (2,169
              )Inventory
              
              
              -
              
              
              
              -
              
              
              
              6,250Deposits
              
              
              -
              
              
              
              -
              
              
              
              27,454Accounts
                  payable
              
              
              86,200
              
              
              
              4,853
              
              
              
              1,249,569Accrued
                  expenses
              
              
              25,677
              
              
              
              19,557
              
              
              
              1,785,713Accrued
                  clinical trial
                  costs
              
              
              (653,502
              )
              
              
              -
              
              
              
              591,229Accrued
                  legal
                  settlement
              
              
              89,683
              
              
              
              -
              
              
              
              1,689,683Accrued
                  salaries
              
              
              (11,167
              )
              
              
              -
              
              
              
              (11,490
              )Amounts
                  due to related
                  parties
              
              
              -
              
              
              
              215,574
              
              
              
              2,043,481Net
                  cash used in operating
                  activities
              
              
              (1,350,769
              )
              
              
              (466,654
              )
              
              
              (11,511,790
              )CASH
                  FLOWS FROM INVESTING
                  ACTIVITIES:Purchase
                  of property and
                  equipment
              
              
              -
              
              
              
              -
              
              
              
              (89,272
              )Increase
                  in patent
                  costs
              
              
              
              
              
              
              -
              
              
              
              (72,835
              )Increase
                  in acquisition
                  deposits
              
              
              -
              
              
              
              -
              
              
              
              (2,220,000
              )Increase
                  in other
                  deposits
              
              
              -
              
              
              
              -
              
              
              
              (40,000
              )Increase
                  in capitalized
                  website
              
              
              -
              
              
              
              -
              
              
              
              (18,097
              )Net
                  cash used in investing
                  activities
              
              
              -
              
              
              
              -
              
              
              
              (2,440,204
              )CASH
                  FLOWS FROM FINANCING
                  ACTIVITIES:Change
                  in cash
                  overdraft
              
              
              -
              
              
              
              -
              
              
              
              -Payment
                  on
                  contract
              
              
              -
              
              
              
              -
              
              
              
              (161,000
              )Proceeds
                  from advances - related
                  party
              
              
              -
              
              
              
              -
              
              
              
              4,581,449Proceeds
                  from advances from
                  stockholders
              
              
              -
              
              
              
              -
              
              
              
              310,000Proceeds
                  from issuance of notes
                  payable
              
              
              -
              
              
              
              -
              
              
              
              2,015,000Proceeds
                  from sale of common
                  stock
              
              
              -
              
              
              
              -
              
              
              
              1,606,500Payment
                  of equity offering
                  costs
              
              
              -
              
              
              
              -
              
              
              
              (57,500
              )Proceeds
                  from sale of preferred
                  stock
              
              
              -
              
              
              
              -
              
              
              
              885,000Proceeds
                  from convertible
                  debenture
              
              
              -
              
              
              
              -
              
              
              
              4,550,000Proceeds
                  from exercise of
                  warrants
              
              
              1,000,000
              
              
              
              -
              
              
              
              -Capital
                  contribution
              
              
              -
              
              
              
              -
              
              
              
              571,668Payment
                  of debt issue
                  costs
              
              
              -
              
              
              
              -
              
              
              
              (498,500
              )Payments
                  on advances from
                  stockholders
              
              
              -
              
              
              
              -
              
              
              
              (60,000
              )Payments
                  on notes
                  payable
              
              
              -
              
              
              
              -
              
              
              
              (350,000
              )Payments
                  on advances - related
                  party
              
              
              -
              
              
              
              (10,000
              )
              
              
              (402,129
              )Net
                  cash provided by (used in)
                  financing activities
              
              
              1,000,000
              
              
              
              (10,000
              )
              
              
              12,990,488NET
                INCREASE (DECREASE) IN CASH ANDCASH
                    EQUIVALENTS
              
              
              (350,769
              )
              
              
              (476,654
              )
              
              
              (961,506
              )CASH
                  AND CASH EQUIVALENTS,
                  Beginning of period
              
              
              389,263
              
              
              
              526,691
              
              
              
              -CASH
                  AND CASH EQUIVALENTS, End of
                  period
              
              $
              38,494
              
              
              $
              50,037
              
              
              $
              (961,506
              )SUPPLEMENTAL
                DISCLOSURE OF CASH FLOW INFORMATIONInterest
                  paid
              
              $
              -
              
              
              $
              -
              
              
              $
              71,617Income
                  taxes
                  paid
              
              $
              -
              
              
              $
              -
              
              
              $
              -SUPPLEMENTAL
                DISCLOSURE OF NON-CASH INVESTING ANDFINANCING
                  ACTIVITIES:Common
                  shares issued for
                  conversion of debt
              
              $
              1,125,000
              
              
              $
              -
              
              
              $
              6,706,352Common
                  shares issued for
                  settlement of debt
              
              $
              324,420
              
              
              $
              -
              
              
              $
              5,905,772




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




7
 
 **COBALIS
            CORP. AND SUBSIDIARY**
 **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
            THE THREE MONTHS ENDED JUNE 30, 2007**
 **(UNAUDITED)**
  **NOTE
            1 - BASIS OF PRESENTATION**
 
 The
            unaudited consolidated financial statements have been prepared by Cobalis
            Corp.
            (the “Company”), pursuant to the rules and regulations of the Securities and
            Exchange Commission. The information furnished herein reflects all adjustments
            (consisting of normal recurring accruals and adjustments) which are,
            in the
            opinion of management, necessary to fairly present the operating results
            for the
            respective periods. Certain information and footnote disclosures normally
            present in annual consolidated financial statements prepared in accordance
            with
            accounting principles generally accepted in the United States of America
            have
            been omitted pursuant to such rules and regulations. These consolidated
            financial statements should be read in conjunction with the audited consolidated
            financial statements and footnotes for the year ended March 31, 2007
            included in
            the Company’s Annual Report on Form 10-KSB. The results of the three months
            ended June 30, 2007 are not necessarily indicative of the results to
            be expected
            for the full year ending March 31, 2008.
 
 Going
            Concern and Impending Bankruptcy
 
 The
            accompanying consolidated financial statements have been prepared in
            accordance
            with accounting principles generally accepted in the United States of
            America,
            which contemplate continuation of the Company as a going concern. The
            Company
            has incurred a net loss of $563,382 for the three months ended June 30,
            2007,
            and as of June 30, 2007, the Company had a working capital deficit of
            $12,837,551 and a stockholder deficit of $12,228,741. In addition, as
            of June
            30, 2007, the Company has not developed a substantial source of
            revenue.
 
 On
            March
            31, 2006, the Company reached a settlement with Gryphon Master Lund LP
            (“Gryphon”) related to two investments in the Company by Gryphon in September
            2003 totaling $1,600,000. Full repayment is due under the settlement
            agreement
            on or before April 1, 2007. The Company did not make the payment by April
            1,
            2007; therefore, the stipulated judgment into which the Company entered
            with
            Gryphon provides that Gryphon has the right to enter a judgment of $1.6
            million
            against the Company with the court upon the Company’s default.
 
 On
            April
            2, 2007, the Company filed a motion to vacate an agreed judgment based
            on
            several grounds including that allegation that Gryphon breached the “no
            shorting” provision contained in the settlement agreement. The Company believes,
            and so allege in the Motion to Vacate, that despite Gryphon’s agreement, Gryphon
            engaged in shorting of the Company’s stock.
 
 On
            April
            23, 2007, Gryphon sued the Company for breach of contract. This new lawsuit
            alleges that the Company breached a settlement agreement with Gryphon.
            Gryphon
            is also seeking a declaratory judgment that it did not breach the same
            settlement agreement. Gryphon’s alleged breach of the settlement agreement is
            the subject of the Company’s Motion to Vacate. In addition to the declaratory
            relief, Gryphon’s complaint seeks unspecified damages and attorneys’
fees.  On April 23, 2007, Gryphon also filed an opposition to the
            Company’s Motion to Vacate repeating the same allegations.
 
 Since
            June 2007, Gryphon has aggressively been moving forward with judgment
            collection
            activities, including, but not limited to, conducting a debtor’s exam, levying
            the Company’s bank accounts and attaching the Company’s assets to the extent
            such assets are not already encumbered.
 
 There
            is
            no guarantee that the Company will be successful in vacating the judgment
            or in
            defending the new lawsuit. If the Company is unsuccessful in vacating
            the
            judgment or in defending the subsequent lawsuit, and, if the Company
            is unable
            to subsequently timely resolve the Gryphon matter or raise capital to
            satisfy
            the judgment, the Company’s ability to move its business forward could be
            adversely affected.
  8
  **COBALIS
            CORP. AND SUBSIDIARY**
 **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
            THE THREE MONTHS ENDED JUNE 30, 2007**
 **(UNAUDITED)**
  On
            July
            23, 2007, the Company received a notice of default from Cornell Capital
            Partners, LP (“Cornell Capital”) with regard to the convertible debentures
            entered into between the Company and Cornell Capital on December 20,
            2006 and
            February 20, 2007. Cornell Capital is taking the position that the recent
            collection efforts against the Company by Gryphon with regard to the
            litigation
            described above constitute a default under the relevant Cornell Capital
            funding
            documents.  In the first notice of default, Cornell Capital, in
            referencing the contractual 15 day cure period, gave the Company until
            August 7,
            2007 to cure the perceived default (i.e., resolve the dispute with Gryphon).
            If
            not cured, Cornell Capital has indicated that it will exercise all of
            its
            contractual rights, including, but not limited to, accelerated full repayment
            of
            the convertible debentures between the parties and exercising its rights
            under
            the pledge and escrow agreement and security agreement entered into between
            the
            parties.
 
 On
            July
            25, 2007, the Company received a second notice of default from Cornell
            Capital
            which also asserted that the Company was in default of certain provisions
            of the
            security agreement between the Company and Cornell Capital, entered into
            on
            December 20, 2006.  Per the terms of that security agreement, Cornell
            Capital could demand payment in full for all amounts due under the debenture
            agreements between the parties.  It is also possible that Cornell
            Capital may enforce the terms of the security agreement and the pledge
            and
            escrow agreement.
 
 On
            August
            1, 2007, the Company received an informal notice from YA Global Investments,
            L.P., formerly known as Cornell Capital that Cornell Capital had filed
            a
            petition for involuntary bankruptcy proceedings pursuant to Chapter 7
            on that
            same date with the U.S. Bankruptcy Court for the Central District of
            California,
            which seeks liquidation of the Company’s assets. Also on August 1, 2007, the
            Company received a copy of a file-stamped Chapter 7 petition confirming
            the
            notice provided by Cornell Capital. The petition alleges past due debts
            not less
            than $3,000,000 plus other amounts with regard to the convertible debentures
            entered into between the Company and Cornell Capital on December 20,
            2006 and
            February 20, 2007.
 
 The
            Company is investigating the options of either contesting the petition,
            or
            electing to consent to a voluntary Chapter 11 proceeding, (re-organization),
            which would allow the Company to continue operating under supervision
            of the
            bankruptcy court. The breathing room provided under Chapter 11 would
            allow the
            Company to attempt to raise equity or debt financing to provide the necessary
            capital to reorganize its affairs. There is no guarantee that the Company
            will
            be permitted to proceed under Chapter 11 and, further, there is no guarantee
            that the Company will be successful in raising equity and/or debt financing
            sufficient to reorganize its affairs. If the Company is not able to successfully
            contest the petition or successfully file and finance a Chapter 11, the
            Company
            will likely be forced to cease operations.  As of the date of this
            report, no orders have been entered by this court, and no trustees or other
            similar officers have been appointed.
 
 These
            conditions raise substantial doubt as to the Company's ability to continue
            as a
            going concern. These consolidated financial statements do not include
            any
            adjustments that might result from the outcome of this uncertainty. These
            consolidated financial statements do not include any adjustments relating
            to the
            recoverability and classification of recorded asset amounts, or amounts
            and
            classification of liabilities that might be necessary should the Company
            be
            unable to continue as a going concern.
  9
 **COBALIS
              CORP. AND SUBSIDIARY**
 **NOTES
              TO CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
              THE THREE MONTHS ENDED JUNE 30, 2007**
 **(UNAUDITED)**
  Debt
            Issuance
            Costs
 
 The
            Company had capitalized fees and
            expenses associated with the issuance of its convertible debentures as
            debt
            issuance costs, which were being amortized over the term of the convertible
            debentures.  Cornell Capital Partnersdeclared an event
            of default regarding
            the convertible debentures;
            therefore, the Company accelerated the amortization of the debt issuance
            costs,
            and recorded an expense of $368,878 for thethree months endedJune
            30, 2007.
  Patent
            Costs
 
 Patent
            costs are carried at cost less
            accumulated amortization, which is calculated on a straight-line basis,
            over the
            estimated economic life of the patent. In accordance with SFAS No. 142,
            "Goodwill and Other Intangible Assets," the Company evaluates intangible
            assets
            and other long-lived assets (including patent costs) for impairment,
            at least on
            an annual basis and whenever events or changes in circumstances indicate
            that
            the carrying value may not be recoverable from its estimated future cash
            flows.
            Recoverability of intangible assets and other long-lived assets is measured
            by
            comparing their net book value to the related projected undiscounted
            cash flows
            from these assets, considering a number of factors including past operating
            results, budgets, economic projections, market trends and product development
            cycles. If the net book value of the asset exceeds the related undiscounted
            cash
            flows, the asset is considered impaired, and a second test is performed
            to
            measure the amount of impairment loss. During the year endedMarch 31, 2004,
            the Company recognized an impairment
            expense of $111,522 related to one of its patents as it determined that
            this
            patent had no future value based on its assessment of expected future
            cash flows
            to be generated by this patent and the results of an independent appraisal
            done
            in April 2004. Amortization expense related to these patents for the
            three
            months endedJune 30,
            2007and 2006 was $13,233,
            and $13,644, respectively. Projected amortization expense approximates
            $53,000,
            $53,000, $53,000, $53,000 and $53,000, respectively, for each of the
            five years
            endedMarch 31,
            2012. The weighted-average
            life of the remaining patents is approximately 11.5 years.
 
 Stock
            Based
            Compensation
 
 The
            Company adopted SFAS No. 123
            (Revised 2004),*Share
            Based Payment*(“SFAS
            No. 123R”), under the modified-prospective transition method onJanuary 1,
            2006. SFAS No. 123R
            requires companies to measure and recognize the cost of employee services
            received in exchange for an award of equity instruments based on the
            grant-date
            fair value. Share-based compensation recognized under the modified-prospective
            transition method of SFAS No. 123R includes share-based compensation based
            on the grant-date fair value determined in accordance with the original
            provisions of SFAS No. 123,*Accounting
            for Stock-Based
            Compensation,*for all share-based
            payments
            granted prior to and not yet vested as of January 1, 2006 and share-based
            compensation based on the grant-date fair-value determined in accordance
            with
            SFAS No. 123R for all share-based payments granted after January 1,
            2006. SFAS No. 123R eliminates the ability to account for the award of
            these instruments under the intrinsic value method prescribed by Accounting
            Principles Board (“APB”) Opinion No. 25,*Accounting
            for Stock Issued to
            Employees*, and allowed
            under the original provisions of SFAS No. 123. Prior to the adoption of
            SFAS No. 123R, the Company accounted for our stock option plans using the
            intrinsic value method in accordance with the provisions of APB Opinion
            No. 25 and related interpretations.
  10
  **COBALIS
            CORP. AND SUBSIDIARY**
 **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
            THE THREE MONTHS ENDED JUNE 30, 2007**
 **(UNAUDITED)**
  As
            a
            result of adopting SFAS No. 123R, the Company recognized $478,895 and
            $128,908 in share-based compensation expense for the three months ended
            June 30,
            2007 and 2006. The impact of this share-based compensation expense on
            the
            Company’s basic and diluted earnings per share was $0.01 and $0.01 per share
            for
            the three months ended June 30, 2007 and 2006, respectively.
  The
            fair
            value for these options was estimated at the date of grant using a Black-Scholes
            option pricing model with the following weighted-average assumptions
            for 2006: risk-free interest rate of 4.5%; dividend yields of 0%;
            volatility factors of the expected market price of the Company’s common shares
            of 188%; and a weighted average expected life of the option of 5
            years.
 
 Loss
            Per
            Share
 
 The
            Company reports earnings (loss) per share in accordance with SFAS No.
            128,
            "Earnings per Share." Basic earnings (loss) per share is computed by
            dividing
            income (loss) available to common shareholders by the weighted average
            number of
            common shares available. Diluted earnings (loss) per share is computed
            similar
            to basic earnings (loss) per share except that the denominator is increased
            to
            include the number of additional common shares that would have been outstanding
            if the potential common shares had been issued and if the additional
            common
            shares were dilutive. Diluted earnings (loss) per share has not been
            presented
            since the effect of the assumed conversion of options and warrants to
            purchase
            common shares would have an anti-dilutive effect. The Company has excluded
            all
            outstanding options, warrants, and convertible note payable and preferred
            stock
            from the calculation of diluted net loss per share because these securities
            are
            anti-dilutive. As of June 30, 2007 and 2006, the Company has approximately
            17,463,780 and 10,467,600 common stock equivalents, respectively. In
            addition,
            as of June 30, 2007, 10,884,426 shares of common stock are issuable upon
            the
            conversion of the convertible note payable and convertible
            debentures.
 
 Recently
            Issued Accounting
            Pronouncements
 
 In
            September 2006, the FASB issued
            SFAS No. 157, “Fair Value Measurements.” This statement clarifies the
            definition of fair value, establishes a framework for measuring fair
            value and
            expands the disclosures on fair value measurements. SFAS No. 157 is
            effective for fiscal years beginning afterNovember 15, 2007.
            Management has not determined the
            effect, if any, the adoption of this statement will have on the financial
            statements.
 
 In
            September 2006, the FASB issued SFAS
            No. 158, "Employers' Accounting for Defined Benefit Pension and Other
            Postretirement Plans--an amendment of FASB Statements No. 87, 88, 106,
            and
            132(R)". One objective of this standard is to make it easier for investors,
            employees, retirees and other parties to understand and assess an employer's
            financial position and its ability to fulfill the obligations under its
            benefit
            plans. SFAS No. 158 requires employers to fully recognize in their financial
            statements the obligations associated with single-employer defined benefit
            pension plans, retiree healthcare plans, and other postretirement plans.
            SFAS
            No. 158 requires an employer to fully recognize in its statement of financial
            position the overfunded or underfunded status of a defined benefit
            postretirement plan (other than a multiemployer plan) as an asset or
            liability
            and to recognize changes in that funded status in the year in which the
            changes
            occur through comprehensive income. This Statement also requires an employer
            to
            measure the funded status of a plan as of the date of its year end statement
            of
            financial position, with limited exceptions. SFAS No. 158 requires an
            entity to
            recognize as a component of other comprehensive income, net of tax, the
            gains or
            losses and prior service costs or credits that arise during the period
            but are
            not recognized as components of net periodic benefit cost pursuant to
            SFAS No.
            87. This Statement requires an entity to disclose in the notes to financial
            statements additional information about certain effects on net periodic
            benefit
            cost for the next fiscal year that arise from delayed recognition of
            the gains
            or losses, prior service costs or credits, and transition asset or obligation.
            The Company is required to initially recognize the funded status of a
            defined
            benefit postretirement plan and to provide the required disclosures for
            fiscal
            years ending afterDecember
            15, 2006. Management
            believes that this statement will not have a significant impact on the
            financial
            statements.
  11
  **COBALIS
            CORP. AND SUBSIDIARY**
 **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
            THE THREE MONTHS ENDED JUNE 30, 2007**
 **(UNAUDITED)**
   In
          February of 2007 the FASB issued SFAS
          159, “The Fair Value Option for Financial Assets and Financial
          Liabilities--Including an amendment of FASB Statement No. 115.”  The
          statement permits entities to choose to measure many financial instruments
          and
          certain other items at fair value. The objective is to improve financial
          reporting by providing entities with the opportunity to mitigate volatility
          in
          reported earnings caused by measuring related assets and liabilities differently
          without having to apply complex hedge accounting provisions.  The
          statement is effective as of the beginning of an entity's first fiscal
          year that
          begins afterNovember 15,
          2007.  The
          company is analyzing the potential accounting treatment.
 FASB
            Staff Position on FAS No. 115-1 and
            FAS No. 124-1 (“the FSP”), “The Meaning of Other-Than-Temporary Impairment and
            Its Application to Certain Investments,” was issued in November 2005 and
            addresses the determination of when an investment is considered impaired,
            whether the impairment on an investment is other-than-temporary and how
            to
            measure an impairment loss. The FSP also addresses accounting considerations
            subsequent to the recognition of other-than-temporary impairments on
            a debt
            security, and requires certain disclosures about unrealized losses that
            have not
            been recognized as other-than-temporary impairments. The FSP replaces
            the
            impairment guidance on Emerging Issues Task Force (EITF) Issue No. 03-1
            with references to existing authoritative literature concerning
            other-than-temporary determinations. Under the FSP, losses arising from
            impairment deemed to be other-than-temporary, must be recognized in earnings
            at
            an amount equal to the entire difference between the securities cost
            and its
            fair value at the financial statement date, without considering partial
            recoveries subsequent to that date. The FSP also required that an investor
            recognize other-than-temporary impairment losses when a decision to sell
            a
            security has been made and the investor does not expect the fair value
            of the
            security to fully recover prior to the expected time of sale. The FSP
            is
            effective for reporting periods beginning afterDecember 15, 2005.
            The adoption of this statement will
            not have a material impact on our consolidated financial
            statements.
 
 FASB
            Interpretation 48 prescribes a
            recognition threshold and a measurement attribute for the financial statement
            recognition and measurement of a tax position taken or expected to be
            taken in a
            tax return. Benefits from tax positions should be recognized in the financial
            statements only when it is more likely than not that the tax position
            will be
            sustained upon examination by the appropriate taxing authority that would
            have
            full knowledge of all relevant information. The amount of tax benefits
            to be
            recognized for a tax position that meets the more-likely-than-not recognition
            threshold is measured as the largest amount of benefit that is greater
            than
            fifty percent likely of being realized upon ultimate settlement. Tax
            benefits
            relating to tax positions that previously failed to meet the
            more-likely-than-not recognition threshold should be recognized in the
            first
            subsequent financial reporting period in which that threshold is met
            or certain
            other events have occurred. Previously recognized tax benefits relating
            to tax
            positions that no longer meet the more-likely-than-not recognition threshold
            should be derecognized in the first subsequent financial reporting period
            in
            which that threshold is no longer met. Interpretation 48 also provides
            guidance
            on the accounting for and disclosure of tax reserves for unrecognized
            tax
            benefits, interest and penalties and accounting in interim periods.
            Interpretation 48 is effective for fiscal years beginning afterDecember 15, 2006.
            The change in net assets as a result
            of applying this pronouncement will be a change in accounting principle
            with the
            cumulative effect of the change required to be treated as an adjustment
            to the
            opening balance of retained earnings onJanuary 1, 2007,
            except in certain cases involving
            uncertainties relating to income taxes in purchase business combinations.
            In
            such instances, the impact of the adoption of Interpretation 48 will
            result in
            an adjustment to goodwill. The adoption of this standard had no material
            impact
            on the Company's consolidated financial statements.
  12
 **COBALIS
              CORP. AND SUBSIDIARY**
 **NOTES
              TO CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
              THE THREE MONTHS ENDED JUNE 30, 2007**
 **(UNAUDITED)**
   In
            September 2006, the Securities and
            Exchange Commission issued Staff Accounting Bulletin No. 108, “Considering the
            Effects of Prior Year Misstatements when Quantifying Misstatements in
            Current
            Year Financial Statements,” (“SAB 108”),which provides interpretive guidance on
            the consideration of the effects of prior year misstatements in quantifying
            current year misstatements for the purpose of a materiality assessment.
            The
            Company adopted SAB 108 in the fourth quarter of 2006 with no impact
            on its
            consolidated financial statements.
  **NOTE
            2 - PROPERTY AND
            EQUIPMENT**
 
 The
            cost of property and equipment atJune 30, 2007consisted of the
            following:
  Furniture
                      and
                      fixtures
                  
                  $
                  73,203Office
                      equipment
                  
                  
                  42,120115,323Less
                      accumulated depreciation and
                      amortization
                  
                  
                  (113,018
                  )$
                  2,305
 
 Depreciation
            expense for the three
            months endedJune 30,
            2007and 2006 was $551
            and$3,118,
            respectively.
 
 **NOTE
            3 - ACCRUED LEGAL
            SETTLEMENTS**
 
 Gryphon
            Master Fund
            LP
 
 OnMarch
            31, 2006, the Company reached
            a settlement with
            Gryphon Master Lund LP related to two investments in the Company by Gryphon
            in
            September 2003 totaling $1,600,000. The settlement agreement requires
            the
            Company to pay a maximum of $1,600,000 which will be reduced to $1,400,000
            if
            the Company is able to pay the judgment on or beforeOctober 1, 2006.
            Full repayment is due under the
            settlement agreement on or beforeApril 1, 2007.
            The settlement agreement also provides
            for Gryphon to convert its two investments (convertible debenture and
            convertible preferred stock) in the Company totaling $1,600,000 into
            716,667
            shares of the Company common stock as per the terms of the original investment
            agreements. In addition the settlement agreement provides for a reduction
            of the
            exercise price to $0.01 for the 194,167 warrants currently held by
            Gryphon.  During the year endedMarch 31, 2007,
            Gryphon did a cashless exercise of
            these warrants and received a total of 192,997 shares of the Company's
            common
            stock and converted a total of $885,000 worth of preferred stock into
            416,667
            shares of the Company's common stock.
  13
 **COBALIS
              CORP. AND SUBSIDIARY**
 **NOTES
              TO CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
              THE THREE MONTHS ENDED JUNE 30, 2007**
 **(UNAUDITED)**
  As
            of
            June 30, 2007, the full $1,600,000 was still due under the settlement
            agreement.
            (Refer to Note 1).  Also as a result of non-payment on this settlement
            amount, the Company has accrued interest of $89,683 on the unpaid balance
            per
            the terms of the settlement agreement.
 
 **NOTE4- PROMISSORY
            NOTES**
 
 In
            June 2005, the Company converted a
            total of $205,174 of amounts due for clinical trials into nine promissory
            notes
            that accrued interest at a rate of 10% per annum and were due onDecember 27, 2005.
            During the three months endedMarch 31, 2006andJune 30, 2006,
            respectively, the Company converted
            $131,042 and $27,319 of these promissory notes plus accrued interest
            into
            105,250 and 27,200 shares of the Company's common stock. AtJune 30, 2007,
            $46,813 of these notes was still
            outstanding.
 
 **NOTE5- NOTES
            PAYABLE**
 
 In
            August 2006, the Company issued a
            note payable to MDC Enterprises Ltd. in the amount of $250,000 that accrues
            interest at 40% per annum and is due onDecember 29, 2006.
            In addition, the Company also issued
            to MDC Enterprises Ltd. a warrant to purchase 150,000 shares of the Company's
            common stock for $0.75 per shares.  In January 2007, the Company
            repaid $150,000 of this note leaving a balance due atJune 30, 2007of $100,000.
 
 In
            September 2006, the Company issued a
            note payable in the amount of $50,000 to an investor.  The note bears
            interest at 10% per annum and is payable upon demand.  This note is
            outstanding atJune 30,
            2007.
 
 **NOTE6- CONVERTIBLE NOTE
            PAYABLE**
 
 Gryphon
            Master Fund, LP (See Note
            3)
 
 In
            September 2003, the Company sold a
            $600,000, six-year, 8% convertible note payable to Gryphon Master Fund,
            LP,
            which is convertible into shares of the Company's common stock at the
            initial
            conversion price of $2.00 per share.During the three
            months endedJune 30, 2007the Company issued 300,000 shares of
            its common stock for the conversion of this $600,000 convertible note
            payable.
  14
 **COBALIS
              CORP. AND SUBSIDIARY**
 **NOTES
              TO CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
              THE THREE MONTHS ENDED JUNE 30, 2007**
 **(UNAUDITED)**
  Cornell
            Capital Partners,
            L.P.
 
 On
            December 20, 2006, the Company
            entered into a Securities Purchase Agreement with Cornell Capital Partners,
            L.P.
            ("Cornell Capital") pursuant to which the Company agreed to issue up
            to an
            aggregate principal amount of $3,850,000 of convertible debentures. Of
            that
            amount, $2,500,000 was funded onDecember 20, 2006.
            Two additional closings of $675,000
            each are scheduled to occur as follows: the first upon the Company's
            filing of a
            registration statement with the Securities and Exchange Commission (“SEC”), and
            the second upon that registration statement being declared effective
            by the
            SEC.  The two additional closing took place onFebruary 22, 2007andMarch 16, 2007.
  The
            convertible debenture is convertible
            into shares of the Company common stock determined by dividing the dollar
            amount
            being converted by the lower of the fixed conversion price of $0.99 or
            the
            market conversion price, defined as 90% of the average of the lowest
            three daily
            volume weighted average trading prices per share of the Company's common
            stock
            for the fifteen trading days immediately preceding the conversion date.
            The
            convertible debenture is secured by the assets of the Company and shares
            of
            common stock pledged by certain founding shareholders of the Company.
            The
            Company, at its option, may redeem the convertible debenture beginning
            four
            months after the registration statement has been declared effective by
            the
            SEC.
  As
            part of the funding commitment, the
            Company issued four classes of warrants exercisable on a cash basis that
            enable
            Cornell Capital to purchase up to 6,640,602 shares of common stock for
            an
            additional $5,500,000: an A Warrant to purchase 1,333,333 shares at $0.75
            per
            share; B Warrant to purchase 1,205,400 shares at $0.8296 per share; C
            Warrant to
            purchase 2,343,959 shares at $0.7466 per share; and D Warrant to purchase
            1,757,910 shares at $0.9955 per share. The A and B Warrants expire six
            months
            following the effective date of the registration and carry forced exercise
            provisions. The C & D Warrants are non-callable and have a five-year term.
            The warrants and convertible debenture are subject to certain anti-dilution
            rights.  OnApril
            24, 2007, Cornell Capital
            exercised Class A Warrants for 1,333,333 shares at an exercise price
            of $0.75
            per share.
  Per
            EITF 00-19, paragraph 4, these
            convertible debentures do not meet the definition of a “conventional convertible
            debt instrument” since the debt is not convertible into a fixed number of
            shares.  The debt can be converted into common stock at a conversions price
            that is a percentage of the market price; therefore the number of shares
            that
            could be required to be delivered upon “net-share settlement” is essentially
            indeterminate.  Therefore, the convertible debenture is considered
“non-conventional,” which means that the conversion feature must be bifurcated
            from the debt and shown as a separate derivative liability.  This
            derivative liability conversion liability is as follows:
 
 Funding
                      Date
                  
                  AmountDecember
                      20,
                      2006
                  
                  $
                  1,897,735February
                      22,
                      2007
                  
                  
                  745,921March
                      16,
                      2007
                  
                  
                  561,774$
                  3,205,430
 
 In
            addition, since the convertible
            debenture is convertible into an indeterminate number of shares of common
            stock,
            it is assumed that the Company could never have enough authorized and
            unissued
            shares to settle the conversion of the warrants into common stock.
 Therefore, the warrants issued in connection with this transaction have
            a
            fair value of $3,667,558 atDecember 20, 2006are shown as a liability.  The
            value of the warrant was calculated using the Black-Scholes model using
            the
            following assumptions: Discount rate of 4.5%, volatility of 137% and
            expected
            term of 1 to 5 years.   The fair value of the derivative
            liability and the warrant liability will be adjusted to fair value each
            balance
            sheet date with the change being shown as a component of net
            loss.
  15
  **COBALIS
            CORP. AND SUBSIDIARY**
 **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
            THE THREE MONTHS ENDED JUNE 30, 2007**
 **(UNAUDITED)**
 The
            fair value of the derivative
            liability and the warrants at the inception of these convertible debentures
            were
            shown as a debt discount with any discount greater than the face amount
            of the
            debt being as financing costs in the accompanying statement of operations
            as
            follows.
  Funding
                      Date
                  ****
                  **Amount
                      of
                      Debt**
                  ****
                  ****
                  **Fair
                      Value of
                      Warrants**
                  ****
                  ****
                  **Fair
                      Value of Derivative
                      Liability**
                  ****
                  ****
                  **Amount
                      Applied to Debt
                      Discount**
                  ****
                  ****
                  **Recorded
                      as Financing
                      Cost**December
                      20,
                      2006
                  
                  $
                  2,500,000
                  
                  
                  $
                  3,667,558
                  
                  
                  $
                  1,897,735
                  
                  
                  $
                  2,500,000
                  
                  
                  $
                  3,065,293February
                      22,
                      2007
                  
                  
                  675,000
                  
                  
                  
                  -
                  
                  
                  
                  745,921
                  
                  
                  
                  675,000
                  
                  
                  
                  70,921March
                      16,
                      2007
                  
                  
                  675,000
                  
                  
                  
                  -
                  
                  
                  
                  561,774
                  
                  
                  
                  561,774
                  
                  
                  
                  -$
                  3,850,000
                  
                  
                  $
                  3,667,558
                  
                  
                  $
                  6,872,988
                  
                  
                  $
                  3,736,774
                  
                  
                  $
                  3,136,214
 
 AtJune
            30, 2007,
            the fair value of the warrant and
            derivative liabilities were $2,861,922 and $2,637,971,
            respectively.  During the three months endedJune 30, 2007,
            the Company recorded income of
            $5,427,491 as a result of adjusting the warrant and derivative liabilities
            to
            fair value.
 
 In
            April, 2007, Cornell Capital
            converted $525,000 into 767,319 shares at an exercise price of $0.68.On
            July 23, 2007, the Company received
            a notice of default from Cornell Capital with regard to the convertible
            debentures.Therefore, the
            Companyhas accelerated
            theamortized the remaining
            debt issuance costs and debt discount during the three months endedJune 30, 2007which resulted in a charge to earnings
            of $3,692,316. Subsequently,
            in July 2007, Cornell
            Capital converted
            $365,000 into 3,273,543 shares
            (Refer to Note 10).
 
 **NOTE7- SENIOR
            DEBENTURE**
 
 OnOctober
            26, 2005, the Company issued
            a senior debenture
            to the Brad Chisick Trust in the amount of $250,000 that accrues interest
            at 10%
            per annum and is due onOctober 26, 2007.
            In addition, the Company also issued
            to the Brad Chisick Trust a warrant to purchase 500,000 shares of the
            Company's
            common stock for $1.75 per shares.
 
 The
            fair value of these warrants
            totaling $276,827 was computed using the Black-Scholes model under the
            following
            assumptions: (1) expected life of 5 years; (2) volatility of 194%, (3)
            risk free
            interest of 4.50% and (4) dividend rate of 0%. The face amount of the
            senior
            debenture of $250,000 was proportionately allocated to the senior debenture
            and
            the warrants in the amount of $118,635 and $131,365, respectively. The
            amount
            allocated to the warrants of $131,365 was recorded as a discount on the
            senior
            debenture and is being amortized over the term of the debenture. During
            the
            period endedJune 30,
            2007, the Company amortized
            $16,376 of the discount to interest expense. AtJune 30, 2007,
            the balance of the debenture is shown
            as $228,766 net of unamortized discount of $21,234 in the consolidated
            balance
            sheet. In addition, onOctober 26, 2005,
            the Company issued to the Brad Chisick
            Trust 125,000 shares of its common stock valued at $72,500 as pre-payment
            of the
            accrued interest on this senior debenture. The prepaid interest will
            be
            amortized to interest expense over the two year term of the senior
            debenture.
  16
 **COBALIS
              CORP. AND SUBSIDIARY**
 **NOTES
              TO CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
              THE THREE MONTHS ENDED JUNE 30, 2007**
 **(UNAUDITED)**
  During
            the year endedMarch 31, 2007,
            the Company issued an additional
            20,000 warrants to the Brad Chisick Trust as additional consideration
            for this
            senior convertible debentures. The fair value of these warrants totaling
            $17,840
            was computed using the Black-Scholes model under the following assumptions:
            (1)
            expected life of 5 years; (2) volatility of 139%, (3) risk free interest
            of
            4.50% and (4) dividend rate of 0%.
 
 **NOTE8- STOCKHOLDERS'
            DEFICIT**
 
 Preferred
            Stock
 
 The
            Company has authorized 5,000,000
            shares of $0.001 par value preferred stock of which 1,000 have been designated
            at Convertible Preferred Stock.
 
 Common
            Stock
 
 The
            Company has authorized 100,000,000
            shares of $0.001 par value common stock.
  Stock
            Options
 
 In
            2002, the Company adopted a Stock
            Option Plan (the "Plan") initially reserving an aggregate of 1,250,000
            shares of
            the Company's common stock (the "Available Shares") for issuance pursuant
            to the
            exercise of stock options, which may be granted to employees and consultants
            to
            the Company. The Plan options were subsequently increased to 2,000,000
            shares.
 
 The
            Plan provides for the granting at
            the discretion of the Board of Directors of both qualified incentive
            stock
            options and non-qualified stock options. Consultants may receive only
            non-qualified stock options. The maximum term of the stock options are
            three to
            five years and generally vest proportionately throughout the term of
            the
            option.
 
 Transactions
            under the Plans during the
            period endedJune 30,
            2007are summarized
            as
            follows:
  The
            following table summarizes the
            options outstanding:
  **Options
                      Outstanding**
                  ****
                  ****
                  **Weighted
                      Average
                      Exercise**
                  ****
                  ****
                  **Aggregate
                      Intrinsic
                      Value**Outstanding,March
                      31,
                      2007
                  
                  
                  6,141,667
                  
                  
                  $
                  1.58
                  
                  
                  $
                  -GrantedForfeited/Canceled
                  
                  
                  (300,000
                  )
                  
                  $
                  1.00Outstanding,June
                      30,
                      2007
                  
                  
                  5,841,667
                  
                  
                  $
                  1.61
                  
                  
                  $
                  -
  17
 **COBALIS
              CORP. AND SUBSIDIARY**
 **NOTES
              TO CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
              THE THREE MONTHS ENDED JUNE 30, 2007**
 **(UNAUDITED)**
   The
            weighted average remaining
            contractual life of options outstanding is 7.0 years atJune 30, 2007.
            The number of vested options atJune 30, 2007is 3,453,922.  The exercise
            prices for the options outstanding atJune 30,
            2007are as follows:
  **Number
                      of
                      Options**
                  ****
                  **Exercise
                      Price**175,000
                  
                  $1.002,800,000
                  
                  $1.401,666,667
                  
                  $1.751,200,000
                  
                  $2.05,841,667
 
 Warrants
 
 As
            a result of the issuance of the
            convertible debenture to Cornell Capital (See Note 7) the fair value
            of all
            warrant issued to non-employees have been removed from stockholders'
            equity and
            shown as a liability.  OnDecember 20, 2006,
            the fair value of such warrants was
            $3,545,880.  The fair value of these warrants and those issued to
            Cornell Capital will be adjusted to fair value at each balance sheet
            date.
 
 The
            following table summarizes the
            warrants outstanding:
 
 **Warrants
                      Outstanding**
                  ****
                  ****
                  **Weighted
                      Average**
                    **Exercise
                      Price**
                  ****
                  ****
                  **Aggregate
                      Intrinsic**
                    **Value**Outstanding,
                      March 31, 2007
                  
                  
                  12,955,446
                  
                  
                  $
                  1.67
                  
                  
                  $
                  1,435,630Granted
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -Forfeited/Canceled
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -Exercised
                  
                  
                  (1,333,333
                  )
                  
                  $
                  0.75Outstanding,
                      June 30, 2007
                  
                  
                  11,622,113
                  
                  
                  $
                  1.17
                  
                  
                  $
                  289,667
  The
            weighted average remaining
            contractual life of warrants outstanding is 3.44 years atJune 30, 2007.  The
            number of vested
            warrants atJune 30,
            2007is
            11,622,113.  The exercise prices for the warrants outstanding atJune 30, 2007are as follows:
 
 **Number
                      of
                      Warrants**
                  ****
                  **Exercise
                      Price**150,000
                  
                  $0.014,597,292
                  
                  $0.751,205,400
                  
                  $0.832,860,154
                  
                  $1,003,942,600
                  
                  $1.75200,000
                  
                  $2.0011,622,113
  18
 **COBALIS
              CORP. AND SUBSIDIARY**
 **NOTES
              TO CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
              THE THREE MONTHS ENDED JUNE 30, 2007**
 **(UNAUDITED)**
  **NOTE
            9 - LITIGATION**
  *InnoFood/Modofood:*
              On July 28, 2003, the Company entered into a Stock Exchange Agreement
              ("InnoFood
              Agreement") with InnoFood Inc. ("InnoFood") wherein the Company agreed,
              among
              other things, to provide InnoFood with funding totaling $5,000,000
              in exchange
              for, among other things, 100% interest in InnoFood. The completed purchase
              of
              InnoFood was not to occur until the $5,000,000 funding was delivered.
              Under the
              InnoFood Agreement, the Company was obligated to provide InnoFood with
              the
              funding on or before December 31, 2003. The Company did provide InnoFood
              with
              $2,220,000. The Company has confirmation that $1,850,000 of the funds
              provided
              to InnoFood was sent to Modofood S.P.A., an Italian company ("Modofood").
              InnoFood originally entered into a licensing agreement with Modofood
              to market
              and distribute Modofood's food processing technology. On October 17,
              2003, the
              Company entered into a Letter of Understanding ("LOU") with InnoFood
              to
              restructure the relationship between ourselves and InnoFood. The Company
              believes that InnoFood and certain related individuals may have intentionally
              misled our management regarding certain material matters.
  On
              January 8, 2004, InnoFood sent us a letter attempting to terminate
              the original
              InnoFood Agreement and the October 17, 2003 LOU. InnoFood claimed that
              the
              Company breached both the InnoFood Agreement and the LOU by failing
              to provide
              the funding called for under those agreements. With the letter of termination,
              InnoFood delivered a signed promissory note agreeing to pay back $2,160,000
              (net
              of $60,000 interest InnoFood charged to the Company for non-payments).
              The
              promissory note accrues interest at 10% and is due and payable on or
              before
              January 15, 2009. Though the Company did not accept that note, the
              Company
              believes that this promissory note represents an acknowledgment of
              InnoFood's
              debt to the Company.
  In
              September 2006, the Company filed a complaint entitled Cobalis Corp.
              v.
              InnoFood, Reynato Giordano, James Luce, Robert Dietrich, Randal Lanham,
              in
              Orange County Superior Court, California, Case No. 06CC10355, to attempt
              to
              recapture the funds transferred to InnoFood and acquire any intellectual
              property related to the food preservation process at issue. Cobalis
              has entered
              defaults against Innofood, Renato Giordano and Robert Dietrich. The
              only
              remaining defendants are James Luce and Randall Lanham.
  In
              February 2007, James Luce filed a Cross-Complaint against Cobalis and
              Chaslov
              Radovich, who filed an Answer to the Cross-Complaint. On March 3, 2007
              Randal
              Lanham filed a cross complaint against Cobalis and Chaslov Radovich
              which was
              amended on May 28, 2007. Cobalis filed a Demurrer to the Lanham First
              Amended
              Cross Complaint for which a hearing date was set for August 17, 2007.
              Prior to
              the August 17 hearing on Cobalis' demurrer, the Innofood case has been
              stayed
              with respect to the crossc-complaints filed by Randall Lanham and James
              Luce.
              Accordingly, the hearing on Cobalis' demurrer was taken off calendar,
              subject to
              the stay.
  Subject
              to the stay, the Company intends to vigorously prosecute this matter
              and to
              defend the Lanham and Luce Cross-Complaints, although, as with any
              litigation,
              there is no guarantee of a favorable outcome. The Case Management Conference
              on
              August 20, 2007 was continued to October 22, 2007.
 *Gryphon
            Master Fund, LP.* On November 8, 2004, Gryphon Master Fund, LP, (“Gryphon”)
            filed a lawsuit against the Company in United States District Court,
            Northern
            District of Texas, Dallas Division, Case No. 3:04-CV-2405-L. The lawsuit
            sought
            repayment of a $600,000 convertible note payable, accrued interest on
            the
            convertible note payable within the prescribed period, penalties for
            failing to
            register shares underlying the conversion of the convertible note payable,
            attorneys fees and court costs. In March 2006, the Company entered into
            settlement agreement with Gryphon where both parties agreed to dismiss
            any and
            all current and future claims, legal proceedings and litigation upon
            full
            satisfaction of the settlement agreement.
  The
            settlement, which relates to two investments in the Company totaling
            $1.6
            million made by Gryphon in September 2003, includes an agreed judgment
            totaling
            $1.6 million. Of the remaining unconverted instruments, Gryphon is also
            eligible
            to convert its convertible note and convertible preferred stock it holds
            to
            508,334 shares of the Company's common stock. Under the settlement agreement,
            full repayment of the $1.6 million was due on or before April 1, 2007.
            The
            Company did not make the payment by April 1, 2007; therefore, the stipulated
            judgment into which the Company entered with Gryphon provides that Gryphon
            has
            the right to enter a judgment of $1.6 million against the Company with
            the court
            upon the Company's default.
  19
  **COBALIS
            CORP. AND SUBSIDIARY**
 **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
            THE THREE MONTHS ENDED JUNE 30, 2007**
 **(UNAUDITED)**
 On
            April
            2, 2007, the Company filed a motion to vacate an agreed judgment (the
“Motion to
            Vacate”) in the U.S. District Court for the Northern District of Texas, Dallas
            Division with regard to case #3:04-CV- 2405 between Gryphon Master Fund,
            L.P.
            (“Gryphon”) and the Company. The Company based the Motion to Vacate on several
            grounds including that allegation that Gryphon breached the “no shorting”
provision contained in the settlement agreement. The Company believes,
            and so
            allege in the Motion to Vacate, that despite Gryphon's agreement, Gryphon
            engaged in shorting of the Company's stock. Since June 2007, Gryphon
            has
            aggressively been moving forward with judgment collection activities,
            including,
            but not limited to, conducting a debtor's exam, levying the Company's
            bank
            accounts and attaching the Company's assets to the extent such assets
            are not
            already encumbered.
 
 On
            April
            23, 2007, Gryphon sued the Company for breach of contract in the same
            U.S.
            District Court as above, Case #3:07-cv-00701B. This new lawsuit alleges
            that the
            Company breached a settlement agreement with Gryphon. Gryphon is also
            seeking a
            declaratory judgment that it did not breach the same settlement agreement.
            Gryphon's alleged breach of the settlement agreement is the subject of
            the
            Company's Motion to Vacate. In addition to the declaratory relief, Gryphon's
            complaint seeks unspecified damages and attorneys' fees.  On April 23,
            2007, Gryphon also filed an opposition to the Company's Motion to Vacate
            repeating the same allegations.  A trial date is scheduled for the
            September 2007 docket.
 
 There
            is
            no guarantee that the Company will be successful in vacating the judgment
            or in
            defending the new lawsuit. If the Company is unsuccessful in vacating
            the
            judgment or in defending the subsequent lawsuit, and, if the Company
            is unable
            to subsequently timely resolve the Gryphon matter or raise capital to
            satisfy
            the judgment, the Company's ability to move its business forward could
            be
            adversely affected. On
            August
            6, 2007, the Company filed the Suggestion of Bankruptcy requesting for
            an
            automatic stay in the proceedings.
  *Marinko
            Vekovic:*****On March 9, 2006, Marinko Vekovic, a former
            consultant, filed a complaint against the Comapny alleging a  breach
            of a written consulting agreement, specific performance of common stock
            warrants
            and the “reasonable value of work and labor performed,” seeking damages in
            excess of $700,000, and specific performance of an alleged obligation
            to issue
            600,000 free trading warrants at a $1.75 share price. The lawsuit, entitled
            Vekovic vs. Cobalis, is pending in Orange County Superior Court, Central
            Justice Center, Case No. 06CC03923.
  On
            April
            18, 2006, the Company filed an answer to the complaint, denying the allegations
            by Mr. Vekovic. On the same date, the Company also filed a cross-complaint
            for
            rescission of the consulting agreement, on grounds that Mr. Vekovic made
            numerous material misrepresentations intended to fraudulently induce
            the Company
            to enter the consulting agreement and to issue to Vekovic 112,500 shares
            of its
            S-8 common stock. Through the Company's cross-complaint, it sought to
            rescind
            the consulting agreement and seek restitution from Mr. Vekovic in an
            amount no
            less than the price for which Mr. Vekovic sold the 112,500 shares of
            its S-8
            common stock, plus all or some portion of the compensation paid to Mr.
            Vekovic,
            given that the Company believes Mr. Vekovic substantially failed to perform
            the
            consulting services which were the subject of the consulting agreement.
            The
            Company also sought to recover attorneys' fees incurred in the defense
            of the
            complaint and the prosecution of its cross-complaint, pursuant to the
            attorneys'
            fee provision in the consulting agreement. On March 5, 2007, the Company
            entered
            into a settlement agreement with Mr. Vekovic with regard to this case,
            whereby
            the Company agreed to register on a future Form S-8 and issue 50,000
            shares to
            Mr. Vekovic in addition to a grant of 25,000 warrants to purchase shares
            of our
            common stock at $1.75 per share, expiring December 31, 2009.  The
            settlement agreements were issued on March 12, 2007 and the shares were
            registered on April 11, 2007 and issued subsequently.
 20
 **COBALIS
              CORP. AND SUBSIDIARY**
 **NOTES
              TO CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
              THE THREE MONTHS ENDED JUNE 30, 2007**
 **(UNAUDITED)**
 *Cappello
            Capital Corp.* In March 2005, the Company entered into an agreement with
            Cappello Capital Corp. (“Cappello”) for investment banking and related financial
            services. Pursuant to a financing agreement, the Company issued 100,000
            shares
            as an initial retainer. The Company believes that Cappello did not perform
            per
            the agreement, but  no settlement can be
            guaranteed.****
  *Noel
            Marshall.* On March 1, 2007, the Company became aware for the first
            time of the complaint for damages, Case # 07CC03208 filed in
            Superior Court Orange County California, entitled Noel Marshall v. Cobalis
            Corp. Chas Radovich, Radul Radovich, Drsgica Radovich, R.R. Holdings,
            Biogentec,
            Silver Mountain Productions and St. Petka Trust, alleging breach of contract,
            fraud, constructive trust, money had and received, and account stated (the
            "Marshall Action"). In the Marshall Action, plaintiff
            is alleging, among other things, that certain misrepresentations were
            made with the intent of inducing plaintiff to purchase shares of
            the Company's common stock.  The Company believes this lawsuit is frivolous
            and without merit. The Company intends to vigorously defend this
            matter. As with any litigation, there is no guarantee of a favorable
            outcome.
In
            August, 2007 a notice of stay was filed, and subsequently the court notified
            all
            parties that the action was stayed as to Cobalis only.
  As
            of the
            date of this filing, all pending cases are now stayed because of Cornell
            Capital's involuntary bankruptcy petition against the Company.
 In
              the
              ordinary course of business, the Company is generally subject to claims,
              complaints, and legal actions. At March 31, 2007, management believes
              that the
              Company is not a party to any action which would have a material impact
              on its
              financial condition, operations, or cash flows.
  **NOTE
            10- SUBSEQUENT
            EVENTS**
 
 The
            following events occurred subsequent
            toJune 30,
            2007:
 
 ·
                  the
                      Company issued 1,524,664 shares to Cornell Capital on July
                      12, 2007
                      pursuant to the conversion of convertible debentures in the
                      amount of
                      $170,000.
 ·
                  the
                      Company issued 1,748,879 shares to Cornell Capital on July
                      19, 2007
                      pursuant to the conversion of convertible debentures in the
                      amount of
                      $195,000.
 ·
                  the
                      Company issued 250,000 shares to investor relations on July
                      27,
                      2007.
  Also
            see
            Note 1 for additional subsequent events.
  21
  **Item
          2.****Management's
          Discussion and Analysis or Plan of Operations**
 **This
            following information specifies certain forward-looking statements of
            management
            of the company. Forward-looking statements are statements that estimate
            the
            happening of future events and are not based on historical fact. Forward-looking
            statements may be identified by the use of forward-looking terminology,
            such as
“may”, “shall”, “could”, “expect”, “estimate”, “anticipate”, “predict”,
“probable”, “possible”, “should”, “continue”, or similar terms, variations of
            those terms or the negative of those terms. The forward-looking statements
            specified in the following information have been compiled by our management
            on
            the basis of assumptions made by management and considered by management
            to be
            reasonable. Our future operating results, however, are impossible to
            predict and
            no representation, guaranty, or warranty is to be inferred from those
            forward-looking statements.**
 
 **The
            assumptions used for purposes of the forward-looking statements specified
            in the
            following information represent estimates of future events and are subject
            to
            uncertainty as to possible changes in economic, legislative, industry,
            and other
            circumstances. As a result, the identification and interpretation of
            data and
            other information and their use in developing and selecting assumptions
            from and
            among reasonable alternatives require the exercise of judgment. To the
            extent
            that the assumed events do not occur, the outcome may vary substantially
            from
            anticipated or projected results, and, accordingly, no opinion is expressed
            on
            the achievability of those forward-looking statements. No assurance can
            be given
            that any of the assumptions relating to the forward-looking statements
            specified
            in the following information are accurate, and we assume no obligation
            to update
            any such forward-looking statements.**
  Our
            Management's Discussion and Analysis of Financial Condition and Results
            of
            Operations section discusses our financial statements, which have been
            prepared
            in accordance with accounting principles generally accepted in the United
            States
            of America. The preparation of these financial statements requires us
            to make
            estimates and assumptions that affect the reported amounts of assets
            and
            liabilities at the date of the financial statements and the reported
            amounts of
            revenues and expenses during the reporting period. On an on-going basis,
            we
            evaluate our estimates and judgments, including those related to revenue
            recognition, accrued expenses, financing operations, and contingencies
            and
            litigation. We base our estimates and judgments on historical experience
            and on
            various other factors that are believed to be reasonable under the
            circumstances, the results of which form the basis for making judgments
            about
            the carrying value of assets and liabilities that are not readily apparent
            from
            other sources. Actual results may differ from these estimates under different
            assumptions or conditions. The most significant accounting estimates
            inherent in
            the preparation of our financial statements include estimates as to the
            appropriate carrying value of certain assets and liabilities which are
            not
            readily apparent from other sources, primarily valuation of patent costs
            and
            stock-based compensation. The methods, estimates and judgments we use
            in
            applying these most critical accounting policies have a significant impact
            on
            the results we report in our consolidated financial statements.
 
 **OVERVIEW**
 
 As
            discussed above, we were incorporated in 1997 and on July 6, 2004 changed
            our
            name to Cobalis Corp., having previously used the BioGentech Corp. In
            2003, we
            acquired our operational subsidiary, BioGentech Incorporated, (BioGentec).
            To
            distinguish between parent and subsidiary, a slight spelling difference
            was
            utilized. BioGentec, a private Nevada corporation, was incorporated on
            November
            21, 2000 according to the laws of Nevada, under the name St Petka, Inc.
            On May
            4, 2001, St. Petka, Inc. changed its name to BioGentec Incorporated.
            On July 2,
            2003, BioGentec was merged into Togs for Tykes Acquisition Corp., a wholly
            owned
            subsidiary formed for the purpose of acquiring BioGentec. As allowed
            under SFAS
            141, “Business Combinations” (“SFAS 141”), we designated a date of convenience
            of the closing for accounting purposes as June 30, 2003. Under the terms
            of the
            merger agreement, all of BioGentec's outstanding common stock (19,732,705
            shares
            of $0.001 par value stock) was exchanged for 19,732,705 shares newly
            issued
            shares of $0.001 par value stock of Cobalis Corp. common stock. This
            transaction
            was consummated with the filing of the Articles of Merger with the State
            of
            Nevada on July 2, 2003. BioGentec shareholders then effectively controlled
            approximately 95% of the issued and outstanding common stock of Cobalis.
            Since
            the shareholders of BioGentec obtained control of Cobalis, according
            to SFAS
            141, this acquisition was treated as a recapitalization for accounting
            purposes,
            in a manner similar to reverse acquisition accounting.
  22
 
 **GOING
            CONCERN**
 
 The
            accompanying consolidated financial statements have been prepared in
            conformity
            with accounting principles generally accepted in the United States of
            America,
            which contemplate continuation as a going concern. We incurred a net
            loss of
            $563,382 for the three months ended June 30, 2007 and as of June 30,
            2007; we
            had a working capital deficit of $12,837,551 and a stockholder deficit
            of
            $12,228,741. In addition, as of June 30, 2007, we have not developed
            a
            substantial source of revenue. These conditions raise substantial doubt
            as to
            our ability to continue as a going concern. The consolidated financial
            statements do not include any adjustments that might result from the
            outcome of
            this uncertainty. The consolidated financial statements do not include
            any
            adjustments relating to the recoverability and classification of recorded
            asset
            amounts, or amounts and classification of liabilities that might be necessary
            should we be unable to continue as a going concern.
 
 On
            March
            31, 2006, we reached a settlement with Gryphon Master Lund LP (Gryphon)
            related
            to two investments in the company by Gryphon in September 2003 totaling
            $1,600,000. Full repayment is due under the settlement agreement on or
            before
            April 1, 2007. We did not make the payment by April 1, 2007; therefore,
            the
            stipulated judgment into which we entered with Gryphon provides that
            Gryphon has
            the right to enter a judgment of $1.6 million against us with the court
            upon our
            default.
 
 On
            April
            2, 2007, we filed a motion to vacate an agreed judgment based on several
            grounds
            including that allegation that Gryphon breached the “no shorting” provision
            contained in the settlement agreement. We believe, and so allege in the
            Motion
            to Vacate, that despite Gryphon’s agreement, Gryphon engaged in shorting of our
            stock.
 
 On
            April
            23, 2007, Gryphon sued us for breach of contract. This new lawsuit alleges
            that
            we breached a settlement agreement with Gryphon. Gryphon is also seeking
            a
            declaratory judgment that it did not breach the same settlement agreement.
            Gryphon’s alleged breach of the settlement agreement is the subject of our
            Motion to Vacate. In addition to the declaratory relief, Gryphon’s complaint
            seeks unspecified damages and attorneys’ fees.  On April 23, 2007,
            Gryphon also filed an opposition to our Motion to Vacate repeating the
            same
            allegations.
 
 Since
            June 2007, Gryphon has aggressively been moving forward with judgment
            collection
            activities, including, but not limited to, conducting a debtor’s exam, levying
            our bank accounts and attaching our assets to the extent such assets
            are not
            already encumbered.
 
 There
            is
            no guarantee that we will be successful in vacating the judgment or in
            defending
            the new lawsuit. If we are unsuccessful in vacating the judgment or in
            defending
            the subsequent lawsuit, and, if we are unable to subsequently timely
            resolve the
            Gryphon matter or raise capital to satisfy the judgment, our ability
            to move its
            business forward could be adversely affected.
  23
 
 On
            July
            23, 2007, we received a notice of default from Cornell Capital Partners,
            LP
            (Cornell Capital) with regard to the convertible debentures entered into
            between
            the company and Cornell Capital on December 20, 2006 and February 20,
            2007.
            Cornell Capital is taking the position that the recent collection efforts
            against us by Gryphon with regard to the litigation described above constitute
            a
            default under the relevant Cornell Capital funding documents.  In the
            first notice of default, Cornell Capital, in referencing the contractual
            15 day
            cure period, gave us until August 7, 2007 to cure the perceived default
            (i.e.,
            resolve the dispute with Gryphon). If not cured, Cornell Capital has
            indicated
            that it will exercise all of its contractual rights, including, but not
            limited
            to, accelerated full repayment of the convertible debentures between
            the parties
            and exercising its rights under the pledge and escrow agreement and security
            agreement entered into between the parties.
 
 On
            July
            25, 2007, we received a second notice of default from Cornell Capital
            which also
            asserted that we were in default of certain provisions of the security
            agreement
            between the company and Cornell Capital, entered into on December 20,
            2006.  Per the terms of that security agreement, Cornell Capital could
            demand payment in full for all amounts due under the debenture agreements
            between the parties.  It is also possible that Cornell Capital may
            enforce the terms of the security agreement and the pledge and escrow
            agreement.
 
 On
            August
            1, 2007, we received an informal notice from YA Global Investments, L.P.,
            formerly known as Cornell Capital that Cornell Capital had filed a petition
            for
            involuntary bankruptcy proceedings pursuant to Chapter 7 on that same
            date with
            the U.S. Bankruptcy Court for the Central District of California, which
            seeks
            liquidation of our assets. Also on August 1, 2007, we received a copy
            of a
            file-stamped Chapter 7 petition confirming the notice provided by Cornell
            Capital. The petition alleges past due debts not less than $3,000,000
            plus other
            amounts with regard to the convertible debentures entered into between
            the
            company and Cornell Capital on December 20, 2006 and February 20,
            2007.
 
 We
            are
            investigating the options of either contesting the petition, or electing
            to
            consent to a voluntary Chapter 11 proceeding, (re-organization), which
            would
            allow us to continue operating under supervision of the bankruptcy court.
            The
            breathing room provided under Chapter 11 would allow us to attempt to
            raise
            equity or debt financing to provide the necessary capital to reorganize
            its
            affairs. There is no guarantee that we will be permitted to proceed under
            Chapter 11 and, further, there is no guarantee that we will be successful
            in
            raising equity and/or debt financing sufficient to reorganize its affairs.
            If we
            are not able to successfully contest the petition or successfully file
            and
            finance a Chapter 11, we will likely be forced to cease
            operations.  As of the date of this report, no orders have been
            entered by this court, and no trustees or other similar officers have been
            appointed.
  **CRITICAL
            ACCOUNTING POLICY AND ESTIMATES**
 
 Our
            Management's Discussion and Analysis of Financial Condition and Results
            of
            Operations section discusses our consolidated financial statements, which
            have
            been prepared in accordance with accounting principles generally accepted
            in the
            United States of America. The preparation of the consolidated financial
            statements requires management to make estimates and assumptions that
            affect the
            reported amounts of assets and liabilities at the date of the consolidated
            financial statements and the reported amounts of revenues and expenses
            during
            the reporting period. On an on-going basis, management evaluates its
            estimates
            and judgments, including those related to revenue recognition, accrued
            expenses,
            financing operations, and contingencies and litigation. Management bases
            its
            estimates and judgments on historical experience and on various other
            factors
            that are believed to be reasonable under the circumstances, the results
            of which
            form the basis for making judgments about the carrying value of assets
            and
            liabilities that are not readily apparent from other sources. Actual
            results may
            differ from these estimates under different assumptions or conditions.
            The most
            significant accounting estimates inherent in the preparation of our consolidated
            financial statements include estimates as to the appropriate carrying
            value of
            certain assets and liabilities which are not readily apparent from other
            sources, primarily valuation of patent costs and stock-based compensation.
            The
            methods, estimates and judgments we use in applying these most critical
            accounting policies have a significant impact on the results we report
            in our
            consolidated financial statements.
  24
  **Patent
            Cost Valuation.**The determination of the fair value of certain acquired
            assets and liabilities is subjective in nature and often involves the
            use of
            significant estimates and assumptions. Determining the fair values and
            useful
            lives of intangible assets requires the exercise of judgment. While there
            are a
            number of different generally accepted valuation methods to estimate
            the value
            of intangible assets acquired, we primarily use the weighted-average
            probability
            method outlined in SFAS 144, “Accounting for the Impairment or Disposal of
            Long-Lived Assets.” This method requires significant management judgment to
            forecast the future operating results used in the analysis. In addition,
            other
            significant estimates are required such as residual growth rates and
            discount
            factors. The estimates we have used are consistent with the plans and
            estimates
            that we use to manage our business, based on available historical information
            and industry averages. The judgments made in determining the estimated
            useful
            lives assigned to each class of assets acquired can also significantly
            affect
            our net operating results.
 
 **Stock-based
            Compensation.**We adopted SFAS No. 123 (Revised 2004), *Share
            Based Payment*(“SFAS No. 123R”), under the modified-prospective
            transition method on January 1, 2006. SFAS No. 123R requires companies
            to measure and recognize the cost of employee services received in exchange
            for
            an award of equity instruments based on the grant-date fair value. Share-based
            compensation recognized under the modified-prospective transition method
            of SFAS
            No. 123R includes share-based compensation based on the grant-date fair
            value determined in accordance with the original provisions of SFAS
            No. 123, *Accounting for Stock-Based Compensation,*for all
            share-based payments granted prior to and not yet vested as of January 1,
            2006 and share-based compensation based on the grant-date fair-value
            determined
            in accordance with SFAS No. 123R for all share-based payments granted after
            January 1, 2006. SFAS No. 123R eliminates the ability to account for
            the award of these instruments under the intrinsic value method prescribed
            by
            Accounting Principles Board (“APB”) Opinion No. 25, *Accounting for
            Stock Issued to Employees*, and allowed under the original provisions of
            SFAS No. 123. Prior to the adoption of SFAS No. 123R, we accounted for
            our stock option plans using the intrinsic value method in accordance
            with the
            provisions of APB Opinion No. 25 and related interpretations.
 
 **Estimate
            of Litigation-based Liability.**We are a defendant in certain claims and
            litigation in the ordinary course of business. We accrue liabilities
            relating to
            these lawsuits on a case-by-case basis. We generally accrue attorney
            fees and
            interest in addition to the liability being sought. Liabilities are adjusted
            on
            a regular basis as new information becomes available. We consult with
            our
            attorneys to determine the viability of an expected outcome. The actual
            amount
            paid to settle a case could differ materially from the amount
            accrued.
 
 **LIQUIDITY
            AND CAPITAL RESOURCES**
 
 We
            had
            cash and cash equivalents of $38,494 and prepaid expenses and other current
            assets of $14,715 at June 30, 2007. Our total current assets at June
            30, 2007
            were $53,209. We also had the following long term assets: $2,305 in property
            and
            equipment, net; $709 in net website development costs; net, and $605,796
            in
            patents; net.  Our total assets as of June 30, 2007 were
            $662,019.
  25
 
 Our
            total
            liabilities were $12,890,760 at June 30, 2007, which was represented
            by accounts
            payable of $374,146; accrued expenses of $755,605; accrued clinical trials
            costs
            of $591,229; accrued legal settlements of $1,689,683; accrued salaries
            of
            $254,625; warrant liability of $2,861,922; accrued derivative liability
            of
            $2,637,971; promissory notes of $46,813; notes payable of $150,000, senior
            debenture of $228,766 and convertible notes payable of $3,300,000. Our
            liabilities exceeded our assets by $12,837,551.
 
 In
            June
            2005, we converted a total of $205,174 of amounts due for clinical trials
            into
            nine promissory notes that accrued interest at a rate of 10% per annum
            and were
            due on December 27, 2005. During the three months ended March 31, 2006
            and June
            30, 2006, respectively, we converted $131,042 and $27,319 of these promissory
            notes plus accrued interest into 105,250 and 27,200 shares of our common
            stock.
            At June 30, 2007, $46,813 of these notes was still outstanding.
 
 On
            July
            18, 2006, we entered into an Accord and Satisfaction Agreement (“Agreement”)
            with several related party creditors, arranging to settle debt of $5,194,553
            including interest accrued through June 30, 2006, in exchange for the
            issuance
            of 3,995,809 shares of our $.001 par value common stock. This debt was
            incurred
            in the form of related party advances and services rendered to the company
            over
            recent months. The conversion rate was $1.30 per share, representing
            a premium
            on the market price of our closing share price on Monday, July 17, 2006
            of $1.00
            per share.
  The
            related parties that were owed funds include Radul Radovich, our Chairman
            of the
            Board of Directors, and several entities owned and controlled by Mr.
            Radovich.
            The amounts owed were as follows: Mr. Radovich was owed $952,611 principal
            along
            with interest of $127,509, for a total of $1,084,120, which was converted
            to
            833,938 restricted shares of our common stock; St. Petka Trust, a majority
            shareholder of the company, and of which Mr. Radovich is the beneficiary
            and
            trustor, was owed $1,585,500 principal, along with interest of $211,335,
            for a
            total of $1,796,835, which was converted to 1,382,180 restricted shares
            of our
            common stock; R and R Holdings, Inc. a Nevada corporation owned by Mr.
            Radovich,
            was owed $471,507 principal, along with interest of $62,848, for a total
            of
            $534,355, which was converted to 411,042 restricted shares of our common
            stock;
            Silver Mountain Promotions, Inc., a Nevada corporation, owned by Mr.
            Radovich,
            was owed $922,103 principal, along with interest of $122,909, for a total
            of
            $1,045,012, which was converted to 803,855 restricted shares of our common
            stock; R R Development, Inc., a California corporation, owned by Mr.
            Radovich,
            was owed $170,000 principal, along with interest of $51,838, for a total
            of
            $221,838, which was converted to restricted 170,644 shares of our common
            stock.
            In addition, Mr. Radovich was owed $512,392 for consulting fees, pursuant
            to a
            consulting contract with the company. This amount was converted to 394,147
            restricted shares of our common stock.
 
 We
            have
            financed our operations primarily through cash generated from related
            party debt
            financing as well as issuing a convertible debenture.
 
 Our
            net
            cash used by investing activities was $0 for the three months ended June
            30,
            2007 and 2006.
 
 Our
            net
            cash provided by financing activities was $1,000,000 for the three months
            ended
            June 30, 2007 compared to net cash used by financing activities of $10,000
            for
            the three months ended June 30, 2006. The increase is primarily due to
            the
            exercise of warrants.
  26
 
 In
            June
            2005, we entered into a loan agreement with Tejeda and Tejeda, Inc. in
            the
            amount of $100,000. The loan is due in one year. The note is personally
            guaranteed by Mr. Radul Radovich, the chairman of our board of directors,
            and
            Mr. Chas Radovich, our President, Secretary and one of our directors.
            When the
            loan is due, the holder of the note has the option to convert the loan
            into
            shares of our common stock at $0.50 per share or at a price equal to
            a 25%
            discount to the closing bid price on the day of conversion at maturity.
            In July
            2006, the holder of the note elected to convert the note to 200,000 shares
            of
            our common stock. We recognized an additional expense of $91,583 related
            to the
            conversion of this note and accrued interest into shares of common
            stock.
 
 In
            October 2005, we issued a senior debenture to the Brad Chisick Trust
            for
            $250,000 that accrues interest at 10% per annum, and is due in two years.
            We
            also issued the holder of this debenture a warrant to purchase 500,000
            shares of
            our common stock at $1.75 per share.
  During
            the three months ended June 30, 2006, we issued 111,416 shares of our
            common
            stock that were registered on or about May 11, 2006 on Form S-8 as payment
            for
            certain accounts payable, past due salaries to certain related parties
            and
            amounts due to consultants.
 
 In
            July
            2006, we issued notes payable in the aggregate amount of $250,000 to
            three
            investors. The notes bear interest at 5% per month and were due on September
            14,
            2006. We exercised our option to extend the due date to October 14, 2006
            and
            issued to the investors a total of 25,000 warrants. These notes were
            repaid
            subsequent to the quarter ended December 31, 2006.
 
 In
            August
            2006, we issued a note payable to MDC Enterprises Ltd. in the amount
            of $250,000
            that accrues interest at 40% per annum and is due on December 29, 2006.
            In
            addition, we also issued to MDC Enterprises Ltd. a warrant to purchase
            150,000
            shares of our common stock for $0.75 per shares.
 
 In
            September 2006, we issued a note payable in the amount of $50,000 to
            an
            investor. The note bears interest at 10% per annum and is payable upon
            demand.
 
 On
            December 20, 2006, the we entered into a Securities Purchase Agreement
            with
            Cornell Capital Partners, L.P. ("Cornell Capital") pursuant to which
            we agreed
            to issue up to an aggregate principal amount of $3,850,000 of convertible
            debentures. Of that amount, $2,500,000 was funded on December 20, 2006.
            Two
            additional closings of $675,000 each are scheduled to occur as follows:
            the
            first upon the Company’s filing of a registration statement with the Securities
            and Exchange Commission (“SEC”), and the second upon that registration statement
            being declared effective by the SEC and Shareholder approval of additional
            authorized shares. There is no guarantee that we will complete and file
            a
            registration statement, or that if filed, there is no guarantee that
            the SEC
            will declare the registration statement effective. Further, there is
            no
            guarantee that Shareholders will approve the increase in authorized
            shares.
  The
            convertible debenture is convertible into shares of our common stock
            determined
            by dividing the dollar amount being converted by the lower of the fixed
            conversion price of $0.99 or the market conversion price, defined as
            90% of the
            average of the lowest three daily volume weighted average trading prices
            per
            share of our common stock for the fifteen trading days immediately preceding
            the
            conversion date. The convertible debenture is secured by our assets and
            shares
            of common stock pledged by certain founding shareholders. At our option,
            we may
            redeem the convertible debenture beginning four months after the registration
            statement has been declared effective by the SEC.
  27
  As
            part
            of the funding commitment, we issued four classes of warrants exercisable
            on a
            cash basis that enable Cornell Capital to purchase up to 6,640,602 shares
            of
            common stock for an additional $5,500,000: an A Warrant to purchase 1,333,333
            shares at $0.75 per share; B Warrant to purchase 1,205,400 shares at
            $0.8296 per
            share; C Warrant to purchase 2,343,959 shares at $0.7466 per share; and
            D
            Warrant to purchase 1,757,910 shares at $0.9955 per share. The A and
            B Warrants
            expire six months following the effective date of the registration and
            carry
            forced exercise provisions. The C and D Warrants are non-callable and
            have a
            five-year term. The warrants and convertible debenture are subject to
            certain
            anti-dilution rights.
  Per
            EITF
            00-19, paragraph 4, these convertible debentures do not meet the definition
            of a
“conventional convertible debt instrument” since the debt is not convertible
            into a fixed number of shares.  The debt can be converted into common stock
            at a conversions price that is a percentage of the market price; therefore
            the
            number of shares that could be required to be delivered upon “net-share
            settlement” is essentially indeterminate.  Therefore, the convertible
            debenture is considered “non-conventional,” which means that the conversion
            feature must be bifurcated from the debt and shown as a separate derivative
            liability.  This beneficial conversion liability has been calculated to be
            $1,897,735 on December 20, 2006.  In addition, since the convertible
            debenture is convertible into an indeterminate number of shares of common
            stock,
            it is assumed that the Company could never have enough authorized and
            unissued
            shares to settle the conversion of the warrants into common stock.
 Therefore, the warrants issued in connection with this transaction have
            a
            fair value of $3,667,558 at December 20, 2006.  The value of the warrant
            was calculated using the Black-Scholes model using the following assumptions:
            Discount rate of 4.5%, volatility of 137% and expected term of 1 to 5
            years.
 The fair value of the beneficial conversion feature and the warrant
            liability will be adjusted to fair value each balance sheet date with
            the change
            being shown as a component of net loss.
 
 The
            fair
            value of the beneficial conversion feature and the warrants at the inception
            of
            these convertible debentures were $1897,735 and $3,667,558, respectively.
             The first $2,500,000 of these discounts has been shown as a discount
            to
            the convertible debentures which will be amortized over the term of the
            convertible debenture and the excess of $3,065,293 has been shown as
            financing
            costs in the accompanying statement of operations.
 
 As
            a
            result of the issuance of the convertible debenture to Cornell Capital
            the fair
            value of all warrant issued to non-employees have been removed from
            stockholders’ equity and shown as a liability. On December 20, 2006, the fair
            value of such warrants was $3,545,880. The fair value of these warrants
            and
            those issued to Cornell Capital will be adjusted to fair value at each
            balance
            sheet date.
 
 During
            the three months ended June 30, 2007, Cornell Capital converted $525,000
            of
            their convertible debt into 767,319 shares.  In addition Cornell
            Capital exercised 1,333,333 Class A Warrants at a stock price of $0.75
            for gross
            proceeds of $1,000,000.
 
 **RESULTS
            OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 2007 AS COMPARED TO
            THE THREE
            MONTHS ENDED JUNE 30, 2006**
 
 **Revenues
            and Cost of Sales.**We had no significant revenues for the three months
            ended June 30, 2007 and December 31, 2005 as we are undertaking twin
            Phase III
            clinical trials in order to obtain FDA approval of PreHistinTM as
            an over the
            counter drug. Our net sales were $0, as were our cost of sales and gross
            loss
            for the three months ended June 30, 2007, as compared net sales of $0
            as were
            our cost of sales and gross loss for the three months ended June 30,
            2006.
  28
 
 **Operating
            Expenses.**Our operating expenses for the three months ended June 30,
            2007 were $2,083,919 compared to $1,470,557 for the three months ended
            June 30,
            2006. For both periods, we incurred expenses for two major purposes:
            i) ongoing
            development of our PreHistinTM product
            and
            related product management and ii) general management and fund raising
            efforts.
            For the three months ended June 30, 2007, this amount was represented
            by $13,783
            in depreciation and amortization; $1,149,707 in professional fees; $210,461
            in
            salary and wages; $37,640 in rent expense; $0 in marketing and research,
            $478,865 in stock option expense; and $193,463 in other operating expenses
            and.
            This is compared to the three months ended June 30, 2006, where we had
            $16,762
            in depreciation and amortization; $916,905 in professional fees; $185,302
            in
            salary and wages; $63,076 in rent expense; $25,809 in marketing and research;
            and $133,795 in other operating expenses. Our operating expenses increased
            during the three months ended June 30, 2007 as compared to the three
            months
            ended June 30, 2006 principally as a result of an increase in professional
            fees
            and stock option expense related to the adoption of SFAS No. 123R.
  Interest
            expense and financing costs for the three months ended June 30, 2007
            were
            $3,906,954 compared to $131,795 for the three months ended June 30, 2006.
            The
            increase is because Cornell Capital called their convertible debenture
            which
            resulted in accelerating the amortization of the outstanding debt issuance
            costs
            and debt discounts during the period ended June 30, 2007.
 
 The
            Company recorded other income of $5,427,491 and $0 related to the change
            in fair
            value of the warrant and derivative liabilities for the three months
            ended June
            30, 2007 and 2006, respectively.  The change in the fair value in the
            warrant and accrued derivative liabilities relates to the change in the
            value of
            the detachable warrants and beneficial conversion feature issued in connection
            with the convertible debentures and convertible preferred stock.
  **OUR
            PLAN OF OPERATION FOR THE NEXT TWELVE MONTHS.**
  In
              a
              content of our reorganization strategy we will be evaluating our business
              strategy for the next twelve months which could include moving forward
              with the
              completion of Phase III clinical trials of our planned allergy prevention
              product, PreHistin TM; or pursuing development of PreHistin TM for
              other atopic
              and allergic conditions; or pursuing a national and global marketing
              and
              licensing strategy for PreHistin TM. We anticipate generating revenues
              from
              product sales in the next twelve months. We estimate the cost to complete
              the
              Phase III clinical trials and the submission of an NDA to the FDA for
              marketing
              approval will be significant. We are determining the costs for alternative
              strategies as of the date of this filing. However, we will need to
              raise funds
              to execute studies for the further development of our proposed PreHistinTM
product line, to complete the development of additional products, or
              to pursue
              alternative strategies. We are in the process of raising additional
              funds to
              execute further studies. We could be able to raise through the exercise
              of
              Cornell Capital’s warrants, entering into a partnership agreement or private or
              other equity offerings, or we may attempt to secure loans from lending
              institutions or other sources. There is no guarantee we will be able
              to raise
              additional funds through offerings or other sources. If we are unable
              to raise
              funds, our ability to continue with product development will be
              hindered.
 29
  **Off-balance
            sheet arrangements.**There are no off balance sheet arrangements that
            have or are reasonably likely to have a current or future effect on our
            financial condition, changes in financial condition, revenues or expenses,
            results of operations, liquidity, capital expenditures or capital resources
            that
            are material to investors.
  **Item
            3.****Controls
            and
            Procedures**
 
 As
            required by SEC rules, we have evaluated the effectiveness of the design
            and
            operation of our disclosure controls and procedures at the end of the
            period
            covered by this report. This evaluation was carried out under the supervision
            and with the participation of our management, including our principal
            executive
            officer and principal financial officer. Based on this evaluation, these
            officers have concluded that the design and operation of our disclosure
            controls
            and procedures are effective. There were no changes in our internal control
            over
            financial reporting or in other factors that have materially affected,
            or are
            reasonably likely to materially affect, our internal control over financial
            reporting.
 
 Disclosure
            controls and procedures are our controls and other procedures that are
            designed
            to ensure that information required to be disclosed by us in the reports
            that we
            file or submit under the Exchange Act is recorded, processed, summarized
            and
            reported, within the time periods specified in the SEC’s rules and forms.
            Disclosure controls and procedures include, without limitation, controls
            and
            procedures designed to ensure that information required to be disclosed
            by us in
            the reports that we file under the Exchange Act is accumulated and communicated
            to our management, including principal executive officer and principal
            financial
            officer, as appropriate, to allow timely decisions regarding required
            disclosure.
  **Part
            II.****OTHER
            INFORMATION**
 
 **Item
            1.****Legal
            Proceedings**
  *InnoFood/Modofood:*
              On July 28, 2003, the Company entered into a Stock Exchange Agreement
              ("InnoFood
              Agreement") with InnoFood Inc. ("InnoFood") wherein the Company agreed,
              among
              other things, to provide InnoFood with funding totaling $5,000,000
              in exchange
              for, among other things, 100% interest in InnoFood. The completed purchase
              of
              InnoFood was not to occur until the $5,000,000 funding was delivered.
              Under the
              InnoFood Agreement, the Company was obligated to provide InnoFood with
              the
              funding on or before December 31, 2003. The Company did provide InnoFood
              with
              $2,220,000. The Company has confirmation that $1,850,000 of the funds
              provided
              to InnoFood was sent to Modofood S.P.A., an Italian company ("Modofood").
              InnoFood originally entered into a licensing agreement with Modofood
              to market
              and distribute Modofood's food processing technology. On October 17,
              2003, the
              Company entered into a Letter of Understanding ("LOU") with InnoFood
              to
              restructure the relationship between ourselves and InnoFood. The Company
              believes that InnoFood and certain related individuals may have intentionally
              misled our management regarding certain material matters.
  On
              January 8, 2004, InnoFood sent us a letter attempting to terminate
              the original
              InnoFood Agreement and the October 17, 2003 LOU. InnoFood claimed that
              the
              Company breached both the InnoFood Agreement and the LOU by failing
              to provide
              the funding called for under those agreements. With the letter of termination,
              InnoFood delivered a signed promissory note agreeing to pay back $2,160,000
              (net
              of $60,000 interest InnoFood charged to the Company for non-payments).
              The
              promissory note accrues interest at 10% and is due and payable on or
              before
              January 15, 2009. Though the Company did not accept that note, the
              Company
              believes that this promissory note represents an acknowledgment of
              InnoFood's
              debt to the Company.
  In
              September 2006, the Company filed a complaint entitled Cobalis Corp.
              v.
              InnoFood, Reynato Giordano, James Luce, Robert Dietrich, Randal Lanham,
              in
              Orange County Superior Court, California, Case No. 06CC10355, to attempt
              to
              recapture the funds transferred to InnoFood and acquire any intellectual
              property related to the food preservation process at issue. Cobalis
              has entered
              defaults against Innofood, Renato Giordano and Robert Dietrich. The
              only
              remaining defendants are James Luce and Randall Lanham.
 30
 In
                February 2007, James Luce filed a Cross-Complaint against Cobalis
                and Chaslov
                Radovich, who filed an Answer to the Cross-Complaint. On March 3,
                2007 Randal
                Lanham filed a cross complaint against Cobalis and Chaslov Radovich
                which was
                amended on May 28, 2007. Cobalis filed a Demurrer to the Lanham First
                Amended
                Cross Complaint for which a hearing date was set for August 17, 2007.
                Prior to
                the August 17 hearing on Cobalis' demurrer, the Innofood case has
                been stayed
                with respect to the crossc-complaints filed by Randall Lanham and
                James Luce.
                Accordingly, the hearing on Cobalis' demurrer was taken off calendar,
                subject to
                the stay.
  Subject
                to the stay, the Company intends to vigorously prosecute this matter
                and to
                defend the Lanham and Luce Cross-Complaints, although, as with any
                litigation,
                there is no guarantee of a favorable outcome. The Case Management
                Conference on
                August 20, 2007 was continued to October 22, 2007.
  *Gryphon
              Master Fund, LP.* On November 8, 2004, Gryphon Master Fund, LP, (“Gryphon”)
              filed a lawsuit against the Company in United States District Court,
              Northern
              District of Texas, Dallas Division, Case No. 3:04-CV-2405-L. The lawsuit
              sought
              repayment of a $600,000 convertible note payable, accrued interest
              on the
              convertible note payable within the prescribed period, penalties for
              failing to
              register shares underlying the conversion of the convertible note payable,
              attorneys fees and court costs. In March 2006, the Company entered
              into
              settlement agreement with Gryphon where both parties agreed to dismiss
              any and
              all current and future claims, legal proceedings and litigation upon
              full
              satisfaction of the settlement agreement.
  The
              settlement, which relates to two investments in the Company totaling
              $1.6
              million made by Gryphon in September 2003, includes an agreed judgment
              totaling
              $1.6 million. Of the remaining unconverted instruments, Gryphon is
              also eligible
              to convert its convertible note and convertible preferred stock it
              holds to
              508,334 shares of the Company's common stock. Under the settlement
              agreement,
              full repayment of the $1.6 million was due on or before April 1, 2007.
              The
              Company did not make the payment by April 1, 2007; therefore, the stipulated
              judgment into which the Company entered with Gryphon provides that
              Gryphon has
              the right to enter a judgment of $1.6 million against the Company with
              the court
              upon the Company's default.
 On
                April
                2, 2007, the Company filed a motion to vacate an agreed judgment
                (the “Motion to
                Vacate”) in the U.S. District Court for the Northern District of Texas,
                Dallas
                Division with regard to case #3:04-CV- 2405 between Gryphon Master
                Fund, L.P.
                (“Gryphon”) and the Company. The Company based the Motion to Vacate on several
                grounds including that allegation that Gryphon breached the “no shorting”
provision contained in the settlement agreement. The Company believes,
                and so
                allege in the Motion to Vacate, that despite Gryphon's agreement,
                Gryphon
                engaged in shorting of the Company's stock. Since June 2007, Gryphon
                has
                aggressively been moving forward with judgment collection activities,
                including,
                but not limited to, conducting a debtor's exam, levying the Company's
                bank
                accounts and attaching the Company's assets to the extent such assets
                are not
                already encumbered.
 
 On
                April
                23, 2007, Gryphon sued the Company for breach of contract in the
                same U.S.
                District Court as above, Case #3:07-cv-00701B. This new lawsuit alleges
                that the
                Company breached a settlement agreement with Gryphon. Gryphon is
                also seeking a
                declaratory judgment that it did not breach the same settlement agreement.
                Gryphon's alleged breach of the settlement agreement is the subject
                of the
                Company's Motion to Vacate. In addition to the declaratory relief,
                Gryphon's
                complaint seeks unspecified damages and attorneys' fees.  On April 23,
                2007, Gryphon also filed an opposition to the Company's Motion to
                Vacate
                repeating the same allegations.  A trial date is scheduled for the
                September 2007 docket.
 
 There
                is
                no guarantee that the Company will be successful in vacating the
                judgment or in
                defending the new lawsuit. If the Company is unsuccessful in vacating
                the
                judgment or in defending the subsequent lawsuit, and, if the Company
                is unable
                to subsequently timely resolve the Gryphon matter or raise capital
                to satisfy
                the judgment, the Company's ability to move its business forward
                could be
                adversely affected. On
                August
                6, 2007, the Company filed the Suggestion of Bankruptcy requesting
                for an
                automatic stay in the proceedings.
  31
  *Marinko
                Vekovic:*****On March 9, 2006, Marinko Vekovic, a former
                consultant, filed a complaint against the Comapny alleging a  breach
                of a written consulting agreement, specific performance of common
                stock warrants
                and the “reasonable value of work and labor performed,” seeking damages in
                excess of $700,000, and specific performance of an alleged obligation
                to issue
                600,000 free trading warrants at a $1.75 share price. The lawsuit,
                entitled
                Vekovic vs. Cobalis, is pending in Orange County Superior Court,
                Central
                Justice Center, Case No. 06CC03923.
  On
                April
                18, 2006, the Company filed an answer to the complaint, denying the
                allegations
                by Mr. Vekovic. On the same date, the Company also filed a cross-complaint
                for
                rescission of the consulting agreement, on grounds that Mr. Vekovic
                made
                numerous material misrepresentations intended to fraudulently induce
                the Company
                to enter the consulting agreement and to issue to Vekovic 112,500
                shares of its
                S-8 common stock. Through the Company's cross-complaint, it sought
                to rescind
                the consulting agreement and seek restitution from Mr. Vekovic in
                an amount no
                less than the price for which Mr. Vekovic sold the 112,500 shares
                of its S-8
                common stock, plus all or some portion of the compensation paid to
                Mr. Vekovic,
                given that the Company believes Mr. Vekovic substantially failed
                to perform the
                consulting services which were the subject of the consulting agreement.
                The
                Company also sought to recover attorneys' fees incurred in the defense
                of the
                complaint and the prosecution of its cross-complaint, pursuant to
                the attorneys'
                fee provision in the consulting agreement. On March 5, 2007, the
                Company entered
                into a settlement agreement with Mr. Vekovic with regard to this
                case, whereby
                the Company agreed to register on a future Form S-8 and issue 50,000
                shares to
                Mr. Vekovic in addition to a grant of 25,000 warrants to purchase
                shares of our
                common stock at $1.75 per share, expiring December 31, 2009.  The
                settlement agreements were issued on March 12, 2007 and the shares
                were
                registered on April 11, 2007 and issued subsequently.
 *Cappello
                Capital Corp.* In March 2005, the Company entered into an agreement with
                Cappello Capital Corp. (“Cappello”) for investment banking and related financial
                services. Pursuant to a financing agreement, the Company issued 100,000
                shares
                as an initial retainer. The Company believes that Cappello did not
                perform per
                the agreement, but  no settlement can be
                guaranteed.****
  *Noel
                Marshall.* On March 1, 2007, the Company became aware for the first
                time of the complaint for damages, Case # 07CC03208 filed in
                Superior Court Orange County California, entitled Noel Marshall v. Cobalis
                Corp. Chas Radovich, Radul Radovich, Drsgica Radovich, R.R. Holdings,
                Biogentec,
                Silver Mountain Productions and St. Petka Trust, alleging breach
                of contract,
                fraud, constructive trust, money had and received, and account stated (the
                "Marshall Action"). In the Marshall Action, plaintiff
                is alleging, among other things, that certain misrepresentations were
                made with the intent of inducing plaintiff to purchase shares of
                the Company's common stock.  The Company believes this lawsuit is frivolous
                and without merit. The Company intends to vigorously defend this
                matter. As with any litigation, there is no guarantee of a favorable
                outcome.
In
                August, 2007 a notice of stay was filed, and subsequently the court
                notified all
                parties that the action was stayed as to Cobalis only.
  As
                of the
                date of this filing, all pending cases are now stayed because of
                Cornell
                Capital's involuntary bankruptcy petition against the Company.
 In
                  the
                  ordinary course of business, the Company is generally subject to
                  claims,
                  complaints, and legal actions. At March 31, 2007, management believes
                  that the
                  Company is not a party to any action which would have a material
                  impact on its
                  financial condition, operations, or cash flows.
 32
  **Item
            2. Unregistered Sales of Equity Securities and Use of
            Proceeds**
 
 During
            the three months ended June 30, 2007, we issued 1,255,396 shares of our
            unregistered common stock for services rendered.  These transactions
            were not registered under the Act in reliance on the exemption from registration
            in Section 4(2) of the Act, as transactions not involving any public
            offering.
            The securities were issued to our employees, officers, directors, creditors,
            consultants, advisors, and existing shareholders, who by virtue of those
            relationships, we believe were familiar with our business, and were able
            to
            assess the risks and merits of the investment.
  **Item
            3.** **Defaults Upon Senior Securities**
 
 Not
            applicable
  **Item
            4.** **Submission of Matters to a Vote of Security
            Holders**
 
 Not
            applicable
  **Item
            5.** **Other Information**
  Not
            applicable
  **Item
              6.****Exhibits**
 **Regulation**
                        **S-B
                          Number**
                      
                      **Exhibit**31.1
                      
                      Rule
                          13a-14(a)/15d-14(a) Certification of Chief Executive Officer
                          of the
                          Company31.2
                      
                      Rule
                          13a-14(a)/15d-14(a) Certification of Chief Financial Officer
                          of the
                          Company32.1
                      
                      Section
                          906 Certification by Chief Executive Officer32.2
                      
                      Section
                          906 Certification by Chief Financial
                          Officer
 33
  **SIGNATURES**
 
 In
            accordance with the requirements of the Exchange Act, the registrant
            caused this
            report to be signed on its behalf by the undersigned, thereunto duly
            authorized.
   **COBALIS
                      CORP.**Date:
                      August 20,
                      2007
                  By:
                  /s/ Gerald
                    YakatanName:
                    Gerald YakatanTitle:
Principal
                    Executive Officer, Director
   Date:
                      August 20,
                      2007
                  By:
                  /s/ Chaslav
                    RadovichName:
                    Chaslav RadovichTitle:
President,
                    Secretary
   Date:
                      August 20,
                      2007
                  By:
                  /s/ Kevin
                    PickardName:
                    Kevin PickardTitle:
                    Kevin Pickard
                    Chief
                      Financial Officer, Treasurer
   34