**UNITED
                  STATES**
                **SECURITIES
                  AND EXCHANGE COMMISSION**
                **Washington,
                  D.C. 20549**
                
                **FORM
                  10-KSB**
   x **ANNUAL
        REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
        1934**
 For
        the
        fiscal year ended March
        31, 2006
  o **TRANSITION
        REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
        1934**
 For
        the
        transition period from  to
  Commission
        File Number: 000-49620
  **Cobalis
        Corp.**
 (Exact
        name of small business issuer as specified in its charter)
 
 Nevada
                
                (State
                  or other jurisdiction of
                incorporation
                  or organization)
              91-1868007
                
                (I.R.S.
                  Employer
                Identification
                  No.)2445
                  McCabe Way, Suite 150, Irvine, California 92614
                (Address
                  of principal executive offices)(949)
                  757-0001
                (Issuer’s
                  Telephone Number)
   **APPLICABLE
        ONLY TO CORPORATE ISSUERS**
  State
        the
        number of shares outstanding of each of the issuer's classes of common equity,
        as of the latest practical date. As of July 12, 2006 there were
        28,273,625 shares
        of the issuer's $.001 par value common stock issued and
        outstanding.
  Indicate
        by check mark whether the registrant (1) has filed all reports required to
        be
        filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
        the
        preceding 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. x Yes
o No
  Check
        if
        there is no disclosure of delinquent filers in response to Item 405 of
        Regulation S-B is not contained in this form, and no disclosure will be
        contained, to the best of registrant's knowledge, in definitive proxy or
        information statements incorporated by reference in Part III of this Form
        10-KSB
        or any amendment to this Form 10-KSB. o
  Indicate
        by check mark whether the registrant is a shell company (as defined in Rule
        12b-2 of the Exchange Act).
 Yes
        _____
 No X.
  State
        issuer's revenues for its most recent fiscal year: $0.
  State
        the
        aggregate market value of the voting and non-voting common equity held by
        non-affiliates computed by reference to the price at which the common equity
        was
        sold, or the average bid and asked price of such common equity, as of a
        specified date within the past 60 days. (See definition of affiliate in Rule
        12b-2 of the Exchange Act.) As of July 12, 2006, approximately $18,638,881.
 
 Documents
        incorporated by reference. There are no annual reports to security holders,
        proxy information statements, or any prospectus filed pursuant to Rule 424
        of
        the Securities Act of 1933 incorporated herein by reference.
 
 Transitional
        Small Business Disclosure format (check one): o Yes  xNo
  1
  **PART
        I**
 
 **Item
        1. Description of Business.**
 
 Cobalis
        Corp. (“We”, “Cobalis” or the “Company”) is a development stage company. We are
        a specialty pharmaceutical company dedicated to the development and
        commercialization of medications for allergic diseases. We are focused on
        bringing to market PreHistin TM ,
        a
        patented, over-the-counter (OTC) drug product candidate designed to treat
        and
        prevent atopic allergic diseases including seasonal and year-round allergies,
        migraine, dermatitis, food allergies and asthma.
  OUR
        CORPORATE BACKGROUND. We were incorporated in Nevada in 1997 as Aztec Ventures,
        Inc. and later changed our name to Togs for Tykes, Inc., while pursuing our
        former business plans. In 2003, we then took the name Biogentech Corp. when
        we
        acquired BioGentec Inc. as our wholly-owned operating subsidiary, which was
        incorporated in Nevada on November 21, 2000. We took our current name in
        2004.
        From 1989 through 2000, Gene Pharmaceuticals, LLC sponsored the initial clinical
        research and wrote the patents. In November 2000, BioGentec acquired essentially
        all the assets of Gene Pharmaceuticals, LLC, including its intellectual
        property. References herein to BioGentec may be construed as Cobalis’ activities
        and operations.
 
 OUR
        PRODUCT. PreHistin TM is
        intended to become the first medication aimed specifically at rectifying
        imbalances in the immune system that trigger the over-production of allergy
        symptom-causing substances, including histamine. By preventing or reducing
        the
        over-production of histamine before it is released, we believe
        PreHistin TM represents a novel and compelling alternative to the standard “ antihistamine”
approach to treating allergic disease. PreHistin TM is in
        Phase III development for its initial indication of allergies.
 
 PreHistin TM is a
        sublingual lozenge containing 3.3 mg of cyanocobalamin that is absorbed through
        the buccal membrane, allowing direct introduction of the active ingredient
        into
        the bloodstream. In this manner, we believe that PreHistin TM is
        distinguished from orally-ingested cyanocobalamin which first passes through
        the
        digestive tract before the active ingredient is systemically available. The
        active ingredient in PreHistin TM has been
        shown in clinical studies to reduce nasal symptoms without the drowsy, sedating
        side-effects associated with many other allergy medications.
 
 As
        an
        easy-to-use sublingual lozenge, we believe that PreHistin TM provides
        a patient-friendly alternative to unwelcome injections as well as to powerful
        antihistamines that can often cause unwanted drowsiness and other uncomfortable
        effects. We have formulated the PreHistin TM lozenge
        to be dissolved under the tongue twice daily prior to the beginning of the
        allergy season.
 
 We
        completed a supportive Phase III clinical study in October 2005 with 714
        patients. The results of this clinical trial showed that pre-seasonal treatment
        with PreHistin TM reduced
        Mt. Cedar allergy symptoms compared with placebo. Subseuqent to the period
        covered by this report, we commenced twin pivotal Phase III clinical trials
        required by the FDA in July 2006. These studies will be conducted as a
        placebo-controlled, double-blind study with between 1,600 and 2,000 seasonal
        ragweed allergy sufferers.
 
 In
        addition, in the future, we intend to investigate the effectiveness of
        PreHistin TM in
        mitigating the symptoms of other atopic conditions, such as migraine, dermatitis
        and asthma.
 
 PreHistin TM is
        patented, with granted patents in the United States, the European Union and
        Australia; and pending patents in other countries. Our patents cover the
        use of
        cobalamins for allergic diseases, referred to as atopic, such as seasonal
        and
        year-round allergies, asthma, dermatitis, and atopic migraine.
 
 SCIENTIFIC
        RATIONALE OF PREHISTIN TM .
        The
        human immune system, if working properly, can attack invading viruses, bacteria
        and other potentially harmful organisms arriving in the body. To launch this
        attack, the immune system recognizes the invader, and starts a cascade of
        events
        that increase the levels of chemicals, including histamine, that are intended
        to
        fight off the organisms. This process is exceedingly complicated and sometimes
        problems arise. Allergic (atopic) individuals - including, but not limited
        to,
        people with seasonal allergies, year-round allergies, food allergies,
        dermatitis, and certain types of migraine and asthma - generally have an immune
        system that is over-sensitive to even a small trigger and therefore
        over-produces histamine. For example, minute amounts of ragweed pollen can
        result in the symptoms of allergy: sneezing, runny nose and nasal congestion.
  2
 
 The
        over
        production of histamine can result when the ratio of aggressor cells (which
        help
        launch the immune response) is high relative to suppressor cells (which prevent
        the immune system from over-reacting). When such a ratio exists, the production
        of the antibody immunoglobulin E (IgE) is favored. Generally allergic
        individuals have higher levels of IgE than non-allergic individuals. There
        are
        specific types of IgE, such as cat-IgE or ragweed-IgE. When these specific
        types
        of IgE come in contact with cat or ragweed proteins, they connect to a mast
        cell
        in a way that causes the mast cell to break apart and spill histamine out
        into
        the blood. Finding ways to reduce IgE has been a much-sought-after focus
        of many
        pharmaceutical companies in search of new allergy and asthma drugs.
 
 Current
        modes of OTC allergy treatments focus on blocking the action of histamine
        after
        it is released. It is believed that PreHistin TM may
        rebalance certain cells in the immune system so that their ratio is similar
        to
        that of a non-allergic individual. This intervention in the immune system
        comes
        at a point in the cascade before the release of histamine, hence we have
        coined
        the term “prehistamine”, use the phrase “The World’s First Prehistamine”, and
        call the product “PreHistin TM .”
 
 OUR
        SUPPLIERS. We believe that the active ingredients needed to produce our
        developmental product are readily available through several manufacturers,
        domestically and internationally, including major pharmaceutical corporations.
        Aventis Pharma is a primary source for us. We do not have a written agreement
        with Aventis Pharma, however, we believe we would be able to obtain the
        ingredients needed to produce our product from other sources should Aventis
        Pharma cease to be a source of ingredients for us.
 
 OUR
        MANUFACTURING. We have identified and engaged a certified good manufacturing
        practices ("GMP") manufacturer to produce the Phase III trial medications
        as
        well as the first runs of the retail version of the product. We believe that
        the
        manufacturer selected is FDA approved and able to accommodate the anticipated
        demand. There is no guarantee that the manufacturer will continue to meet
        our
        requirements, but we believe we could identify and engage alternate sources
        of
        manufacturing capacity in the event we needed to do so. Each active lozenge
        will
        contain 3300 mcg (3.3 mg) of pharmaceutical grade cyanocobalamin.
 
 OUR
        MATERIAL PRODUCT CONTRACTS. In 2000, the patent underlying our principal
        product
        (formerly known as "Immun-Eeze"), along with pending international patent
        applications, and certain other tangible assets and related trademarks,
        copyrights and customer lists were purchased from Gene Pharmaceuticals, LLC
        for
        $150,000 plus royalties, including royalties tied to future sales. Ernest
        Armstrong is a Managing Member of Gene Pharmaceuticals, LLC and also works
        for
        Cobalis in the capacity of Chief Scientific Officer and Director. In August
        2002, the parties agreed to postpone the payment of royalties in exchange
        for
        250,000 options to purchase BioGentec's common stock at $1.10 per share.
        In
        December 2002, the parties agreed to supersede the terms of the August 2002
        addendum by amending the original agreement to include an additional payment
        of
        2,000,000 shares to Gene Pharmaceuticals of BioGentec's (i.e. Cobalis’) common
        stock at $2.00 per share, plus royalties of 1.5% of gross sales of products.
        Also in the December 2002 Memorandum of Agreement, both parties agreed that
        neither party could assign the Agreement, nor their rights thereunder, without
        the prior written consent of the other party. In February 2004, the parties
        agreed that a “Revised Asset Purchase Agreement” would provide for the
        following: Mr. Armstrong being granted 2,200,000 options to purchase shares
        of
        our common stock at $2.00 per share, expiring seven years from the date of
        the
        revised agreement; the grant by St. Petka Trust to Mr. Armstrong the option
        to
        purchase shares of our common stock held by St. Petka at $2.00 per share,
        expiring seven years from the date of the revised agreement; Gene
        Pharmaceuticals LLC’s agreement to remove the antidilution clause from the
        Memorandum of Agreement in exchange for the issuance of 20,000 shares; the
        1.5%
        royalty shall be amended to include a survivability clause; Mr. Armstrong
        will
        be employed by us at an annual salary of $100,000, and annual bonuses. The
        specific terms have been finalized and in that regard, the Revised Asset
        Purchase Agreement is currently being drafted.
 
 OUR
        CHANNELS OF DISTRIBUTION. We do not currently distribute our products for
        sale;
        however, once we are able to commence commercial production, we believe we
        will
        have the option to outsource the distribution operations to a proven distributor
        or distributors.
 
 OUR
        INTELLECTUAL PROPERTY. Our success depends in part upon our ability to preserve
        our current intellectual property rights and those we may acquire in the
        future.
        Our success will also depend in part on our ability to operate without
        infringing the proprietary rights of other parties. However, we may rely
        on
        certain proprietary technologies, trade secrets, and know-how that are not
        patentable or protectable by other means.
  3
 
 Our
        patents cover the use of cobalamins for allergic diseases, referred to as
        atopic, such as seasonal and year-round allergies, asthma, dermatitis, and
        atopic migraine. The patents are:
 
 Granted
        Patents:
 
 Country
              Patent
                  No.
              Title
              Exp.
                  DateUnited
                  States
              6,255,294
              “Cyanocobalamin
                  Treatment in Allergic Disease”
              12/28/19United
                  States
              5,135,918
              “Method
                  for Reducing Reagenic Antibody Levels (IgE)”
              08/04/09Australia
              771,728
              “Cyanocobalamin
                  Treatment in Allergic Disease”
              12/28/19European
                  Union
              1128835
              “Cyanocobalamin
                  Treatment in Allergic Disease”
              12/28/19
 
 Pending
        Patents:
 
 Country
              Application
                  No.
              TitleCanada
              2,358,054
              “Cyanocobalamin
                  Treatment in Allergic Disease”Japan
              P2002-533399A
              “Cyanocobalamin
                  Treatment in Allergic Disease”Mexico
              2001-006297
              “Cyanocobalamin
                  Treatment in Allergic Disease”
 
 In
        June
        2006, we announced that our Patent No. 1128835, titled "Cyanocobalamin Treatment
        in Allergic Disease," had been published by the European Patent Office in
        the
        European Patent Bulletin 06/25. With its publication, the patent is in effect
        and protects the method of treatment underlying PreHistin TM in the
        European Union.
 
 Although
        we believe that the subject matter covered by our patents and pending patent
        applications has been developed independently and does not infringe on the
        patents of others, there can be no assurance that the technology does not
        and
        will not infringe on the patents of others. In the event of infringement,
        we
        could, under certain circumstances, be required to modify our infringing
        product
        or process or obtain a license. There can be no assurance that we would be
        able
        to do either of those things in a timely manner or at all, and failure to
        do so
        could harm us and our business. In addition, there can be no assurance that
        we
        will have the financial or other resources necessary to enforce a patent
        infringement or proprietary rights violation action or to defend ourselves
        against such actions brought by others. If any of the products or processes
        we
        have developed infringe upon the patent or proprietary rights of others,
        we
        could, under certain circumstances, be enjoined or become liable for damages,
        which would harm our business.
 
 TRADEMARKS.
        We currently use or propose to use the trademarks or trade names Cobalis,
        PreHistin, Pre-Histamine, The World’s First PreHistamine and Prevahist to
        distinguish our brands from others. We hope to obtain registration for our
        trademarks for our proposed products in the future. Current status of trademark
        applications:
 
 Country
              Trademark
              Appl./
                  Reg. No.
              Granted/Allowed
              NoteUnited
                  States
              COBALIS
              78378186
              07/19/05
              Notice
                  of AllowanceUnited
                  States
              PREHISTIN
              78378191
              03/15/05
              Notice
                  of AllowanceAustralia
              PREHISTIN
              10588099
              05/31/05
              RegisteredSouth
                  Korea
              PREHISTIN
              624573
              07/12/05
              Registered
 
 Obtaining
        a trademark will grant us the exclusive right to use or license such trademarks
        and will substantially assist us in the protection of our brand name and
        image.
        Once obtained, we will regard the license to use any trademarks we acquire
        and
        any other proprietary rights in and to the trademarks as assets in the marketing
        of our products and we will actively seek to protect them against infringement.
        If we establish our brand, we may also create an enforcement program to control
        the sale of counterfeit products in the United States and in major markets
        abroad. We believe that any trade names and trademarks developed can be helpful
        in garnering broad market awareness of our products and will be significant
        in
        marketing our products. Therefore, we propose to adopt a policy of vigorous
        defense of our trademarks against infringement under the laws of the United
        States and other countries.
  4
  OUR
        WEBSITES. We have developed a corporate site, www.cobalis.com, targeted to
        the
        investor, corporate and health professional community that describes the
        science
        behind our flagship allergy prevention product, PreHistin TM .
        In
        addition, the site contains information that we believe is of value to the
        consumer, the allergy sufferer. We intend to update the site to include the
        latest news and information about PreHistin TM ,
        as well
        as our upcoming Phase III clinical trials program. We have amortized the
        costs
        of our website development, which is $707 for the year ended March 31, 2006
        and
        $7,809 for the year ended March 31, 2005.
 
 Under
        current domain name registration practices, no one else can obtain a domain
        name
        identical to ours, but someone might obtain a similar name, or the identical
        name with a different suffix, such as ".org", or with a country designation.
        The
        regulation of domain names in the United States and in foreign countries
        is
        subject to change, and we could be unable to prevent third parties from
        acquiring domain names that infringe or otherwise decrease the value of our
        domain names.
 
 We
        currently own the following domain names: cobalis.com, cobalis.net,
        prehistin.com, prehistin.net, prevahist.com, prevahist.net, alleratin.com,
        biogentec.com and prehistin.com.au.
 
 FDA
        APPROVAL. Government regulation in the United States is a significant factor
        in
        the production and marketing of new drugs. The FDA must approve all new
        over-the-counter and prescription drugs, which includes any new use for a
        substance even if previously used safely for a different purpose. In the
        U.S.,
        companies are subject to rigorous requirements in order to engage in the
        human
        clinical testing that must be conducted to gain approval for a drug. To begin
        clinical testing, a company must comply with mandatory procedures and safety
        standards established by the FDA and apply to the FDA for consent. The
        application requires a summary of previous work carried out on drug
        characterization, toxicity and safety, as well as an in-depth description
        of the
        proposed clinical trials, which occur in following three phases:
 
 ·
              Phase
                  I trials are designed to measure the early safety profile and the
                  pattern
                  of drug distribution and
                  metabolism.
 ·
              Phase
                  II trials are aimed at determining preliminary efficacy and optimal
                  dosage, and to expand the evidence regarding
                  safety.
 ·
              Phase
                  III trials are conducted to provide enough data for statistical
                  evaluation
                  of efficacy and safety.
 
 Our
        primary goal is to obtain regulatory marketing approval for
        PreHistin TM as an
        over-the-counter (OTC) drug for seasonal and year-round allergies in the
        United
        States and abroad. The FDA has indicated that there is no distinction in
        the OTC
        environment between seasonal allergies and year-round allergies. However,
        our
        clinical trials are being conducted with seasonal allergy sufferers, so even
        if
        our trials are successful, and PreHistin TM subsequently receives marketing approval, there can be no assurance that
        we be
        able to market for an indication in perennial allergies.
 
 In
        January 2006, we were notified by the FDA that the marketing approval process
        for PreHistin TM would be
        conducted within the FDA by the Office of Nonprescription Products, the branch
        of the FDA which handles over-the-counter (OTC) drug products. Previously
        the
        Division of Pulmonary and Allergy Drug Products had handled our approval
        process
        (IND number 68,994). We believe this is a positive development since, as
        an
        FDA-approved OTC drug, PreHistin TM would
        not require a doctor's prescription, thus making consumer purchases easier,
        faster and more convenient.
  5
 
 In
        April
        2006, we submitted to the FDA a protocol (Protocol DF0107) for a Phase III
        study
        on ragweed sensitive seasonal allergy patients in the central and eastern
        United
        States. In June 2006 the FDA sent us a letter regarding that protocol finding
        that our two proposed study designs were “acceptable”. From the time we had
        submitted Protocol DF0107 for review by FDA in early April 2006, until June
        2006, the protocol had changed with the following notable exceptions: 1.)
        There
        are two study arms in two studies (Protocol RA3333 and Protocol RA55555),
        one
        with a placebo lozenge BID and one with a 3.3mg cyanocobalamin lozenge BID.
        Each
        arm in each study is between 312 and 500 patient-volunteers. 2.) Patients
        are to
        keep symptom diaries for 10 consecutive weeks. Patients are to receive a
        bottle
        of nasal saline, ocular saline and a supply of loratadine 10 mg sufficient
        for
        them to take, if required, from Week 7 to Week 10. (As with the prior protocol,
        the patients are to use the study medication from Week 1 to Week 6, with
        Weeks
        4, 5 and 6 being the primary endpoint.) We anticipate commencing these studies
        in August 2006 and, if successful, using them in conjunction with an initial
        Phase III study as the primary basis for submitting an application to FDA
        for
        marketing approval.
 
 In
          2004,
          we sponsored an initial Phase III double-blind, placebo-controlled, multi-center
          randomized study on allergy sufferers sensitive to Mt. Cedar in Central
          Texas to
          test various PreHistin TM regimens
          of 3.3 mg cyanocobalamin lozenges BID for reducing the severity of allergy
          symptoms (Protocol SP1027). In October 2005, we reported results of this
          four
          arm, six-week 714 patient trial. The statistical analysis employed to evaluate
          the results utilized a modified intent to treat and an ANOVA (ANalysis
          Of
          VAriance) model to determine the treatment effects for the four arm study,
          and
          certain assumptions used were not specified in the statistical analysis
          plan
          (SAP). Although we believe that the data resulting from this Phase III
          clinical
          trial demonstrated that patients who were administered PreHistin TM showed a
          statistically significant reduction of allergy symptoms when the modified
          analysis was applied, the data most likely will be viewed by the FDA as
          supportive data and not as pivotal Phase III results required to secure
          approval.
 Human
        clinical trials are very expensive and difficult to design and implement,
        in
        part because they are subject to rigorous regulatory requirements. The clinical
        trial process is also time-consuming. Failure of the trials can occur as
        a
        result of cost overruns or other financial considerations. Furthermore, failure
        can occur at any stage of the trials, and we could encounter problems that
        cause
        us to abandon or repeat clinical trials.
 
 OUR
          RESEARCH AND DEVELOPMENT. During each of the last two fiscal years, we
          have had
          expenditures for research and development activities of ($352,937) for
          the year
          ended March 31, 2006 and $1,912,054 for the year ended March 31, 2005.
          These
          include expenses for our Phase III clinical trials. Because our product
          is not
          yet in production, there are no costs borne by customers.
 
 OUR
        MARKETING STRATEGY. We
        believe that allergy sufferers are constantly seeking relief from their symptoms
        and that, if approved, PreHistin TM ’s
        approach to allergy symptom reduction coupled with its side effect profile
        should make it an attractive and compelling choice for allergy sufferers.
 
 Our
        go-to-market strategy is to partner with a major pharmaceutical
        manufacturer/distributor who already has the extensive infrastructure and
        relationships to fulfill the logistics of a nationally distributed OTC product.
        We may out-license either the manufacturing/packaging and distribution rights
        together or separately to one or more marketing partners. We intend to pursue
        such licensing opportunities in the United States as well as various
        international markets where we have patent protection and where we believe
        we
        would find either significant sales potential and/or significant strategic
        value. Our plan is to complete the upcoming clinical trials and provide the
        clinical evidence to support our partnership efforts. While we have had initial
        conversations with a number of pharmaceutical partner prospects, there is
        no
        guarantee that we will be able to secure profitable marketing licensing
        agreements with any major pharmaceutical company.
  Additionally,
        we have the option to bring PreHistin TM to
        market ourselves or through a contract distributor. We intend to create a
        plan
        to bring PreHistin TM to
        market ourselves as an alternative option to securing a licensing agreement
        with
        a pharmaceutical partner, both as it relates to the U.S. and international
        markets. Such approach would require additional funding and securing additional
        human resources, but could potentially result in retaining a higher percentage
        of sales as compared with the royalties we would earn under a pharmaceutical
        licensing agreement.
 
 OUR
        COMPETITION. The
        market for allergy relief preparations, which we intend to enter, is
        characterized by intense competition. We will be competing against
        well-capitalized, established pharmaceutical companies which currently market
        products similar to what we intend to market. We estimate that prices of
        drug
        products are significantly affected by competitive factors and tend to decline
        as competition increases. In addition, we believe that numerous companies
        are
        developing or may, in the future, engage in the development of products that
        could be competitive with our proposed products. We expect that technological
        developments will occur at a rapid rate and that competition is likely to
        intensify as the demand for over the counter and cost-competitive allergy
        relief
        preparations grows. We seek to enhance our competitive position by
        distinguishing our product as a preventative allergy treatment from those
        that
        mitigate symptoms once they occur. It is difficult to estimate our position
        with
        regard to competitors in this market before obtaining FDA approval with regard
        to selling our product, and there is no guarantee that the FDA will approve
        our
        product.
  6
 
 GOVERNMENT
        REGULATION. We believe that we will experience minimal direct costs and effects
        of compliance with environmental laws and other such federal, state and local
        regulations, in that we intend to outsource all manufacturing and distribution
        operations to companies that comply with Good Manufacturing Practice ("GMP")
        Regulations and other applicable laws and regulations. We believe we are
        otherwise in compliance with governmental regulations on our business, which
        include regulations relative to the approval of our products for sale as
        a
        nutritional supplements, over-the-counter medications or prescription
        medications. Also refer to “FDA APPROVAL” section above.
 
 OUR
        CLINIC DEVELOPMENT CONTRACTS. As we advance through the marketing approval
        process for PreHistin TM ,
        there
        are several organizations and individuals we rely on to help us with the
        clinical research and related regulatory affairs. Subsequent to the period
        covered by this report, we have made the following contracts:
 
 ·
              Data
                  Med Devices of Lake Forest, California, is serving as our clinical
                  research organization (CRO) by providing such services as study
                  guidance,
                  clinical study monitoring and data management.
 ·
              United
                  BioSource Corp. of San Francisco, California, is providing the
                  patient
      diaries, in which study subjects call in or log on to record
                  their daily
                  allergy symptoms throughout the study.
 ·
              Advanced
                  Botanicals Ltd. of Richmond, British Columbia, Canada, is manufacturing
                  the study drug.
 ·
              MedTox
                  Labs of St. Paul, Minnesota, is providing lab services which assay
                  the
                  subjects’ blood and urine samples for safety and other blood samples for
                  changes in IgE concentrations.
 
 We
        also
        have contracts with each of the 23 study sites and investigators to conduct
        our
        twin pivotal clinical trial studies in their clinics.
 
 FUTURE
        PRODUCTS. In
        addition to PreHistin TM for
        allergic rhinitis, we hope to develop and market additional indications in
        atopic disease for PreHistin TM and
        intend investigate
        the effectiveness of PreHistin TM in
        mitigating the symptoms of other atopic conditions, such as migraine, dermatitis
        and asthma. We
        also
        intend to consider other product opportunities that could broaden our portfolio
        of product candidates. Our current focus is on PreHistin TM .
  EMPLOYEES.
          We currently have six full-time employees. We believe that our relations
          with
          our current employees are good. We are not party to any collective bargaining
          arrangements.
 **Item
        2. Description of Property.**
 
 PROPERTY
        HELD BY US. As of the date specified in the following table, we held the
        following property:
 
 **Property**
              **March
                  31, 2006**
              **March
                  31, 2005**Property
                  and Equipment, net
              $8,419
              $45,044
 
 We
        do not
        own any real estate or tangible property used in course of our daily
        operations.
 
 FACILITIES.
        Our executive, administrative and operating offices are located at 2445 McCabe
        Way, Suite 150, Irvine, California, 92614, which represent our only facilities
        and measure 5,455 square feet of space. We had a lease for this space which
        ran
        for three years through March 31, 2006, at a cost of $10,365.50 per month.
        This
        was recently renewed through March 31, 2008, at a rate of $12,001 per month
        for
        the first year, and $12,546.50 per month for the subsequent year of the term,
        plus the issuance of shares of our common stock to the principals of the
        company
        serving as our landlord. We believe these facilities are adequate for our
        current and projected requirements as we intend to outsource all manufacturing
        and distribution.
  7
 
 **Item
        3. Legal Proceedings.**
 
 The
        following are legal actions pending against us and those we contemplate entering
        into at this time:
  **Former
          Leased Office Space:** We were
          a defendant in a suit brought by our former landlord for breach of lease
          agreement and alleged unpaid rent in the County of Orange, Superior Court
          of
          California, Case #03CC02904.. In January 2006, this matter was settled
          and we
          are to pay a total of $200,000 over the next year, of which we paid the
          first
          $75,000 on January 31, 2006. This leaves a total of $125,000 owing, of
          which
          $75,000 is due on July 31, 2006, and $50,000 is due on December 31, 2006.
          We
          intend to pay these amounts through debt and equity
          financing.
 **InnoFood/Modofood:** On July
        28, 2003, we entered into a Stock Exchange Agreement ("Agreement") with InnoFood
        Inc. ("InnoFood") wherein we 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 Agreement, we were obligated
        to
        provide InnoFood with the funding on or before December 31, 2003. We did
        provide
        InnoFood with $2,220,000. We have 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, we entered into a Letter of Understanding ("LOU") with
        InnoFood to restructure the relationship between ourselves and InnoFood.
        We
        believe that InnoFood may have misled our management regarding certain material
        matters. As a result, the definitive agreements were never prepared and parties
        did not finalize the matters referenced in the LOU.
 
 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 we
        breached both the 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 us for non-payments). The Promissory Note accrues interest
        at 10% and is due and payable on or before January 15, 2009. We believe that
        this Promissory Note represents an acknowledgment of InnoFood's debt to us.
        As
        of March 31, 2006, we have not accepted the terms of this Promissory Note,
        and
        negotiation with InnoFood regarding the purchase has stalled.
 
 We
        believe that InnoFood breached not only the InnoFood Agreement but also the
        LOU.
        We intend to vigorously pursue InnoFood, but have not determined whether
        or not
        we will file a lawsuit against InnoFood. If needed, we may also consider
        pursuing legal action.
  **Gryphon
        Master Fund, LP.** On
        November 8, 2004, Gryphon Master Fund, LP, (“Gryphon”) filed a lawsuit against
        us in United States District Court, Northern District of Texas, Dallas Division.
        The lawsuit sought repayment of the $600,000 convertible note payable, accrued
        interest on the convertible note payable within the prescribed period, penalties
        for failing to register the shares underlying the conversion of the convertible
        note payable, attorneys fees and court costs. In March 2006, we reached and
        executed a settlement agreement with Gryphon where both parties have 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 us totaling $1.6 million
        made by
        Gryphon in September 2003, includes an agreed judgment totaling a maximum
        of
        $1.6 million. Our judgment amount would be reduced to $1.4 million, provided
        we
        fully pay Gryphon on or before October 1, 2006. Gryphon is also eligible
        to
        convert its convertible debenture and convertible preferred stock it holds
        to
        716,667 shares of our common stock, and may exercise its 194,167 warrants
        for
        $0.01 per share. Under the settlement agreement, full repayment of the $1.6
        million is due on or before April 1, 2007.
  8
  **Marinko
        Vekovic.** On
        March
        9, 2006, Marinko Vekovic, a former consultant, filed a Complaint against
        us
        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, we filed an Answer to the Complaint, denying the allegations by
        Mr.
        Vekovic. On the same date, we also filed a Cross-Complaint for rescission
        of the
        consulting agreement, on grounds that Mr. Vekovic made numerous material
        misrepresentations intended to fraudulently induce us to enter the consulting
        agreement and to issue to Vekovic 112,500 shares of our S-8 common stock.
        Through our Cross-Complaint, we seek 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 our S-8 common stock, plus all or
        some
        portion of the compensation paid to Mr. Vekovic, given that Mr. Vekovic
        substantially failed to perform the consulting services which were the subject
        of the consulting agreement. We also seek to recover attorneys’ fees incurred in
        the defense of the Complaint and the prosecution of our Cross-Complaint,
        pursuant to the attorneys’ fee provision in the consulting
        agreement.
 
 We
        believe that we will prevail in defending Mr. Vekovic’s Complaint and that our
        liability to Mr. Vekovic, if any, would not be material. Furthermore, we
        believe
        that we have a good chance of prevailing on our Cross-Complaint, such that
        we
        would recover a monetary award from Mr. Vekovic. However, as is the case
        with
        any litigation, we cannot guarantee the outcome of the case.
  **Europacific
          Consulting, Inc. v. Cobalis Corp.** This
          action was filed on May 23, 2006 in the Supreme Court of New York, County
          of New
          York, Case No. 601830/06. Europacific Consulting, Inc. (“Europacific”) is a New
          York corporation whose sole shareholder and director is Antonio Treminio.
          Europacific is suing for alleged breach of oral contract and damages of
          $250,000. Europacific alleges that Cobalis orally engaged Europacific to
          perform
          certain services for Cobalis, including introductions to potential board
          members, qualified investors and strategic alliances for Cobalis’ product line.
          We issued 20,000 shares to Europacific in January 2005, and canceled those
          shares in May 2005, after what we contend is Europacific’s failure to perform.
          We believe the claim for $250,000 is without basis and frivolous since
          the
          consideration for Europacific’s services was 20,000 shares, which at a current
          market value of $1.10 per share, would equal approximately only $22,000.
          We
          intend to vigorously defend this lawsuit.
 **Item
        4. Submission of Matters to Vote of Security Holders**
 
 Not
        applicable.
 
 **PART
        II**
 
 **Item
        5. Market Price for Common Equity and Related Stockholder
        Matters.**
 
 **Reports
        to Security Holders.** We
        are a
        reporting company with the Securities and Exchange Commission, or SEC. The
        public may read and copy any materials filed with the SEC at the SEC’s Public
        Reference Room at 450 Fifth Street N.W., Washington, D.C. 20549. The public
        may
        also obtain information on the operation of the Public Reference Room by
        calling
        the SEC at 1-800-SEC-0330. The SEC maintains an Internet site that contains
        reports, proxy and information statements, and other information regarding
        issuers that file electronically with the SEC. The address of that site is
        http://www.sec.gov.
 
 PRICES
        OF
        COMMON STOCK. We participate in the OTC Bulletin Board, an electronic quotation
        medium for securities traded outside of the Nasdaq Stock Market, and prices
        for
        our common stock are published on the OTC Bulletin Board under the trading
        symbol "CLSC". This market is extremely limited and the prices quoted are
        not a
        reliable indication of the value of our common stock.
  9
 
 Following
        is information about the range of high and low bid prices for our common
        stock
        for each fiscal quarter since our stock commenced trading. These quotations
        reflect inter-dealer prices, without retail mark-up, mark-down or commission,
        and may not necessarily represent actual transactions.
  **Quarter
                  Ended**
              **High Bid Quotation**
              **Low Bid Quotation**06/30/04
              $
              1.35
              $
              1.3509/30/04
              $
              3.25
              $
              2.4012/31/04
              $
              1.25
              $
              1.2003/31/05
              $
              0.62
              $
              0.5706/30/05
              $
              0.57
              $
              0.5409/30/05
              $
              0.58
              $
              0.5512/31/05
              $
              1.76
              $
              1.6403/31/06
              $
              1.88
              $
              1.7906/30/06
              $
              1.10
              $
              1.02
  COMMON
        STOCK. We are authorized to issue 50,000,000 shares of $.001 par value common
        stock and 5,000,000 shares of $.001 par value preferred stock. As of July
        12,
        2006, there were 318 record holders of our common stock and there were
        28,273,625 shares of our common stock issued and outstanding. There are no
        other
        outstanding options or warrants to purchase securities convertible into,
        shares
        of our common stock, except for the following:
  PREFERRED
          STOCK. As of July 12, we had ,500 shares of our preferred stock issued
          and
          outstanding; this class of stock is characterized by certain preferences
          and
          designations and is convertible into shares of our common stock
  OPTIONS.
          As of July 12, 2006, we had 3,125,000 exercisable options to purchase shares
          of
          our common stock outstanding as of March 31, 2006. On May 1, 2001, we granted
          100,000 options to purchase shares of our common stock at $1.00 per share
          granted to Lyndon Mansfield, one of our medical advisory board members,
          and
          which expired subsequent to the period covered by this report, May 1, 2006.
          On
          May 1, 2002, we granted 100,000 options to purchase shares of our common
          stock
          at $1.00 per share to each of these former employees: Max Fried, Stan Goldstein,
          Louis Liben; these options expire May 1, 2007. On November 5, 2002, we
          granted
          Jim Luce, a former employee and former officer, 500,000 options to purchase
          shares of our common stock at $1.50 per share. These options expire on
          November
          5, 2007. On December 27, 2002, we granted Gary Gordon Dean, a former employee,
          25,000 options to purchase shares of our common stock at $1.00 per share,
          and
          which expire December 27, 2007. On February 20, 2004, we granted Ernest
          Armstrong 1,200,000 options to purchase shares of our common stock at $2.00
          per
          share; these options seven years from the date of the revised underlying
          agreement. We did not grant any options during the year ending March 31,
          2005,
          or any in the year ending March 31, 2006. We cancelled 225,000 options
          during
          the year ended March 31, 2006 because they expired: 200,000 were issued
          to our
          former employee, Lance Musicant, on November 22, 2000 and expired on November
          22, 2005; 25,000 options were issued to our former employee, Bill Gay III,
          on
          March 1, 2001 and expired on March 1, 2006. Also during the year ended
          March 31,
          2006, we cancelled the 500,000 options that were held by Jim Luce, a former
          employee, since those options were not exercised within the specified time
          period after his departure from our service.
 Subsequent
        to the period covered by this report, we granted 2,500,000 options to two
        of our
        employees with an exercise price of $1.40 per share. We granted to Chaslav
        Radovich, our President, options to purchase 1,500,000
        shares at $1.40 per share, which vest over 3 years and expire after 5 years
        from
        the date of grant. We granted to Gerald Yakatan, our CEO, options to purchase
        1,000,000 shares at $1.40 per share, which vest over 3 years and expire 5
        years
        from the date of grant .
  10
  WARRANTS.
        As of March 31, 2006 we have 6,636,767 warrants outstanding.
  Of
        this
        amount, we issued 90,000 warrants on September 15, 2003 to Gryphon. There
        are
        also 104,167 warrants attached to shares of the preferred stock issued to
        Gryphon which are convertible to shares of our common stock, and have an
        exercise price of $0.01 per share.
  During
          the year ended March 31, 2005, we granted 3,330,000 warrants to consultants.
          In
          July 2004, we issued 1,000,000 warrants to purchase shares of our common
          stock
          at $1.75 per share to Martin Marion and 1,000,000 warrants to purchase
          shares of
          our common stock at $1.75 per share to Bojan Cosic, both of whom were
          consultants at the time. These warrants expire in July 2009. In August
          2004, we
          issued 1,000,000 warrants to purchase shares of our common stock at $1.75
          per
          share to DLZ for consulting services. These warrants expire in August 2009.
          In
          November 2005, we granted 200,000 options to purchase shares of our common
          stock
          at $2.00 to Lyndon Mansfield, a member of our advisory board, for clinical
          trials and advisory services. These options expire in August 2011. In September
          2004, we issued 50,000 warrants to purchase shares of our common stock
          at $1.75
          per share to Kevin Pickard for accounting services rendered to us. These
          warrants expire in September 2009. In January 2005, we issued 250,000 warrants
          to purchase shares of our common stock at $1.75 per share to Lawrence May,
          one
          of our directors. These warrants expire in January 2007.
 During
        the year ended March 31, 2006, we granted 1,642,000 warrants to consultants
        and
        an aggregate total of 3,142,000 warrants. In July 2005, we granted 50,000
        warrants to purchase shares of our common stock at $1.75 to Kevin Picard
        for
        accounting services rendered to us. These warrants expire in July 2010.
  In
        August
        2005, we granted 100,000 warrants to purchase shares of our common stock
        at
        $1.75 to Steven Barnes for finance advisory services rendered to us. These
        warrants expire in August 2010.
  In
        August
        2005, we granted 150,000 warrants to purchase shares of our common stock
        at
        $1.75 to Marlin Financial for finance advisory services rendered to us. These
        warrants expire in August 2010.
  In
        September 2005, we granted 100,000 warrants to purchase shares of our common
        stock at $1.75 to Tejeda & Tejeda for finance advisory services rendered to
        us. These warrants expire in September 2010.
  In
        October 2005, we granted 40,000 warrants to purchase shares of our common
        stock
        at $1.75 to Craig and Robyn Lewis for finance and advisory services rendered
        to
        us. These warrants expire in October 2010.
  In
        October 2005, we issued 500,000 warrants to the Brad Chisick Trust which
        accompanied a senior debenture for $250,000. The warrants allow the purchase
        of
        shares of our common stock for $1.75 per share and expire October 26,
        2010.
  In
        October 2005, we granted 50,000 warrants to purchase shares of our common
        stock
        at $1.75 to Steven Barnes for finance advisory services rendered to us. These
        warrants expire in October 2010.
  In
        October 2005, we granted 16,000 warrants to purchase shares of our common
        stock
        at $1.75 to CSX2 LLC for finance advisory services rendered to us. These
        warrants expire in October 2010.
  In
        October 2005, we granted 8,000 warrants to purchase shares of our common
        stock
        at $1.75 to Eric Burns for finance advisory services rendered to us. These
        warrants expire in October 2010.
  In
        October 2005, we granted 9,600 warrants to purchase shares of our common
        stock
        at $1.75 to Leslie Eichbaum for finance advisory services rendered to us.
        These
        warrants expire in October 2010.
  In
        October 2005, we granted 16,000 warrants to purchase shares of our common
        stock
        at $1.75 to Scott Elstein for finance advisory services rendered to us. These
        warrants expire in October 2010.
  In
        October 2005, we granted 20,000 warrants to purchase shares of our common
        stock
        at $1.75 to STDT LLC for finance advisory services rendered to us. These
        warrants expire in October 2010.
  In
        October 2005, we granted 300,000 warrants to purchase shares of our common
        stock
        at $1.75 to Kevin Prendiville, one of our directors, for clinical trials
        advisory services rendered to us, and 33,000 warrants to purchase shares
        of our
        common stock at $1.75 to the Prendiville Trust, owned by Dr. Prendiville.
        These
        warrants expire in October 2010.
  11
  In
        November 2005, we granted 100,000 warrants to purchase shares of our common
        stock at $1.75 to Lyndon Mansfield, one of our medical advisory board members,
        for clinical trials advisory services rendered to us. These warrants expire
        in
        November 2012.
  In
        November 2005, we granted 100,000 warrants to purchase shares of our common
        stock at $1.75 to Brian James Stickel, for finance advisory services rendered
        to
        us. These warrants expire in November 2010.
  In
        December 2005, we issued 1,000,000 warrants to Thomas Stankovich, our Chief
        Financial Officer and Treasurer, to purchase shares of our common stock at
        $1.75
        per share and which expire December 2010.
  In
        March
        2006, we issued 60,000 warrants to purchase shares of our common stock at
        $1.75
        per share to Larry Pawl, for clinical trials advisory services; those warrants
        expire in March 2011.
  In
        March
        2006 we issued 140,000 warrants to purchase shares of our common stock at
        $1.75
        per share to Mark Gostine, for clinical trials advisory services; those warrants
        expire in March 2011.
  In
        March
        2006 we issued 150,000 warrants to purchase shares of our common stock at
        $0.01
        per share to Robert Lanthier, for finance advisory services; those warrants
        expire in March 2011.
  RECENT
        SALES OF UNREGISTERED SECURITIES.
  During
          the three months ended September 30, 2004, we issued the following shares
          of our
          restricted common stock: 100,000 shares to Marinko Vekovic for services
          valued
          at $75,000; 75,000 shares to Equity Media Ltd. for services valued at $82,500;
          857,143 shares to James Hammer for the conversion of notes payable and
          accrued
          interest valued at $1,500,000 or $1.75 per share and
          additional warrants to be determined; and 3,050,000 warrants to purchase
          shares of our common stock to consultants with a weighted average exercise
          price
          of $1.74. The warrants vest over a period ranging from immediately to three
          years. The fair value of these warrants amounted to $1,364,037 which is
          being
          amortized to expense over the terms of the consulting agreements. During
          the
          three months ended September 30, 2004, we recognized an expense of $184,067
          related to these warrants. The warrants vesting periods range from immediately
          to three years.
 
 During
          the three months ended December 31, 2004, we issued the following shares
          of our
          restricted common stock: 100,000 shares to Tejeda & Tejeda, Inc. for
          services valued at $255,000; 200,000 shares to Basic Investors for services
          valued at $573,750; 50,000 shares to Sima Zivic for services valued at
          $127,500;
          5,000 shares to David Myering for services valued at $7,250; 55,186 shares
          to
          Research Works, Inc. for services valued at $71,742; and 8,490 shares to
          Omni
          Capital Corp. for services valued at $11,037.
  During
          the period ending March 31, 2005 we issued the following shares of our
          restricted common stock: In January 2005, we issued 1,250 shares to Catherine
          Posey for consulting services related to clinical trials. We also issued
          75,000
          shares to Jason Lyons for consulting services. In February 2005, we issued
          30,000 shares to Tejeda & Tejeda, Inc. and 25,000 shares to Ibis Consulting
          Group for consulting services. We also issued 100,000 shares to Lawrence
          May,
          our board member for related consulting services. We also issued 15,000
          shares
          to Sean Mulhearn and 15,000 shares to Melinda Mulhearn for consulting services
          related to the manufacture of our product, and 200,000 shares to the Wells
          Group
          for consulting services related to financial public relations. We also
          issued
          150,000 shares to Cyndel & Co, Inc. for consulting services, which we
          subsequently cancelled; we are in the process of having these shares rescinded.
          In March 2005, we issued 48,000 shares to Seth Shaw for consulting services,
          12,000 shares to David Hovey, Jr. for consulting services, 60,000 shares
          to Sean
          Mulhearn for consulting services and 37,500 to Tejeda & Tejeda Inc. for
          consulting services.
  During
          the three months ended June 30, 2005, we issued the following shares of
          our
          restricted common stock: 100,000 shares to Cappello Group for finance advisory
          services valued at $59,000; 112,500 shares to Tejeda & Tejeda, Inc. for
          services valued at $69,750; 25,000 shares to Lawrence Wolfe for product
          manufacturing services valued at $15,500; 25,000 shares to Matthew Clayton
          for
          product manufacturing services valued at $15,500; 100,000 shares to Robert
          Lanthier for services valued at $65,000; 10,000 shares to Karin Carter
          for
          general corporate legal services valued at $6,500; 160,000 shares to Noel
          Marshall for services valued at $72,000; and 40,000 shares to Tracy Hatland
          for
          services valued at $18,000.
 12
  During
          the three months ended September 30, 2005, we issued the following shares
          of our
          restricted common stock: 10,000 shares to Kathryn Tsang for data entry
          clinical
          trial services valued at $6,000; 125,000 shares to B.J.S. Consulting LLC
          for
          services valued at $76,250; 50,000 shares to Tejeda & Tejeda, Inc. for
          financing costs valued at $30,500; 100,000 shares to Steve Barnes for services
          valued at $48,000; 30,000 shares to Kevin Pickard for accounting services
          valued
          at $15,000; 50,000 shares to Tejeda and Tejeda, Inc. for services valued
          at
          $21,000; 50,000 shares to Jorge Tise for services valued at $25,000; and
          25,000
          shares to Melany Shivelman for services valued at $12,500.
 
 During
          the three months ended December 31, 2005, we issued the following shares
          of our
          restricted common stock: 50,000 shares to William Lareese for services
          valued at
          $23,500; 100,000 shares to Kevin Prendiville for services valued at $53,000;
          20,000 shares to Andre Baillargeon for services valued at $10,000; 125,000
          shares to the Brad Chisick Trust for pre-paid interest valued at $72,500;
          50,000
          shares to Steve Barnes for finance advisory services valued at $29,000;
          150,000
          shares to James Hammer for the conversion of $262,500 of debt; 50,000 shares
          to
          Deron Colby for general corporate legal services valued at $35,000; 50,000
          shares to Mark Stewart for services valued at $26,000; 30,000 shares to
          Brian
          Strickel for services valued at $26,700; 55,000 shares to Lyndon Mansfield
          for
          clinical trials services valued at $48,950; and 125,000 shares to Marlin
          Financial Group for services valued at $58,750.
  During
          the three months ended March 31, 2006, we issued the following shares of
          our
          restricted common stock:
 In
          January 2006, we issued 150,000 shares to Thomas Stankovich, our Chief
          Financial
          Officer and Treasurer, as an employee signing bonus. We issued 50,000 shares
          to
          Tejeda and Tejeda for finance advisory services. We issued 50,000 shares
          to
          Gerald Yakatan, our director at the time and subsequently our Chief Executive
          Officer, for clinical trials advisory services.
  In
          February 2006, we issued 50,000 shares to Stephen Lanthier for consulting
          services valued at $70,000, 35,000 shares to Steven Barnes for finance
          advisory
          consulting services valued at $49,000, 5,000 shares to Robert Stillwagon
          for
          corporate property lease valued at $7,400, and 5,000 shares to David Mileski
          for
          corporate property lease valued at $7,400.
  In
          March
          2006, we issued 80,000 shares to Dr. Robert Fishman for consulting services
          valued at $119,200, 20,000 shares to Elmer Carlson for consulting services
          valued at $32,800; 21,467 shares to Steven Barnes for finance advisory
          consulting services valued at $40,358. We also issued a total of 132,450
          shares
          for services related to our clinical trials as follows: 22,000 shares to
          Dr.
          Julius Henry van Bavel for services valued at $27,319; 27,200 shares for
          Dr.
          Frank C. Hampel for services valued at $34,000; 22,500 shares to Dr. Bruce
          G.
          Martin for services valued at $28,154; 17,600 shares to Dr. Robert Lee
          Jacobs,
          for services valued at 21,889; 21,100 shares to Dr. Dale E. Mohar for services
          valued at $26,361; 22,000 shares to Dr. Paul Ratner for services valued
          at
          $27,319.
  Subsequent
          to the period covered by this report, we issued the following restricted
          common
          stock:
  In
          April
          2006, we issued 15,000 shares to Jaffoni & Collins, Inc., for public
          relations and investor relations consulting services valued at $24,750.
          We also
          issued 100,000 shares to the Wells Group, Inc., for consulting services
          valued
          at $135,000.
 In
        May
        2006, we issued 120,000 shares Adam Barnett for consulting services valued
        at
        $176,400.
  We
        did
        not receive any proceeds from the issuance of these shares; these shares
        were
        all issued in lieu of repaying our employees, consultants, advisors, and
        as the
        case may be, creditors in cash.
  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, consultants, advisors, 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.
  DIVIDENDS.
        There have been no cash dividends declared on our common stock. Dividends
        are
        declared at the sole discretion of our Board of Directors.
  EQUITY
        COMPENSATION PLANS.
 
 **Plan
                  category**
              **Number
                  of securities to be issued upon exercise of outstanding options,
                  warrants
                  and rights (a)**
              **Weighted-average
                  exercise price of outstanding options, warrants and
                  rights(b)**
              **Number
                  of securities remaining available for future issuance under equity
                  compensation (excluding securities reflected in column
                  (a))**Equity
                  compensation plans
                approved
                  by security holders
              N/A
              N/A
              N/AEquity
                  compensation plans not approved by security holders
              1,625,000
              $1.74
              N/ATotal
              1,625,000
              $1.74
              N/A
  13
 
 **PENNY
        STOCK REGULATION.** Shares
        of our common stock will probably be subject to rules adopted by the Securities
        and Exchange Commission that regulate broker-dealer practices in connection
        with
        transactions in "penny stocks". Penny stocks are generally equity securities
        with a price of less than $5.00, except for securities registered on certain
        national securities exchanges or quoted on the Nasdaq system, provided that
        current price and volume information with respect to transactions in those
        securities is provided by the exchange or system. The penny stock rules require
        a broker-dealer, prior to a transaction in a penny stock not otherwise exempt
        from those rules, deliver a standardized risk
 disclosure
        document prepared by the Securities and Exchange Commission, which contains
        the
        following:
 
 ·
              a
                  description of the nature and level of risk in the market for penny
                  stocks
                  in both public offerings and secondary
                  trading;
 ·
              a
                  description of the broker's or dealer's duties to the customer
                  and of the
                  rights and remedies available to the customer with respect to violation
                  to
                  such duties or other requirements of securities'
                  laws;
 ·
              a
                  brief, clear, narrative description of a dealer market, including
                  "bid"
                  and "ask" prices for penny stocks and the significance of the spread
                  between the "bid" and "ask" price;
 ·
              a
                  toll-free telephone number for inquiries on disciplinary actions;
 ·
              definitions
                  of significant terms in the disclosure document or in the conduct
                  of
                  trading in penny stocks; and
 ·
              such
                  other information and is in such form, including language, type,
                  size and
                  format, as the Securities and Exchange Commission shall require
                  by rule or
                  regulation.
 
 Prior
        to
        effecting any transaction in penny stock, the broker-dealer also must provide
        the customer the following:
 
 ·
              the
                  bid and offer quotations for the penny
                  stock;
 ·
              the
                  compensation of the broker-dealer and its salesperson in the
                  transaction;
 ·
              the
                  number of shares to which such bid and ask prices apply, or other
                  comparable information relating to the depth and liquidity of the
                  market
                  for such stock; and
 ·
              monthly
                  account statements showing the market value of each penny stock
                  held in
                  the customer's account.
 
 In
        addition, the penny stock rules require that prior to a transaction in a
        penny
        stock not otherwise exempt from those rules, the broker-dealer must make
        a
        special written determination that the penny stock is a suitable investment
        for
        the purchaser and receive the purchaser's written acknowledgment of the receipt
        of a risk disclosure statement, a written agreement to transactions involving
        penny stocks, and a signed and dated copy of a written suitably statement.
        These
        disclosure requirements may have the effect of reducing the trading activity
        in
        the secondary market for a stock that becomes subject to the penny stock
        rules.
        Holders of shares of our common stock may have difficulty selling those shares
        because our common stock will probably be subject to the penny stock
        rules.
 
 **Item
        6. Management’s Discussion and Analysis of Financial Condition or Plan of
        Operation.**
 
 **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.**
  14
 
 **MANAGEMENT'S
        DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF**
 **OPERATIONS**
  Our
        Management's Discussion and Analysis of Financial Condition and Results of
        Operations section discusses our financial statements, which have been prepared
        in accordance with accounting principles generally accepted in the United
        States
        of America. The preparation of these financial statements requires us to
        make
        estimates and assumptions that affect the reported amounts of assets and
        liabilities at the date of the financial statements and the reported amounts
        of
        revenues and expenses during the reporting period. On an on-going basis,
        we
        evaluate our estimates and judgments, including those related to revenue
        recognition, accrued expenses, financing operations, and contingencies and
        litigation. We base our estimates and judgments on historical experience
        and on
        various other factors that are believed to be reasonable under the
        circumstances, the results of which form the basis for making judgments about
        the carrying value of assets and liabilities that are not readily apparent
        from
        other sources. Actual results may differ from these estimates under different
        assumptions or conditions. The most significant accounting estimates inherent
        in
        the preparation of our financial statements include estimates as to the
        appropriate carrying value of certain assets and liabilities which are not
        readily apparent from other sources, primarily valuation of patent costs
        and
        stock-based compensation. The methods, estimates and judgments we use in
        applying these most critical accounting policies have a significant impact
        on
        the results we report in our consolidated financial statements.
  **OVERVIEW**
 
 As
        discussed above, we were incorporated in 1997 and on July 6, 2004 changed
        our
        name to Cobalis Corp., having previously used the BioGentech Corp. In 2003,
        we
        acquired our operational subsidiary, BioGentech Incorporated,(BioGentec).
        To
        distinguish between parent and subsidiary, a slight spelling difference was
        utilized. BioGentec, a private Nevada corporation, was incorporated on November
        21, 2000 according to the laws of Nevada, under the name St Petka, Inc. On
        May
        4, 2001, St. Petka, Inc. changed its name to BioGentec Incorporated. On July
        2,
        2003, BioGentec was merged into Togs for Tykes Acquisition Corp., a wholly
        owned
        subsidiary formed for the purpose of acquiring BioGentec. As allowed under
        SFAS
        141, “Business Combinations” (“SFAS 141”), we designated a date of convenience
        of the closing for accounting purposes as June 30, 2003. Under the terms
        of the
        merger agreement, all of BioGentec's outstanding common stock (19,732,705
        shares
        of $0.001 par value stock) was exchanged for 19,732,705 shares newly issued
        shares of $0.001 par value stock of Cobalis Corp. common stock. This transaction
        was consummated with the filing of the Articles of Merger with the State
        of
        Nevada on July 2, 2003. BioGentec shareholders then effectively controlled
        approximately 95% of the issued and outstanding common stock of Cobalis.
        Since
        the shareholders of BioGentec obtained control of Cobalis, according to SFAS
        141, this acquisition was treated as a recapitalization for accounting purposes,
        in a manner similar to reverse acquisition accounting.
 
 **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
        $6,603,454 for the year ended March 31, 2006 and as of March 31, 2006; we
        had a
        working capital deficit of $8,187,034 and a stockholder deficit of $8,569,585.
        In addition, as of March 31, 2006, 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.
 
 We
        are
        currently attempting to raise additional debt and equity financing for operating
        purposes.
  15
 
 We
        require substantial capital to pursue our operating strategy, which includes
        commercialization of our products, and we currently have limited cash for
        operations. Until we can obtain revenues sufficient to fund working capital
        needs and additional research and development costs necessary to obtain the
        regulatory approvals for commercialization, we will be dependent upon external
        sources of financing.
 
 We
        believe that actions presently being taken to revise our operating and financial
        requirements provide the opportunity for us to continue as a going concern.
        There can be no assurances that sufficient financing will be available on
        terms
        acceptable to us, or at all. If we are unable to obtain such financing, we
        will
        be forced to scale back operations, which could have an adverse effect on
        our
        financial condition and results of operations.
 
 **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.
 
 **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.
  16
 
 **LIQUIDITY
        AND CAPITAL RESOURCES**
 
 We
        had
        cash and cash equivalents of $526,691 at March 31, 2006. Our total current
        assets at March 31, 2006 were $531,371. We also had the following long term
        assets: $8,419 in property and equipment, net; $1,592 in net website development
        costs; $626,599 represented by net value of our patents; and $12,546 in
        deposits. Our total assets as of March 31, 2006 were $1,180,527.
 
 Our
        total
        current liabilities were $8,718,405 at March 31, 2006, which was represented
        by
        accounts payable of $439,749 and accrued expenses of $524,429; accrued legal
        settlements of $1,725,000; due to related parties of $5,255,095; promissory
        notes of $74,132; and convertible notes payable of $700,000.
 
 During
        the three months ended March 31, 2006, we converted a total of $205,174 of
        amounts due for clinical trials into nine promissory notes that accrued interest
        at the rate of 10% per annum and were due on December 27, 2005. During the
        three
        months ended March 31, 2006, we converted $131,042 of these notes plus accrued
        interest into 105,250 shares of our common stock. As of March 31, 2006, $74,132
        of these notes was still outstanding.
 
 We
        also
        had $146,707 represented by a senior debenture, making our total liabilities
        $8,865,112, and a convertible preferred stock liability of $885,000. Our
        liabilities exceeded our assets by $7,684,585.
 
 We
        have
        financed our operations primarily through cash generated from related party
        debt
        financing as well as issuing a convertible debenture. During the year ended
        March 31, 2006, we received an additional $2,256,500 from a related party;
        $310,000 in advances from stockholders; $250,000 from notes payable; and
        had
        $100,000 in proceeds from the issuance of a convertible debenture. We also
        made
        payments of $50,000 on advances from stockholders and $253,829 in payments
        on
        advances from a related party.
 
 Our
        cash
        used in investing activities was $1,703 for the year ended March 31, 2006,
        as
        compared to $5,094 for the year ended March 31, 2005, a decrease of $3,391.
 
 Our
        net
        cash provided by financing activities was $2,600,730 for the year ended March
        31, 2006 compared to $1,452,133 for the year ended March 31, 2005. The increase
        of $1,148,597 is primarily due to an increase in funding from a related party
        of
        approximately $800,808; advances from stockholders of $310,000; notes payable
        of
        $250,000; and the sale of a convertible debenture for $100,000. These were
        offset by payments and advances to stockholders and a related party of
        $283,829.
 
 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.
        Subsequent to the period covered by this report, the holder of the note elected
        to convert the note to 200,000 shares of our 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 year ended March 31, 2006, we issued 562,706 shares of our common stock
        that
        were registered on or about November 25, 2005 on Form S-8 as payment for
        certain
        accounts payable, past due salaries to certain related parties and amounts
        due
        to consultants.
 
 Subsequent
        to the year ended March 31, 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.
  17
 
 **RESULTS
        OF OPERATIONS FOR THE YEAR ENDED MARCH 31, 2006 AS COMPARED TO THE YEAR ENDED
        MARCH 31, 2005**
 
 **Revenues
        and Cost of Sales.** We
        had no
        significant revenues for the year ended March 31, 2006 and March 31, 2005
        as we
        are undertaking a Phase III clinical trial in order to obtain FDA approval
        of
        PreHistin TM as an
        over the counter drug. Our net sales were $0, as were our cost of sales and
        gross loss for the year ended March 31, 2006, as compared net sales of $434
        less
        $2,500 for cost of sales for a gross loss of $2,066 for the year ended March
        31,
        2005.
 
 **Operating
        Expenses.** Our
        operating expenses for the year ended March 31, 2006 were $5,890,255 compared
        to
        $6,402,505 for the year ended March 31, 2005. For both periods, we incurred
        expenses for two major purposes: i) ongoing development of our
        PreHistin TM product
        and related product management and ii) general management and fund raising
        efforts. For the year ended March 31, 2006, this amount was represented by
        $92,899 in depreciation and amortization; $3,590,741 in professional fees;
        $1,061,520 in salary and wages; $152,696 in rent expense; ($325,937) in
        marketing and research; $505,618 in other operating expenses; and $812,718
        in
        legal settlements. This is compared to the year ended March 31, 2005, where
        we
        had $81,702 in depreciation and amortization; $3,631,692 in professional
        fees;
        $274,084 in salary and wages; $133,104 in rent expense; $1,913,449 in marketing
        and research; and $368,474 in other operating expenses. Our operating expenses
        decreased during the year ended March 31, 2006 as compared to the year ended
        March 31, 2005 principally as a result of the decrease in professional fees,
        which include payments for accounting, legal and shareholder relations, and
        the
        decrease in marketing and research from our Phase III clinical trials, offset
        by
        an increase in legal settlements, salary and wages, other operating expenses.
        A
        significant portion of the professional fees were paid by issuing shares
        of our
        stock. The value of these services was based on the market value of our stock
        at
        the measurement date.
 
 Interest
        expense and financing costs for the year ended March 31, 2006 were $697,139
        compared to $1,806,862 for the year ended March 31, 2005. The decrease is
        due to
        the interest on the convertible note payable, the demand note payable and
        the
        advances from related parties. Interest expense and financing costs also
        include
        the amortization of debt issue costs and debt discounts and penalties for
        not
        registering shares underlying the conversion of the convertible note payable
        and
        convertible preferred stock. During the year March 31, 2006, we fully amortized
        the debt discount and debt issue costs associated with the $600,000 convertible
        note payable due to the lawsuit filed by Gryphon, the holder of the convertible
        note payable.
 
 The
        change in the fair value in the warrant liability relates to the decrease
        in the
        value of the detachable warrants issued in connection with the convertible
        note
        payable and convertible preferred stock. Due to the decrease of our stock
        price,
        the fair value of these warrants has decreased resulting in the decrease
        of the
        warrant liability.
  **OUR
        PLAN OF OPERATION FOR THE NEXT TWELVE MONTHS.**
 
 Over
        the
        next 12 months, we plan to continue moving forward with the completion of
        the
        Phase III clinical trials of our allergy prevention product,
        PreHistin TM ,
        followed by submission of a new drug application (“NDA”) to the FDA for
        marketing approval of PreHistin TM as an
        over the counter ("OTC") allergy medication. Once the NDA is filed, we hope
        to
        receive approval from the FDA enabling our marketing launch in the United
        States
        of the product or licensing to a potential pharmaceutical partner. We estimate
        the cost to complete the Phase III clinical trials and the submission of
        the NDA
        to the FDA for marketing approval will be approximately $5,000,000.
 
 In
        addition to seeking approval from the FDA for the primary indication of seasonal
        allergic rhinitis (hay fever) for PreHistin TM ,
        we may
        conduct additional studies to validate the viability of approval for
        supplemental indications and alternative delivery mechanisms. The tests will
        be
        a combination of clinical trials and laboratory analyses.
 
 As
        of
        March 31, 2006, we had cash and equivalents of $526,691. To fully execute
        our
        business plan for the next 12 months, we will need to raise additional funds
        in
        order to complete the Phase III clinical trials, submit the
        PreHistin TM application to the United States FDA, and execute a licensing agreement or
        otherwise launch the PreHistin TM product.
        There is no assurance that these funds will be raised.
  18
  In
        October 2005, we reported results of an initial six-week 714 patient Phase
        III
        trial designed to study various PreHistin TM dose
        regimens for reducing seasonal allergy symptoms when compared to placebo.
        As
        reported, the statistical analysis utilized a modified intent to treat and
        an
        ANOVA (ANalysis Of VAriation) model to determine the treatment effects for
        the
        four arm study and certain assumptions used were not specified in the
        statistical analysis plan (SAP). Although the data resulting from the prior
        Phase III clinical trial demonstrated that patients who were administered
        PreHistin TM showed a
        statistically significant reduction of allergy symptoms when the modified
        analysis was applied, the data most likely will be viewed by the FDA as
        supportive data and not as pivotal Phase III results required to secure
        approval.
  In
        June
        2006, we announced that we intend to initiate two identical, Phase III clinical
        trials of our anti-allergy medication PreHistin TM in
        patients with seasonal allergic rhinitis. The randomized, double blind,
        placebo-controlled studies are intended to assess the efficacy, overall safety
        and tolerability of our flagship drug PreHistin TM to
        prevent the onset and reduce the severity of allergy symptoms.
  The
        new
        study design calls for two simultaneously conducted Phase III clinical trials,
        each comprised of one placebo arm and one active arm receiving 3.3 mg of
        sublingual PreHistin TM administered twice daily for the six weeks of the study. We anticipate that
        the
        double blind, placebo-controlled trials will be conducted at approximately
        23
        sites throughout the United States during the Ragweed allergy season. The
        trials
        are expected to commence in August 2006 and will utilize electronic diary
        records to assess improvement in the severity of nasal allergy symptoms.
        Approximately 1,600 to 2,000 patients will be randomized into the twin studies
        to receive either placebo or PreHistin TM for
        three weeks prior to the onset of the allergy season, and for an additional
        three weeks into the season.
  We
        estimate these costs to be approximately $5,000,000 over the coming year.
        We
        will need to raise funds to execute studies for the further development of
        the
        PreHistin TM product
        line and to complete the acquisition of additional products. We plan to raise
        these funds through private or other equity offerings. We may attempt to
        secure
        loans from lending institutions or other sources. There is no guarantee that
        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.
 
 Other
        than the research and development related to our PreHistin TM product,
        we do not plan to engage in any other research and development unless we
        are
        able to raise additional funds. We do not anticipate any significant hiring
        over
        the next 12 months.
 
 **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
        7. Financial Statements**
 
 The
        financial statements required by Item 7 are presented in the following order:
  19
  **Cobalis
          Corp. and Subsidiary**
 **Consolidated
          Financial Statements**
 **Years
          Ended March 31, 2006 and 2005**
 **And
          from November 21, 2000 (inception) to March 31, 2006**
 
 
 **Contents**
  Page**Report
                  of Independent Registered Public Accounting Firm**
                F-1**Financial
                    Statements:**Consolidated
                    Balance Sheet as of March 31, 2006
                F-2Consolidated
                    Statements of Operations for the years ended March 31, 2006 and
                    2005,and
                    from November 21, 2000 (inception) to March 31, 2006
                F-3Consolidated
                    Statement of Stockholders' Deficit for the period from November
                    21,2000
                    (Inception) to March 31, 2006
                F-4Consolidated
                    Statements of Cash Flows for the years ended March 31, 2006 and
                    2005,and
                    from November 21, 2000 (inception) to March 31, 2006
                F-5Notes
                    to Consolidated Financial Statements
                F-9
  20
  **Report
          of Independent Registered Public Accounting Firm**
  
 
 
 Board
          of
          Directors and Stockholders of
 Cobalis
          Corp.
 Irvine,
          California
 
 We
          have
          audited the accompanying consolidated balance sheet of Cobalis Corp. (formerly
          Biogentech Corp.) and subsidiary as of March 31, 2006, and the related
          consolidated statements of operations, stockholders' deficit, and cash
          flows for
          the years ended March 31, 2006 and 2005. These consolidated financial statements
          are the responsibility of the Company's management. Our responsibility
          is to
          express an opinion on these consolidated financial statements based on
          our
          audits.
 
 We
          conducted our audits in accordance with the standards of the Public Company
          Accounting Oversight Board (United States). Those standards require that
          we plan
          and perform the audit to obtain reasonable assurance about whether the
          consolidated financial statements are free of material misstatement. An
          audit
          includes examining, on a test basis, evidence supporting the amounts and
          disclosures in the financial statements. An audit also includes assessing
          the
          accounting principles used and significant estimates made by management,
          as well
          as evaluating the overall consolidated financial statement presentation.
          We
          believe that our audits provide a reasonable basis for our opinion.
 
 In
          our
          opinion, the consolidated financial statements referred to above present
          fairly,
          in all material respects, the financial position of Cobalis and subsidiary
          as of
          March 31, 2006, and the results of its operations and its cash flows for
          the
          years ended March 31, 2006 and 2005, in conformity with U.S. generally
          accepted
          accounting principles.
  The
          accompanying consolidated financial statements have been prepared assuming
          that
          the Company will continue as a going concern. As discussed in Note 1 to
          the
          consolidated financial statements, the Company has losses from operations,
          has
          not generated significant revenue, and has a working capital deficiency.
          These
          factors raise substantial doubt about its ability to continue as a going
          concern. Management's plans in regard to these matters are also described
          in
          Note 1. The consolidated financial statements do not include any adjustments
          that might result from the outcome of this uncertainty.
 
 
 
 /s/
          Kabani & Company, Inc.
 **Certified
          Public Accountants**
 
 Los
          Angeles, California
 June
          27,
          2006
  F-1
  **Cobalis
          Corp. and Subsidiary**
 **(formerly
          Biogentech Corp.)**
 **(A
          Development Stage Company)**
 **Consolidated
          Balance Sheet**
 **March
                      31,****2006****ASSETS**CURRENT
                      ASSETSCash
                      and cash equivalents
                  
                  $
                  526,691Prepaid
                      and other current assets
                  
                  
                  4,680TOTAL
                      CURRENT ASSETS
                  
                  
                  531,371PROPERTY
                      AND EQUIPMENT, net of accumulated depreciation of $106,904
                  
                  
                  8,419WEBSITE
                      DEVELOPMENT COSTS, net of accumulated amortization of
                      $33,015
                  
                  
                  1,592PATENTS,
                      net of accumulated amortization of $278,716
                  
                  
                  626,599DEPOSIT
                  
                  
                  12,546TOTAL
                      ASSETS
                  
                  $
                  1,180,527**LIABILITIES
                      AND STOCKHOLDERS' DEFICIT**CURRENT
                      LIABILITIESAccounts
                      payable
                  
                  $
                  439,749Accrued
                      expenses
                  
                  
                  524,429Accrued
                      legal settlements
                  
                  
                  1,725,000Due
                      to related parties
                  
                  
                  5,255,095Warrant
                      liabilityPromissory
                      notes
                  
                  
                  74,132Convertible
                      notes payable
                  
                  
                  700,000TOTAL
                      CURRENT LIABILITIES
                  
                  
                  8,718,405SENIOR
                      DEBENTURE, net of discount of $103,293
                  
                  
                  146,707TOTAL
                      LIABILITIES
                  
                  
                  8,865,112CONVERTIBLE
                      PREFERRED STOCK (dividends on arrears of $187,500)
                  
                  
                  885,000COMMITMENTS
                      AND CONTINGENCIES
                  
                  
                  -STOCKHOLDERS'
                      DEFICITCommon
                      stock; $0.001 par value; 50,000,000 sharesauthorized;
                      27,366,387 shares issued and outstanding
                  
                  
                  27,366Additional
                      paid-in capital
                  
                  
                  16,377,254Prepaid
                      expenses
                  
                  
                  (165,425
                  )Deficit
                      accumulated during the development stage
                  
                  
                  (24,808,780
                  )TOTAL
                      STOCKHOLDERS' DEFICIT
                  
                  
                  (8,569,585
                  )TOTAL
                      LIABILITIES AND STOCKHOLDERS' DEFICIT
                  
                  $
                  1,180,527
   The
            accompanying notes are an integral part of these
            consolidated financial statements.
 F-2
 **Cobalis
          Corp. and Subsidiary**
 **(formerly
          Biogentech Corp.)**
 **(A
          Development Stage Company)**
 **Consolidated
          Statements of Operations**
  **Cumulative
                      from****Year
                      Ended**
                  
                  **November
                      21,****March
                      31,**
                  
                  **March
                      31,**
                  
                  **2000
                      (inception) to****2006**
                  
                  **2005**
                  
                  **March
                      31, 2006**NET
                      SALES
                  
                  $
                  -
                  
                  $
                  434
                  
                  $
                  5,589COST
                      OF SALES
                  
                  
                  -
                  
                  
                  2,500
                  
                  
                  31,342GROSS
                      PROFIT (LOSS)
                  
                  
                  -
                  
                  
                  (2,066
                  )
                  
                  (25,753
                  )OPERATING
                      EXPENSES:Professional
                      fees
                  
                  
                  3,590,741
                  
                  
                  3,631,692
                  
                  
                  9,175,527Salary
                      and wages
                  
                  
                  1,061,520
                  
                  
                  274,084
                  
                  
                  3,037,298Rent
                      expense
                  
                  
                  152,696
                  
                  
                  133,104
                  
                  
                  569,059Marketing
                      and research
                  
                  
                  (325,937
                  )
                  
                  1,913,449
                  
                  
                  1,919,435Depreciation
                      and amortization
                  
                  
                  92,899
                  
                  
                  81,702
                  
                  
                  527,264Impairment
                      expense
                  
                  
                  -
                  
                  
                  -
                  
                  
                  2,331,522Other
                      operating expenses
                  
                  
                  505,618
                  
                  
                  368,474
                  
                  
                  1,626,930Legal
                      settlements
                  
                  
                  812,718
                  
                  
                  -
                  
                  
                  812,718TOTAL
                      OPERATING EXPENSES
                  
                  
                  5,890,255
                  
                  
                  6,402,505
                  
                  
                  19,999,753LOSS
                      FROM OPERATIONS
                  
                  
                  (5,890,255
                  )
                  
                  (6,404,571
                  )
                  
                  (20,025,506
                  )OTHER
                      INCOME (EXPENSE)Interest
                      expense and financing costs
                  
                  
                  (697,139
                  )
                  
                  (1,806,862
                  )
                  
                  (4,201,974
                  )Change
                      in fair value of warrant liability
                  
                  
                  (16,060
                  )
                  
                  110,419
                  
                  
                  303,700TOTAL
                      OTHER INCOME (EXPENSE)
                  
                  
                  (713,199
                  )
                  
                  (1,696,443
                  )
                  
                  (3,898,274
                  )LOSS
                      BEFORE PROVISION FOR INCOME TAXES
                  
                  
                  (6,603,454
                  )
                  
                  (8,101,014
                  )
                  
                  (23,923,780
                  )PROVISION
                      FOR INCOME TAXES
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -NET
                      LOSS
                  
                  
                  (6,603,454
                  )
                  
                  (8,101,014
                  )
                  
                  (23,923,780
                  )PREFERRED
                      STOCK DIVIDENDS
                  
                  
                  75,000
                  
                  
                  75,000
                  
                  
                  1,072,500NET
                      LOSS ATTRIBUTED TO COMMON STOCKHOLDERS
                  
                  $
                  (6,678,454
                  )
                  $
                  (8,176,014
                  )
                  $
                  (24,996,280
                  )NET
                      LOSS PER SHARE:BASIC
                      AND DILUTED
                  
                  $
                  (0.26
                  )
                  $
                  (0.36
                  )
                  $
                  (1.23
                  )WEIGHTED
                      AVERAGE SHARES OUTSTANDING:BASIC
                      AND DILUTED
                  
                  
                  25,816,344
                  
                  
                  22,458,344
                  
                  
                  20,393,502
   The
            accompanying notes are an integral part of these
            consolidated financial statements.
 F-3
  **Cobalis
            Corp. and Subsidiary**
 **(formerly
          Biogentech Corp.)**
 **(A
          Development Stage Company)**
 **Consolidated
          Statement of Stockholders' Deficit**
 **For
          the Years Ended March 31, 2006 and 2005 and the Period**
 **from
          November 20, 2000 (inception) to March 31, 2006**
  ****
                  ****
                  ****
                  ****
                  ****
                  ****
                  ****
                  ****
                  ****
                  ****
                  **Deficit**
                  ****
                  ****
                  ********
                  ****
                  ****
                  ****
                  ****
                  ****
                  ****
                  ****
                  ****
                  ****
                  **accumulated**
                  ****
                  **Total**
                  ********
                  ****
                  ****
                  ****
                  ****
                  ****
                  **Additional**
                  ****
                  ****
                  ****
                  **during
                      the**
                  ****
                  **stockholders'**
                  ********
                  ****
                  **Common
                      stock**
                  ****
                  **paid-in**
                  ****
                  **Prepaid**
                  ****
                  **development**
                  ****
                  **equity**
                  ********
                  ****
                  **Shares**
                  ****
                  **Amount**
                  ****
                  **capital**
                  ****
                  **Expenses**
                  ****
                  **stage**
                  ****
                  **(deficit)**Balance
                      at inception (November 21, 2000)
                  
                  
                  -
                  
                  $
                  -
                  
                  $
                  -
                  
                  $
                  -
                  
                  $
                  -
                  
                  $
                  -Issuance
                      of founder’s shares in exchangefor
                      property and equipment
                  
                  
                  16,300,000
                  
                  
                  16,300
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  16,300Issuance
                      of common stock for cash - November 2000 @ $1.00
                  
                  
                  30,000
                  
                  
                  30
                  
                  
                  29,970
                  
                  
                  -
                  
                  
                  -
                  
                  
                  30,000Issuance
                      of common stock for cash - December 2000 @ $1.00
                  
                  
                  15,000
                  
                  
                  15
                  
                  
                  14,985
                  
                  
                  -
                  
                  
                  -
                  
                  
                  15,000Issuance
                      of common stock for cash - February 2001 @ $1.00
                  
                  
                  12,000
                  
                  
                  12
                  
                  
                  11,988
                  
                  
                  -
                  
                  
                  -
                  
                  
                  12,000Issuance
                      of common stock for cash - March 2001 @ $1.00
                  
                  
                  125,000
                  
                  
                  125
                  
                  
                  124,875
                  
                  
                  -
                  
                  
                  -
                  
                  
                  125,000Issuance
                      of common stock for services - March 2001 @ $1.00
                  
                  
                  10,000
                  
                  
                  10
                  
                  
                  9,990
                  
                  
                  -
                  
                  
                  -
                  
                  
                  10,000Contributed
                      capital
                  
                  
                  -
                  
                  
                  -
                  
                  
                  62,681
                  
                  
                  -
                  
                  
                  -
                  
                  
                  62,681Net
                      loss for the period from inception
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  -(November
                      21, 2000) to March 31, 2001
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  (223,416
                  )
                  
                  (223,416
                  )Balance
                      at March 31, 2001, as restated
                  
                  
                  16,492,000
                  
                  
                  16,492
                  
                  
                  254,489
                  
                  
                  -
                  
                  
                  (223,416
                  )
                  
                  47,565Issuance
                      of common stock for cash - April 2001 @ $1.00
                  
                  
                  10,000
                  
                  
                  10
                  
                  
                  9,990
                  
                  
                  -
                  
                  
                  -
                  
                  
                  10,000Issuance
                      of common stock for telephone equipment -April
                      2001 @ $1.00
                  
                  
                  6,750
                  
                  
                  7
                  
                  
                  6,743
                  
                  
                  -
                  
                  
                  -
                  
                  
                  6,750Issuance
                      of common stock for cash - May 2001 @ $1.00
                  
                  
                  11,000
                  
                  
                  11
                  
                  
                  10,989
                  
                  
                  -
                  
                  
                  -
                  
                  
                  11,000Issuance
                      of common stock for website development -May
                      2001 @ $1.00
                  
                  
                  17,000
                  
                  
                  17
                  
                  
                  16,983
                  
                  
                  -
                  
                  
                  -
                  
                  
                  17,000Issuance
                      of common stock for legal services -May
                      2001 @ $1.00
                  
                  
                  1,000
                  
                  
                  1
                  
                  
                  999
                  
                  
                  -
                  
                  
                  -
                  
                  
                  1,000Issuance
                      of common stock for cash - June 2001 @ $1.00
                  
                  
                  23,500
                  
                  
                  24
                  
                  
                  23,476
                  
                  
                  -
                  
                  
                  -
                  
                  
                  23,500Issuance
                      of common stock for cash - July 2001 @ $1.00
                  
                  
                  20,000
                  
                  
                  20
                  
                  
                  19,980
                  
                  
                  -
                  
                  
                  -
                  
                  
                  20,000Issuance
                      of common stock for cash - August 2001 @ $1.00
                  
                  
                  25,000
                  
                  
                  25
                  
                  
                  24,975
                  
                  
                  -
                  
                  
                  -
                  
                  
                  25,000Issuance
                      of common stock for services, related party -September
                      2001 @ $1.00
                  
                  
                  65,858
                  
                  
                  66
                  
                  
                  65,792
                  
                  
                  -
                  
                  
                  -
                  
                  
                  65,858Issuance
                      of common stock for cash - September 2001 @ $1.00
                  
                  
                  15,000
                  
                  
                  15
                  
                  
                  14,985
                  
                  
                  -
                  
                  
                  -
                  
                  
                  15,000Issuance
                      of common stock for services - September 2001 @ $1.00
                  
                  
                  11,000
                  
                  
                  11
                  
                  
                  10,989
                  
                  
                  -
                  
                  
                  -
                  
                  
                  11,000Issuance
                      of stock options for services - September 2001
                  
                  
                  -
                  
                  
                  -
                  
                  
                  32,000
                  
                  
                  -
                  
                  
                  -
                  
                  
                  32,000Issuance
                      of common stock for cash - October 2001 @ $1.00
                  
                  
                  5,000
                  
                  
                  5
                  
                  
                  4,995
                  
                  
                  -
                  
                  
                  -
                  
                  
                  5,000Issuance
                      of common stock for cash - December 2001 @ $1.00
                  
                  
                  30,000
                  
                  
                  30
                  
                  
                  29,970
                  
                  
                  -
                  
                  
                  -
                  
                  
                  30,000Issuance
                      of common stock for services -December
                      31, 2001 @ $1.00
                  
                  
                  33,000
                  
                  
                  33
                  
                  
                  32,967
                  
                  
                  -
                  
                  
                  -
                  
                  
                  33,000Issuance
                      of common stock for services, related party -December
                      2001 @ $1.00
                  
                  
                  117,500
                  
                  
                  118
                  
                  
                  117,382
                  
                  
                  -
                  
                  
                  -
                  
                  
                  117,500Issuance
                      of common stock for prepaid advertising -December
                      2001 @ $1.00
                  
                  
                  15,600
                  
                  
                  15
                  
                  
                  15,585
                  
                  
                  -
                  
                  
                  -
                  
                  
                  15,600Issuance
                      of common stock for property and equipment -January
                      2002 @ $3.00
                  
                  
                  1,000
                  
                  
                  1
                  
                  
                  2,999
                  
                  
                  -
                  
                  
                  -
                  
                  
                  3,000Issuance
                      of common stock for services, related party -January
                      2002 @ $1.00
                  
                  
                  33,000
                  
                  
                  33
                  
                  
                  32,967
                  
                  
                  -
                  
                  
                  -
                  
                  
                  33,000Issuance
                      of common stock for cash - February 2002 @ $2.00
                  
                  
                  20,000
                  
                  
                  20
                  
                  
                  39,980
                  
                  
                  -
                  
                  
                  -
                  
                  
                  40,000Issuance
                      of common stock for cash - March 2002 @ $2.00
                  
                  
                  12,500
                  
                  
                  12
                  
                  
                  24,988
                  
                  
                  -
                  
                  
                  -
                  
                  
                  25,000Contributed
                      capital
                  
                  
                  -
                  
                  
                  -
                  
                  
                  211,269
                  
                  
                  -
                  
                  
                  -
                  
                  
                  211,269Deferred
                      compensation
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  (60,108
                  )
                  
                  -
                  
                  
                  (60,108
                  )Net
                      loss
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  (1,144,249
                  )
                  
                  (1,144,249
                  )Balance
                      at March 31, 2002, as restated
                  
                  
                  16,965,708
                  
                  
                  16,966
                  
                  
                  1,005,492
                  
                  
                  (60,108
                  )
                  
                  (1,367,665
                  )
                  
                  (405,315
                  )Issuance
                      of common stock for services - April 2002 @ $2.00
                  
                  
                  3,000
                  
                  
                  3
                  
                  
                  5,997
                  
                  
                  -
                  
                  
                  -
                  
                  
                  6,000Issuance
                      of common stock for cash - April 2002 @ $1.00
                  
                  
                  10,000
                  
                  
                  10
                  
                  
                  9,990
                  
                  
                  -
                  
                  
                  -
                  
                  
                  10,000Issuance
                      of common stock for cash - April 2002 @ $2.00
                  
                  
                  17,500
                  
                  
                  17
                  
                  
                  34,983
                  
                  
                  -
                  
                  
                  -
                  
                  
                  35,000Issuance
                      of common stock for cash - May 2002 @ $1.00
                  
                  
                  10,000
                  
                  
                  10
                  
                  
                  9,990
                  
                  
                  -
                  
                  
                  -
                  
                  
                  10,000Issuance
                      of common stock for cash - May 2002 @ $2.00
                  
                  
                  16,000
                  
                  
                  16
                  
                  
                  31,984
                  
                  
                  -
                  
                  
                  -
                  
                  
                  32,000Issuance
                      of stock options for services - May 2002
                  
                  
                  -
                  
                  
                  -
                  
                  
                  350,000
                  
                  
                  -
                  
                  
                  -
                  
                  
                  350,000Contributed
                      capital - bonus expense
                  
                  
                  -
                  
                  
                  -
                  
                  
                  50,000
                  
                  
                  -
                  
                  
                  -
                  
                  
                  50,000Issuance
                      of common stock for cash - June 2002 @ $1.00
                  
                  
                  5,000
                  
                  
                  5
                  
                  
                  4,995
                  
                  
                  -
                  
                  
                  -
                  
                  
                  5,000Issuance
                      of common stock for cash - June 2002 @ $2.00
                  
                  
                  5,000
                  
                  
                  5
                  
                  
                  9,995
                  
                  
                  -
                  
                  
                  -
                  
                  
                  10,000Issuance
                      of common stock for cash - July 2002 @ $1.00
                  
                  
                  5,000
                  
                  
                  5
                  
                  
                  4,995
                  
                  
                  -
                  
                  
                  -
                  
                  
                  5,000Issuance
                      of common stock for cash - August 2002 @ $2.00
                  
                  
                  10,000
                  
                  
                  10
                  
                  
                  19,990
                  
                  
                  -
                  
                  
                  -
                  
                  
                  20,000Issuance
                      of common stock for cash - September 2002 @ $2.00
                  
                  
                  10,000
                  
                  
                  10
                  
                  
                  19,990
                  
                  
                  -
                  
                  
                  -
                  
                  
                  20,000Issuance
                      of stock options below fair market value - November 2002
                  
                  
                  -
                  
                  
                  -
                  
                  
                  250,000
                  
                  
                  (250,000
                  )
                  
                  -
                  
                  
                  -Issuance
                      of common stock for conversion of note - December 2002 @
                      2.00
                  
                  
                  50,000
                  
                  
                  50
                  
                  
                  99,950
                  
                  
                  -
                  
                  
                  -
                  
                  
                  100,000Issuance
                      of common stock for cash - December 2002 @ $2.00
                  
                  
                  20,000
                  
                  
                  20
                  
                  
                  39,980
                  
                  
                  -
                  
                  
                  -
                  
                  
                  40,000Issuance
                      of common stock for services - December 2002 @ $2.00
                  
                  
                  15,000
                  
                  
                  15
                  
                  
                  29,985
                  
                  
                  -
                  
                  
                  -
                  
                  
                  30,000Issuance
                      of common stock for patents - December 2002 @ $2.00
                  
                  
                  2,000,000
                  
                  
                  2,000
                  
                  
                  1,285,917
                  
                  
                  -
                  
                  
                  -
                  
                  
                  1,287,917Contributed
                      capital
                  
                  
                  
                  
                  
                  
                  
                  
                  292,718
                  
                  
                  -
                  
                  
                  -
                  
                  
                  292,718Issuance
                      of common stock for exercise of options - December 2002
                  
                  
                  574,000
                  
                  
                  574
                  
                  
                  574,028
                  
                  
                  -
                  
                  
                  -
                  
                  
                  574,602Deferred
                      compensation
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  60,108
                  
                  
                  
                  
                  
                  60,108Contributed
                      capital
                  
                  
                  
                  
                  
                  
                  
                  
                  5,000
                  
                  
                  -
                  
                  
                  -
                  
                  
                  5,000Issuance
                      of common stock for services - January 2003
                  
                  
                  
                  
                  
                  
                  
                  
                  25,000
                  
                  
                  -
                  
                  
                  -
                  
                  
                  25,000Issuance
                      of common stock for cash February 2003 @ $2.00
                  
                  
                  11,500
                  
                  
                  12
                  
                  
                  22,988
                  
                  
                  -
                  
                  
                  -
                  
                  
                  23,000Issuance
                      of common stock for cash March 2003 @ $2.00
                  
                  
                  5,000
                  
                  
                  5
                  
                  
                  9,995
                  
                  
                  -
                  
                  
                  -
                  
                  
                  10,000Deferred
                      compensation
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  54,000
                  
                  
                  -
                  
                  
                  54,000Net
                      loss
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  -
                  
                  
                  (2,148,008
                  )
                  
                  (2,148,008
                  )Balance
                      at March 31, 2003, as restated
                  
                  
                  19,732,708
                  
                  
                  19,733
                  
                  
                  4,193,962
                  
                  
                  (196,000
                  )
                  
                  (3,515,673
                  )
                  
                  502,022Issuance
                      of common stock for cash April 2003 @ $2.00
                  
                  
                  70,000
                  
                  
                  70
                  
                  
                  139,930
                  
                  
                  -
                  
                  
                  -
                  
                  
                  140,000Issuance
                      of common stock for cash May 2003 @ $2.00
                  
                  
                  30,000
                  
                  
                  30
                  
                  
                  59,970
                  
                  
                  -
                  
                  
                  -
                  
                  
                  60,000Acquisition
                      by Biogentech Corp of ("Togs for Tykes")
                  
                  
                  1,032,000
                  
                  
                  1,032
                  
                  
                  (101,032
                  )
                  
                  -
                  
                  
                  -
                  
                  
                  (100,000
                  )Issuance
                      of common stock for penalties January 2004 @ $2.80
                  
                  
                  135,000
                  
                  
                  135
                  
                  
                  377,865
                  
                  
                  -
                  
                  
                  -
                  
                  
                  378,000Issuance
                      of common stock for services February 2004 @ $2.20
                  
                  
                  100,000
                  
                  
                  100
                  
                  
                  219,900
                  
                  
                  -
                  
                  
                  -
                  
                  
                  220,000Issuance
                      of common stock for services February 2004 @ $1.85
                  
                  
                  20,000
                  
                  
                  20
                  
                  
                  36,980
                  
                  
                  -
                  
                  
                  -
                  
                  
                  37,000Value
                      of beneficial converstion feature of convertibledebenture
                      issued in September 2003
                  
                  
                  
                  
                  
                  
                  
                  
                  346,870
                  
                  
                  -
                  
                  
                  -
                  
                  
                  346,870Fair
                      value allocated to warrant liability for detachablewarrants
                      issued with preferred stock
                  
                  
                  
                  
                  
                  
                  
                  
                  (181,849
                  )
                  
                  -
                  
                  
                  -
                  
                  
                  (181,849
                  )Dividend
                      on preferred stock
                  
                  
                  
                  
                  
                  
                  
                  
                  885,000
                  
                  
                  -
                  
                  
                  (885,000
                  )
                  
                  -Deferred
                      compensation
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  196,000
                  
                  
                  -
                  
                  
                  196,000Net
                      loss
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  -
                  
                  
                  (5,703,639
                  )
                  
                  (5,703,639
                  )Balance
                      at March 31, 2004
                  
                  
                  21,119,708
                  
                  
                  21,120
                  
                  
                  5,977,596
                  
                  
                  -
                  
                  
                  (10,104,312
                  )
                  
                  (4,105,596
                  )Issuance
                      of common stock for penalties May 2004 @ $1.85
                  
                  
                  170,000
                  
                  
                  170
                  
                  
                  314,330
                  
                  
                  -
                  
                  
                  -
                  
                  
                  314,500Issuance
                      of common stock for services June 2004 @ $1.75
                  
                  
                  10,000
                  
                  
                  10
                  
                  
                  17,490
                  
                  
                  -
                  
                  
                  -
                  
                  
                  17,500Issuance
                      of common stock for conversion of 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
                  
                  
                  
                  
                  
                  
                  
                  
                  1,313Issuance
                      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
                  
                  
                  
                  
                  
                  
                  
                  
                  1,541,628Net
                      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
                  )
 The
            accompanying notes are an integral part of these consolidated financial
            statements
 F-4
  **Cobalis
            Corp. and Subsidiary**
 **(formerly
          Biogentech Corp.)**
 **(A
          Development Stage Company)**
 **Consolidated
          Statements of Cash Flows**
 **For
          the Years Ended March 31, 2006 and 2005 and the Period**
 **from
          November 20, 2000 (inception) to March 31, 2006**
  **Cumulative
                        from****Year
                        Ended**
                    
                    
                    
                    **November
                        21,****March
                        31,**
                    
                    **March
                        31,**
                    
                    **2000
                        (inception) to****2006**
                    
                    **2005**
                    
                    **March
                        31, 2006**CASH
                        FLOWS FROM OPERATING ACTIVITIES:Net
                        loss
                    
                    $
                    (6,603,454
                    )
                    $
                    (8,101,014
                    )
                    $
                    (23,923,780
                    )Adjustment
                        to reconcile net loss to net cashprovided
                        by (used in) operating activities:Depreciation
                        and amortization expense
                    
                    
                    92,899
                    
                    
                    81,702
                    
                    
                    527,264Common
                        stock issued for services
                    
                    
                    1,637,979
                    
                    
                    2,643,986
                    
                    
                    4,846,323Common
                        stock issued for penalty
                    
                    
                    -
                    
                    
                    314,500
                    
                    
                    692,500Common
                        stock issued for financing costs
                    
                    
                    30,500
                    
                    
                    40,500
                    
                    
                    71,000Change
                        in value of warrant liability
                    
                    
                    16,060
                    
                    
                    (110,419
                    )
                    
                    (303,700
                    )Amortization
                        of debt issue costs
                    
                    
                    28,072
                    
                    
                    67,882
                    
                    
                    111,572Exercise
                        of stock options for services
                    
                    
                    -
                    
                    
                    -
                    
                    
                    26,960Amortization
                        of discounts on notes
                    
                    
                    -
                    
                    
                    492,137
                    
                    
                    790,128Issuance
                        of stock options/warrants for services
                    
                    
                    1,541,628
                    
                    
                    553,715
                    
                    
                    2,502,343Capital
                        contribution - bonus (related party)
                    
                    
                    -
                    
                    
                    -
                    
                    
                    50,000Amortization
                        of prepaid expenses
                    
                    
                    112,025
                    
                    
                    -
                    
                    
                    127,625Amortization
                        of deferred compensation
                    
                    
                    -
                    
                    
                    -
                    
                    
                    250,000Discount
                        on common stock issued for settlement of debt
                    
                    
                    -
                    
                    
                    -
                    
                    
                    50,000Impairment
                        expense
                    
                    
                    -
                    
                    
                    -
                    
                    
                    2,331,522Re-pricing
                        of warrants
                    
                    
                    301,155
                    
                    
                    
                    
                    
                    301,155Changes
                        in assets and liabilities:
                    
                    
                    
                    
                    
                    
                    
                    
                    -Prepaid
                        expenses and other assets
                    
                    
                    (4,680
                    )
                    
                    11,619
                    
                    
                    (4,680
                    )Inventory
                    
                    
                    -
                    
                    
                    5,903
                    
                    
                    6,250Deposits
                    
                    
                    27,454
                    
                    
                    -
                    
                    
                    27,454Accounts
                        payable
                    
                    
                    112,930
                    
                    
                    214,864
                    
                    
                    848,139Accrued
                        expenses
                    
                    
                    (1,421,140
                    )
                    
                    1,948,857
                    
                    
                    1,414,801Accrued
                        legal settlement
                    
                    
                    1,665,000
                    
                    
                    -
                    
                    
                    1,725,000Amounts
                        due to related parties
                    
                    
                    390,067
                    
                    
                    313,717
                    
                    
                    1,827,907Net
                        cash used in operating activities
                    
                    
                    (2,073,505
                    )
                    
                    (1,522,051
                    )
                    
                    (5,704,217
                    )CASH
                        FLOWS FROM INVESTING ACTIVITIES:Purchase
                        of property and equipment
                    
                    
                    (1,703
                    )
                    
                    (1,562
                    )
                    
                    (89,272
                    )Increase
                        in patent costs
                    
                    
                    -
                    
                    
                    -
                    
                    
                    (24,711
                    )Change
                        in restricted cash
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -Merger
                        fees and costs
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -Increase
                        in acquisition deposits
                    
                    
                    -
                    
                    
                    -
                    
                    
                    (2,220,000
                    )Increase
                        in other deposits
                    
                    
                    -
                    
                    
                    -
                    
                    
                    (40,000
                    )Increase
                        in capitalized website
                    
                    
                    -
                    
                    
                    (3,532
                    )
                    
                    (18,097
                    )Net
                        cash used in investing activities
                    
                    
                    (1,703
                    )
                    
                    (5,094
                    )
                    
                    (2,392,080
                    )CASH
                        FLOWS FROM FINANCING ACTIVITIES:Change
                        in cash overdraft
                    
                    
                    (11,941
                    )
                    
                    11,941
                    
                    
                    -Payment
                        on contract
                    
                    
                    -
                    
                    
                    -
                    
                    
                    (161,000
                    )Proceeds
                        from advances - related party
                    
                    
                    2,256,500
                    
                    
                    1,455,692
                    
                    
                    4,581,449Proceeds
                        from advances from stockholders
                    
                    
                    310,000
                    
                    
                    -
                    
                    
                    310,000Proceeds
                        from issuance of notes payable
                    
                    
                    250,000
                    
                    
                    -
                    
                    
                    1,465,000Proceeds
                        from sale of common stock
                    
                    
                    -
                    
                    
                    -
                    
                    
                    806,500Proceeds
                        from sale of preferred stock
                    
                    
                    -
                    
                    
                    -
                    
                    
                    885,000Proceeds
                        from convertible debenture
                    
                    
                    100,000
                    
                    
                    -
                    
                    
                    700,000Capital
                        contribution
                    
                    
                    -
                    
                    
                    -
                    
                    
                    571,668Payment
                        of debt issue costs
                    
                    
                    -
                    
                    
                    -
                    
                    
                    (83,500
                    )Payments
                        on advances from stockholders
                    
                    
                    (50,000
                    )
                    
                    -
                    
                    
                    (50,000
                    )Payments
                        on advances - related party
                    
                    
                    (253,829
                    )
                    
                    (15,500
                    )
                    
                    (402,129
                    )Net
                        cash provided by financing activities
                    
                    
                    2,600,730
                    
                    
                    1,452,133
                    
                    
                    8,622,988NET
                        INCREASE (DECREASE) IN CASH ANDCASH
                        EQUIVALENTS
                    
                    
                    525,522
                    
                    
                    (75,012
                    )
                    
                    526,691CASH
                        AND CASH EQUIVALENTS, Beginning of year
                    
                    
                    1,169
                    
                    
                    76,181
                    
                    
                    -CASH
                        AND CASH EQUIVALENTS, End of year
                    
                    $
                    526,691
                    
                    $
                    1,169
                    
                    $
                    526,691SUPPLEMENTAL
                        DISCLOSURES OF CASH FLOW INFORMATION:Interest
                        paid
                    
                    $
                    -
                    
                    $
                    -
                    
                    $
                    -Income
                        taxes paid
                    
                    $
                    -
                    
                    $
                    -
                    
                    $
                    -
   The
            accompanying notes are an integral part of these
            consolidated financial statements.
 F-5
 
  **Cobalis
                Corp. and Subsidiary**
 **(formerly
                Biogentech Corp.)**
 **(A
                Development Stage Company)**
 **Consolidated
                Statements of Cash Flows (Continued)**
  
 **Supplemental
                Schedule of Non-Cash Investing and Financing Activities:**
  **For
                the period from November 21, 2000 (Inception) to March 31, 2004**
 
 The
                Company issued 16,300,000 shares of its common stock at par, as founder's
                shares, for property and equipment, totaling $16,300, upon formation
                of the
                Company.
 
 The
                Company issued a note payable as consideration for the purchase of
                patents and
                inventory valued at $1,086,536 and $6,250, respectively. The Company
                recorded a
                $2,843,464 discount on note payable relating to the issuance of the
                note.
 
 The
                Company issued 10,000 shares of its common stock for consulting services
                totaling $10,000, which represented the fair market value on the
                date of
                issuance.
 
 During
                the period from November 21, 2000 (inception) to March 31, 2002,
                R&R, a
                shareholder of the Company, advanced the Company cash and also paid
                certain
                expenses directly on behalf of the Company totaling $273,950. The
                Company has
                recorded these transactions as a contribution to capital as of March
                31, 2001.
 
 The
                Company issued 6,750 shares of its common stock valued at $6,750
                for telephone
                equipment, which represented the fair market value on the date of
                issuance.
 
 The
                Company issued 17,000 shares of its common stock valued at $17,000
                for website
                development costs, which represented the fair market value on the
                date of
                issuance.
 
 The
                Company issued 45,000 shares of its common stock valued at $45,000
                for legal and
                consulting services provided, which represented the fair market value
                on the
                date of issuance.
 
 The
                Company issued 216,358 shares of its common stock valued at $1.00
                per share or
                $216,358 as consideration for past and future consulting services
                provided by a
                related party, which represented the fair market value on the date
                of issuance.
                This resulted in the Company recording $60,108 of deferred compensation
                as of
                March 31, 2002.
 
 The
                Company issued 15,600 shares of its common stock valued at $15,600
                for prepaid
                advertising expense, which represents the fair market value on the
                date of
                issuance.
 
 During
                January 2002, the Company issued 1,000 shares of its common stock
                for property
                and equipment with a fair value of $3,000.
 
 The
                Company issued 64,000 options to officers of the Company, to purchase
                its common
                stock at $0.50 per share for services rendered totaling $32,000.
                The Company's
                common stock had a fair market value of $1.00 per share on the date
                of issuance.
 
 As
                of
                March 31, 2003, the Company has fully amortized the remaining balance
                of
                deferred compensation in the amount of $60,108 resulting from the
                issuance of
                common shares for future consulting services.
   The
                accompanying notes are an integral part of these
                consolidated financial statements.
 F-6
 **Cobalis
                Corp. and Subsidiary**
 **(formerly
                Biogentech Corp.)**
 **(A
                Development Stage Company)**
 **Consolidated
                Statements of Cash Flows (Continued)**
 
 **Supplemental
                Schedule of Non-Cash Investing and Financing Activities
                (Continued):**
 
 The
                Company issued 18,000 shares of its common stock valued at $36,000
                for
                consulting services provided, which represented the fair market value
                on the
                date of issuance.
 
 During
                the year ended March 31, 2003, R&R advanced the Company cash and also paid
                certain expenses directly on behalf of the Company totaling $292,718.
                The
                Company has recorded these transactions as a contribution to capital
                as of March
                31, 2003.
 
 On
                May 5,
                2002, a related party transferred 25,000 shares of the Company's
                common stock
                valued at $50,000 to an employee of the Company as a bonus. The fair
                market
                value on the date of issuance was $2.00 per share. The Company has
                recorded this
                transaction as a contribution to capital and salary expense as of
                March 31,
                2003.
 
 During
                September 2002, a shareholder loaned the Company $50,000, which was
                convertible
                into 50,000 shares of the Company's common stock. The fair market
                value of the
                common stock was $2.00 per share; therefore, the Company recorded
                a $50,000
                expense relating to this note. Subsequently, on December 31, 2002,
                the note
                holder converted the $50,000 promissory note into 50,000 shares of
                the Company's
                common stock.
 
 During
                May 2002, the Company granted stock options to three consultants
                to purchase a
                total of 300,000 shares at an exercise price of $1.00 per share.
                The options
                vest immediately on the execution date of the consulting agreement.
                At the date
                of the grant, the fair value of the common stock was $2.00 per share.
                The
                Company valued these options under the Black-Scholes model with a
                total
                valuation of approximately $350,000, which was included in the statements
                of
                operations for the year ended March 31, 2003.
 
 Three
                employees exercised 574,000 stock options as consideration for the
                forgiveness
                of $574,602 of accrued salaries to these three employees.
 
 On
                December 19, 2002, the Company issued 2,000,000 shares of its common
                stock
                valued at $1,287,917 in lieu of payment in full under the contract
                payable
                totaling $1,287,917.
 
 On
                November 5, 2002, the Company entered into an employment agreement
                with its new
                Chief Operating Officer ("COO"). The COO received 500,000 options
                to purchase
                500,000 shares of the Company's common stock an exercise price totaling
                the
                lesser of $2.00 per share or 75% of the fair market value of the
                Company's
                common stock on date of grant. As of November 5, 2002, the fair market
                value of
                the Company's common stock was $2.00 per share; therefore, the exercise
                price of
                the stock options issued was $1.50 per option. The Company recognized
                deferred
                compensation relating to these options and is amortizing the expense
                over the
                vesting period. During the year ended March 31, 2003, the Company
                recognized
                $54,000 of expense relating to these options.
 
 On
                December 27, 2002, the Company entered into an employment agreement
                with its
                Chief Financial Officer ("CFO") on a part-time basis. This agreement
                became
                effective on January 2, 2003. The CFO was granted 25,000 fully vested
                options to
                purchase 25,000 shares of the Company's common stock with an exercise
                price of
                $1.00 per share during January 2003. The fair market value of the
                common stock
                was $2.00 per share; therefore, during January 2003, the Company
                recognized
                $25,000 of compensation expense upon issuance.
   The
                accompanying notes are an integral part of these
                consolidated financial statements.
 F-7
  **Cobalis
                Corp. and Subsidiary**
 **(formerly
                Biogentech Corp.)**
 **(A
                Development Stage Company)**
 **Consolidated
                Statements of Cash Flows (Continued)**
 
 **Supplemental
                Schedule of Non-Cash Investing and Financing Activities
                (Continued):**
 
 In
                September 2003, the Company sold a convertible debenture with detachable
                warrants. The Company calculated the value of the warrants and the
                convertible
                feature of the debenture utilizing the Black-Scholes model. The $169,630
                value
                of the warrants is included in the warrant liability due to registration
                rights
                in accordance with EITF 00-19. The $346,870 value of the beneficial
                conversion
                debenture was charged to additional paid-in capital.
 
 The
                Company issued 135,000 shares of its common stock valued at $378,000
                for a
                penalty associated with its convertible debenture, which represented
                the fair
                market value on the date of issuance.
 
 The
                Company issued 120,000 shares of its common stock valued at $257,000
                for
                consulting services and employee bonus.
 
 **For
                the Year Ended March 31, 2005**
 
 The
                Company issued 170,000 shares of its common stock valued at $314,500
                for a
                penalty associated with its convertible debenture, which represented
                the fair
                market value on the date of issuance.
 
 The
                Company issued 2,062,460 shares of its common stock valued at $2,643,986
                for
                consulting services and employee salary and bonuses.
  The
                Company issued 50,000 shares of its common stock valued at $40,500
                for financing
                costs.
 
 The
                Company issued 1,228,460 shares of its common stock in exchange for
                debt
                totaling $2,496,964.
  **For
                the Year Ended March 31, 2006**
 
 The
                Company issued 2,305,509 shares of its common stock valued at $2,105,430
                for
                consulting services and employee salary and bonuses.
  The
                Company issued 50,000 shares of its common stock valued at $30,500
                for financing
                costs.
 
 The
                Company issued 125,000 shares of its common stock valued at $72,500
                for prepaid
                interest on a senior debenture.
 
 The
                Company issued 105,250 shares of its common stock in exchange for
                notes payable
                and accrued interest totaling $173,663.
  The
                  accompanying notes are an integral part of these
                  consolidated financial statements.
 F-8
  **Cobalis
                  Corp. and Subsidiary**
 **(A
                  Development Stage Company)**
 **Notes
                  to Consolidated Financial Statements**
 **For
                  the Years Ended March 31, 2006 and 2005 and the Period**
 **From
                  November 21, 2000 (inception) to March 31, 2006**
  **Note
                1 - Organization and Significant Accounting Policies**
 
 Organization
                and Line of Business
  BioGentec
                Incorporated ("BG"), 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, BG formally changed its name to BioGentec Incorporated.
                On July 2,
                2003, BG was merged into Togs for Tykes Acquisition Corp.("TTAC"),
                a wholly
                owned subsidiary formed for the purpose of acquiring BG. TTAC is
                the wholly
                owned subsidiary of the registrant, Cobalis Corp. (formerly Biogentech
                Corp. and
                formerly Togs for Tykes, Inc.) (the “Company” or “Cobalis”). As allowed under
                SFAS 141, the Company designated a date of convenience of the closing
                for
                accounting purposes as June 30, 2003. Under the terms of the merger
                agreement,
                all of BG'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' common stock. At the date of the transaction,
                Cobalis
                had 5,532,000 shares of common stock outstanding of which 4,500,000
                were
                cancelled as part of the transaction. The Company changed its corporate
                name to
                Cobalis Corp. with the filing of a Certificate of Amendment to our
                corporate
                articles in Nevada on July 6, 2004.
 
 This
                transaction was consummated with the filing of the Articles of Merger
                with the
                State of Nevada on July 2, 2003 BG shareholders then effectively
                controlled
                approximately 95% of the issued and outstanding common stock of Cobalis.
                Since
                the shareholders of BG obtained control of Cobalis, according to
                FASB Statement
                No. 141 - "Business Combinations," this acquisition has been treated
                as a
                recapitalization for accounting purposes, in a manner similar to
                reverse
                acquisition accounting. In accounting for this transaction:
 
 ·
                    BG
                        is deemed to be the purchaser and surviving company for accounting
                        purposes. Accordingly, its assets and liabilities are included
                        in the
                        balance sheet at their historical book values and the results
                        of
                        operations of BG have been presented for the comparative
                        prior period; and 
 ·
                    Control
                        of the net assets and business of Cobalis was acquired for
                        accounting
                        purposes effective June 30, 2003. This transaction has been
                        accounted for
                        as a purchase of the assets and liabilities of Cobalis by
                        BG as of June 30
                        2003. The historical cost of the net assets acquired was
                        $0 and $100,000
                        cash was paid for costs and fees associated with the merger.  The
                  Company is a specialty pharmaceutical company that has purchased
                  the
                  intellectual property rights (including related patents) to market
                  Immun-Eeze, a
                  dietary supplement, which is a natural alternative to over-the-counter
                  and
                  prescription medications. Immun-Eeze is effective in alleviating
                  allergies and
                  their accompanying symptoms. Immun-Eeze has been reformulated (the
                  reformulation
                  is included in the patent) and will be marketed under the name
                  Prehistin,
                  previously "Allertin". The Company is currently a development stage
                  company
                  under the provisions of Statement of Financial Accounting Standards
                  ("SFAS") No.
                  7 as it has not generated significant revenue.
 F-9
 **Cobalis
                    Corp. and Subsidiary**
 **(A
                    Development Stage Company)**
 **Notes
                    to Consolidated Financial Statements**
 **For
                    the Years Ended March 31, 2006 and 2005 and the Period**
 **From
                    November 21, 2000 (inception) to March 31,
                    2006**
 Basis
                of Presentation
 
 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 $ 6,603,454 for the
                year ended March 31, 2006 and as of March 31, 2006, the Company had
                a working
                capital deficiency of $8,187,034 and a stockholder deficit of $8,569,585.
                In
                addition, as of March 31, 2006, the Company has not developed a substantial
                source of revenue.
 
 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.
 
 The
                Company is currently attempting to raise additional financing for
                operating
                purposes. The Company is also attempting to partner with a large
                pharmaceutical
                company for research and development, marketing and distribution
                of its
                product.
 
 The
                Company requires substantial capital to pursue its operating strategy
                and
                currently has limited cash for operations. Until the Company can
                obtain revenues
                or obtain funding through debt and equity financing sufficient to
                fund working
                capital needs and additional research and development costs necessary
                to obtain
                the regulatory approvals for commercialization, the Company will
                be dependent
                upon external sources of financing.
 
 There
                can
                be no assurances that sufficient financing will be available on terms
                acceptable
                to the Company, or at all. If the Company is unable to obtain such
                financing,
                the Company will be forced to scale back operations, which could
                have an adverse
                effect on the Company's financial condition and results of operations.
                These
                factors raise substantial doubt about the Company's ability to continue
                as a
                going concern.
 
 Management
                believes that actions presently being taken to revise the Company's
                operating
                and financial requirements provide the opportunity for the Company
                to continue
                as a going concern.
 
 Principles
                of Consolidation
 
 The
                accompanying consolidated financial statements include the accounts
                of Cobalis
                and its wholly owned subsidiary, BioGentec Inc. The accompanying
                consolidated
                financial statements have been prepared in accordance with accounting
                principles
                generally accepted in the United States of America. All inter-company
                accounts
                and transactions have been eliminated in consolidation.
 
 Use
                of
                Estimates ****
 
 The
                preparation of consolidated financial statements in conformity with
                accounting
                principles generally accepted in the United States of America requires
                management to make estimates and assumptions that affect the reported
                amounts of
                assets and liabilities and disclosures of contingent assets and liabilities
                at
                the date of the consolidated financial statements and the reported
                amounts of
                revenue and expenses during the reporting periods. As of March 31,
                2006, the
                Company used estimates in determining the amounts owed for clinical
                trials,
                capitalization and amortization of web development costs and patents,
                and the
                fair value of equity instruments issued for services. Actual results
                could
                differ from these estimates.
 F-10
 **Cobalis
                  Corp. and Subsidiary**
 **(A
                  Development Stage Company)**
 **Notes
                  to Consolidated Financial Statements**
 **For
                  the Years Ended March 31, 2006 and 2005 and the Period**
 **From
                  November 21, 2000 (inception) to March 31, 2006**
 Fair
                Value of Financial Instruments
 
 For
                certain of the Company's consolidated financial instruments, including
                cash and
                cash equivalents, accounts payable, accrued expenses, and due to
                related
                parties, the carrying amounts approximate fair value due to their
                short
                maturities. The amounts shown for convertible debentures and notes
                payable also
                approximate fair value because current interest rates and terms offered
                to the
                Company for similar debt are substantially the same.
 
 Cash
                and Cash Equivalents
 
 For
                purposes of the consolidated statements of cash flows, the Company
                defines cash
                equivalents as all highly liquid debt instruments purchased with
                a maturity of
                three months or less, plus all certificates of deposit.
 
 Concentration
                of Credit Risk
 
 Financial
                instruments, which potentially subject the Company to concentrations
                of credit
                risk, consist of cash and cash equivalents and accounts receivables.
                The Company
                places its cash with high quality financial institutions and at times
                may exceed
                the FDIC $100,000 insurance limit. The Company monitors its exposure
                for credit
                losses and maintains allowances for anticipated losses, as required.
 
 Inventory
 
 Inventory,
                consisting primarily of sample products used for marketing purposes,
                is carried
                at the lower of cost or market utilizing the first-in, first-out
                method.
 
 Property
                and Equipment
 
 Property
                and equipment are stated at cost and are depreciated using the straight-line
                method over their estimated useful lives of 3 to 7 years for various
                classes of
                assets. Expenditures for maintenance and repairs are charged to operations
                as
                incurred while renewals and betterments are capitalized. Gains and
                losses on
                disposals are included in the results of operations.
 
 The
                estimated service lives of property and equipment are as follows:
 Furniture
                and fixtures: 7 years; Computer equipment: 3 to 5 years.
 F-11
 **Cobalis
                    Corp. and Subsidiary**
 **(A
                    Development Stage Company)**
 **Notes
                    to Consolidated Financial Statements**
 **For
                    the Years Ended March 31, 2006 and 2005 and the Period**
 **From
                    November 21, 2000 (inception) to March 31, 2006**
 Research
                and Development
  The
                  Company incurs costs in the research and development of its primary
                  drug
                  candidate, PreHistin. All costs relating to phases I and II clinical
                  trials were
                  incurred before acquisition of the patents. Phase III and other
                  research and
                  development costs are charged to expense as incurred. For the years
                  ended March
                  31, 2006 and 2005 and the period form November 21, 2000 (inception)
                  to March 31,
                  2006, the Company incurred $89,841, $1,912,054, and $1,677,870,
                  respectively, in
                  research and development expenses. The Company had estimated the
                  amounts due
                  related to the clinical trials incurred prior to April 1, 2005
                  and reduced this
                  estimate by $415,418 during the year ended March 31, 2006 as the
                  Company began
                  settling its obligation with the doctors and other services providers
                  who
                  conducted the clinical trials. As a result of the reversal of the
                  estimated
                  expenses of previous year, the net amount of $(325,937) has been
                  shown on the
                  financial statements.
 Website
                Development Costs
 
 Website
                development costs are for the development of the Company's Internet
                website.
                These costs have been capitalized when acquired and installed, and
                are being
                amortized over three years. The Company accounts for these costs
                in accordance
                with EITF 00-2, "Accounting for Website Development Costs," which
                specifies the
                appropriate accounting for costs incurred in connection with the
                development and
                maintenance of websites. Amortization expense totaled $707, $7,809
                and $33,016,
                respectively, for the years ended March 31, 2006 and 2005 and the
                period from
                November 21, 2000 (inception) to March 31, 2006.
 
 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 ended March 31, 2004, the Company
                recognized an
                impairment expense of $111,522 related to one of its patents as it
                determined
                that this patent had no future value based on its assessment of expected
                future
                cash flows to be generated by this patent and the results of an independent
                appraisal done in April 2004. Amortization expense related to these
                patents for
                the years ended March 31, 2006 and 2005 and the period from November
                21, 2000
                (inception) to March 31, 2006 was $53,865, $53,865 and $387,345,
                respectively.
                Projected amortization expense approximates $52,000, $49,000, $49,000,
                $49,000
                and $49,000, respectively, for each of the five years ended March
                31, 2011. The
                weighted-average life of the remaining patents is approximately 15.7
                years.
 
 Revenue
                Recognition
 
 The
                Company will recognize revenue from product sales when shipment of
                product to
                the customer has been made, which is when title passes. The Company
                will
                estimate and record provisions for rebates, sales returns and allowances
                in the
                period the sale is recorded. Shipping and handling charges are included
                in gross
                sales, with the related costs included in selling, general and administrative
                expenses. For the years ended March 31, 2006 and 2005, the Company
                had not
                generated any significant revenue.
 F-12
 **Cobalis
                  Corp. and Subsidiary**
 **(A
                  Development Stage Company)**
 **Notes
                  to Consolidated Financial Statements**
 **For
                  the Years Ended March 31, 2006 and 2005 and the Period**
 **From
                  November 21, 2000 (inception) to March 31, 2006**
 Impairment
                of Long-Lived Assets
 
 In
                accordance with SFAS Nos. 142 and 144, long-lived assets to be held
                and used are
                analyzed for impairment whenever events or changes in circumstances
                indicate
                that the carrying amount of an asset may not be recoverable. SFAS
                No. 142
                relates to assets with an indefinite life where as SFAS 144 relates
                to assets
                that can be amortized and the life determinable. The Company evaluates
                at each
                balance sheet date whether events and circumstances have occurred
                that indicate
                possible impairment. If there are indications of impairment, the
                Company uses
                future undiscounted cash flows of the related asset or asset grouping
                over the
                remaining life in measuring whether the assets are recoverable. In
                the event
                such cash flows are not expected to be sufficient to recover the
                recorded asset
                values, the assets are written down to their estimated fair value.
                Long-lived
                assets to be disposed of are reported at the lower of carrying amount
                or fair
                value of asset less the cost to sell.
 
 Stock
                Based Compensation
 
 The
                Company 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, 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 $0 in share-based
                compensation expense for the three months ended March 31, 2006 since there
                were no new employee options granted during the three months ended
                March 31,
                2006. The impact of this share-based compensation expense on the
                Company’s basic
                and diluted earnings per share was $0.00 per share. The fair value
                of our stock
                options was estimated using the Black-Scholes option pricing model.
 
 For
                periods presented prior to the adoption of SFAS No. 123R, pro forma
                information regarding net income and earnings per share as required
                by SFAS
                No. 123R has been determined as if we had accounted for our employee
                stock
                options under the original provisions of SFAS No. 123. The fair value of
                these options was estimated using the Black-Scholes option pricing
                model. The
                pro forma expense to recognize during the nine months ended December
                31, 2005
                (prior to the adoption of SFAS 123R) and for the year ended March
                31, 2005 is as
                follows:
 F-13
  **Cobalis
                  Corp. and Subsidiary**
 **(A
                  Development Stage Company)**
 **Notes
                  to Consolidated Financial Statements**
 **For
                  the Years Ended March 31, 2006 and 2005 and the Period**
 **From
                  November 21, 2000 (inception) to March 31, 2006**
  **2006**
                        
                        **2005**Net
                            loss attributed to common stockholders:As
                            reported
                        
                        $
                        (6,678,454
                        )
                        $
                        (8,176,014
                        )Compensation
                            recognized under APB 25
                        
                        
                        —
                        
                        
                        —Compensation
                            recognized under SFAS 123
                        
                        
                        (534,494
                        )
                        
                        —Pro
                            forma
                        
                        $
                        (7,212,948
                        )
                        $
                        (8,176,014
                        )Basic
                            and diluted loss per common share:As
                            reported
                        
                        $
                        (0.26
                        )
                        $
                        (0.36
                        )Pro
                            forma
                        
                        $
                        (0.28
                        )
                        $
                        (0.36
                        )
 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 options issued during the year ended March 31, 2006: risk-free interest
                rate of 4.25%; dividend yields of 0%; volatility factors of the expected
                market
                price of the Company’s common shares of 202%; and a weighted average expected
                life of the option of 5 years.
 
 During
                the year ended March 31, 2005, the Company issued 3,300,000 warrants
                to
                consultants with a weighted average exercise price of $1.75. The
                warrants vest
                over a period ranging from immediately to three years. The fair value
                of these
                warrants amounted to $1,501,364 which is being amortized to expense
                over the
                terms of the consulting agreements. During the years ended March
                31, 2006 and
                2005, the Company recognized an expense of $773,628 and $553,715,
                respectively,
                related to these warrants.
  During
                  the year ended March 31, 2006, the Company issued 1,642,600 warrants
                  to
                  consultants with a weighted average exercise price of $1.62. The
                  warrants vest
                  over a period ranging from immediately to three years. The fair
                  value of these
                  warrants amounted to $1,344,980 which is being amortized to expense
                  over the
                  terms of the consulting agreements. During the year ended March
                  31, 2006, the
                  Company recognized an expense of $768,000 related to these
                  warrants.
 Advertising
                and Marketing Costs
 
 Advertising
                costs are expensed as incurred and included in operating expenses.
                For the years
                ended March 31, 2006 and 2005 and for the period from November 21,
                2000
                (inception) to March 31, 2006, advertising costs were $1,995, $1,395
                and
                $335,313, respectively.
 
 Income
                Taxes
 
 The
                Company accounts for income taxes in accordance with SFAS No. 109,
                "Accounting
                for Income Taxes." Deferred taxes are provided on the liability method
                whereby
                deferred tax assets are recognized for deductible temporary differences,
                and
                deferred tax liabilities are recognized for taxable temporary differences.
                Temporary differences are the differences between the reported amounts
                of assets
                and liabilities and their tax bases. Deferred tax assets are reduced
                by a
                valuation allowance when, in the opinion of management, it is more
                likely than
                not that some portion or all of the deferred tax assets will not
                be realized.
                Deferred tax assets and liabilities are adjusted for the effects
                of changes in
                tax laws and rates on the date of enactment.
 F-14
 **Cobalis
                  Corp. and Subsidiary**
 **(A
                  Development Stage Company)**
 **Notes
                  to Consolidated Financial Statements**
 **For
                  the Years Ended March 31, 2006 and 2005 and the Period**
 **From
                  November 21, 2000 (inception) to March 31, 2006**
 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 March 31, 2006 and 2005, the Company has approximately
                8,261,767 and 5,844,167 common stock equivalents, respectively. In
                addition, as
                of March 31, 2006, 716,667 shares of common stock are issuable upon
                the
                conversion of the convertible note payable and convertible preferred
                stock.
 
 Comprehensive
                Loss
 
 SFAS
                No.
                130, "Reporting Comprehensive Income," establishes standards for
                the reporting
                and display of comprehensive income and its components in the financial
                statements. For the years ended March 31, 2006 and 2005 and the period
                from
                November 21, 2000 (inception) to March 31, 2006, the Company has
                no items that
                represent comprehensive income and, therefore, has not included a
                schedule of
                comprehensive income in the financial statements.
 
 Discount
                on Convertible Note Payable and Preferred Stock
 
 Discounts
                on convertible note payable and preferred stock are the relative
                fair values
                attributed to the detachable warrants issued and the value of the
                beneficial
                conversion features associated with the convertible note payable
                and preferred
                stock. These discounts are accounted for in accordance with Emerging
                Issues Task
                Force ("EITF") 00-27, "Application of Issue No. 98-5 to Certain Convertible
                Instruments" issued by the American Institute of Certified Public
                Accountants.
 
 Warrant
                Liability
 
 Pursuant
                to EITF 00-19, "Accounting for Derivative Financial Instruments Indexed
                to, and
                Potentially Settled in, a Company's Own Stock", the Company has recorded
                the
                relative fair value of warrants issued with registration rights on
                the
                Convertible Debenture and the Convertible Preferred Stock as a short-term
                liability until the Company has obtained an effective registration
                statement for
                these shares. The Company reached an agreement with these warrant
                holders during
                the year ended March 31, 2006 and therefore, there is no liability
                related to
                these warrants at March 31, 2006.
 F-15
  **Cobalis
                  Corp. and Subsidiary**
 **(A
                  Development Stage Company)**
 **Notes
                  to Consolidated Financial Statements**
 **For
                  the Years Ended March 31, 2006 and 2005 and the Period**
 **From
                  November 21, 2000 (inception) to March 31, 2006**
 Additionally,
                the Company is required to report a value of the warrant as a fair
                market value
                and record the fluctuation to the fair value of the warrant liability
                to current
                operations. The fair value changed by $16,060 and ($110,419) during
                the years
                ended March 31, 2006 and 2005, respectively, and such amount has
                been included
                in other income.
 
 Recently
                Issued Accounting Pronouncements
 
 In
                February 2006, FASB issued SFAS No. 155, “ *Accounting
                for Certain Hybrid Financial Instruments* ”.
                SFAS
                No. 155 amends SFAS No 133, “Accounting for Derivative Instruments and Hedging
                Activities”, and SFAS No. 140, “Accounting for Transfers and Servicing of
                Financial Assets and Extinguishments of Liabilities”. SFAS No. 155, permits fair
                value remeasurement for any hybrid financial instrument that contains
                an
                embedded derivative that otherwise would require bifurcation, clarifies
                which
                interest-only strips and principal-only strips are not subject to
                the
                requirements of SFAS No. 133, establishes a requirement to evaluate
                interest in
                securitized financial assets to identify interests that are freestanding
                derivatives or that are hybrid financial instruments that contain
                an embedded
                derivative requiring bifurcation, clarifies that concentrations of
                credit risk
                in the form of subordination are not embedded derivatives, and amends
                SFAS No.
                140 to eliminate the prohibition on the qualifying special-purpose
                entity from
                holding a derivative financial instrument that pertains to a beneficial
                interest
                other than another derivative financial instrument. SFAS 155 is effective
                for
                all financial instruments acquired or issued after the beginning
                of the
                Company’s first fiscal year that begins after September 15, 2006. Management
                believes that this statement will not have a significant impact on
                the
                consolidated financial statements.
  In
                March
                2006 FASB issued SFAS 156 “ *Accounting
                for Servicing of Financial Assets”.* SFAS
                No.
                156 amends FASB Statement No. 140, *Accounting
                for Transfers and Servicing of Financial Assets and Extinguishments
                of
                Liabilities,* with
                respect to the accounting for separately recognized servicing assets
                and
                servicing liabilities. This Statement: (1) r equires
                an entity to recognize a servicing asset or servicing liability each
                time it
                undertakes an obligation to service a financial asset by entering
                into a
                servicing contract, (2) requires all separately recognized servicing
                assets and
                servicing liabilities to be initially measured at fair value, if
                practicable;
                (3) permits an entity to choose the ‘amortization method’ or ‘fair value
                measurement method’ for each class of separately recognized servicing assets and
                servicing liabilities; (4) at its initial adoption, permits a one-time
                reclassification of available-for-sale securities to trading securities
                by
                entities with recognized servicing rights, without calling into question
                the
                treatment of other available-for-sale securities under Statement
                115, provided
                that the available-for-sale securities are identified in some manner
                as
                offsetting the entity’s exposure to changes in fair value of servicing assets or
                servicing liabilities that a servicer elects to subsequently measure
                at fair
                value; and (5) requires separate presentation of servicing assets
                and servicing
                liabilities subsequently measured at fair value in the statement
                of financial
                position and additional disclosures for all separately recognized
                servicing
                assets and
                servicing liabilities. SFAS
                156
                is effective as of the beginning of the Company’s first fiscal year that begins
                after September 15, 2006. Management believes that this statement
                will not have
                a significant impact on the consolidated financial statements.
 F-16
 
 **Cobalis
                  Corp. and Subsidiary**
 **(A
                  Development Stage Company)**
 **Notes
                  to Consolidated Financial Statements**
 **For
                  the Years Ended March 31, 2006 and 2005 and the Period**
 **From
                  November 21, 2000 (inception) to March 31, 2006**
  **NOTE
                    2 - ACQUISITION OF CERTAIN ASSETS**
 
 On
                    November 22, 2000, the Company entered into an asset purchase
                    agreement to
                    acquire certain tangible and intangible assets from Gene Pharmaceuticals,
                    LLC,
                    formerly known as Allergy Limited, LLC ("GP LLC"), an unrelated
                    company.
  Per
                    the
                    asset purchase agreement, the Company has secured the rights
                    to two patents,
                    which were valued at their fair market values as of the date
                    of purchase. The
                    patents are for the introduction of, or "delivery" of, Cyanocobalamin,
                    via a
                    lozenge, and cover the various forms of B12 used to provide relief
                    from allergy
                    and bronchial asthma symptoms. The U.S. patent expires in 2009.
                    The U.S. and
                    foreign patents covering the use of lozenges delivering B12 for
                    allergic
                    diseases are in effect until 2019. In July 2001, the Company
                    was granted a
                    Notice of Entitlement intended to expand geographic coverage
                    of the two existing
                    patents. Amortization was calculated on a straight-line basis
                    over the shorter
                    of the remaining economic life or estimated lives of the patents.
 On
                December 19, 2002, GP LLC and the Company entered into a new memorandum
                of
                agreement whereby they amended the terms of the original asset purchase
                agreement whereby the purchase price shall be as follows:
 
 a)
                the
                sum of all amounts previously paid by the Company under the asset
                purchase
                agreement totaling $161,000;
 b)
                the
                outstanding contractual obligation for minimum royalty payments be
                settled for
                the issuance of 2,000,000 shares of the Company's common stock valued;
                and
 c)
                a
                royalty calculated at 1.5% of the gross sales of the product, as
                defined above.
 
 Royalty
                payments shall commence to accrue on December 19, 2002, and will
                be computed and
                payable quarterly. For the years ended March 31, 2006 and 2005 and
                the period
                from November 21, 2000 (inception) to March 31, 2006, no royalty
                expense was
                accrued due to insignificant amount of sales for the periods.
 
 As
                a
                result, the Company satisfied its indebtedness to GP LLC, and reduced
                its future
                royalty obligation related to the patents in exchange for the 2,000,000
                shares
                of the Company's common stock.
 
 **NOTE
                3 - PROPERTY AND EQUIPMENT**
 
 The
                cost
                of property and equipment at March 31, 2006 consisted of the
                following:
  Furniture
                            and fixtures
                        
                        $
                        73,203Office
                            equipment
                        
                        
                        42,120115,323Less
                            accumulated depreciation and amortization
                        
                        
                        (106,904
                        )$
                        8,419
  Depreciation
                expense for the years ended March 31, 2006 and 2005 and the period
                from November
                21, 2000 (inception) to March 31, 2006 was $38,328, $20,028, and
                $106,904,
                respectively.
 F-17
  **Cobalis
                  Corp. and Subsidiary**
 **(A
                  Development Stage Company)**
 **Notes
                  to Consolidated Financial Statements**
 **For
                  the Years Ended March 31, 2006 and 2005 and the Period**
 **From
                  November 21, 2000 (inception) to March 31, 2006**
 **NOTE
                4 - ACCRUED LEGAL SETTLEMENTS**
 
 Former
                Landlord
 
 In
                March
                2003, the Company vacated its office space. The landlord then filed
                suit against
                the Company in the County of Orange, Superior Court of California,
                for unpaid
                rent. In January 2006, this matter was settled and the Company is
                to pay a total
                of $200,000 over the next year. As of March 31, 2006, the balance
                due under this
                settlement was $125,000.
  Gryphon
                Master Fund LP
 
 On
                March
                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 (See Notes 7 and 9). 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 before October 1, 2006. Full repayment
                is due
                under the settlement agreement on or before April 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.
 
 As
                of
                March 31, 2006, the full $1,600,000 was still due under the settlement
                agreement.
 
 During
                the year ended March 31, 2006, the Company took a charge to earnings
                of $649,718
                related to the settlement with Gryphon as follows:
 
 
 Liabilities
                          previously recorded by the Company related to Gryphon:Debenture
                          penalty
                      
                      $
                      150,000Non-registration
                          penalties
                      
                      
                      752,000Accrued
                          interest
                      
                      
                      276,658Accrued
                          legal fees
                      
                      
                      25,000Accrued
                          warrant liability
                      
                      
                      47,7791,251,437Amount
                          of settlement
                      
                      
                      (1,600,000
                      )Additional
                          liability to Gryphon
                      
                      
                      348,563Charge
                          to earning for re-pricing of Gryphon warrants
                      
                      
                      301,155Total
                          charge to earnings
                      
                      $
                      649,718
  F-18
  **Cobalis
                  Corp. and Subsidiary**
 **(A
                  Development Stage Company)**
 **Notes
                  to Consolidated Financial Statements**
 **For
                  the Years Ended March 31, 2006 and 2005 and the Period**
 **From
                  November 21, 2000 (inception) to March 31, 2006**
  **NOTE
                5 - DUE TO RELATED PARTIES**
 
 Due
                to
                related parties at March 31, 2006 consists of the following:
 R&R
                            Holdings, Inc. and affiliates a)
                        
                        $
                        5,068,093Chaslav
                            Radovich b)
                        
                        
                        52,083Other
                            officers/executives c)
                        
                        
                        134,919$
                        5,255,095
  a)
                On
                January 1, 2001, the Company entered into a consulting contract with
                R&R
                Holdings, Inc. and its affiliate, Silver Mountain Promotions, Inc.
                ("R&R")
                whereby they would provide managerial consulting services to the
                Company at the
                rate of $125,000 per year and the rate was increased to $135,000
                per year.
                R&R is also a shareholder of the Company and the controlling shareholder
                of
                R&R is Mr. Radul “Rudy” Radovich, the Company’s Chairman. As of March 31,
                2006, the Company had accrued $478,642 of consulting fees relating
                to this
                agreement.
 
 R&R
                advances the Company cash from time to time. As of March 31, 2006,
                the Company
                owed R&R $2,520,221 related to these advances. The St. Petka Trust, which
                is
                controlled by Mr. Radul Radovich, also advances the Company cash
                from time to
                time. As of March 31, 2006, the Company owed St. Petka Trust $1,595,500
                related
                to these advances. The Company has accrued interest on these advances
                at a rate
                of 10% per annum. Accrued interest at March 31, 2006 related to these
                advances
                totaled $473,730.
 
 b)
                The
                Company currently owes its Chief Executive Officer $52,083 in past
                due
                compensation. During the three months ended December 31, 2005, the
                Company paid
                its CEO a total of $104,167 in shares of its common stock. The Company is
                accruing salary to its CEO at an annual rate of $125,000.
 
 c)
                The
                Company currently owes other current and former executives $21,794
                and $113,125,
                respectively, in past due compensation.
 
 **NOTE
                6 - PROMISSORY NOTES**
 
 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, the
                Company converted $131,042 of these promissory notes plus accrued
                interest into
                105,250 shares of the Company’s common stock. At March 31, 2006, $74,132 of
                these notes was still outstanding.
 F-19
  **Cobalis
                    Corp. and Subsidiary**
 **(A
                    Development Stage Company)**
 **Notes
                    to Consolidated Financial Statements**
 **For
                    the Years Ended March 31, 2006 and 2005 and the Period**
 **From
                    November 21, 2000 (inception) to March 31,
                    2006**
  **NOTE
                7 - CONVERTIBLE NOTE PAYABLE**
 
 Gryphon
                Master Fund, LP (See Note 4)
 
 In
                September 2003, the Company sold a $600,000, three-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. This
                price is subject to adjustment should the Company issue shares of
                its common
                stock at a price less than $1.75 per share. The convertible note
                payable was
                sold with detachable three-year warrants to purchase 90,000 shares
                of the
                Company's common stock at $2.88 per share. The warrant exercise price
                is also
                subject to adjustment based on sales of the Company's common stock
                below the
                current fair market value on the contract date.
 
 The
                fair
                value of these warrants totaling $169,630 was computed using the
                Black-Scholes
                model under the following assumptions: (1) expected life of 3 years;
                (2)
                volatility of 104%, (3) risk free interest of 4.39% and (4) dividend
                rate of
                $0%. In addition, since this debt is convertible into equity at the
                option of
                the note holder at beneficial conversion rates, an embedded beneficial
                conversion feature was recorded as a debt discount and amortized
                using the
                effective interest method over the life of the debt in accordance
                with Emerging
                Issues Task Force No. 00-27, "Application of Issue No. 98-5 to Certain
                Convertible Instruments." Since the intrinsic value of the beneficial
                conversion
                feature and relative fair value of the warrants exceeds the proceeds
                of the
                convertible debt, the amount of the discount assigned to the beneficial
                conversion feature and warrants is limited to the amount of the net
                proceeds of
                the convertible debt. Therefore, the Company recorded a discount
                of $516,500
                (consisting of relative fair value of the warrants of $169,630 and
                beneficial
                conversion features of $346,870), the net proceeds received by the
                Company after
                the debt discount of $83,500. During the year ended March 31, 2005,
                the Company
                fully amortized the debt discount associated with the $600,000 convertible
                note
                payable due to the lawsuit filed by the holder of the convertible
                note
                payable.
  On
                  March
                  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 (See Notes 4 and 9). 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 before October 1, 2006. Full
                  repayment is due
                  under the settlement agreement on or before April 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.
 F-20
  **Cobalis
                    Corp. and Subsidiary**
 **(A
                    Development Stage Company)**
 **Notes
                    to Consolidated Financial Statements**
 **For
                    the Years Ended March 31, 2006 and 2005 and the Period**
 **From
                    November 21, 2000 (inception) to March 31,
                    2006**
  Tejeda
                and Tejeda, Inc.
 
 On
                June
                13, 2005, the Company entered into a loan agreement with Tejeda and
                Tejeda, Inc.
                in the amount of $100,000. The loan is due on or before the 12-month
                anniversary
                and accrues interest at the rate of 10% per annum. The note is personally
                guaranteed by Mr. Radul Radovich, the Company’s Chairman, and Mr. Chaslav
                Radovich the Company’s CEO. On the 12-month anniversary, the holder of the note
                may elect to convert the loan into shares of the Company’s common stock at $1.75
                per shares or at a price equal to a 25% discount to the closing bid
                price on the
                day of conversion at maturity. If such conversion is elected, the
                loan shall be
                considered paid in full. The loan is convertible at the maturity,
                which is the
                date at which the conversion feature will become beneficial; therefore
                the
                intrinsic value of the beneficial conversion feature of approximately
                $25,000
                has been calculated at the commitment date using the stock price
                as of that
                date. The amount will be recorded as interest expense at the date
                of conversion,
                if the loan is converted to shares of common stock.
 
 
 **NOTE
                8 - SENIOR DEBENTURE**
 
 On
                October 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 on October 26, 2007. In addition, the Company also issued to
                the Brad
                Chisick Trust a warrant to purchase 500,000 shares of the Company’s common stock
                for $1.75 per shares.
 
 The
                fair
                value of these warrants totaling $276,827 was computed using the
                Black-Scholes
                model under the following assumptions: (1) expected life of 5 years;
                (2)
                volatility of 194%, (3) risk free interest of 4.50% and (4) dividend
                rate of
                $0%. The face amount of the senior debenture of $250,000 was proportionately
                allocated to the senior debenture and the warrants in the amount
                of $118,635 and
                $131,365, respectively. The amount allocated to the warrants of $131,365
                was
                recorded as a discount on the senior debenture and is being amortized
                over the
                term of the debenture. During the year ended March 31, 2006, the
                Company
                amortized $28,072 of the discount to interest expense. The balance
                of the
                debenture is shown net of unamortized discount of $103,293 in the
                balance sheet.
                In addition, on October 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.
 
 **NOTE
                9 - CONVERTIBLE PREFERRED STOCK (SEE NOTE 4)**
 
 In
                September 2003, the Company sold 1,000 shares of its 7.5% convertible
                preferred
                stock (the "Convertible Preferred Stock") to Gryphon Master Fund,
                LP, for
                $1,000,000, less direct issuance costs of $115,000, which were netted
                against
                the proceeds of the offering. The Convertible Preferred Stock carries
                voting
                rights equivalent to the number of shares of common stock into which
                it can be
                converted, and has liquidation preference of $1,000 per share. The
                Convertible
                Preferred Stock is convertible into shares of the Company's common
                stock at the
                initial conversion price of $2.40 per share. This price is subject
                to change
                should the Company issue shares of its common stock at a price less
                than $1.75
                per share. Included with the Convertible Preferred Stock were detachable
                three-year warrants to purchase 104,167 shares of the Company's common
                stock at
                the price of $2.88 per share (the "Preferred Warrants"). The warrant
                exercise
                price is also subject to adjustment based on sales of the Company's
                common stock
                below the current fair market value on the contract date.
 F-21
 **Cobalis
                      Corp. and Subsidiary**
 **(A
                      Development Stage Company)**
 **Notes
                      to Consolidated Financial Statements**
 **For
                      the Years Ended March 31, 2006 and 2005 and the Period**
 **From
                      November 21, 2000 (inception) to March 31,
                      2006**
 The
                fair
                value of these warrants totaling $181,849 was computed using the
                Black-Scholes
                model under the following assumptions: (1) expected life of 3 years;
                (2)
                volatility of 112%, (3) risk free interest of 4.1% and (4) dividend
                rate of $0%.
                In addition, since this convertible preferred stock is convertible
                into equity
                at the option of the stockholder at beneficial conversion rates,
                an embedded
                beneficial conversion feature was recorded as a discount to additional
                paid in
                capital in accordance with Emerging Issues Task Force No. 00-27,
                "Application of
                Issue No. 98-5 to Certain Convertible Instruments." Since the intrinsic
                value of
                the beneficial conversion feature and relative fair value of the
                warrants
                exceeds the proceeds of the convertible debt, the amount of the discount
                assigned to the beneficial conversion feature and warrants is limited
                to the
                amount of the proceeds of the convertible preferred stock. The discount
                was
                recorded as a preferred stock dividend at the date of issuance. The
                Company
                recognized $885,000 of preferred dividends related to the discount.
  On
                  March
                  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 (See Notes 4 and 7). 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 before October 1, 2006. Full
                  repayment is due
                  under the settlement agreement on or before April 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.
 **NOTE
                10 - 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 (see
                Note
                9).
 
 Common
                Stock
 
 The
                Company has authorized 50,000,000 shares of $0.001 par value common
                stock.
 F-22
 **Cobalis
                Corp. and Subsidiary**
 **(A
                      Development Stage Company)**
 **Notes
                      to Consolidated Financial Statements**
 **For
                      the Years Ended March 31, 2006 and 2005 and the Period**
 **From
                      November 21, 2000 (inception) to March 31, 2006**
 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 years ended March 31, 2005 and 2006 are
                summarized as
                follows:
 
 The
                following table summarizes the options outstanding:
  WeightedStock
                        
                        AverageOption
                        
                        ExercisePlan
                        
                        PriceBalance,
                            March 31, 2004
                        
                        
                        2,350,000
                        
                        $
                        1.62Granted
                        
                        
                        -
                        
                        $
                        -Exercised
                        
                        
                        -
                        
                        $
                        -Canceled
                        
                        
                        -
                        
                        $
                        -Balance,
                            March 31, 2005
                        
                        
                        2,350,000
                        
                        $
                        1.62Granted
                        
                        
                        -
                        
                        $
                        -Exercised
                        
                        
                        -
                        
                        $
                        -Canceled/Expired
                        
                        
                        (725,000
                        )
                        $
                        1.35Balance,
                            March 31, 2006
                        
                        
                        1,625,000
                        
                        $
                        1.74Exercisable
                            at March 31, 2006
                        
                        
                        1,625,000
                        
                        $
                        1.74
 F-23
 **Cobalis
                    Corp. and Subsidiary**
 **(A
                    Development Stage Company)**
 **Notes
                    to Consolidated Financial Statements**
 **For
                    the Years Ended March 31, 2006 and 2005 and the Period**
 **From
                    November 21, 2000 (inception) to March 31, 2006**
  The
                      weighted average remaining contractual life of options outstanding
                      issued under
                      the Plan is 1.26 years at March 31, 2006. The exercise prices
                      for the options
                      outstanding under the Plan at March 31, 2006 are as follows:
 **Number
                          of**
                        **Options**
                      
                      **Exercise**
                        **Price**425,000
                      
                      $1.001,200,000
                      
                      $2.001,625,000
 
 The
                intrinsic value at March 31, 2006 of the options outstanding was
                $374,000.
 
 The
                Black-Scholes option valuation model was developed for use in estimating
                the
                fair value of traded options which have no vesting restrictions and
                are fully
                transferable. In addition, option valuation models require the input
                of highly
                subjective assumptions including the expected stock price volatility.
                Because
                the Company's employee stock options have characteristics significantly
                different from those of traded options, and because changes in the
                subjective
                input assumptions can materially affect the fair value estimate,
                in management's
                opinion, the existing models do not necessarily provide a reliable
                single
                measure of the fair value of employee stock options.
 
 Warrants
 
 The
                Company has issued warrants in connection with the issuance of a
                convertible
                debenture and convertible preferred stock. The following table summarizes
                the
                warrants outstanding:
  Warrants
                        
                        
                        Weighted
                          Average
                          Exercise
                          PriceBalance,
                            March 31, 2004
                        
                        
                        194,167
                        
                        $
                        2.89Granted
                        
                        
                        3,300,000
                        
                        $
                        1.75Exercised
                        
                        
                        -
                        
                        $
                        -Canceled
                        
                        
                        -
                        
                        $
                        -Balance,
                            March 31, 2005
                        
                        
                        3,494,167
                        
                        $
                        1.80Grante
                        
                        
                        3,142,600
                        
                        $
                        1.68Exercised
                        
                        
                        -
                        
                        $
                        -Canceled
                        
                        
                        -
                        
                        $
                        -Balance,
                            March 31, 2006
                        
                        
                        6,636,767
                        
                        $
                        1.67Exercisable
                            at March 31, 2006
                        
                        
                        6,636,767
                        
                        $
                        1.67
 The
                fair
                value for these warrants was estimated at the date of grant using
                a
                Black-Scholes option pricing model with the following weighted-average
                assumptions for the years ended March 31, 2006 and 2005, respectively:
                risk-free
                interest rate of 4.50% and 3.50%; dividend yields of 0% and 0%; volatility
                factors of the expected market price of the Company's common stock
                ranging from
                $188% to 194% and 108%; and a weighted average expected life 5 years
                and 2 to 3
                years.
 F-24
  **Cobalis
                  Corp. and Subsidiary**
 **(A
                  Development Stage Company)**
 **Notes
                  to Consolidated Financial Statements**
 **For
                  the Years Ended March 31, 2006 and 2005 and the Period**
 **From
                  November 21, 2000 (inception) to March 31, 2006**
 The
                weighted average remaining contractual life of warrants outstanding
                is 3.80
                years at March 31, 2006. The exercise prices for the warrants outstanding
                at
                March 31, 2006 are as follows:
 
 **Number
                          of**
                        **Warrants**
                      
                      **Exercise**
                        **Price**344,167
                      
                      $.016,092,600
                      
                      $1.75200,000
                      
                      $2.006,636,767
  The
                  intrinsic value at March 31, 2006 of the warrants outstanding was
                  $1,435,630.
 
 During
                  the year ended March 31, 2005, the Company issued 3,300,000 warrants
                  to
                  consultants with a weighted average exercise price of $1.75. The
                  warrants vest
                  over a period ranging from immediately to three years. The fair
                  value of these
                  warrants amounted to $1,501,364 which is being amortized to expense
                  over the
                  terms of the consulting agreements. During the years ended March
                  31, 2006 and
                  2005, the Company recognized an expense of $773,628 and $553,715,
                  respectively,
                  related to these warrants.
 
 During
                  the year ended March 31, 2006, the Company issued 1,642,000 warrants
                  to
                  consultants with a weighted average exercise price of $1.62. The
                  warrants vest
                  over a period ranging from immediately to three years. The fair
                  value of these
                  warrants amounted to $1,344,980 which is being amortized to expense
                  over the
                  terms of the consulting agreements. During the year ended March
                  31, 2006, the
                  Company recognized an expense of $768,000 related to these
                  warrants.
 During
                the year ended March 31, 2006 (prior to December 31, 2005) the Company
                granted
                1,000,000 warrants to an employee. The pro forma expense related
                to these
                1,000,000 warrants is included in the pro forma disclosure in Note
                1.
 
 In
                addition, during the year ended March 31, 2006, the Company issued
                500,000
                warrants in connection with a senior debenture (See Note 8)
 
 **NOTE
                11 - IMPAIRMENT EXPENSE**
 
 On
                July
                28, 2003, the Company entered into a definitive agreement (the "InnoFood
                Agreement") to acquire InnoFood, Inc. ("InnoFood"), owner of certain
                rights to a
                proprietary food processing technology developed by Modofood S.P.A.
                of Brescia,
                Italy. The agreement provided the Company exclusive distribution
                rights (through
                the acquisition of InnoFood) of Modofood's proprietary food sterilization
                and
                preservation technology for North America, Central America, South
                America and
                Japan, as well as the exclusive rights to negotiate on behalf of
                Modofood for
                Southeast Asia, including Taiwan, China and Indonesia.
 F-25
  **Cobalis
                  Corp. and Subsidiary**
 **(A
                  Development Stage Company)**
 **Notes
                  to Consolidated Financial Statements**
 **For
                  the Years Ended March 31, 2006 and 2005 and the Period**
 **From
                  November 21, 2000 (inception) to March 31, 2006**
 Under
                the
                terms of the agreement, InnoFood shareholders would receive one share
                of the
                Company's common stock and one warrant to purchase one share of the
                Company's
                common stock for every twelve (12) shares of InnoFood common stock.
                InnoFood
                shareholders were also to receive one InnoFood preferred share for
                every 1,200
                InnoFood common shares. The agreement called for the Company to infuse
                $5
                million of working capital prior to December 31, 2003.
 
 Prior
                to
                December 31, 2003, the Company has advanced InnoFood the sum of $2,220,000.
 
 On
                October 17, 2003 the Company entered into a Letter of Understanding
                ("LOU") with
                InnoFood to restructure the relationship between the Company and
                InnoFood. The
                Company believed that InnoFood may have misled the Company's management
                regarding certain material matters. As a result, the definitive agreements
                were
                never prepared and parties did not finalize the matters referenced
                in the LOU.
 
 On
                January 8, 2004, InnoFood sent the Company a letter explaining that
                InnoFood was
                terminating the original InnoFood agreement and the October 17, 2003
                LOU.
                InnoFood claimed that the Company breached both the original Agreement
                and the
                LOU by failing to provide the funding provided for under those agreements.
                With
                the letter of termination, InnoFood delivered a signed Promissory
                Note agreeing
                to pay back the $2,160,000 (net of interest of $60,000 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. As of March 31, 2006,
                the Company
                has not yet accepted the terms of this promissory note and is still
                in
                negotiation with InnoFood regarding the purchase.
 
 The
                Company believes that InnoFood breached not only the original InnoFood
                Agreement
                but also the LOU. The Company intends to vigorously pursue InnoFood
                and all
                other responsible parties, but has not determined whether it will
                file suit
                against InnoFood and any other parties. The Company may also consider
                pursuing
                legal action against Modofood S.P.A.; if it is unable to resolve
                these matters
                informally through negotiations now taking place. In the meantime,
                the Company
                is attempting to resolve this dispute without court intervention.
 
 Since
                the
                Company believes that InnoFood breached the original agreement and
                the LOU, it
                did not fund the additional $2,780,000 which was to be used by InnoFood
                as
                working capital to expand its operations to be able to generate an
                operating
                profit. Due to the lack of funding received by InnoFood by the Company
                or
                another party, the Company believes that InnoFood's current financial
                condition
                is not sufficient to be able to repay the Promissory Note InnoFood
                issued to the
                Company. As a result, the Company has written off the entire amount
                of the
                acquisition deposit paid to InnoFood in the amount of $2,220,000.
 F-26
 
 **Cobalis
                  Corp. and Subsidiary**
 **(A
                  Development Stage Company)**
 **Notes
                  to Consolidated Financial Statements**
 **For
                  the Years Ended March 31, 2006 and 2005 and the Period**
 **From
                  November 21, 2000 (inception) to March 31, 2006**
  **NOTE
                12 - INCOME TAXES**
 
 Deferred
                income taxes reflect the net tax effects of temporary differences
                between the
                carrying amounts of assets and liabilities for financial statement
                purposes and
                the amounts used for income tax purposes. Significant components
                of the
                Company's deferred tax liabilities and assets as of March 31, 2006
                are as
                follows:
  Deferred
                            tax assets:Federal
                            net operating loss
                        
                        $
                        3,900,000State
                            net operating loss
                        
                        
                        401,000Equity
                            instruments issued for compensation/services
                        
                        
                        2,871,000Accrued
                            compensation
                        
                        
                        266,000Accrued
                            legal settlements
                        
                        
                        810,000Impairment
                            expense
                        
                        
                        888,0009,136,000Total
                            deferred tax assetsLess
                            valuation allowance
                        
                        
                        (9,136,000
                        )$
                        --
 During
                the years ended March 31, 2006 and 2005, the valuation allowance
                increased by
                $2,638,000 and $3,021,000, respectively.
 
 At
                March
                31, 2006, the Company had federal and state net operating loss ("NOL")
                carryforwards of approximately $11,530,000 and $5,455,000, respectively,
                which
                include federal and state NOL in the amount of approximately $4,200,000
                and
                $1,662,000 respectively, from Biogentec, Inc., prior to the effective
                date of
                the reverse merger on July 2, 2003. Federal NOLs could, if unused,
                expire in
                varying amounts in the years 2020 through 2026. State NOLs, if unused,
                could
                expire in varying amounts from 2006 through 2016.
 
 The
                reconciliation of the effective income tax rate to the federal statutory
                rate
                for the years ended March 31, 2006 and 2005 is as follows:
  2006
                        
                        2005Federal
                            income tax rate
                        
                        
                        (34.0
                        %)
                        
                        (34.0
                        %)State
                            tax, net of federal benefit
                        
                        
                        (6.0
                        %)
                        
                        (6.0
                        %)Equity
                            instruments issued forCompensation/services
                        
                        
                        23.5
                        %
                        
                        12.8
                        %Accrued
                            compensation
                        
                        
                        0.6
                        %
                        
                        0.2
                        %Accrued
                            legal settlements
                        
                        
                        12.3
                        %
                        
                        -Increase
                            in valuation allowance
                        
                        
                        3.6
                        %
                        
                        27.0
                        %Effective
                            income tax rate
                        
                        
                        0.0
                        %
                        
                        0.0
                        %
 The
                full
                realization of the tax benefit associated with the carryforward depends
                predominantly upon the Company's ability to generate taxable income
                during the
                carryforward period. The allowable amount of the net operating loss
                carryforwards and the year availability are subject to change of
                ownership
                limitations under Internal Revenue Code Section 382.
 F-27
 **Cobalis
                    Corp. and Subsidiary**
 **(A
                    Development Stage Company)**
 **Notes
                    to Consolidated Financial Statements**
 **For
                    the Years Ended March 31, 2006 and 2005 and the Period**
 **From
                    November 21, 2000 (inception) to March 31, 2006**
 **NOTE
                13 - COMMITMENTS AND CONTINGENCIES**
 
 Litigation
 
 *Former
                Leased Office Space:* The
                Company a defendant in a suit brought by its former landlord for
                breach of lease
                agreement and alleged unpaid rent in the County of Orange, Superior
                Court of
                California, Case #03CC02904. In January 2006, this matter was settled
                and the
                Company is to pay a total of $200,000 over the next year, of which
                the Company
                paid the first $75,000 on January 31, 2006. This leaves a total of
                $125,000
                owing, of which $75,000 is due on July 31, 2006, and $50,000 is due
                on December
                31, 2006.
 
 *Marinko
                Vekovic:* **** On
                March
                9, 2006, Marinko Vekovic, a former consultant, filed a Complaint
                against the
                Company 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 the
                Company’s S-8 common stock. Through the Company’s Cross-Complaint, the Company
                seeks to rescind the consulting agreement and seeks restitution from
                Mr. Vekovic
                in an amount no less than the price for which Mr. Vekovic sold the
                112,500
                shares of the Company’s S-8 common stock, plus all or some portion of the
                compensation paid to Mr. Vekovic, given that Mr. Vekovic substantially
                failed to
                perform the consulting services which were the subject of the consulting
                agreement. The Company also seeks to recover attorneys’ fees incurred in the
                defense of the Complaint and the prosecution of the Company’s Cross-Complaint,
                pursuant to the attorneys’ fee provision in the consulting
                agreement.
 
 The
                Company believes that it will prevail in defending Mr. Vekovic’s Complaint and
                that its liability to Mr. Vekovic, if any, would not be material.
                Furthermore,
                the Company believes that it has a good chance of prevailing on its
                Cross-Complaint, such that the Company would recover a monetary award
                from Mr.
                Vekovic. However, as is the case with any litigation, the Company
                cannot
                guarantee the outcome of the case.
 
 *Europacific
                Consulting, Inc.* **** This
                action was filed on May 23, 2006 in the Supreme Court of New York,
                County of New
                York, Case No. 601830/06. Europacific Consulting, Inc. (“Europacific”) is a New
                York corporation whose sole shareholder and director is Antonio Treminio,
                who
                are suing for alleged breach of oral contract and damages of $250,000.
                Europacific alleges that Cobalis orally engaged Europacific to perform
                certain
                services for the Company, including introductions to potential board
                members,
                qualified investors and strategic alliances for the Company’s product line. The
                Company issued 20,000 shares to Europacific in January 2005, and
                canceled those
                shares in May 2005, after what it contends is Europacific’s fraudulent
                inducement and failure to perform. The Company intends to vigorously
                contest
                this case and consider this a frivolous claim. The Company believes
                the claim
                for $250,000 is without basis since the consideration for Europacific’s services
                was 20,000 shares, which at a current market value of $1.10 per share,
                would
                equal approximately only $22,000.
 F-28
 **Cobalis
                    Corp. and Subsidiary**
 **(A
                    Development Stage Company)**
 **Notes
                    to Consolidated Financial Statements**
 **For
                    the Years Ended March 31, 2006 and 2005 and the Period**
 **From
                    November 21, 2000 (inception) to March 31, 2006**
 In
                the
                ordinary course of business, the Company is generally subject to
                claims,
                complaints, and legal actions. At March 31, 2006, 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.
 
 Leases
 
 The
                Company currently leases its corporate office under an operating
                lease that
                expires in March 2008. The Company has paid a security deposit of
                $12,546 per
                the terms of the lease agreement.
 
 Rent
                expense for the years ended March 31, 2006 and 2005 and for the period
                from
                November 22, 2000 (inception) to March 31, 2006, was $152,696, $133,104
                and
                $569,059, respectively.
 
 Future
                minimum lease payments applicable to non-cancelable operating leases
                as of March
                31, 2006, are as follows:
  OperatingLeasesYear
                            ending March 31,2007
                        
                        $
                        144,0122006
                        
                        
                        150,558Net
                            Minimum Lease Payments
                        
                        $
                        294,570
  **NOTE
                  14 - SUBSEQUENT EVENTS**
 
 Subsequent
                  to March 31, 2006, the Company:
 
 ·
                        issued
                            1,500,000 and 1,000,000 options with an exercise price
                            of $1.40 to its
                            President and Chief Executive Officer,
                            respectively;
 
 ·
                        issued
                            111,416 shares of common stock in exchange for debt of
                            $167,124;
 
 ·
                        appointed
                            Gerald J. Yakatan, Ph.D., as Chief Executive Officer;
                            and
 
 ·
                        converted
                            the Tejeda and Tejeda, Inc. convertible note payable
                            in the amount of
                            $100,000 (see Note 7) into 200,000 shares of the Company’s common
                            stock.
 F-29
 **Item
        8. Changes in and Disagreements with Accountants.**
 
 There
        have been no changes in or disagreements with our accountants that are required
        to be disclosed pursuant to Item 304 of Regulation S-B except for the
        following:
 
 On
        December 1, 2004, our independent auditor, Stonefield Josephson, Inc., Certified
        Public Accountants, (“Stonefield”) notified us of certain errors contained in
        the quarterly report on Form 10-QSB for the period ended September 30, 2004
        as
        filed on November 24, 2004. That report was filed prior to Stonefield completing
        their review and contained several errors, including the following:
 
 ·
              the
                  valuation of certain warrants and common stock granted to non-employees
                  were computed incorrectly and consequently the related expense
                  amount was
                  incorrectly recorded;
 ·
              information
                  contained in the SAFS 148 disclosure was incorrect and the required
                  information for the three months ended September 30, 2004 was not
                  presented in the Form 10-QSB;
 ·
              the
                  fair value of warrants granted to outside consultants should be
                  amortized
                  over the service period instead of the vesting period in accordance
                  with
                  SFAS 123;
 ·
              Note
                  8 regarding Restatement of Prior Year Financial Statements should
                  have
                  included the restated information for the three months ended September
                  30,
                  2003; and
 ·
              we
                  did not disclose that its independent auditors had not reviewed
                  the
                  financial statements pursuant to Statement on Auditing Standards
                  No. 100,
                  Interim Financial Information (SAS 100).
 
 We
        filed
        an amended report on Form 10-QSB/A for that period on December 9, 2004. In
        that
        amended report, we corrected the items listed above. In addition, that amended
        report was reviewed by Stonefield prior to filing.
 
 Effective
        January 26, 2005, we engaged Kabani & Co., Inc. ("Kabani") to act as our
        independent chartered accountants. The engagement of Kabani as our auditors
        was
        recommended and approved by our board of directors. This follows the departure
        of Stonefield as our independent chartered accountants, as reported in our
        Report on Form 8-K for January 18, 2005, as amended.
 
 Our
        unaudited financial statements for the quarter ended December 31, 2004, were
        reviewed by Kabani, as were subsequent financial statements. Stonefield was
        not
        involved in any way with the review of the unaudited financial statements
        for
        the quarter ended December 31, 2004. We authorized Stonefield to discuss
        any
        matter relating to us and our operations with Kabani. The change in our auditors
        was recommended and approved by our board of directors since we do not have
        a
        separate audit committee.
 
 During
        the two most recent fiscal years and subsequent interim period, we did not
        consult with Kabani regarding the application of accounting principles to
        a
        specified transaction, either completed or proposed, or the type of audit
        opinion that might be rendered on our financial statements, or any matter
        that
        was the subject of a disagreement or a reportable event as defined in the
        regulations of the Securities and Exchange Commission.
 
 On
        July
        26, 2005, we were notified that Stonefield, our former auditor, had withdrawn
        its audit report dated July 8, 2004 for our 2004 and 2003 financial statements,
        and its audit report dated May 23, 2003 on our 2003 and 2002 financial
        statements, and that therefore, reliance should not be placed on those reports
        referred to above, or on any related financial statements. Stonefield took
        this
        action after we filed our annual report on Form 10-KSB for the fiscal year
        ended
        March 31, 2005 on July 15, 2005, without the permission of Stonefield , due
        to a
        fee dispute with Stonefield. Our annual report erroneously included a report
        dated July 20, 2005, which purported to be from Stonefield, implying that
        additional auditing procedures had been performed by that firm, when that
        had
        not occurred. On July 19, 2005, Stonefield notified our senior management
        that
        Stonefield was requesting corrective action as to the error in our Report
        on
        Form 10-KSB, wherein (a) Stonefield's report was not authorized to be associated
        with our financial statements, and that (b) we should amend our 10-KSB.
        Stonefield notified our board of directors on July 26, 2005, that in the
        opinion
        of Stonefield, our senior management did not take timely and appropriate
        remedial actions in regard to this request. We subsequently prepared and
        filed
        an amended annual report to remove the Stonefield report, and because of
        our fee
        dispute with Stonefield, engaged our current auditor, Kabani & Co. to audit
        the financial statements for these prior years.
 
 Since
        we
        do not have a separate audit committee, our board of directors has not discussed
        this matter with Stonefield as of the date of that report on Form 8-K. In
        addition, Stonefield was provided with a copy of the disclosures made in
        response to the report on Form 8-K Item 4.02 filed on or about August 2,
        2005,
        no later than the day that these disclosures were filed with the Securities
        and
        Exchange Commission ("Commission"). Stonefield was requested to furnish a
        letter
        addressed to the Commission stating whether it agreed with the statements
        contained therein. That 8-K was amended subsequently and attached the response
        letter from Stonefield. In our opinion, the letter did not specify nor reference
        any disagreement with the disclosure contained in our August 2, 2005 Form
        8-K.
        In our opinion, the attached letter was a mere recitation of Stonefield’s
        interpretation of the events leading up to the filing of the August 2 Form
        8-K.
        The filing of that attached letter should not be interpreted as our agreement
        with the information contained therein. In our opinion, Stonefield’s actions
        were primarily the result of a fee dispute.
 
 During
        2003, we changed our fiscal year end from December 31 to March 31.
 
 **Item
        8A. Controls and Procedures.**
 
 (a)
        Evaluation of disclosure controls and procedures. We maintain controls and
        procedures designed to ensure that information required to be disclosed in
        the
        reports that we file or submit under the Securities Exchange Act of 1934
        is
        recorded, processed, summarized and reported within the time periods specified
        in the rules and forms of the Securities and Exchange Commission. Based upon
        their evaluation of those controls and procedures performed as of the end
        of the
        period covered by this report, our chief executive officer and the principal
        financial officer concluded that our disclosure controls and procedures were
        effective.
  21
 
 (b)
        Changes in internal controls. There were no significant changes in our internal
        controls or in other factors that could significantly affect these controls
        subsequent to the date of the evaluation of those controls by the chief
        executive officer and principal financial officer.
 
 **Item
        8B. Other Information.**
 
 None.
 
 **PART
        III**
 
 **Item
        9. Directors, Executive Officers, Promoters and Control
        Persons.**
 
 **Executive
        Officers and Directors.** Our
        directors and principal executive officers are as specified on the following
        table:
 
 **Name**
              **Age**
              **Position**Gerald
                  Yakatan
              64
              Chief
                  Executive Officer*, DirectorThomas
                  Stankovich
              45
              Chief
                  Financial Officer, Treasurer,** DirectorChaslav
                  Radovich
              46
              Chief
                  Executive Officer*, President, Secretary, Treasurer** and a
                  Director*Radul
                  Radovich
              83
              Chairman
                  of the Board, DirectorErnest
                  Armstrong
              46
              Chief
                  Scientific Officer, DirectorMartin
                  Marion
              53
              Acting
                  Chief Marketing Officer***Kevin
                  Prendiville
              51
              DirectorLawrence
                  May
              57
              Director
  *Dr.
        Yakatan was appointed CEO on May 18, 2006, at which time Mr. Chaslav Radovich
        resigned that office.
 **
        Mr.
        Stankovich was appointed as our CFO and Treasurer on December 1, 2005, at
        which
        time Mr. Chaslav Radovich resigned those offices.
 ***Mr.
        Marion has been acting in the capacity as our CMO since April 2005
  GERALD
          YAKATAN, CHIEF EXECUTIVE OFFICER, DIRECTOR. Dr. Yakatan was appointed as
          one of
          our directors in February 2006, and as our Chief Executive Officer in May
          2006.
          Prior to joining us, Dr. Yakatan served as president, chief executive officer
          and a director of Avanir Pharmaceuticals, a reporting company ("Avanir"),
          from
          1998 to 2005. Avanir trades on the NASDAQ under the trading symbol "AVNR".
          Dr.
          Yakatan had served as Avanir's vice president of drug development from
          1995 to
          1998. Dr. Yakatan also serves as Chairman of IriSys, Inc., and a privately-held
          company he founded in 1996, that specializes in pharmaceutical product
          development contract services. In 1990, he founded Tanabe Research Laboratories,
          USA, Inc., a wholly owned subsidiary of Tanabe Seiyaku of Osaka, Japan,
          where he
          served as president and chief executive officer until 1995. Dr. Yakatan
          served
          as executive vice president for research and development for Immunetech
          Pharmaceuticals. He joined Warner-Lambert Company, Pharmaceutical Research
          Division, as director of pharmacokinetics and drug metabolism, and was
          later
          appointed vice president for worldwide product development. Dr. Yakatan
          was on
          the faculty of the University of Texas at Austin where he also served as
          Chairman of the Department of Pharmaceutics and as Assistant Director of
          the
          Drug Dynamics Institute. He has published more than 60 papers in scientific
          and
          professional journals in the areas of pharmacokinetics, biopharmaceutic,
          analysis of drugs in biological fluids and drug stability. Dr. Yakatan
          received
          his Bachelor of Science in pharmacy from Temple University in 1963 and
          a Masters
          in pharmaceutical chemistry in 1965. In 1971, he was awarded a Doctorate
          in
          pharmaceutical sciences by the University of Florida, Gainesville. Dr.
          Yakatan
          is not an officer or director of any other reporting company.
 THOMAS
        STANKOVICH, CHIEF FINANCIAL OFFICER, TREASURER, EXECUTIVE VICE PRESIDENT.
        On
        December 1, 2005, we announced the hiring of Thomas Stankovich as our new
        Executive Vice President, Chief Financial Officer effective immediately.
        Before
        joining us, Mr. Stankovich previously served as Senior Vice President and
        Chief
        Financial Officer of MP Biomedicals from 2003 to 2005. From 2001 to 2003,
        he
        served as Senior Vice President and Chief Financial Officer for Ribapharm,
        Inc.
        (now part of Valeant Pharmaceuticals International). From 1986 to 2001, Mr.
        Stankovich has served in various executive financial management positions
        for
        ICN Pharmaceuticals, Inc. (now renamed Valeant Pharmaceuticals International)
        including Vice President, Chief Financial Officer for ICN International A.G.,
        and Vice President and Controller for ICN Europe. Mr. Stankovich holds Bachelor
        of Science degrees in both accounting and finance from California State
        University, Northridge, which he earned in 1984. Mr. Stankovich is not an
        officer or director of any other reporting company.
  22
 
 RADUL
        RADOVICH, CHAIRMAN OF THE BOARD OF DIRECTORS. Mr. Radovich has been a Senior
        Project Manager and Project Head for several multi-billion dollar projects
        with
        Ciba-Geigy (Novartis), British Petroleum, Parsons, Narmco, Page Engineering
        and
        others. His leadership and focus on deliverable results enabled Mr. Radovich
        to
        complete each project as scoped, on time and within budget, driving customer
        satisfaction and profitability in line with projections. His extensive and
        diverse experience equipped him to provide consulting services to several
        Fortune 100 corporations. Radovich has been Chairman of R & R Holdings,
        Inc., a private investment banking company, for over 15 years. He earned
        an MSME
        at University of Belgrade, Yugoslavia. Mr. Radul Radovich is the father of
        Mr.
        Chaslav Radovich. He is not an officer or director of any other reporting
        company.
 
 CHASLAV
        RADOVICH, PRESIDENT, SECRETARY AND A DIRECTOR. Mr. Radovich was Founder and
        CEO
        of Best Electronics, Inc., from 1986 through 1992. Best Electronics was a
        wholesaler-distributor of computer memory and peripheral products for companies
        including Intel, NEC, Toshiba, Motorola and Texas Instruments. From inception,
        Best Electronics, Inc. was profitable and Mr. Radovich grew earnings by more
        than 24% per year, while strategically expanding the staff to 25. Since 1992,
        he
        has been an independent investor and investment banker with R & R Holdings,
        Inc. Over the last ten years, Mr. Radovich has raised well over $100 million
        for
        private and public companies and played an instrumental role in taking many
        of
        them public, including Healthstar, Pharmaprint, LogOn America and AimSmart.
        Mr.
        Radovich is the son of Radul Radovich. He is not an officer or director of
        any
        other reporting company.
 
 ERNEST
        ARMSTRONG, CHIEF SCIENTIFIC OFFICER AND A DIRECTOR. Mr. Armstrong as CEO
        of Gene
        Pharmaceuticals, LLC, has overseen clinical research on allergic rhinitis
        products and out-licensed medical technology for us. From 1991 through 1996,
        Mr.
        Armstrong was Founder and President of Broncorp, Inc., a research-based
        pharmaceutical company focused on drug-delivery technologies and on developing
        treatments for asthma and allergy. He was an Associate Professor of
        International Business at Dai-Ichi Economics College, Fukuoka, Japan 1998-1991.
        Armstrong speaks seven languages and previously lived in Canada, France,
        Guatemala, Italy, Japan and Switzerland. His education includes:
        BA-International Marketing and core courses for BS in Biology, Humboldt State
        University, Arcata, California; BA-French, University of Aix-en-Provence,
        France; MBA-San Francisco State University. Mr. Armstrong is not an officer
        or
        director of any other reporting company.
 
 MARTIN
        S.
        MARION, ACTING CHIEF MARKETING OFFICER. Mr. Marion began serving as our acting
        Chief Marketing Officer in April 2005. Mr. Marion has served as a consultant
        to
        us providing similar services from July 2004 through April 2005. Prior to
        that,
        Mr. Marion was self-employed as a consulting professional providing marketing
        and strategic planning services for various companies in entertainment,
        healthcare, marketing and advertising. Mr. Marion is not an officer or director
        of any other reporting company.
 
 ALSO
        ON
        OUR BOARD OF DIRECTORS:
 
 KEVIN
        J.
        PRENDIVILLE, M.D., F.A.C.S. Dr. Prendiville is a Diplomate of the American
        Board
        of Ophthalmology and a Fellow of the American College of Surgeons. Since
        1986,
        he has operated a thriving ophthalmology practice in
 Cottonwood
        and Sedona, Arizona, specializing in small incision cataract surgery, cosmetic
        and functional eyelid surgery as well as excimer laser vision correction.
        Dr.
        Prendiville also serves as Medical Director for the Cottonwood/Verde Valley
        Eye
        Surgery Center and, since 1989, has held numerous medical leadership positions
        at Verde Valley Medical Center in Cottonwood. Dr. Prendiville is not an officer
        or director of any other reporting company.
 
 LAWRENCE
        A. MAY, M.D. Dr. May brings extensive medical and entrepreneurial experience
        to
        our Board of Directors. He has served as the medical director for Physician
        Therapeutics since 2003. From 1997 to 2003, Dr. May served as an executive
        vice
        president for Herbalife, and was the chairman of its medical advisory board.
        Prior to that, Dr. May was in private medical practice since 1979. Dr. May
        earned his M.D. degree in 1974, and his Bachelor's degree in Economics in
        1970,
        both at Harvard University. Dr. May was also licensed by the National Board
        of
        Medical Examiners in 1977. Dr. May is not an officer or director of any other
        reporting company.
  23
 
 Our
        directors will serve until the next annual meeting of stockholders. Our
        executive officers are appointed by our Board of Directors and serve at the
        discretion of the Board of Directors.
 
 There
        are
        no orders, judgments, or decrees of any governmental agency or administrator,
        or
        of any court of competent jurisdiction, revoking or suspending for cause
        any
        license, permit or other authority to engage in the securities business or
        in
        the sale of a particular security or temporarily or permanently restraining
        any
        of our officers or directors from engaging in or continuing any conduct,
        practice or employment in connection with the purchase or sale of securities,
        or
        convicting such person of any felony or misdemeanor involving a security,
        or any
        aspect of the securities business or of theft or of any felony. Nor are any
        of
        the officers or directors of any corporation or entity affiliated with us
        so
        enjoined.
 
 OUR
        MEDICAL ADVISORY BOARD. Our Medical Advisory Board consists of nine doctors
        in
        the fields of allergy and immunology, as well as an attorney with extensive
        education in immunology, biochemistry and intellectual property law. Several
        of
        the advisory board members have previously contributed their scientific and
        medical expertise to the research and development of the company's foundation
        product, as well as products in our development pipeline.
 
 The
        members of this advisory board are:
 
 LYNDON
        E.
        MANSFIELD, MD, PRINCIPAL INVESTIGATIVE PHYSICIAN. Dr. Mansfield, a key medical
        advisor and the Principal Investigative Physician for BioGentec Inc. since
        1992,
        has conducted many allergy related clinical research studies for major
        pharmaceutical companies and was instrumental in preparing and presenting
        the
        prior trial results for Prehistin TM to the
        FDA. Education: Temple University, Thomas Jefferson Medical University -
        Doctor
        of Medicine. Residency: Pediatrics - Brooke Army Medical Center. Board
        Certifications: Pediatrics, Allergy and Clinical Immunology, Diagnostic
        Laboratory Immunology/Clinical Lab, Immunology. Professional Societies: Fellow,
        American Academy Allergy & Immunology Allergy & Immunology, Fellow,
        American College of Allergists, Association of Medical Laboratory Immunologists.
        Dr. Mansfield has been issued 6,250 shares of our common stock registered
        on
        Form S-8 filed on or about April 29, 2004 and 20,000 shares of our common
        stock
        registered on Form S-8 filed on or about May 11, 2006, in return for advisory
        board services rendered to us.
 
 RICHARD
        E. DANZIGER M.D., PH.D. Education: George Washington University - M.D.,
        University of Alberta - Ph.D., Dartmouth College - BA. Board Certifications:
        American Board of Pediatrics - Diplomate, American Board of Allergy &
Immunology - Diplomate. Publications: Wagner, C.J.; Danziger, R.E. and Nelson,
        H.S. "Relation Between Positive Small Air Ions, Weather Fronts and Pulmonary
        Function in Patients with Bronchial Asthma. Annals of Allergy 51 (4): 430-435.
        1983. Fortner, B.R.; Danziger, R.E.; Rabinowitz, P.S. and Nelson, H.S. The
        effect of ascorbic acid on cutaneous and nasal response to histamine and
        allergen. J. Allergy Clinical Immunology. (69) 484--488. 1982. Numerous
        additional publications and presentations.
 
 STANLEY
        GOLDSTEIN, M.D. Education: Yeshiva University - B.A., New York Medical College
        -
        M.D. Internship: Long Island Jewish Hillside Medical Center - Pediatric
        Internship. Residency: Long Island Jewish Hillside Medical Center - Pediatric
        Residency, Long Island Jewish Hillside Medical Center - Senior Resident in
        Pediatrics. Faculty Appointments: State University of N.Y. - Assistant Clinical
        Instructor, Long Island Jewish Hillside Medical Center -
 Director
        of Allergy Clinic, The Long Island College Hospital - Research Coordinator
        and
        Attending Department of Allergy & Immunology. Board Certifications: American
        Board of Pediatrics, American Board of Allergy & Immunology, and American
        Board of Pediatric Pulmonary. Publications: Goldstein, S., Rose, JO., Sutton,
        PL., Koup, JR., Jusko, WJ., and Middleton, E., Jr.: The Pharmacokinetics
        of
        Prednisone and Its Metabolite Prenisolone in Pregnant Asthmatics, J. Allergy
        Clinical Immunology Vol. 63, No. 3, March 1979, p. 219. Goldstein, S., Mueller,
        U., Wypysch, J., Reisman, R., and Arbesdman, C.: Treatment of Ragweed Sensitive
        Patients with Ragweed Fraction A conjugated to D-glutamic Acid: D-Lysine
        (FA:DGL). J. Allergy Clinical Immunology, Vol. 65, No. 3, March 1980. Numerous
        additional publications.
 
 LEWIS
        JOSEPH KANTER, M.D. Education: University of California - B.S. Biological
        Sciences, Georgetown University School of Medicine - M.D. Internship: Pediatrics
        - National Naval Medical Center. Residency: Pediatrics - National Naval Medical
        Center. Board Certifications: American Board of Pediatrics - Board Certified,
        America Board of Allergy and Immunology (A Conjoint Board of the American
        Board
        of Pediatrics and American Board of Internal Medicine) - Board Certified.
        Faculty Appointments: Uniformed Services University of Health Sciences,
        Assistant Professor of Pediatrics and Assistant Professor in Internal Medicine,
        University of California at Los Angeles School of Medicine, Clinical faculty.
        Publications: Nedocromil in the Outpatient Management of Asthma, Arch Fam
        Med
        1995' 4:835-842. Inhaled Fluticasone Propionate in the Treatment of Asthma,
        Advances in Therapy Jan/Feb 1997, Vol. 14. No. 1. Inhaled Corticosteriods
        for
        Asthma Therapy, Epitomes-Allergy & Immunology, Western Journal of Medicine
        Nov. 1997, Vol. 167, No. 5; 343-346. Numerous additional publications and
        presentations.
  24
 
 MICHAEL
        J. NOONAN, M.D. Education: University of Nebraska - B.S. Pre-Medicine,
        University of Nebraska College of Medicine - M.D., University of Oregon.
        Internship: Emanuel Hospital - Rotating Internship. Residency: University
        of
        Oregon Medical Center - Pediatric, Fellowship: National Jewish Hospital -
        Allergy & Immunology, Oregon Health Sciences University - Allergy Immunology
        Fellowship. Board Certifications: American Board of Pediatrics, American
        Board
        of Allergy & Immunology. Faculty Appointments: Department of Pediatrics,
        Oregon Health Sciences University - Associate Clinical Professor. Publications:
        Asthma, Allergy & Immunology, Vol. 10, No 4 1996. Noonan MJ, Chervinsky P,
        Wolfe J, Liddles R, Kellerman DJ, Crescenzi KL; Does Related Response to
        Inhaled
        Flutisone Propionate in Patients with Methacholine-Induced Bronchial Hyper
        responsiveness: A Double-Blind, Placebo-Controlled Study. Journal of Asthma
        Vo1.
        35(2), 1998. Numerous additional Publications and Research
        Interests.
 
 **Audit
        Committee and Financial Expert.** Due to
        the size of our board of directors and lack of independent board members,
        we do
        not have a separate audit committee. We also believe that we do not have
        a
        financial expert on our Board of Directors as that term is defined by Item
        401(e)2, due to the small size of our board of directors.
 
 **Section
        16(a) Beneficial Ownership Reporting Compliance** .
Section
        16(a) of the Securities Act of 1934 requires our directors, executive officers,
        and any persons who own more than 10% of a registered class of our equity
        securities, to file reports of ownership and changes in ownership with the
        Securities and Exchange Commission. SEC regulation requires executive officers,
        directors and greater than 10% stockholders to furnish us with copies of
        all
        Section 16(a) forms they file. Based solely on our review of the copies of
        such
        forms received by us, or written representations from certain reporting persons,
        we believe that during the fiscal year ended March 31, 2006 our executive
        officers, directors, and greater than 10% stockholders complied with all
        applicable filing requirements, with the exception of Radul Radovich and
        Chaslav
        Radovich who each filed 15 reports late and reporting 31 transactions late;
        Ernest Armstrong who filed 5 reports late, reporting 8 transactions late,
        and
        Lawrence May, who each filed one report late, which reported 2 transactions
        late, and Kevin Prendiville who filed one report late, which reported 4
        transactions late. Dr. May’s report states that our fiscal year end is December
        31, 2005, though in actuality it is March 31, 2006.
 **Code
        of Ethics.** We
        have
        not adopted a code of ethics that applies to our principal executive officer,
        principal financial officer, principal accounting officer or controller,
        or
        persons performing similar functions since until recently, we only one
        individual in the applicable role. Now that we have expanded our management
        team
        recently, we are in the process of preparing and adopting a code of ethics.
 
 **Item
        10. Executive Compensation**
 
 Any
        compensation received by our officers, directors, and management personnel
        will
        be determined from time to time by our Board of Directors. Our officers,
        directors, and management personnel will be reimbursed for any out-of-pocket
        expenses incurred on our behalf.
 
 **Summary
        Compensation Table.** The
        table set forth below summarizes the annual and long-term compensation for
        services in all capacities to us payable to our chief executive officer and
        our
        other executive officers during the last three fiscal years. Our Board of
        Directors may adopt an incentive stock option plan for our executive officers
        which would result in additional compensation.
  25
 **Annual
                    Compensation**
                **Long
                    Term Compensation****Name
                    and Principal Position**
                **Year**
                **Salary
                    ($)**
                **Bonus
                    ($)**
                **Other
                    Annual Compensation ($)**
                **Awards**
                **Payouts**
                **All
                    Other Compensation****Restricted
                    Stock Awards ($)**
                **Securities
                    Underlying Options/SARs (#)**
                **LTIP
                    Payouts ($)**Gerald
                    Yakatan
                  -
                    Chief Executive Officer
                2006
                300,000
                  (1)
                200,000
                    shares
                None
                None
                1,000,000
                    options
                None
                NoneThomas
                    Stankovich
                  -
                    Chief Financial Officer, Treasurer
                2006
                200,000
                250,000
                    shares
                None
                None
                1,000,000
                    warrants
                None
                $4,234
                    (4)Chaslav
                    Radovich
                  -
                    President, Treasurer, Secretary
                2004
                125,000
                  (2)
                None
                None
                None
                None
                None
                $10,290
                    (4)-
                    President, Treasurer, Secretary
                2005
                125,000
                50,000
                    shares
                None
                None
                None
                None
                $10,290
                    (4)-
                    President, Secretary
                2006
                125,000
                  (3)
                    (8)
                  250,000
                100,000
                    shares
                
                
                1,500,000
                
                $10,290
                    (4)Ernest
                    Armstrong- Vice President of Business Development
                2004
                100,000
                  (5)
                None
                None
                None
                1,200,000
                  options
                None
                $9,762
                    (4)-
                    Chief Scientific Officer
                2005
                100,000
                  (9)
                None
                None
                None
                None
                None
                $9,762
                    (4)-
                    Chief Scientific Officer
                2006
                100,000
                16,000
                  shares
                None
                None
                None
                None
                $9,762
                    (4)Martin
                    Marion
                  Consultant(6)
                2005
                150,000
                50,000
                    shares
                None
                None
                1,000,000
                None
                43,125
                    shares
                  $17,298
                    (4)Acting
                    Chief Marketing Officer (6)
                2006
                155,400
                None
                None
                None
                None
                None
                $17,298
                    (4)James
                    Luce, former Chief Operating Officer, Chief Marketing
                    Officer
                2005
                150,000
                  (7)
                None
                None
                None
                None
                None
                None
  (1)
          salary is pursuant to employment contract entered into May 15, 2006
 (2)
          includes 213,673 shares were issued in lieu of salary accrued during FYE
          2005
 (3)
          salary increased to $250,000 from $125,000 pursuant to employment contract
          entered into May 15, 2006
 (4)
          approximate value of group health insurance benefits paid on employee’s
          behalf
 (5)
          includes 36,231 shares issued in lieu of salary
 (6)
          acting Chief Marketing Officer since April 2005
 (7)
          includes 81,516 shares in lieu of salary
 (8)
          includes 125,000 shares in lieu of salary
 (9)
          includes 32,000 shares in lieu of salary
 
 COMPENSATION
          OF DIRECTORS. Our current directors who are also our employees receive
          no extra
          compensation for their service on our board of directors. In January 2005,
          we
          issued 250,000 warrants to purchase shares of our common stock at $1.75
          per
          share to Lawrence May, one of our directors. In October 2005, Kevin Prendiville
          was granted 333,000 warrants to purchase shares of our common stock at
          $1.75 per
          share. Gerald Yakatan was granted 50,000 shares of our common stock for
          his
          service as a director February 2006. We pay medical insurance premiums
          for Radul
          Radovich at the rate of $1,032 per year, which we have done annually since
          2004.
 
 EMPLOYMENT
          CONTRACTS.
 
 **Chaslav
          Radovich.** Chaslav
          Radovich, our President, and formerly also our Chief Executive Officer,
          executed
          a new employment agreement as of May 15, 2006, the terms of which are summarized
          below. His initial employment agreement with us dated November 22, 2000,
          amended
          on December 31, 2001, which paid an annual salary of up to $125,000 and
          certain
          bonuses. As of March 31, 2006, we had a payable to Mr. Radovich totaling
          $52,083. In mid 2004, we issued Mr. Radovich 107,901 shares of our common
          stock
          in satisfaction of $154,500 of past due compensation plus interest. With
          the
          additional issuance of 93,750 shares of S-8 stock issued in February 2005,
          our
          President's salary was paid in full through December 31, 2004. In November
          2005,
          we issued 225,000 shares to Mr. Radovich, which were intended to compensate
          him
          in the amount of $125,000 representing wages due, and $100,000 as an employee
          bonus. We have accrued the $52,083 owed him through March 31, 2006.
 26
 
 Mr.
        Radovich will receive 100,000 shares of our common stock in lieu of the total
        amount of $86,939.10 owed to him from November 1, 2005 through May 15, 2006;
        unpaid base salary totaling $67,708.33 and accrued for the period from January
        2003 through December 2004; and unpaid eight weeks of vacation pay valued
        at
        $19,230.77.
 
 The
        material terms of Mr. Radovich’s new contract, executed on May 15, 2006, are
        summarized below:
 
 **Executive**
              **Chaslav
                  Radovich**Position
              PresidentStart
                  Date
              05/15/06Term
              3
                  yearsBase
                  Salary
              $250,000
                  per yearBack
                  Wages
              100,000
                  Restricted Shares in lieu of $86,939.10 for Back Wages and Unused
                  Vacation
                  up to Start Date of 05/15/06Stock
                  Options
              1,500,000
                  Shares at $1.40 vested over 3 years; 5 year
                  term
 
 **Ernest
        Armstrong.** In
        February 2004, Ernest Armstrong agreed to serve as our Vice President of
        Business Development in conjunction with BioGentec's purchase of the patent
        underlying our principal product (formerly known as "Immun-Eeze") in 2000
        from
        Gene Pharmaceuticals, LLP, of which Mr. Armstrong is the managing member.
        Mr.
        Armstrong receives a salary of $100,000 annually and is eligible for annual
        bonuses as well. Mr. Armstrong’s employment agreement is being drafted.
 
 In
        November 2005, we issued 32,000 shares of our common stock registered on
        Form
        S-8 as payment of wages due him under his employment contract, and an amount
        of
        16,000 as a bonus. As of March 31, 2006, we owed Mr. Armstrong $21,794 in
        past
        wages; this amount was subsequently paid to Mr. Armstrong.
 
 **Thomas
        Stankovich.** In
        December 2005, we issued Mr. Stankovich 100,000 shares of our common stock
        as a
        signing bonus. The material terms of Mr. Stankovich’s new contract, executed in
        December 2005, are summarized below:
 
 **Executive**
              **Thomas
                  Stankovich**Position
              CFOStart
                  Date
              12/05/06Term
              3
                  yearsBase
                  Salary
              $200,000
                  per yearSigning
                  Bonus
              100,000
                  Registered Shares on the Start Date and
                150,000
                  Unregistered Shares after 30 daysStock
                  Warrants
              1,000,000
                  Shares at $1.75 vested over 3 years; 5 year
                  term
 
 **Gerald
        Yakatan.** The
        material terms of Dr. Yakatan’s contract, executed on May 15, 2006, are
        summarized below:
 
 **Executive**
              **Gerald
                  Yakatan**Position
              CEOStart
                  Date
              05/15/06Term
              3
                  yearsBase
                  Salary
              $300,000
                  per yearSigning
                  Bonus
              100,000
                  Unregistered Shares on the Start Date and
                100,000
                  Unregistered Shares after 90 daysStock
                  Options
              1,000,000
                  Shares at $1.40 vested over 3 years; 5 year
                  term
  **Item
          11. Security Ownership of Certain Beneficial Owners and
          Management.**
 
 The
          following table sets forth certain information regarding the beneficial
          ownership of our common stock as of July 12, 2006, by each person or entity
          known by us to be the beneficial owner of more than 5% of the outstanding
          shares
          of common stock, each of our directors and named executive officers, and
          all of
          our directors and executive officers as a group. The table below assumes
          28,273,625 shares of our common stock outstanding as of July 12,
          2006.
  27
  **Title
                  of Class**
              **Name
                  and Address of Beneficial Owner**
              **Amount
                  and Nature of Beneficial****Owner**
              **Percent
                  of Class**Common
                  Stock
              Gerald
                  Yakatan
                2445
                  McCabe Way, Suite 150
                Irvine,
                  CA, 92614
              100,000
                  shares (1)
                Chief
                  Executive Officer andDirector
              0.4%Common
                  Stock
              Thomas
                  Stankovich
                2445
                  McCabe Way, Suite 150
                Irvine,
                  CA, 92614
              250,000
                  shares (2)
                Chief
                  Financial Officer, Treasurer
              0.9%Common
                  Stock
              Chaslav
                  Radovich
                2445
                  McCabe Way, Suite 150
                Irvine,
                  CA, 92614
              782,851
                  shares (3)
                President,
                  Secretary, and Director
              2.8%Common
                  Stock
              Radul
                  Radovich
                46
                  Calle Fresno
                San
                  Clemente, CA, 92672
              6,247,722
                  shares (4)
                Director
              22.1%Common
                  Stock
              Ernest
                  Armstrong
                2445
                  McCabe Way, Suite 150
                Irvine,
                  CA, 92614
              156,404
                  shares (5)****
                Chief
                  Scientific Officer, Director
              0.6%Common
                  Stock
              Kevin
                  Prendiville
                2445
                  McCabe Way, Suite 150
                Irvine,
                  CA, 92614
              506,480
                  shares (6)
                Director
              1.8%Common
                  Stock
              Lawrence
                  May
                2445
                  McCabe Way, Suite 150
                Irvine,
                  CA, 92614
              142,200
                  shares(7)
                Director
              0.5%Common
                  Stock
              Martin
                  S. Marion
                2445
                  McCabe Way, Suite 150
                Irvine,
                  CA, 92614
              80,000
                  shares (8)
                Acting
                  Chief Marketing Officer
              0.3%Common
                  Stock
              St.
                  Petka Trust
                46
                  Calle Fresno
                San
                  Clemente, CA 92672
              6,202,556
                  shares (4)
              21.9%Common
                  Stock
              Silver
                  Mountain Promotions
                6446
                  Silver Dawn Lane
                Las
                  Vegas, NV, 89118
              44,833
                  shares (4)
              0.2%Common
                  Stock
              R
                  and R Holdings
                46
                  Calle Fresno
                San
                  Clemente, CA, 92672
              333
                  shares (4)
              <0.1%Common
                  Stock
              Gene
                  Pharmaceuticals
                2445
                  McCabe Way, Suite 150
                Irvine,
                  CA, 2614
              1,449,087
                  shares (9)
              5.1%Common
                  Stock
              James
                  Hammer
                2537
                  Red Arrow Drive
                Las
                  Vegas, NV 8913
              3,294,643
                  shares (10)
              11.7%Common
                  Stock
              Officers
                  and directors as a group
              9,634,744
                  shares
              34.1%
  (1)
              Gerald
                  Yakatan was issued 50,000 shares upon his appointment as director,
                  with
                  50,000 shares to follow. Dr. Yakatan also owns 1,000,000 options
                  to
                  purchase shares of our common stock at $1.40 per share which were
                  granted
                  on May 15, 2006, vest over three years, and expire on May 15,
                  2011.
 (2)
              Thomas
                  Stankovich owns 1,000,000 warrants to purchase shares of our common
                  stock
                  at $1.75 per share, which were granted in December 2005, and vest
                  over
                  three years. These warrants expire on December 8,
                  2010.
 (3)
              Chaslav
                  Radovich owns 738,851 shares individually and is the custodian
                  of the
                  44,000 shares owned by Milena Radovich, his minor child. Mr. Radovich
                  also
                  owns 1,500,000 options to purchase shares of our common stock at
                  $1.40 per
                  share, which were granted on May 15, 2006 and vest over three years.
                  These
                  options expire on May 15, 2011.
 (4)
              Radul
                  Radovich and his spouse are the beneficiaries of the St. Petka
                  Trust,
                  which owns 6,202,556 shares. Radul Radovich is the Trustor of St.
                  Petka
                  Trust, and owns R and R Holdings which holds 333 shares of our
                  common
                  stock, and of Silver Mountain Promotions which holds 44,833 shares
                  of our
                  common stock.
 (5)
              Ernest
                  Armstrong owns 148,000 shares individually, 550 shares owned by
                  jointly
                  with his parent, has beneficial ownership of 3,000 shares owned
                  jointly by
                  Mr. Armstrong’s spouse and Mr. Armstrong’s parent, and 4,854 shares owned
                  jointly by Mr. Armstrong and his spouse. Mr. Armstrong also owns
                  2,200,000
                  options to purchase shares of our common stock at $2.00 per share
                  and
                  which expire in seven years from the dated of the revised underlying
                  agreement.
 (6)
              Kevin
                  Prendiville owns 100,000 shares directly and is one of the trustees
                  of the
                  Prendiville Revocable Trust and owner of 402,840 shares; he also
                  owns
                  3,640 shares as custodian for his minor child. Dr. Prendiville
                  also owns
                  333,000 warrants to purchase shares of our common stock at $1.75
                  per
                  share, which were granted and vested on October 24, 2005 and expire
                  on
                  October 24, 2010.
 (7)
              In
                  January 2005, we granted Lawrence May 250,000 warrants to purchase
                  shares
                  of our common stock for $1.75 per share in January 2005. These
                  warrants
                  expire in January 2007.
 (8)
              In
                  July 2004, while serving as our consultant, we granted 1,000,000
                  warrants
                  to purchase shares of our common stock for $1.75 per share to Mr.
                  Marion.
                  These warrants expire in July 2009.
 (9)
              Mr.
                  Armstrong is a majority owner and managing member of Gene Pharmaceuticals,
                  LLC, which owns 1,449,087 shares.
 (10)
              James
                  Hammer owns 1,177,143 shares individually, 360,000 owned by immediate
                  family members who share his household, 107,500 shares owned jointly
                  with
                  spouse and 1,650,000 shares owned by the Hammer Family Trust.
 
 28
 Beneficial
        ownership is determined in accordance with the rules of the Securities and
        Exchange Commission and generally includes voting or investment power with
        respect to securities. In accordance with Securities and Exchange Commission
        rules, shares of our common stock which may be acquired upon exercise of
        stock
        options or warrants which are currently exercisable or which become exercisable
        within 60 days of the date of the table are deemed beneficially owned by
        the
        optionees. Subject to community property laws, where applicable, the persons
        or
        entities named in the table above have sole voting and investment power with
        respect to all shares of our common stock indicated as beneficially owned
        by
        them.
 
 **Changes
        in Control.** Our **** management
        is not aware of any arrangements which may result in “changes in control” as
        that term is defined by the provisions of Item 403(c) of Regulation S-B.
 
 **Item
        12. Certain Relationships and Related Transactions.**
 
 RELATED
        PARTY TRANSACTIONS.
 
 CONSULTING
        CONTRACT. BioGentec has a consulting contract with R and R Holdings, Inc.,
        one
        of our shareholders ("R and R"), whereby R and R would provide managerial
        consulting services to us at the rate of $125,000 per year. As stated in
        the
        agreement, the rate increased to $135,000 per year upon BioGentec's merger
        with
        our wholly-owned subsidiary. R and R is also one of our shareholders. As
        of
        March 31, 2006, we have accrued a payable to R and R under the contract for
        consulting fees totaling $478,642 which is included as a payable to related
        parties. Radul Radovich, one of our directors, and his spouse are the owners
        of
        R and R Holdings. Radul Radovich and his spouse are the parents of Chaslav
        Radovich, one of our officers and directors.
 
 ADVANCES.
        We have received cash advances from Mr. Radul Radovich, one of our directors
        and
        the chairman of our board of directors, and several affiliated entities.
        Mr.
        Radul Radovich, the St. Petka Trust, our largest shareholder, and other entities
        related to or owned by Mr. Radul Radovich also advance us cash from time
        to
        time. As of March 31, 2006, we owe an aggregate total of $5,068,093 to Mr.
        Radovich and these entities, which includes accrued interest on these
        advances.
  As
        of
        March 31, 2006 we owe St. Petka Trust $1,595,500 in advances. Interest is
        accrued at the rate of 10% per annum. As of March 31, 2006, we have outstanding
        accrued interest payable of $172,292. Radul Radovich and his spouse are
        beneficiaries of the St. Petka Trust; Radul Radovich is also the trustor
        of the
        St. Petka Trust.
 
 As
        of
        March 31, 2006 we owe Silver Mountain Promotions, Inc., a Nevada corporation,
        $922,103 in advances. Interest is accrued at the rate of 10% per annum. As
        of
        March 31, 2006, we have outstanding accrued interest payable of $99,574.
        Radul
        Radovich is the Chief Executive Officer, director and majority shareholder
        of
        Silver Mountain Promotions, Inc.
  29
  As
          of
          March 31, 2006 we owe RR Development, a California corporation, $170,000
          pursuant to a note dated September 15, 2003. The note is payable on demand.
          Interest is accrued at the rate of 10% per annum. As of March 31, 2006,
          we have
          outstanding accrued interest payable of $47,647. Radul Radovich is the
          Chief
          Executive Officer, director and majority shareholder of RR
          Development.
 
 As
          of
          March 31, 2006 we owe R and R Holdings, Inc., a Nevada corporation, $471,507
          in
          advances. Interest is accrued at the rate of 10% per annum. As of March
          31,
          2006, we have outstanding accrued interest payable of $50,916. Radul Radovich
          is
          the Chief Executive Officer, director and majority shareholder of R and
          R
          Holdings.
 As
        of
        March 31, 2006 we owe Radul Radovich, one of our directors and the chairman
        of
        our board of directors, $956,611 in advances. The amount is payable on demand.
        Interest is accrued at the rate of 10% per annum. As of March 31, 2006, we
        have
        outstanding accrued interest payable of $103,301.
 
 As
        of
        March 31, 2006 we owe Radul Radovich a total of $478,642 under a consulting
        agreement he has with us.
  EMPLOYMENT
          CONTRACTS. Refer to Item 10 above. As of March 31, 2006, we owed Mr. Chas
          Radovich, who served as our Chief Executive Officer through May 18, 2006,
          $52,083 in past due compensation. As of May 1, 2006, Mr. Radovich was paid
          this
          amount. During the three month period ended December 31, 2005, we paid
          Mr. Chas
          Radovich a total of $104,167 in shares of common stock for past due salary.
          As
          of March 31, 2006, we owed $21,794 to Ernie Armstrong, a current officer,
          and
          $113,125 to Jim Luce, a former officer and employee in past due compensation.
 MATERIAL
        PRODUCT CONTRACT. In 2000 BioGentec purchased the patent underlying our
        principal product (formerly known as "Immun-Eeze"), along with pending
        international patent applications, and certain other tangible assets and
        related
        trademarks, copyrights and customer lists from Gene Pharmaceuticals, LLC,
        whose
        managing member is controlled by Ernest Armstrong, our Vice President of
        Business Development for $150,000 plus royalties tied to future sales. In
        August
        2002, the parties agreed to postpone the payment of royalties in exchange
        for
        250,000 options to purchase BioGentec's common stock at $1.10 per share.
        In
        December 2002, the parties agreed to supersede the terms of the August 2002
        addendum by amending the original agreement to include an additional payment
        of
        2,000,000 shares of BioGentec's common stock at $2.00 per share, plus a
        royalties on sales of products. In March 2004, we agreed to further amend
        the
        original underlying agreement only as to the terms of the royalty provision
        in
        the underlying agreement.
 
 COMMON
        STOCK ISSUANCES TO RELATED PARTIES. In February 2004, we issued 20,000 shares
        of
        restricted common stock to Ernest Armstrong, our Vice President of Business
        Development. The shares were valued at $1.50 per share.
 
 In
        April
        2004, we issued 622,084 shares of our common stock which we registered on
        Form
        S-8. Of that total, we issued the following to related parties: 120,923 shares
        to Chaslav Radovich, our President, in lieu of employee wages; 36,231 shares
        to
        Ernest Armstrong, our Vice President of Business Development at the time
        and now
        our Chief Scientific Officer; and 81,516 shares to James Luce, our former
        Chief
        Operating Officer and Chief Marketing Officer; 13,125 shares to Martin Marion,
        our consultant at the time and now our acting Chief Marketing Officer; and
        6,250
        shares to Dr. Lyndon Mansfield, one of our advisory board members.
 
 In
        February 2005, we issued 606,995 shares of our common stock which we registered
        on Form S-8. Of that total, we issued the following to related parties: 143,750
        shares to Chaslav Radovich, our President, and at the time our Chief Executive
        Officer and Chief Financial Officer, in lieu of employee wages (93,750 shares)
        and as an employee bonus (50,000 shares); and 30,000 shares to Martin Marion,
        our consultant at the time and currently our acting Chief Marketing Officer,
        in
        return for services rendered.
 
 In
        November 2005, we issued 562,706 shares of our common stock which we registered
        on Form S-8. Of that total, we issued the following to related parties: 225,000
        shares to Chaslav Radovich, our President, and at the time, our Chief Executive
        Officer, in lieu of employee wages (125,000 shares) and as an employee bonus
        (100,000 shares); 100,000 shares to Thomas Stankovich, our Chief Financial
        Officer and Treasurer, as a signing bonus; 48,000 shares to Ernest Armstrong
        in
        lieu of employee wages (32,000 shares) and as an employee bonus (16,000 shares);
        and 30,000 shares to Martin Marion, our consultant serving as acting Chief
        Marketing Officer, in lieu of consultant fees.
  30
 
 In
        January 2006, we issued an additional 150,000 shares to Thomas Stankovich,
        our
        Chief Financial Officer and Treasurer, as part of his signing
        bonus.
 
 In
        2006,
        we issued 111,416 shares of our common stock which we registered on Form
        S-8. Of
        that total, we issued the following to related parties: 20,000 to Dr. Lyndon
        Mansfield for medical advisory board services in relation to our clinical
        trials.
 
 OPTIONS.
        In February 2004, we agreed to grant Mr. Ernest Armstrong 1,200,000 options
        to
        purchase shares of our common stock. In addition, St. Petka Trust, our majority
        shareholder, granted Mr. Armstrong options to purchase 1,000,000 shares of
        our
        common stock held by St. Petka Trust to Mr. Armstrong at $2.00 per share.
 
 During
        our fiscal years ending March 31, 2005 and 2006, we did not grant any options
        to
        any related parties.
 
 Subsequent
        to the period covered by this report and on May 15, 2006 pursuant to the
        terms
        of their respective employment agreements we granted Dr. Yakatan 1,000,000
        options and Mr. Chas Radovich 1,500,000 options. The exercise price is $1.40
        per
        share; the options vest over at three year period and expire five years from
        the
        date of grant.
  WARRANTS.
        In July 2004, we granted 1,000,000 warrants to purchase shares of our common
        stock at $1.75 per share, to Martin Marion, our consultant at the time and
        currently our acting Chief Marketing Officer. These warrants expire five
        years
        from the date of grant, In
        January 2005, we issued 250,000 warrants to purchase shares of our common
        stock
        at $1.75 per share to Lawrence May, one of our directors, and which expire
        in
        January 2007.
  On
        October 24, 2005, we granted Kevin Prendiville, one of our directors, 333,000
        warrants to purchase shares of our common stock at $1.75 per share, which
        vested
        on October 24, 2005 and expire on October 24, 2010.
 
 On
        December 1, 2005, we granted 1,000,000 warrants to Thomas Stankovich, our
        Chief
        Financial Officer, to purchase shares of our common stock at $1.75 per share
        and
        which expire in five years.
 
 With
        regard to any future related party transaction, we plan to fully disclose
        any
        and all related party transactions, including, but not limited to, the
        following:
 
 ·
              disclose
                  such transactions in prospectuses where
                  required;
 ·
              disclose
                  in any and all filings with the Securities and Exchange Commission,
                  where
                  required;
 ·
              obtain
                  disinterested directors’ consent; and
 ·
              obtain
                  shareholder consent where required.
 
 **Item
        13. Exhibits and Reports on Form 8-K**
 
 (a)
        Exhibit No.
 
 3.1  Articles
        of Incorporation*
 3.1.1  Certificate
        of Amendment to Articles of Incorporation*
 3.1.2  Certificate
        of Amendment to Articles of Incorporation**
 3.1.3  Certificate
        of Amendment to Articles of Incorporation***
 3.2  Bylaws*
 4.1  Convertible
        Note with Gryphon Master Fund LP (previously filed _ find date and name of
        report)
 10.1  Asset
        Purchase Agreement between BioGentec Inc., (fka St. Petka, Inc.) and Gene
        Pharmaceuticals, LLC,
 (fka
        Allergy Limited, LLC,) as amended
 10.2  Executive
        Employment Agreement with Thomas Stankovich****
 10.3  Executive
        Employment Agreement with Chaslav Radovich
 10.4  Executive
        Employment Agreement with Gerald Yakatan
 31  Rule
        13a-14(a)/15d-14(a) Certifications of Chief Executive Officer and Chief
        Financial Officer of the Company
 32
        Section 906 Certifications by Chief Executive Officer and Chief Financial
        Officer
 *  Included
        in the registration statement on Form 10-SB filed on February 8,
        2002.
 **
        Included in Information Statement on Schedule 14C filed June 10,
        2003
 ***
        Included on Information Statement on Schedule 14C filed June10,
        2004
 ****
        Included in Report on Form 10-QSB filed on February 14, 2006
  31
 
 **Item
        14. Principal Accountant Fees and Services.**
 
 **Audit
        Fees.** The
        aggregate fees billed in each of the fiscal years ended March 31, 2006 and
        March
        31, 2005 for professional services rendered by the principal accountant for
        the
        audit of our annual financial statements and review of the financial statements
        included in our Form 10-KSB or services that are normally provided by the
        accountant in connection with statutory and regulatory filings or engagements
        for those fiscal years were $61,500
        and $41,500,
        respectively.
 
 **Audit-related
        Fees.** There
        were no fees billed for services reasonably related to the performance of
        the
        audit or review of the financial statements outside of those fees disclosed
        above under "Audit Fees" for fiscal years ended March 31, 2006 and March
        31,
        2005.
 
 **Tax
        Fees.** For
        the
        fiscal years ended March 31, 2006 and March 31, 2005, our principal accountants
        did not render any services for tax compliance, tax advice, and tax planning
        work.
 
 **All
        Other Fees.** None.
 
 **Pre-Approval
        Policies and Procedures.** Prior
        to
        engaging its accountants to perform a particular service, our board of directors
        obtains an estimate for the service to be performed. All of the services
        described above were approved by the board of directors in accordance with
        its
        procedures.
  32
  **SIGNATURES**
 
 Pursuant
        to the requirements of the Securities Exchange Act of 1934, the Registrant
        has
        duly caused this report to be signed on its behalf by the undersigned in
        the
        City of Irvine, California, on July 13, 2006.
  Cobalis
                  Corp.,
                a Nevada corporationBy:
              /s/ Gerald
                YakatanGerald
                YakatanPrincipal
                Executive Officer, Director
 By:
              /s/ Thomas
                StankovichThomas
                StankovichPrincipal
                Financial Officer, Treasurer
 By:
              /s/ Chaslav
                RadovichChaslav
                RadovichPresident,
                Secretary, Director
 By:
              /s/ Ernest
                ArmstrongErnest
                ArmstrongChief
                Scientific Officer, Director
 By:
              /s/ Martin
                MarionMartin
                MarionActing
                Chief Marketing Officer
  33
  In
        accordance with the Exchange Act, this report has been signed below by the
        following persons on behalf of the registrant and in the capacities and on
        the
        dates indicated.
 
 Date: July
                13, 2006
              By:
              /s/ Gerald
                YakatanGerald
                YakatanDirector Date: July
                13, 2006
              By:
              /s/ Chaslav
                RadovichChaslav
                RadovichDirector
 Date: July
                13, 2006
              By:
              /s/ Radul
                RadovichRadul
                RadovichDirector Date: July
                13, 2006
              By:
              /s/ Ernest
                ArmstrongErnest
                ArmstrongDirector Date: July
                13, 2006
              By:
              /s/ Kevin
                PrendivilleKevin
                PrendivilleDirector Date: July
                12, 2006
              By:
              /s/ Lawrence
                MayLawrence
                MayDirector


34