**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 September 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 December 19, 2007 -
46,027,014shares of common stock.
  Applicable
          only to issuers involved in bankruptcy proceedings during the preceding
          five
          years. Check
          whether the registrant filed all documents and reports required to be filed
          by
          Section 12, 13, or 15(d) of the Exchange Act after the distribution of
          securities under a plan confirmed by a court. Yes [
          X]   No [   ]
  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]
  
 **COBALIS
          CORP.**
 **Index**
  **Page****PART
                    I.**
                **FINANCIAL
                    INFORMATION**
                1Item
                    1.
                Financial
                    Statements
                1Consolidated
                    Balance Sheet as of September 30, 2007 (unaudited)
                1Consolidated
                    Statements of Operations for the three and six months
                    ended September 30, 2007 and 2006 (unaudited)
                2Consolidated
                    Statements of Stockholders’ Deficit for the six months
                    ended September 30, 2007 (unaudited)
                3-6Consolidated
                    Statements of Cash Flows for the three and six months
                    ended September 30, 2007 and 2006 (unaudited)
                7Notes
                    to Consolidated Financial Statements (unaudited)
                8Item
                    2.
                Management's
                    Discussion and Analysis or Plan of Operations
                23Item
                    3.
                Controls
                    and Procedures
                32**PART
                    II.**
                **OTHER
                    INFORMATION**
                32Item
                    1.
                Legal
                    Proceedings
                32Item
                    2.
                Unregistered
                    Sales of Equity Securities and Use of Proceeds
                35Item
                    3.
                Defaults
                    Upon Senior Securities
                35Item
                    4.
                Submission
                    of Matters to a Vote of Security Holders
                35Item
                    5.
                Other
                    Information
                35Item
                    6.
                Exhibits
                36**SIGNATURES**
                37







**PART
      I.  FINANCIAL INFORMATION**





**Item
      1.  Financial Statements**




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


**September
                  30,****2007**(unaudited)**ASSETS**CURRENT
                  ASSETSCash
                  and cash
                  equivalents
              
              $
              124Prepaid
                  expenses and other current
                  assets
              
              
              12,546TOTAL
                  CURRENT
                  ASSETS
              
              
              12,670PROPERTY
                  AND EQUIPMENT, net of
                  accumulated depreciation of $113,392
              
              
              1,931WEBSITE
                  DEVELOPMENT COSTS, net of
                  accumulated amortization of $34,075
              
              
              532PATENTS,
                  net of accumulated
                  amortization of $360,876
              
              
              592,563TOTAL
                  ASSETS
              
              $
              607,696**LIABILITIES
                  AND STOCKHOLDERS'
                  DEFICIT**CURRENT
                  LIABILITIESAccounts
                  payable
              
              $
              424,084Accrued
                  expenses
              
              
              830,293Accrued
                  clinical trial
                  costs
              
              
              591,229Accrued
                  legal
                  settlements
              
              
              1,710,057Accrued
                  salaries
              
              
              489,412Warrant
                  liability
              
              
              670,398Accrued
                  derivative
                  liabililty
              
              
              3,999,798Promissory
                  notes
              
              
              46,813Notes
                  payable
              
              
              150,000Senior
                  Debenture, net of discount
                  of $4,979
              
              
              245,021Convertible
                  debenture, net of
                  discount of $40,298
              
              
              2,882,702TOTAL
                  CURRENT
                  LIABILITIES
              
              
              12,039,807COMMITMENTS
                  AND
                  CONTINGENCIES
              
              
              -STOCKHOLDERS'
                  DEFICITCommon
                  stock; $0.001 par value;
                  100,000,000 sharesauthorized;
                  45,927,014 shares
                  issued and outstanding
              
              
              45,927Additional
                  paid-in
                  capital
              
              
              29,810,710Prepaid
                  expenses
              
              
              (2,582
              )Deficit
                  accumulated during the
                  development stage
              
              
              (41,286,166
              )TOTAL
                  STOCKHOLDERS'
                  DEFICIT
              
              
              (11,432,111
              )TOTAL
                  LIABILITIES AND
                  STOCKHOLDERS' DEFICIT
              
              $
              607,696


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




1




**Cobalis
      Corp. and
      Subsidiary**


**(A
      Development Stage
      Company)**


**Consolidated
      Statements of
      Operations**






**Cumulative
                  from****November
                    21,****Three
                  Months
                  Ended**
              
              
              **Six
                  Months
                  Ended**
              
              
              **2000
                  (inception)****September
                  30,**
              
              
              **September
                  30,**
              
              
              **September
                  30,**
              
              
              **September
                  30,**
              
              
              **to
                  September 30,****2007**
              
              
              **2006**
              
              
              **2007**
              
              
              **2006**
              
              
              **2007**(unaudited)
              
              
              (unaudited)
              
              
              (unaudited)
              
              
              (unaudited)
              
              
              (unaudited)NET
                  SALES
              
              $
              -
              
              
              $
              -
              
              
              $
              -
              
              
              $
              -
              
              
              
              5,589COST
                  OF
                  SALES
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              31,342GROSS
                  LOSS
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (25,753
              )OPERATING
                  EXPENSES:Professional
                  fees
              
              
              25,272
              
              
              
              650,769
              
              
              
              1,174,979
              
              
              
              1,567,674
              
              
              
              13,135,838Salary
                  and
                  wages
              
              
              274,646
              
              
              
              918,330
              
              
              
              485,107
              
              
              
              1,103,632
              
              
              
              5,459,205Rent
                  expense
              
              
              42,738
              
              
              
              37,203
              
              
              
              80,378
              
              
              
              100,279
              
              
              
              822,622Marketing
                  and
                  research
              
              
              -
              
              
              
              1,273,555
              
              
              
              -
              
              
              
              1,299,364
              
              
              
              5,553,516Depreciation
                  and
                  amortization
              
              
              13,784
              
              
              
              14,515
              
              
              
              27,567
              
              
              
              31,277
              
              
              
              616,972Impairment
                  expense
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              
              
              
              
              2,331,522Stock
                  option
                  expense
              
              
              478,925
              
              
              
              461,684
              
              
              
              957,790
              
              
              
              590,592
              
              
              
              2,525,369Other
                  operating
                  expenses
              
              
              70,578
              
              
              
              290,106
              
              
              
              264,041
              
              
              
              423,901
              
              
              
              2,582,227Legal
                  settlements
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              919,718TOTAL
                  OPERATING
                  EXPENSES
              
              
              905,943
              
              
              
              3,646,162
              
              
              
              2,989,862
              
              
              
              5,116,719
              
              
              
              33,946,989LOSS
                  FROM
                  OPERATIONS
              
              
              (905,943
              )
              
              
              (3,646,162
              )
              
              
              (2,989,862
              )
              
              
              (5,116,719
              )
              
              
              (33,972,742
              )OTHER
                  EXPENSEInterest
                  expense and financing
                  costs
              
              
              (127,156
              )
              
              
              (100,340
              )
              
              
              (4,034,110
              )
              
              
              (232,135
              )
              
              
              (9,303,038
              )Convertible
                  debenture financing
                  cost
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (3,136,214
              )Loss
                  on conversion of
                  debt
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (88,839
              )Change
                  in fair value of warrant
                  and accrued derivative liabilities
              
              
              829,697
              
              
              
              -
              
              
              
              6,257,188
              
              
              
              -
              
              
              
              6,099,667TOTAL
                  OTHER
                  EXPENSE
              
              
              702,541
              
              
              
              (100,340
              )
              
              
              2,223,078
              
              
              
              (232,135
              )
              
              
              (6,428,424
              )NET
                  LOSS
              
              
              (203,402
              )
              
              
              (3,746,502
              )
              
              
              (766,784
              )
              
              
              (5,348,854
              )
              
              
              (40,401,166
              )PREFERRED
                  STOCK
                  DIVIDENDS
              
              
              -
              
              
              
              9,375
              
              
              
              -
              
              
              
              28,125
              
              
              
              1,110,000NET
                  LOSS ATTRIBUTED TO COMMON
                  STOCKHOLDERS
              
              $
              (203,402
              )
              
              $
              (3,755,877
              )
              
              $
              (766,784
              )
              
              $
              (5,376,979
              )
              
              
              (41,511,166
              )NET
                  LOSS PER
                  SHARE:BASIC
                  AND
                  DILUTED
              
              $
              (0.00
              )
              
              $
              (0.12
              )
              
              $
              (0.02
              )
              
              $
              (0.18
              )
              
              
              (1.75
              )WEIGHTED
                  AVERAGE SHARES
                  OUTSTANDING:BASIC
                  AND
                  DILUTED
              
              
              43,232,722
              
              
              
              31,551,496
              
              
              
              41,105,601
              
              
              
              29,663,903
              
              
              
              23,674,421
   **The
        accompanying notes are an integral part of these unaudited consolidated
        financial statements.**




2


**Cobalis
        Corp. and
        Subsidiary**
 **(A
        Development Stage Company)** **Consolidated
          Statements of Stockholders'
          Deficit** **For
            the Period From November 21, 2000
            (inception) to September 30, 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 exchange for 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
              
              
              
              -
              
              
              
              -
              
              
              
              6,000
  **(Continued)**
  3
  Issuance
                  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 debt June 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
  (Continued)
  4
 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 costs March 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
                  services September 2005 @ $0.50
              
              
              30,000
              
              
              
              30
              
              
              
              14,970
              
              
              
              
              
              
              
              
              
              
              
              15,000Issuance
                  of common stock for
                  services September 2005 @ $0.42
              
              
              50,000
              
              
              
              50
              
              
              
              20,950
              
              
              
              
              
              
              
              
              
              
              
              21,000Issuance
                  of common stock for
                  services September 2005 @ $0.50
              
              
              75,000
              
              
              
              75
              
              
              
              37,425
              
              
              
              
              
              
              
              
              
              
              
              37,500Issuance
                  of common stock for
                  services October 2005 @ $0.53
              
              
              220,000
              
              
              
              220
              
              
              
              115,280
              
              
              
              (58,750
              )
              
              
              
              
              
              
              56,750Issuance
                  of common stock for
                  prepaid interest October 2005 @ $0.58
              
              
              125,000
              
              
              
              125
              
              
              
              72,375
              
              
              
              (72,500
              )
              
              
              
              
              
              
              -Issuance
                  of common stock for
                  conversion of debt October 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 notes payable andaccrued
                  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 note payable andaccrued
                  interest  April
                  2006
              
              
              27,200
              
              
              
              27
              
              
              
              51,109
              
              
              
              
              
              
              
              
              
              
              
              51,136Issuance
                  of common stock for
                  services April 2006 @ $1.46
              
              
              115,000
              
              
              
              115
              
              
              
              167,835
              
              
              
              
              
              
              
              
              
              
              
              167,950
 (Continued)
 5
  Issuance
                  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 accounts payableMay
                  2006 @
                  $1.28
              
              
              111,416
              
              
              
              112
              
              
              
              142,501
              
              
              
              
              
              
              
              
              
              
              
              142,613Issuance
                of common stock for conversion of preferred stockJuly
                  2006 @
                  $2.12
              
              
              208,333
              
              
              
              208
              
              
              
              442,292
              
              
              
              
              
              
              
              
              
              
              
              442,500Issuance
                of common stock for conversion of related party debtJuly
                  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 convertible note debtJuly
                  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 convertible debentureMarch
                  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 convertible debenture,April
                  2007 @
                  $0.68
              
              
              767,319
              
              
              
              768
              
              
              
              524,232
              
              
              
              
              
              
              
              
              
              
              
              525,000Issuance
                of common stock for conversion of accounts payable,April
                  2007 @
                  $0.98
              
              
              343,184
              
              
              
              343
              
              
              
              334,077
              
              
              
              
              
              
              
              
              
              
              
              334,420Issuance
                of common stock for conversion of note payable of $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
              
              
              
              
              
              
              
              
              
              
              
              267,751Issuance
                of common stock for conversion of convertible debenture,July
                  2007 @
                  $0.11
              
              
              1,524,664
              
              
              
              1,525
              
              
              
              168,475
              
              
              
              
              
              
              
              
              
              
              
              170,000Issuance
                of common stock for conversion of convertible debenture,July
                  2007 @
                  $0.11
              
              
              1,748,879
              
              
              
              1,749
              
              
              
              193,251
              
              
              
              
              
              
              
              
              
              
              
              195,000Issuance
                  of common stock for
                  services July 2007 @ $0.14
              
              
              250,000
              
              
              
              250
              
              
              
              34,750
              
              
              
              
              
              
              
              
              
              
              
              35,000Issuance
                of common stock for conversion of convertible debenture,September
                  2007 @
                  $0.05
              
              
              2,113,208
              
              
              
              2,113
              
              
              
              109,887
              
              
              
              
              
              
              
              
              
              
              
              112,000Fair
                  value of vested stock options
                  issued to employees
              
              
              
              
              
              
              
              
              
              
              957,790
              
              
              
              
              
              
              
              
              
              
              
              957,790Amortization
                  of prepaid
                  expenses
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              18,175
              
              
              
              
              
              
              
              18,175Net
                  loss
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              $
              (766,784
              )
              
              
              (766,784
              )**Balance
                  at September
                  30,2007  - unaudited**
              
              ****
              **45,927,014**
              
              
              ****
              **45,927**
              
              
              ****
              **29,810,710**
              
              
              ****
              **(2,582**
              **)**
              
              ****
              **(41,286,166**
              **)**
              
              ****
              **(11,432,111**
              **)**


**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****November
                    21,****Six
                  Months
                  ended**
              
              
              **2000
                  (inception)****September
                  30,**
              
              
              **September
                  30,**
              
              
              **to
                  September 30,****2007**
              
              
              **2006**
              
              
              **2007**(unaudited)
              
              
              (unaudited)CASH
                  FLOWS FROM OPERATING
                  ACTIVITIES:Net
                  loss
              
              $
              (766,784
              )
              
              $
              (5,348,854
              )
              
              $
              (40,401,166
              )Adjustment
                  to reconcile net loss to net cashused
                  in operating
                  activities:Depreciation
                  and amortization
                  expense
              
              
              27,567
              
              
              
              31,277
              
              
              
              616,972Common
                  stock issued for
                  services
              
              
              795,936
              
              
              
              291,190
              
              
              
              7,553,259Common
                  stock issued for
                  penalty
              
              
              112,000
              
              
              
              -
              
              
              
              804,500Common
                  stock issued for financing
                  costs
              
              
              -
              
              
              
              -
              
              
              
              115,743Change
                  in value of warrant and
                  accrued derivative liabilities
              
              
              (6,257,188
              )
              
              
              -
              
              
              
              (6,099,667
              )Amortization
                  of debt issue
                  costs
              
              
              368,878
              
              
              
              51,101
              
              
              
              526,572Exercise
                  of stock options for
                  services
              
              
              -
              
              
              
              -
              
              
              
              26,960Amortization
                  of discounts on
                  notes
              
              
              3,364,770
              
              
              
              -
              
              
              
              4,633,918Issuance
                  of stock options/warrants
                  for services/debt extension
              
              
              -
              
              
              
              719,467
              
              
              
              3,639,296Capital
                  contribution - bonus
                  (related party)
              
              
              -
              
              
              
              -
              
              
              
              50,000Amortization
                  of prepaid
                  expenses
              
              
              18,175
              
              
              
              213,340
              
              
              
              564,918Amortization
                  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
              
              
              957,790
              
              
              
              590,592
              
              
              
              2,525,369Non-cash
                  financing
                  costs
              
              
              -
              
              
              
              -
              
              
              
              3,136,214Changes
                  in assets and
                  liabilities:
              
              
              
              
              
              
              
              
              
              
              -Prepaid
                  expenses and other
                  assets
              
              
              12,039
              
              
              
              (28,311
              )
              
              
              -Inventory
              
              
              -
              
              
              
              -
              
              
              
              6,250Deposits
              
              
              -
              
              
              
              -
              
              
              
              27,454Accounts
                  payable
              
              
              146,138
              
              
              
              139,969
              
              
              
              1,309,507Accrued
                  expenses
              
              
              51,365
              
              
              
              137,580
              
              
              
              1,811,401Accrued
                  clinical trial
                  costs
              
              
              (653,502
              )
              
              
              1,004,032
              
              
              
              591,229Accrued
                  legal
                  settlement
              
              
              110,057
              
              
              
              -
              
              
              
              1,710,057Accrued
                  salaries
              
              
              223,620
              
              
              
              830,596
              
              
              
              223,297Amounts
                  due to related
                  parties
              
              
              -
              
              
              
              215,574
              
              
              
              2,043,481Net
                  cash used in operating
                  activities
              
              
              (1,489,139
              )
              
              
              (1,152,447
              )
              
              
              (11,650,160
              )CASH
                  FLOWS FROM INVESTING
                  ACTIVITIES:Purchase
                  of property and
                  equipment
              
              
              -
              
              
              
              -
              
              
              
              (89,272
              )Increase
                  in patent
                  costs
              
              
              -
              
              
              
              (48,124
              )
              
              
              (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
              
              
              -
              
              
              
              (48,124
              )
              
              
              (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
              
              
              -
              
              
              
              550,000
              
              
              
              2,015,000Proceeds
                  from sale of common
                  stock
              
              
              -
              
              
              
              200,000
              
              
              
              1,606,500Payment
                  of equity offering
                  costs
              
              
              -
              
              
              
              -
              
              
              
              (57,500
              )Proceeds
                  from sale of preferred
                  stock
              
              
              -
              
              
              
              -
              
              
              
              885,000Proceeds
                  from convertible
                  debenture
              
              
              100,000
              
              
              
              -
              
              
              
              4,650,000Proceeds
                  from exercise of
                  warrants
              
              
              1,000,000
              
              
              
              -
              
              
              
              1,000,000Capital
                  contribution
              
              
              -
              
              
              
              -
              
              
              
              571,668Payment
                  of debt issue
                  costs
              
              
              -
              
              
              
              -
              
              
              
              (498,500
              )Payments
                  on advances from
                  stockholders
              
              
              -
              
              
              
              (10,000
              )
              
              
              (60,000
              )Payments
                  on notes
                  payable
              
              
              -
              
              
              
              -
              
              
              
              (350,000
              )Payments
                  on advances - related
                  party
              
              
              -
              
              
              
              
              
              
              
              (402,129
              )Net
                  cash provided by (used in)
                  financing activities
              
              
              1,100,000
              
              
              
              740,000
              
              
              
              14,090,488NET
                  INCREASE (DECREASE) IN CASH
                  ANDCASH
                  EQUIVALENTS
              
              
              (389,139
              )
              
              
              (460,571
              )
              
              
              124CASH
                  AND CASH EQUIVALENTS,
                  Beginning of period
              
              
              389,263
              
              
              
              526,691
              
              
              
              -CASH
                  AND CASH EQUIVALENTS, End of
                  period
              
              $
              124
              
              
              $
              66,120
              
              
              $
              124SUPPLEMENTAL
                  DISCLOSURES OF CASH
                  FLOW INFORMATION:Interest
                  paid
              
              $
              -
              
              
              $
              -
              
              
              $
              71,617Income
                  taxes
                  paid
              
              $
              -
              
              
              $
              -
              
              
              $
              -SUPPLEMENTAL
                  DISCLOSURE OF
                  NON-CASH INVESTING ANDFINANCING
                  ACTIVITIES:Common
                  shares issued for
                  conversion of debt
              
              $
              1,602,000
              
              
              $
              5,396,554
              
              
              $
              7,183,352Common
                  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 AND SIX MONTHS ENDED SEPTEMBER 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 six months ended
      September, 30, 2007 are not necessarily indicative of the results to be expected
      for the full year ending March 31, 2008.





Going
      Concern and 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 $766,784 for the six months ended September, 30,
      2007, and as of September, 30, 2007, the Company had a working capital deficit
      of $12,027,137 and a stockholder deficit of $11,432,111,. In addition, as of
      September, 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.




8


**COBALIS
        CORP. AND SUBSIDIARY**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
        THE THREE AND SIX MONTHS ENDED SEPTEMBER 30, 2007**
 **(UNAUDITED)**


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
      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.





On
      October 12, 2007, the Company filed its petition with the Bankruptcy Court
      for
      the matter to proceed as a Chapter 11 proceeding, which means that instead
      of
      liquidation the Company would be seeking approval from the Bankruptcy Court
      to
      effectuate a reorganization of the Company. If accepted, this would allow the
      Company to continue operating under supervision of the Bankruptcy Court. There
      is no guarantee that the Bankruptcy Court will allow the Company to proceed
      under Chapter 11 and not order liquidation. Moreover, since the right to proceed
      under Chapter 11 is subject to many contingencies and required approvals, there
      is no guarantee that even if the Bankruptcy Court allows the Company to proceed
      under Chapter 11 that the Company’s plan of reorganization will be approved. In
      the event the Company’s plan of reorganization is not approved, the Company may
      still face liquidation and dissolution.





The
      Company’s Board of Directors approved the Chapter 11 request as it hopes that
      proceeding under Chapter 11 will allow the Company to attempt to raise operating
      capital through either equity or debt financing. Such financing will be crucial
      in allowing the Company 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 liquidate and cease
      operations.




9


**COBALIS
        CORP. AND SUBSIDIARY**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
        THE THREE AND SIX MONTHS ENDED SEPTEMBER 30, 2007**
 **(UNAUDITED)**


The
      Bankruptcy Court has jurisdiction over the Company’s business and affairs as a
      result of this Chapter 11 election.  On November 19, 2007, the Court
      ordered the conversion from a Chapter 7 case to a Chapter 11 case..





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.




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 thesix
      months endedSeptember,
      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 thesixmonths endedSeptember, 30, 2007and 2006 was $26,466 and $31,277,
      respectively. Projected
      amortization
      expense approximates $53,000, $53,000, $53,000, $53,000 and $53,000,
      respectively, for each of the five years ended March 31, 2012. The
      weighted-average life of the remaining patents isapproximately 11.5
      years.




10


**COBALIS
        CORP. AND SUBSIDIARY**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
        THE THREE AND SIX MONTHS ENDED SEPTEMBER 30, 2007**
 **(UNAUDITED)**


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.





As
      a
      result of adopting SFAS No. 123R, the Company recognized $957,790 and
      $590,592 in share-based compensation expense for the six months ended September,
      30, 2007 and 2006.  The impact of this share-based compensation
      expense on the Company’s basic and diluted earnings per share was $0.02 and
      $0.02 per share for the six months ended September, 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 September, 30, 2007
      and 2006, the Company has approximately 16,263,780 and 11,192,600 common stock
      equivalents, respectively.  In addition, as of September, 30,
      2007, 40,763,889
      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 after November 15, 2007. Management has not
      determined the effect, if any, the adoption of this statement will have on
      the
      financial statements.




11


**COBALIS
        CORP. AND SUBSIDIARY**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
        THE THREE AND SIX MONTHS ENDED SEPTEMBER 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.




In
      December 2007, the FASB issued SFAS
      No. 160, “Noncontrolling Interests in Consolidated Financial Statements”. This
      Statement amends ARB 51 to establish accounting and reporting standards for
      the
      noncontrolling (minority) interest in a subsidiary and for the deconsolidation
      of a subsidiary. It clarifies that a noncontrolling interest in a subsidiary
      is
      an ownership interest in the consolidated entity that should be reported as
      equity in the consolidated financial statements. SFAS No. 160 is effective
      for
      the Company’s fiscal year beginning October 1, 2009. Management is currently
      evaluating the effect of this pronouncement on financial
      statements.





In
      December 2007, the FASB issued SFAS
      No. 141(R), “Business Combinations”. This Statement replaces SFAS No. 141,
      Business Combinations. This Statement retains the fundamental requirements
      in
      Statement 141 that the acquisition method of accounting (which Statement 141
      called the purchase method) be used for all business combinations and for an
      acquirer to be identified for each business combination. This Statement also
      establishes principles and requirements for how the acquirer: a) recognizes
      and
      measures in its financial statements the identifiable assets acquired, the
      liabilities assumed, and any noncontrolling interest in the acquiree; b)
      recognizes and measures the goodwill acquired in the business combination or
      a
      gain from a bargain purchase and c) determines what information to disclose
      to
      enable users of the financial statements to evaluate the nature and financial
      effects of the business combination. SFAS No. 141(R) will apply prospectively
      to
      business combinations for which the acquisition date is on or after Company’s
      fiscal year beginning October 1, 2009. While the Company has not yet evaluated
      this statement for the impact, if any, that SFAS No. 141(R) will have on its
      consolidated financial statements, the Company will be required to expense
      costs
      related to any acquisitions after September 30, 2009.





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.




12


**COBALIS
        CORP. AND SUBSIDIARY**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
        THE THREE AND SIX MONTHS ENDED SEPTEMBER 30, 2007**
 **(UNAUDITED)**


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.




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 atSeptember, 30,
      2007consisted of the
      following:




Furniture
                and
                fixtures
            
            $
            73,203Office
                equipment
            
            
            42,120115,323Less
                accumulated depreciation and
                amortization
            
            
            (113,392
            )$
            1,931





Depreciation
      expense for the six months
      ended September, 30, 2007 and 2006 was $748 and $3,992,
      respectively.




13


**COBALIS
        CORP. AND SUBSIDIARY**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
        THE THREE AND SIX MONTHS ENDED SEPTEMBER 30, 2007**
 **(UNAUDITED)**


**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.During the six months
      ended September,
      30, 2007 the Company issued 300,000 shares of its common stock for the
      conversion of this $600,000 convertible note payable.





As
      ofSeptember,
      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
      interestof $110,057 on the
      unpaid balance per the
      terms of the settlement agreement.




**NOTE
      4 - 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 on December 27,
      2005.During
      the three months ended March 31,
      2006 and June 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.AtSeptember,
      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 pershares.  In
      January2007, the Company
      repaid $150,000 of this note leaving a balance due at September, 30, 2007 of
      $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 at September, 30, 2007.




14


**COBALIS
        CORP. AND SUBSIDIARY**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
        THE THREE AND SIX MONTHS ENDED SEPTEMBER 30, 2007**
 **(UNAUDITED)**


**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 six months ended
      September, 30, 2007 the Company issued 300,000 shares of its common stock for
      the conversion of this $600,000 convertible note payable.





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 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.  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:




15


**COBALIS
        CORP. AND SUBSIDIARY**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
        THE THREE AND SIX MONTHS ENDED SEPTEMBER 30, 2007**
 **(UNAUDITED)**


**Funding
                Date**
            
            **Amount**December
                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.





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
                Deb****t**
            ****
            ****
            **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





At
      September, 30, 2007, the fair value
      of the warrant and derivative liabilities were $670,398 and $3,999,798,
      respectively.  During the six months ended September, 30, 2007, the
      Company recorded income of $6,257,188 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.OnJuly
      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 thesixmonths endedSeptember, 30, 2007which resulted in a charge to earnings
      of $3,692,316.





On
      July
      12, 2007, the Company issued 1,524,664 shares to Cornell pursuant to the
      conversion of convertible debentures in the amount of $170,000.  On
      July 19, 2007, the Company issued 1,748,879 shares to Cornell Capital pursuant
      to the conversion of convertible debentures in the amount of $195,000. On
      September 27, 2007, the Company issued 2,113,208 shares to Cornell Capital
      pursuant to the conversion of convertible debentures in the amount of
      $112,000.




16


**COBALIS
        CORP. AND SUBSIDIARY**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
        THE THREE AND SIX MONTHS ENDED SEPTEMBER 30, 2007**
 **(UNAUDITED)**


Mark
      Gostine





OnJuly
      27, 2007, the Company issued
      aconvertible debenture
      to Mark
      Gostinein the amount of
      $100,000
      that accrues interest at12%
      per annum and is due onJuly 27, 2008.
      In addition, the Companywill issue to Mark Gostine350,000
      shares of the Company's common
      stockas interest and
      fees.





The
      fair value of theseshares is $49,000 and
      has beenrecorded as a discount
      on
      theconvertible
      debentureand is being
      amortized over the term of the debenture. During the six month ended September,
      30, 2007, the Company amortized $8,072of the discount to interest expense. At
      September, 30, 2007, the balance of the debenture is shown as $59,702,
      net of unamortized discount of
      $40,298in the consolidated balance
      sheet.





**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.This
      senior debenture has currently not
      been repaid.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
      six
      month ended September, 30, 2007, the Company amortized $32,631 of the discount
      to interest expense. At September, 30, 2007, the balance of the debenture is
      shown as $245,021, net of unamortized discount of $4,979 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.





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.




17


**COBALIS
        CORP. AND SUBSIDIARY**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
        THE THREE AND SIX MONTHS ENDED SEPTEMBER 30, 2007**
 **(UNAUDITED)**


Common
      Stock





The
      Company has authorized 100,000,000
      shares of $0.001 par value common stock.





On
      July 12, 2007, theCompany
      issued 1,524,664 shares to Cornell Capital pursuant to the conversion of
      convertible debentures in the amount of $170,000.  On July 19, 2007
      the Company issued 1,748,879 shares to Cornell Capital 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.  On September 27, 2007, the Company issued 2,113,208 shares to
      Cornell Capital pursuant to the conversion of convertible debentures in the
      amount of $112,000.





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 endedSeptember, 30,
      2007are summarized as
      follows:





**Options
                Outstanding**
            ****
            ****
            **Weighted
                Average
                Exercise**
            ****
            ****
            **Aggregate**
              **Intrinsic**
              **Value**Outstanding,March
                31,
                2007
            
            
            6,141,667
            
            
            $
            1.58
            
            
            $
            -GrantedForfeited/Canceled
                /
                Expired
            
            
            (1,500,000
            )
            
            $
            1.80Outstanding,
                September, 30,
                2007
            
            
            4,641,667
            
            
            $
            1.51
            
            
            $
            -





The
      weighted average remaining
      contractual life of options outstanding is 8.52 years at September, 30,
      2007.  The number of vested options at September, 30, 2007 is
      3,453,922.  Theexercise prices for the options
      outstanding at September, 30, 2007 are as follows:





**Number
                of
                Options**
            ****
            **Exercise
                Price**175,000
            
            $1.002,800,000
            
            $1.401,666,667
            
            $1.754,641,667





The
      total expense for the options vested
      during thesix monthsendedSeptember
      30, 2007 was $957,790.  The
      value of the unvested
      options was $2,019,004as ofSeptember 30,
      2007.




18


**COBALIS
        CORP. AND SUBSIDIARY**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
        THE THREE AND SIX MONTHS ENDED SEPTEMBER 30, 2007**
 **(UNAUDITED)**


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,
                September, 30, 2007
            
            
            11,622,113
            
            
            $
            1.17
            
            
            $
            10,500




The
      weighted average remaining
      contractual life of warrants outstanding is 3.19 years at September, 30,
      2007.  The number of vested warrants at September, 30, 2007 is
      11,622,113.  The exercise prices for the warrants outstanding at
      September, 30, 2007 are 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





**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.




19


**COBALIS
        CORP. AND SUBSIDIARY**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
        THE THREE AND SIX MONTHS ENDED SEPTEMBER 30, 2007**
 **(UNAUDITED)**


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.




20


**COBALIS
        CORP. AND SUBSIDIARY**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
        THE THREE AND SIX MONTHS ENDED SEPTEMBER 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.




21


**COBALIS
        CORP. AND SUBSIDIARY**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **FOR
        THE THREE AND SIX MONTHS ENDED SEPTEMBER 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**




On
      October 12, 2007, the Company filed its petition with the Bankruptcy Court
      for
      the matter to proceed as a Chapter 11 proceeding, which means that instead
      of
      liquidation the Company would be seeking approval from the Bankruptcy Court
      to
      effectuate a reorganization of the Company. If accepted, this would allow the
      Company to continue operating under supervision of the Bankruptcy
      Court.





The
      Company’s Board of Directors approved the Chapter 11 request as it hopes that
      proceeding under Chapter 11 will allow the Company to attempt to raise operating
      capital through either equity or debt financing. Such financing will be crucial
      in allowing the Company 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 liquidate and cease
      operations.





The
      Bankruptcy Court has jurisdiction over the Company’s business and affairs as a
      result of this Chapter 11 election.  On November 19, 2007, the Court
      ordered the conversion from a Chapter 7 case to a Chapter 11 case.




22





**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.




23





**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.





**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 $766,784for the six months ended September, 30, 2007 and as of
      September, 30, 2007; we had a working capital deficit of $12,027,137 and a
      stockholder deficit of $11,432,111. In addition, as of September, 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.




24





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.





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.





On
      October 12, 2007, we filed our petition with the Bankruptcy Court for the matter
      to proceed as a Chapter 11 proceeding, which means that instead of our
      liquidation would be seeking approval from the Bankruptcy Court to effectuate
      our reorganization. If accepted, this would allow us to continue operating
      under
      supervision of the Bankruptcy Court. There is no guarantee that the Bankruptcy
      Court will allow us to proceed under Chapter 11 and not order liquidation.
      Moreover, since the right to proceed under Chapter 11 is subject to many
      contingencies and required approvals, there is no guarantee that even if the
      Bankruptcy Court allows us to proceed under Chapter 11 that our plan of
      reorganization will be approved. In the event our plan of reorganization is
      not
      approved, we may still face liquidation and dissolution.





Our
      Board
      of Directors approved the Chapter 11 request as we hope that proceeding under
      Chapter 11 will allow us to attempt to raise operating capital through either
      equity or debt financing. Such financing will be crucial in allowing us to
      reorganize our 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
      liquidate and cease operations.




25





The
      Bankruptcy Court has jurisdiction over our business and affairs as a result
      of
      this Chapter 11 election.  On November 19, 2007, the Court ordered the
      conversion from a Chapter 7 case to a Chapter 11 case..





**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.




**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.




26





**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 $124 and prepaid expenses and other current assets
      of $12,546 at September, 30, 2007.  Our total current assets at
      September, 30, 2007 were $12,670. We also had the following long term assets:
      $1,931 in property and equipment, net; $532 in net website development costs;
      net, and $592,563 in patents; net.  Our total assets as of September,
      30, 2007 were $607,696.





Our
      total
      liabilities were $12,039,807 at September, 30, 2007, which was represented
      by
      accounts payable of $424,084; accrued expenses of $830,293; accrued clinical
      trials costs of $591,229; accrued legal settlements of $1,710,057; accrued
      salaries of $489,412; warrant liability of $670,398; accrued derivative
      liability of $3,999,798; promissory notes of $46,813; notes payable of $150,000,
      senior debenture of $245,021 and convertible debentures of $2,882,702. Our
      liabilities exceeded our assets by $11,432,111.





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 September, 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.




27




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 and $48,12 for the six months ended
      September, 30, 2007 and 2006, respectively.





Our
      net
      cash provided by financing activities was $1,100,000 for the six months ended
      September, 30, 2007 compared to net cash used by financing activities of $10,000
      for the six months ended September 30, 2006.  The increase is
      primarily due to the exercise of warrants and the issuance of a convertible
      debenture.





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.




28





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.




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.




29





The
      fair
      value of the beneficial conversion feature and the warrants at the inception
      of
      these convertible debentures were $1,897,735 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 six months ended September, 30, 2007, Cornell Capital converted $890,000
      of
      their convertible debt into 4,040,862 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.





OnJuly
      27, 2007, theweissued
      aconvertible debenture
      to Mark
      Gostinein the amount of
      $100,000
      that accrues interest at 0% per
      annum and is due onJuly
      27, 2008. In addition, the
      Companywill issue to Mark
      Gostine350,000
      shares of the Company's common
      stock.The
      fair value of theseshares is $49,000 and
      has beenrecorded as a discount
      on
      theconvertible
      debentureand is being
      amortized over the term of the debenture.




**RESULTS
      OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER, 30, 2007 AS COMPARED TO
      THE
      THREE MONTHS ENDED SEPTEMBER 30, 2006**





**Revenues
      and Cost of Sales.**We had no significant revenues for the
      three months ended September, 30, 2007 and September 30, 2006 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 September, 30, 2007, as compared net
      sales
      of $0 as were our cost of sales and gross loss for the three months ended
      September 30, 2006.





**Operating
      Expenses.**Our operating expenses for the three months ended
      September, 30, 2007 were $905,943 compared to $3,646,162 for the three months
      ended September 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 September, 30, 2007, this amount
      was represented by $13,784 in depreciation and amortization; $25,272 in
      professional fees; $274,646 in salary and wages; $42,738 in rent expense; $0
      in
      marketing and research, $478,925 in stock option expense; and $70,578 in other
      operating expenses.  This is compared to the three months ended
      September 30, 2006, where we had $14,515 in depreciation and amortization;
      $650,769 in professional fees; $918,330 in salary and wages; $37,203 in rent
      expense; $1,273,555 in marketing and research; $461,684, in stock option
      expense, and $290,106 in other operating expenses.  Our operating
      expenses decreased during the three months ended September, 30, 2007 as compared
      to the three months ended September 30, 2006 principally as a result of an
      decrease in marketing and research expenses.




30




Interest
      expense and financing costs for the three months ended September, 30, 2007
      were
      $127,156 compared to $100,340 for the three months ended September 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
      September, 30, 2007.





The
      Company recorded other income of $829,697 and $0 related to the change in fair
      value of the warrant and derivative liabilities for the three months ended
      September, 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.




**RESULTS
      OF OPERATIONS FOR THE SIX MONTHS ENDED SEPTEMBER, 30, 2007 AS COMPARED TO THE
      SIX MONTHS ENDED SEPTEMBER, 2006**





**Revenues
      and Cost of Sales.**We had no significant revenues for the six months
      ended September, 30, 2007 and September 30, 2006 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 six months ended September, 30, 2007, as compared net sales
      of $0 as were our cost of sales and gross loss for the six months ended
      September 30, 2006.





**Operating
      Expenses.**Our operating expenses for the six months ended September,
      30, 2007 were $2,989,862 compared to $5,116,719 for the six months ended
      September 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 six months ended September, 30, 2007, this amount
      was represented by $27,567 in depreciation and amortization; $1,174,979 in
      professional fees; $485,107 in salary and wages; $80,378, in rent expense;
      $0 in
      marketing and research, $957,790 in stock option expense; and $264,041 in other
      operating expenses.  This is compared to the six months ended
      September 30, 2006, where we had $31,277 in depreciation and amortization;
      $1,567,674 in professional fees; $1,103,632 in salary and wages; $100,279 in
      rent expense; $1,299,364 in marketing and research; $590,592 in stock option
      expense, and $423,901 in other operating expenses.  Our operating
      expenses decreased during the six months ended September, 30, 2007 as compared
      to the six months ended September 30, 2006 principally as a result of an
      decrease due to marketing and research expenses,




Interest
      expense and financing costs for the six months ended September, 30, 2007 were
      $4,034,110 compared to $232,135 for the six months ended September, 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
      September, 30, 2007.





The
      Company recorded other income of $6,257,188, and $0 related to the change in
      fair value of the warrant and derivative liabilities for the six months ended
      September, 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.




31





**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.




**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.




32




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.




33




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.





*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.




34




*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 September 30, 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 except
      for
      the Gryphon litigation and bankruptcy proceedings.





**Item
      2.   Unregistered Sales of Equity Securities and Use of
      Proceeds**





During
      the three months ended September, 30, 2007, we issued 250,000 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.****ther Information**




On
      November 20, 2007, Thomas Stanovich and Gerald Yakatan resigned as a members
      of
      the board of directors and Kevin Pickard resigned as Interim Chief Financial
      Officer




35




**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












36




**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:
                  December 20, 2007
              By:
              /s/ Chaslav
                RadovichChaslav
                RadovichPrincipal
                  Executive Officer, Director


Date:
                December
                20, 2007
            By:
            /s/ Chaslav
              RadovichChaslav
              RadovichPresident,
                Secretary




Date:
                December 20, 2007
            By:
            /s/ Chaslav
              RadovichChaslav
                RadovichActing
                Chief Financial Officer, Treasurer








37