**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, 2007





o
            **TRANSITION
                REPORT PURSUANT TO SECTION 13 OR 15(d) OF
                THE SECURITIES EXCHANGE ACT OF
                1934**


For
      the
      transition period
      from                                        
to





Commission
      File Number: 000-49620




Cobalis
      Corp.


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





Nevada
            91-1868007(State
                or other jurisdiction of incorporation or organization)
            (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 June 14, 2007 there were
      40,372,555 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.  Yes x  
No
o




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 o  
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 13, 2007, approximately
      $5,072,156.51.





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  x
      No





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 that has been focused on the development
      and
      FDA approval of PreHistinTM, a patented,
      over-the-counter drug product candidate intended to treat seasonal allergy
      suffers. Our recently completed twin Phase III trials were
      inconclusive.  If these trials had been successful, we had intended to
      file an NDA in the second half of 2007 with the FDA for marketing
      over-the-counter to seasonal allergy suffers.





We
      are
      currently reviewing our PreHistinTM  clinical
      trial data and are considering marketing strategies for PreHistinTM to determine
      if we
      will  pursue additional clinical trials in seasonal allergies,
      investigate PreHistinTM for other
      indications, or undertake alternative strategies, including a national and
      global marketing strategy. PreHistinTM has indications
      for other atopic allergic diseases including atopic migraine, atopic dermatitis,
      food allergies and atopic asthma. However, we have not studied any other
      applications beyond seasonal allergies.





**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 took the name Biogentech Corp.
      when we acquired BioGentec Inc. (“BioGentec”) as our wholly-owned operating
      subsidiary and adopted BioGentec’s business at that time. BioGentec was
      incorporated in Nevada on November 21, 2000. We took our current name, Cobalis
      Corp., in 2004. From 1989 through 2000, Gene Pharmaceuticals, LLC (“Gene
      Pharmaceuticals”) sponsored the initial clinical research and wrote the patents
      that we own. In November 2000, BioGentec purchased those patents from Gene
      Pharmaceuticals, though the patents could revert to Gene Pharmaceuticals’
ownership if any future royalty payments that may come due are defaulted on.
      Mr.
      Armstrong, our chief scientific officer and formerly one of our directors was
      the managing member and controlling owner of Gene Pharmaceuticals until January
      2007. We subsequently adopted all of BioGentec’s activities, operations,
      liabilities and assets, and BioGentec was dissolved in 2006.





**Our
      Product Candidate.** PreHistinTM
      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 PreHistinTM represents
      a novel
      and compelling alternative to the standard “antihistamine” approach to treating
      allergic disease. PreHistinTM is in Phase
      III
      development for its initial indication for seasonal allergies.





PreHistinTM
      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 PreHistinTM is distinguished
      from orally-ingested cyanocobalamin which first passes through the digestive
      tract before the active ingredient is systemically available. As described
      below, the active ingredient in PreHistinTM has been
      shown 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 PreHistinTM 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 PreHistinTM lozenge
      to be
      dissolved under the tongue twice daily prior to the beginning of the allergy
      season.





We
      completed a clinical study in October 2005 with 714 patients. The results of
      this clinical trial showed that pre-seasonal treatment with PreHistinTM reduced
      Mt. Cedar
      allergy symptoms compared with a placebo. In July 2006, we commenced twin
      pivotal Phase III clinical trials required by the FDA. These studies were
      conducted as a placebo-controlled, double-blind study with 1,551 seasonal
      ragweed allergy sufferers.  On July 6, 2007, we reported preliminary
      top-line results which showed that PreHistinTMdid not
      achieve
      statistically significant results versus placebo in either trial, and that
      low
      ragweed pollen counts may have been the cause for lack of symptomology expressed
      by placebo patients, rendering the trials inconclusive as to the effect, or
      lack
      of effect, of PreHistinTMcompared
      to placebo.  We are planning to continue the regulatory quest for FDA
      approval for allergic rhinitis, but will also consider alternative marketing
      and
      partnering strategies.





2


PreHistinTM
      is patented in the
      United States, the European Union and Australia; and has pending patents in
      other countries. The patents we rely on were purchased from Gene Pharmaceuticals
      and cover the use of cobalamins for atopic (allergic) diseases, such as seasonal
      and year-round allergies, asthma, dermatitis, and atopic migraine. Mr.
      Armstrong, our chief scientific officer and formerly one of our directors,
      was
      the managing member and controlling owner of Gene Pharmaceuticals until January
      2007. Ownership of the patents could revert to Gene Pharmaceuticals if future
      royalty payments are not made when they come due.





**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.




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 over-the counter allergy treatments focus on blocking the action of
      histamine after it is released. It is believed that PreHistinTM 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 “PreHistinTM.”





**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 engaged Advanced Botanicals Ltd., a certified good
      manufacturing practices ("GMP") manufacturer, to produce the Phase III trial
      medications. 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 contains 3300 mcg (3.3 mg) of
      pharmaceutical grade cyanocobalamin.





**Our
      Patent Purchase Agreement.** In 2000, we purchased the patents 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 (“operating assets”) from Gene
      Pharmaceuticals for $150,000 plus royalties, including royalties tied to future
      sales. Ernest Armstrong, our chief scientific officer and, from 2004 to 2007,
      one of our directors, was the managing member of Gene
      Pharmaceuticals.





In
      August
      2002, the parties agreed to postpone the payment of royalties in exchange for
      250,000 options to purchase shares of our common stock at $1.10 per share.
      These
      options were never granted; in December 2002, the parties agreed to supersede
      the terms of the August 2002 addendum by amending the original agreement to
      include an additional issuance of 2,000,000 shares of our common stock 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.





3


In
      February 2004, the parties agreed that a “Revised Asset Purchase Agreement”
would provide for the following: we would grant Mr. Armstrong 1,000,000 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 1,200,000 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 is to 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. However, in the event
      that
      we do not pay royalties accruing pursuant to these agreements, then ownership
      of
      the patents could revert to Gene Pharmaceuticals.





In
      November 2006, and pursuant to the requirements of our funding arrangement
      with
      Cornell Capital, as described herein, Gene Pharmaceuticals affirmed our right
      to
      assign our operating assets to Cornell Capital to secure our agreements with
      Cornell Capital, as memorialized in an asset pledge statement executed by Gene
      Pharmaceuticals. If we default on our agreements with Cornell Capital, ownership
      of all our assets, including these operating assets, is subject to transfer
      to
      Cornell Capital.





**Our
      Channels of Distribution.**We may license PreHistinTM
      to a large
      pharmaceutical company or, alternatively, we may retain the rights to
      PreHistinTM and
      collaborate with a large pharmaceutical distributor or pursue other marketing
      alternatives, partnerships or channels. There are a number of established
      distributors in the U.S. healthcare market with the capability to distribute
      over-the-counter drugs.  There are also other marketing, manufacturing
      and distribution strategies and marketing channels with potential for
      distributing PreHistinTM. We currently
      do
      not have an agreement with a pharmaceutical company or any distributor, or
      other
      marketing partner.





**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.




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.
                Date**United
                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”
            12/28/19Mexico
            Allowed
            “Cyanocobalamin
                Treatment in Allergic Disease”
            12/28/19





Pending
      Patents:





**Country**
            **Application
                No.**
            **Title**Canada
            2,358,054
            “Cyanocobalamin
                Treatment in Allergic Disease”Japan
            P2002-533399A
            “Cyanocobalamin
                Treatment in Allergic Disease”





Although
      we believe that the subject matter covered by our patents and pending patent
      applications purchased from Gene Pharmaceuticals, LLC 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 the 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 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.





4


**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 product candidates in the future. Current status of trademark
      applications:





**Country**
            **Trademark**
            **Appl./
                Reg. No.**
            **Granted/Allowed**
            **Note**United
                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.




**Our
      Websites.** We have developed a corporate site, www.cobalis.com, targeted
      to the corporate and health professional community that describes the science
      behind our flagship allergy prevention product, PreHistinTM. 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 PreHistinTM.





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 has been to obtain regulatory marketing approval for PreHistinTM as an
      over-the-counter drug for seasonal and year-round allergies in the United States
      and abroad. The FDA has indicated that there is no distinction in the
      over-the-counter environment between seasonal allergies and year-round
      allergies. However, our clinical trials have been conducted with seasonal
      allergy sufferers, so even if our trials were successful, and PreHistinTM subsequently
      received marketing approval, there would be no assurance that we would be able
      to market for an indication in perennial allergies.





5


We
      have
      correspondence from the FDA that suggests that our molecule can be used
      chronically and that there is no differentiation between perennial and seasonal
      allergies in the OTC category.  In addition, FDA has written to us
      that they have no safety concerns with systemic use of cyanocobalamin, and
      the
      USDA has indicted that there are no upper dosage limits for
      cyanocobalamin.





In
      2004,
      we sponsored a 714-patient double-blind, placebo-controlled, multi-center
      randomized study on allergy sufferers sensitive to Mt. Cedar in Central Texas
      to
      test various PreHistinTM 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 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 clinical trial demonstrated that patients who were
      administered PreHistinTM 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
      January 2006, we were notified by the FDA that the marketing approval process
      for PreHistinTM
      would be conducted within the FDA by the Office of Nonprescription Products,
      the
      branch of the FDA which handles over-the-counter 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 over-the-counter drug, PreHistinTM would not
      require
      a doctor's prescription, thus making consumer purchases easier, faster and
      more
      convenient.




In
      April
      2006, we submitted a protocol to the FDA (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 notified us by letter regarding that protocol
      stating that our two proposed study designs were “acceptable”. From the time we
      had submitted Protocol DF0107 for review by the FDA in early April 2006, until
      June 2006, the protocol had changed with the following notable
      exceptions:





·
            There
                are two study arms in two studies (Protocol RA3333 and Protocol RA5555),
                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.





·
            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.)





In
      June
      2006, we announced that we intended to initiate two identical, Phase III
      clinical trials of our anti-allergy medication PreHistinTM 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 PreHistinTM to prevent
      the
      onset and reduce the severity of ragweed allergy symptoms. We commenced these
      studies in July 2006 with the intention of using them in conjunction with our
      Mt. Cedar study as the primary basis for submitting an application to FDA for
      marketing approval




The
      new
      study design called for two simultaneously conducted Phase III clinical trials,
      each comprised of one placebo arm and one active arm receiving 3.3 mg of
      sublingual PreHistinTM administered
      twice
      daily for the six weeks of the study. In July 2006, we conducted the
      double-blind, placebo-controlled trials will be conducted at 23 sites throughout
      the United States during the Ragweed allergy season. The trials utilized
      electronic diary records to assess improvement in the severity of nasal allergy
      symptoms. A total of 1,551 patients were randomized into the twin studies to
      receive either placebo or PreHistinTM for three
      weeks
      prior to the onset of the allergy season, and for an additional three weeks
      into
      the season. The patients' dosing regimens were completed in October
      2006.




6


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.





In
      late
      May 2007 we delayed reporting preliminary top-line analyses from the ragweed
      trials due to observed data inconsistencies. To evaluate whether these
      inconsistencies were sufficient to represent a systematic error that could
      affect the outcome of the analyses, we engaged an expert external consultant
      to
      conduct an audit of the electronic diary database. The study audit found that
      the electronic diary system functioned correctly and the diary data entered
      by
      the patients were correct. The inconsistencies noted earlier proved to be
      primarily human errors that were corrected and did not alter the study
      outcomes.





On
      July
      6, 2007 we reported that the preliminary top-line results  showed
      PreHistinTM did
      not achieve statistically significant differences from placebo in the primary
      measure of efficacy, the reduction in total nasal symptom score
      (TNSS).  Importantly, the data showed that the TNSS for
      placebo-treated patients was far lower than would be expected for the moderate
      to moderately severe patient population called for in the protocol. Low pollen
      counts in many of the regions during the time PreHistinTM was being
      tested
      may have resulted in low mean placebo scores for the overall study population,
      leaving no room to demonstrate a meaningful drug effect, or lack thereof,
      between those patients receiving PreHistinTMand those
      receiving placebo.





Although
      efficacy results were inconclusive, the trials showed that PreHistinTM was well
      tolerated
      and thus contributed positively to the safety record of PreHistinTM’s active
      ingredient, cyanocobalamin. Also, a comparison of pre- and post-treatment blood
      serum levels of cobalamin demonstrated for the first time in large study
      populations that delivery of cyanocobalamin via sublingual lozenges resulted
      in
      average blood serum cobalamin levels being significantly
      increased.




Going
      forward, we will continue pursuing FDA approval of PreHistinTM as an OTC
      drug if
      we assess the prospects for such approval to be favorable, but we will also
      evaluate other potential marketing channels.




**Our
      Research and Development.**During each of the last two fiscal years, we
      have had expenditures for research and development activities of $3,822,047
      for
      the year ended March 31, 2007 and ($352,937) for the year ended March 31, 2006.
      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 are currently evaluating our
      marketing alternatives.  If the Company continues to develop
      PreHistinTM and
      receives FDA approval in allergic rhinitis, we would look to partner with a
      pharmaceutical manufacturer/distributor that already has the extensive
      infrastructure and relationships to fulfill the logistics of a nationally
      distributed over-the-counter product. Pursuing this strategy, we would
      out-license either the manufacturing/packaging and distribution rights together
      or separately to one or more marketing partners. We could 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. Additionally,
      we
      would have the option to bring PreHistinTM to market
      ourselves or through a contract distributor as an alternative to pharmaceutical
      partner.  Similarly, we could determine that other potential marketing
      channels would best leverage the PreHistinTM
      franchise.  In that case, we would look to identify strategic partners
      to assist in the manufacturing/packaging, media and fulfillment in the United
      States as well as various international markets.   While we have
      had initial conversations with a number of pharmaceutical, contract distributors
      and other potential marketing channel prospects, there is no guarantee that
      we
      will be able to secure profitable marketing channels for PreHistinTM, and such
      strategies would require additional capital.




**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 product candidates. 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 candidate, and there is no guarantee that the
      FDA
      will approve our product candidate at the end of our regulatory
      process.




7


**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 supplement, over-the-counter medications or prescription
      medications. Also refer to “FDA APPROVAL” section above.




**Our
      Clinical Development Contracts.**As we advance through the marketing
      approval process for PreHistinTM, there
      are several
      organizations and individuals we rely on to help us with the clinical research
      and related regulatory affairs. Recently, 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, or as an alternative to PreHistinTM
      for allergic
      rhinitis, we could develop and market additional indications in atopic disease
      for PreHistinTM, such as
      migraines, dermatitis and asthma. We also intend to consider other product
      opportunities that could broaden our portfolio of product candidates. However,
      our current focus and development efforts are on PreHistinTMfor the
      treatment
      of seasonal allergies.




**Employees**.
      We currently have five 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.**As of the date specified in the following table, we held the
      following cash and property:




**Property**
            **March
                31, 2007**
            **March
                31, 2006**Cash
                and Equivalents
            $389,263
            $526,691Property
                and Equipment, net
            $2,679
            $8,419





Our
      property and equipment consists of computers and office furniture.





**Facilities.**Our executive, administrative and operating offices are located at
      2445
      McCabe Way, Suite 150, Irvine, California, 92614. Our facilities measure 5,455
      square feet. At March 31, 2006, our lease had been renewed through March 31,
      2008, with rental payments due 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.





8


**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 No. 03CC02904. This lawsuit was
      settled in January 2007 pursuant to a settlement agreement and a payment of
      $185,000.





*InnoFood/Modofood:*
      On July 28, 2003, we entered into a Stock Exchange Agreement ("InnoFood
      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
      InnoFood 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 and certain related individuals
      may have intentionally misled our management regarding certain material
      matters.





On
      January 8, 2004, InnoFood sent us a letter attempting to terminate the original
      InnoFood Agreement and the October 17, 2003 LOU. InnoFood claimed that we
      breached both the InnoFood Agreement and the LOU by failing to provide the
      funding called for under those agreements. With the letter of termination,
      InnoFood delivered a signed promissory note agreeing to pay back $2,160,000
      (net
      of $60,000 interest InnoFood charged to us for non-payments). The promissory
      note accrues interest at 10% and is due and payable on or before January 15,
      2009. Though we did not accept that note, we believe that this promissory note
      represents an acknowledgment of InnoFood's debt to us.





In
      late
      2006, we filed a complaint entitled Cobalis Corp. v. InnoFood, Reynato
      Giordano, James Luce, Robert Dietrich, Randal Lanham, in Orange County
      Superior Court, California, Case No. 06CC10355, to attempt to recapture the
      funds transferred to InnoFood and acquire any intellectual property related
      to
      the food preservation process at issue.  On March 3, 2007 Randal
      Lanham filed a cross complaint which was amended on May 28,
      2007.  Cobalis and cross-defendant Chaslav Radovich filed a Demurrer
      to the Lanham cross complaint for which a hearing date has been set for August
      17, 2007.  We intend to vigorously prosecute this matter, though as
      with any litigation, there is no guarantee of a favorable outcome.





*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, Case No. 3:04-CV-2405-L. The lawsuit sought repayment
      of
      a $600,000 convertible note payable, accrued interest on the convertible note
      payable within the prescribed period, penalties for failing to register shares
      underlying the conversion of the convertible note payable, attorneys fees and
      court costs. In March 2006, we entered into settlement agreement with Gryphon
      where both parties agreed to dismiss any and all current and future claims,
      legal proceedings and litigation upon full satisfaction of the settlement
      agreement.





The
      settlement, which relates to two investments in us totaling $1.6 million made
      by
      Gryphon in September 2003, includes an agreed judgment totaling $1.6 million.
      Of
      the remaining unconverted instruments, Gryphon is also eligible to convert
      its
      convertible note and convertible preferred stock it holds to 508,334 shares
      of
      our common stock. Under the settlement agreement, full repayment of the $1.6
      million was due on or before April 1, 2007. We do not make the payment by April
      1, 2007; therefore, the stipulated judgment into which we entered with Gryphon
      provides that Gryphon has the right to enter a judgment of $1,600,000 against
      us
      with the court upon our default.





On
      April
      2, 2007, we filed a motion to vacate an agreed judgment (the “Motion to Vacate”)
      in the U.S. District Court for the Northern District of Texas, Dallas Division
      with regard to case #3:04-CV- 2405 between Gryphon Master Fund, L.P. (“Gryphon”)
      and us. We based the Motion to Vacate on several grounds including that
      allegation that Gryphon breached the “no shorting” provision contained in the
      settlement agreement. We believe, and so allege in the Motion to Vacate, that
      despite Gryphon’s agreement, Gryphon engaged in shorting of our stock. Since
      June 2007, Gryphon has aggressively been moving forward with judgment collection
      activities, including, but not limited to, conducting a debtor’s exam, levying
      our bank accounts and attaching our assets to the extent such assets are not
      already encumbered.





9


On
      April
      23, 2007, Gryphon sued us for breach of contract in the same U.S. District
      Court
      as above, Case #3:07-cv-00701B. This new lawsuit alleges that we breached a
      settlement agreement with Gryphon. Gryphon is also seeking a declaratory
      judgment that it did not breach the same settlement agreement. Gryphon’s alleged
      breach of the settlement agreement is the subject of our Motion to Vacate.
      In
      addition to the declaratory relief, Gryphon’s complaint seeks unspecified
      damages and attorneys’ fees.  On April 23, 2007, Gryphon also filed an
      opposition to our Motion to Vacate repeating the same allegations.  A
      trial date is scheduled for the September 2007 docket.





There
      is
      no guarantee that we will be successful in vacating the judgment or in defending
      the new lawsuit. If we are unsuccessful in vacating the judgment or in defending
      the subsequent lawsuit, and, if we are unable to subsequently timely resolve
      the
      Gryphon matter or raise capital to satisfy the judgment, our ability to move
      our
      business forward could be adversely affected.





*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, was filed 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 the 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 sought to rescind the consulting agreement
      and
      seek restitution from Mr. Vekovic in an amount no less than the price for which
      Mr. Vekovic sold the 112,500 shares of our S-8 common stock, plus all or some
      portion of the compensation paid to Mr. Vekovic, given that we believe Mr.
      Vekovic substantially failed to perform the consulting services which were
      the
      subject of the consulting agreement. We also sought 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. On March 5, 2007, we entered into a settlement agreement with Mr.
      Vekovic with regard to this case, whereby we agreed to register on a future
      Form
      S-8 and issue 50,000 shares to Mr. Vekovic in addition to a grant of 25,000
      warrants to purchase shares of our common stock at $1.75 per share, expiring
      December 31, 2009.




*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. 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 us,
      including introductions to potential board members, qualified investors and
      strategic alliances for our product line. We issued 20,000 shares to Europacific
      in January 2005, and canceled those shares in May 2005. In October 2006, we
      settled this case by rescinding our stop order on those 20,000
      shares.




*Cappello
      Capital Corp.*In March 2005, we entered into an agreement with Cappello
      Capital Corp. (“Cappello”) for investment banking and related financial
      services. Pursuant to a financing agreement, we issued 100,000 shares as an
      initial retainer. We believe that Cappello did not perform per the agreement,
      but no settlement can be guaranteed.****




*Noel
      Marshall.* On March 1, 2007, we became aware for the first
      time of the complaint for damages, Case # 07CC03208 filed in
      Superior Court Orange County California, entitledNoel Marshall v.
      Cobalis Corp. Chas Radovich, Radul Radovich, Dragica (Beba) Radovich, R.R.
      Holdings, Biogentec, Silver Mountain Productions and St. Petka Trust,
      alleging breach of contract, fraud, constructive trust, money had and received,
      and account stated (the "Marshall Action"). In the Marshall
      Action, plaintiff is alleging, among other things, that
      certain misrepresentations were made with the intent of
      inducing plaintiff to purchase shares of our common stock.  We
      believe this lawsuit is frivolous and without merit. We intend to
      vigorously defend this matter. As with any litigation, there is no
      guarantee of a favorable outcome.





10


**Item
      4.  Submission of Matters to Vote of Security
      Holders**





Reference
      is made to the Form 8-K filed on March 1, 2007 with regard to the meeting of
      special shareholders held on that same date.





**PART
      II**





**Item
      5.  Market Price for Common Equity and Related Stockholder Matters and
      Small Business Issuer Purchases of Equity Securities.**





**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 100 F Street,
      N.E, Washington, D.C. 20549.  The public may also obtain information
      on the operation of the Public Reference Room by calling the SEC at
      1-800-551-8090.  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.





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**03/31/05
            $
            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
            $
            1.0209/30/06
            $
            1.10
            $
            1.0212/31/06
            $
            1.00
            $
            0.8503/31/07
            $
            0.77
            $
            0.7106/30/07
            $
            0.37
            $
            0.33





**Common
      Stock.**We are authorized to issue 100,000,000 shares of $.001 par value
      common stock and 5,000,000 shares of $.001 par value preferred stock. As of
      June
      29, 2007, there were 276 record holders of our common stock and there were
      40,372,555 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.**In March 2007, the 500 shares of our preferred stock
      that were previously issued and outstanding were converted into 208,334 shares
      of our common stock, in accordance with the preferences and designations of
      that
      class of preferred stock.




11


**Options.**We have 6,141,667 options to purchase shares of our common stock
      currently outstanding; of these 3,390,442 are currently vested and
      exercisable.




**Warrants.**There are 12,955,446 warrants to purchase shares of our common stock
      currently outstanding; of these all are currently exercisable.




**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.**





**Stock
      Option and Award Plan.** On October 17, 2006, our board of directors
      adopted our 2006 Stock Option and Award Plan (“2006 Plan). The 2006 Plan is
      administered by the Board. The 2006 Plan will allow us to continue to grant
      stock options and other equity awards at levels determined appropriate by the
      Board. The 2006 Plan will also provide us with continued flexibility in
      designing equity incentives in an environment where a number of companies have
      moved from traditional option grants to other stock or stock-based awards,
      including stock appreciation rights, restricted stock awards, restricted stock
      unit awards, performance stock awards, and performance cash awards. Accordingly,
      the 2006 Plan will allow us to utilize a broad array of equity incentives in
      order to secure and retain the services of our employees, consultants and
      directors, and to provide incentives for such persons to exert maximum efforts
      for our success and the success of our affiliates.





The
      table
      below reflects the options covered by our 2006 Plan and by our 2002 Stock Option
      Plan, which was never formally memorialized.




**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
            6,141,667
            $1.58
            N/ATotal
            6,141,667
            $1.58
            N/A




**Recent
      Sales of Unregistered Securities; Use of Proceeds from Registered
      Securities.**




**Sale
      of Common Stock:**





For
      the
      year ended March 31, 2005:





During
      the three months ended June 30, 2004 we issued common stock for the
      following:





·
            170,000
                shares valued at $314,500 related to a forbearance agreement related
                to
                the convertible note payable;·
            10,000
                shares valued at $17,500 for consulting services;
                and


·
            371,317
                shares valued at $594,107 for the conversion of certain accounts
                payable
                and amount payable to related
                parties.





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;
                and


·
            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.




12


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 three months ended March 31, 2005 we issued the following shares of our
      restricted common stock:





·
            1,250
                shares to Catherine Posey for consulting services related to clinical
                trials;·
            75,000
                shares to Jason Lyons for consulting
                services;


·
            30,000
                shares to Tejeda & Tejeda, Inc. for consulting
                services;·
            25,000
                shares to Ibis Consulting Group for consulting
                services;


·
            100,000
                shares to Lawrence May, our board member at the time, for related
                consulting services;·
            15,000
                shares to Sean Mulhearn and 15,000 shares to Melinda Mulhearn for
                consulting services related to the manufacture of our
                product;


·
            200,000
                shares to the Wells Group for consulting services related to financial
                public relations;·
            150,000
                shares to Cyndel & Co, Inc. for consulting services, which we
                subsequently cancelled; we are in the process of having these shares
                rescinded.


·
            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.




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.





For
      the
      year ended March 31, 2006:





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.




13


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:





·
            150,000
                shares to Thomas Stankovich, our chief financial officer and treasurer,
                at
                the time, as an employee signing bonus;·
            50,000
                shares to Tejeda and Tejeda for finance advisory
                services;


·
            50,000
                shares to Gerald Yakatan, our director at the time and subsequently
                our
                Chief Executive Officer, for clinical trials advisory
                services;·
            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.·
            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; and


·
            132,450
                shares for services related to our clinical trials as
                follows:


o
            22,000
                shares to Dr. Julius Henry van Bavel for services valued at
                $27,319;


o
            27,200
                shares for Dr. Frank C. Hampel for services valued at
                $34,000;o
            22,500
                shares to Dr. Bruce G. Martin for services valued at
                $28,154;


o
            17,600
                shares to Dr. Robert Lee Jacobs, for services valued at
                21,889;o
            21,100
                shares to Dr. Dale E. Mohar for services valued at $26,361;
                and


o
            22,000
                shares to Dr. Paul Ratner for services valued at
                $27,319.




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.




14


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.





For
      the
      year ended March 31, 2007:




During
      the three months ended June 30, 2006, we issued the following restricted common
      stock:





·
            15,000
                shares to Jaffoni & Collins, Inc., for public relations and investor
                relations consulting services valued at $24,750;·
            100,000
                shares to the Wells Group, Inc., for consulting services valued at
                $135,000; and


·
            120,000
                shares Adam Barnett for consulting services valued at
                $176,400.





During
      the three months ended September 30, 2006, we issued the following shares of
      our
      unregistered common stock:





·
            208,333
                shares to Gryphon Master Fund for the conversion of $500,000 worth
                of
                preferred stock, i.e., 500 shares;·
            15,000
                shares to Steve Barnes for services valued at
                $14,850;


·
            15,000
                shares to Jaffoni & Collins for services valued at
                $15,000;·
            200,000
                shares to Tejeda and Tejeda, Inc. for the conversion of a note payable
                and
                accrued interest valued at
                $202,000;


·
            20,000
                shares to Richard Fishman for services valued at
                $19,400;·
            56,000
                shares to Steve Barnes for services valued at $49,840;
                and


·
            100,000
                shares to Adam Barnett for services valued at
                $94,000.





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.




We
      also
      sold the following shares for cash:





·
            300,000
                shares to MDC Enterprises, Ltd. for cash of $150,000;
                and·
            100,000
                shares to Dane Bjelopetrovich for cash of
                $50,000.





The
      shares issuable to MDC Enterprises, Ltd. are pending issuance. The proceeds
      of
      these sales were used for working capital.





During
      the three months ended December 31, 2006, we issued the following shares of
      our
      unregistered common stock:





·
            833,938
                shares to Radul Radovich for conversion of related party debt and
                accrued
                interest valued at $1,084,120;·
            1,382,180
                shares to St. Petka Trust for conversion of related party debt and
                accrued
                interest valued at $1,796,835;


·
            411,042
                shares to RR Holdings for conversion of related party debt and accrued
                interest valued at $534,355;·
            803,855
                shares to Silver Mountain, Inc. for conversion of related party debt
                and
                accrued interest valued at
                $1,045,013;


·
            170,644
                shares to RR Development for conversion of related party debt and
                accrued
                interest valued at $221,839; and·
            394,147
                shares to Radul Radovich for consulting services valued at
                $512,392.





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.




15


We
      also
      issued these shares for cash:





·
            1,000,000
                shares with registration rights issued to Chaim Stern for cash of
                $500,000; and·
            150,000
                shares with registration rights issued to Irina Aronson and Yuly
                Aronson
                Irrevocable Trust for cash of
                $75,000.


·
            50,000
                shares issued to John Bridle for cash of $25,000;
                and


·
            50,000
                shares issued to Robert Stillwagon for cash of
                $25,000.




The
      proceeds were used for working capital and for funding our clinical
      trials.




We
      also
      issued these shares:




·
            20,000
                shares issued to Norman Rest for rent value at
                $19,600;


·
            100,000
                shares issued to Chaslav Radovich for compensation valued at
                $99,000;


·
            200,000
                shares issued to Gerald Yakatan for compensation value at
                $198,000;


·
            20,000
                shares issued to Jaffoni & Collins for services valued at
                $20,200;




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, creditors, consultants, advisors, and existing shareholders, who
      by
      virtue of those relationships, we believe were familiar with our business,
      and
      were able to assess the risks and merits of the investment.





During
      the three months ended March 31, 2007, we issued the following shares of our
      restricted common stock:





We
      issued
      127,838 shares of our common stock to Anthony Brent as part of our conversion
      of
      the principal and interest due under a previous financing agreement. We issued
      these shares and 44,744 warrants in settlement of the $50,000 principal and
      $13,918.62 interest owing at the time of conversion. The warrants have an
      exercise price of $1.00 per share and expire after five years.





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, and existing shareholders, who by virtue
      of
      those relationships, we believe were familiar with our business, and were able
      to assess the risks and merits of the investment.





**Options.**
      As of March 31, 2007, we had 6,141,667 options outstanding, of which 3,390,442
      are currently exercisable and 2,751,225 remain unvested.





·
            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 were to expire on November 5, 2007, but
                were
                cancelled upon his termination for
                cause.





·
            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.





16


·
            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
                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.





For
      the
      year ended March 31, 2007, we granted 4,800,000 options to our employees and
      consultants.





·
            In
                May 2006, 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 ten years from the date of grant. We granted to Gerald
                Yakatan, our chief executive officer, options to purchase 1,000,000 shares
                at $1.40 per share, which vest over 3 years and expire ten years
                from the
                date of grant.





·
            In
                August 2006, we granted 1,000,000 options to purchase shares of our
                common
                stock at $1.75 per share to Bojan Cosic, also an employee, in place
                of
                similar warrants previously granted and 300,000 options to purchase
                shares
                of our common stock at $1.40 per share to Brian Connelly, a consultant.
                These options vest over 3 years and expire ten years from the date
                of
                grant.





·
            In
                November 2006, we granted 1,000,000 options to purchase shares of
                our
                common stock at $1.75 per share to Thomas Stankovich during his service
                as
                our chief financial officer and employee (of which 666,667 vested
                during
                his term of employment with us).





**Warrants.**





During
      the year ended March 31, 2005, we granted these warrants:





·
            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 our consultants at the time. These warrants expire
                in
                July 2009. Mr. Cosic’s warrants were subsequently replaced with an equal
                number of options with similar
                terms.





·
            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
                August 2004, we granted 200,000 warrants 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 warrants 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. Mr. Pickard was our
                consultant at the time and currently serves as our interim chief
                financial
                officer and treasurer.





·
            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 from
                2004
                to February 2007. These warrants were to expire in January 2007,
                but have
                been extended as described herein.





17


During
      the year ended March 31, 2006, we granted these warrants:





·
            In
                July 2005, we granted 50,000 warrants to purchase shares of our common
                stock at $1.75 to Kevin Pickard 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 the following warrants to purchase shares
                of our
                common stock at $1.75 per share and expiring in five
                years:





o
            40,000
                warrants to Craig and Robyn Lewis for finance and advisory services
                rendered to us;o
            500,000
                warrants to the Brad Chisick Trust which accompanied a senior debenture
                for $250,000;


o
            50,000
                warrants to Steven Barnes for finance advisory services rendered
                to
                us;o
            16,000
                warrants to CSX2 LLC for finance advisory services rendered to
                us;


o
            8,000
                warrants to Eric Burns for finance advisory services rendered to
                us;o
            9,600
                warrants to Leslie Eichbaum for finance advisory services rendered
                to
                us;


o
            16,000
                warrants to Scott Elstein;o
            20,000
                warrants to STDT LLC for finance advisory services rendered to
                us;


o
            300,000
                warrants to Kevin Prendiville, one of our directors, for clinical
                trials
                advisory services rendered to us, and 33,000 warrants to the Prendiville
                Trust, owned by Dr. Prendiville.





·
            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 also 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 after 10 years. These warrants
                were subsequently cancelled in December 2006 and replaced with options
                with similar terms.





·
            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 also 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. These warrants were
                exercised in November 2006, and the shares of common stock are pending
                issuance pursuant to an agreement with the
                warrantholder.





For
      the
      year ended March 31, 2007, we issued the following warrants:





·
            In
                July 2006, we issued 25,000 warrants to SCG Capital, LLC as part
                of
                financing for $100,000. These warrants had an exercise price of $1.50
                per
                share and expire after 5 years. In January 2007, the warrantholder
                agreed
                to repricing these warrants at $1.00 per
                share.





18


·
            In
                July 2006, we also issued 25,000 warrants to the Irwin Geduld Revocable
                Trust DTD June 2002, LLC as part of a financing agreement for $100,000.
                These warrants had an exercise price of $1.50 per share and expire
                after 5
                years. In January 2007, the warrantholder agreed to repricing these
                warrants at $1.00 per share.





·
            In
                July 2006, we also issued 12,500 warrants to Anthony Brent part of
                a
                financing agreement for $50,000. These warrants had an exercise price
                of
                $1.50 per share and expire after 5 years. In January 2007, the
                warrantholder agreed to reprice these warrants at $1.00 per share.
                The
                principal of $50,000 borrowed under this financing agreement and
                interest
                owing at the time of conversion of $13,918.62 was repaid in February
                2007
                with the issuance of 127,838 shares of our common stock and the grant
                of
                an additional 44,744 warrants to purchase shares of our common stock
                at
                $1.00 per share. These additional warrants expire five years from
                the date
                of grant.





·
            In
                August 2006, we issued 20,000 warrants to Steve Barnes as part of a
                consulting agreement. These warrants have an exercise price of $0.75
                per
                share and expire after 5 years.





·
            In
                August 2006, as part of bridge financing from MDC Enterprises Ltd.,
                as
                described herein, we agreed to grant warrants attached to a note,
                to
                purchase 150,000 shares of our common stock at $0.75 per share, expiring
                after five years. As part of this same transaction, and in conjunction
                with the sale of common stock, as described herein, we agreed to
                grant
                additional warrants to purchase 150,000 shares of our common stock
                for
                $0.75 per share, expiring after five
                years.





·
            In
                September 2006, we issued 100,000 warrants to Lyndon Mansfield, one
                of our
                medical advisory board members, in exchange for services rendered.
                These
                warrants have an exercise price of $1.75 per share and expire after
                7
                years.





·
            In
                October 2006, we issued 600,000 warrants to Chaim Stern as part of
                a
                financing agreement for $500,000. These warrants have an exercise
                price of
                $0.75 per share and expire after 5 years. As part of the same agreement,
                we also issued Chaim Stern 600,000 warrants to purchase shares of
                our
                common stock at $1.00 per share, also expiring after 5 years. The
                shares
                underlying these warrants have registration
                rights.





·
            In
                October 2006, we also issued 150,000 warrants to the Irina Aronson
                and
                Yuly Aronson Irrevocable Trust. These warrants have an exercise price
                of
                $1.00 and expire after 5 years. The shares underlying these warrants
                have
                registration rights.





·
            In
                October 2006, we also issued Dane Bjelopetrovich 100,000 warrants
                to
                purchase shares of our common stock at $1.00 per share as part of
                a
                financing agreement for $50,000. These warrants expire after 5
                years.





·
            In
                October 2006, we issued an additional 10,000 warrants to SCG Capital,
                LLC
                as a penalty pursuant to the financing for $100,000 entered into
                in July
                2006. These warrants have an exercise price of $1.00 per share and
                expire
                after 5 years.





·
            In
                October 2006, we issued an additional 10,000 warrants to Irwin Geduld
                Revocable Trust DTD June 2002, as a penalty pursuant to the financing
                for
                $100,000 entered into in July 2006. These warrants have an exercise
                price
                of $1.00 per share and expire after 5
                years.





·
            In
                October 2006, we issued an additional 5,000 warrants to Anthony Brent
                as a
                penalty pursuant to the financing for $50,000 entered into in July
                2006.
                These warrants have an exercise price of $1.50 per share and expire
                after
                5 years. The principal of $50,000 and interest owing at the time
                of
                conversion of $13,918.62 for this financing agreement was repaid
                in
                February 2007 with the issuance of 127,838 shares of our common stock
                and
                the grant of 44,744 warrants to purchase shares of our common stock
                at
                $1.00 per share. The 44,744 warrants expire five years from the date
                of
                grant.





19


·
            In
                November 2006, we issued Robert Stillwagon 50,000 warrants to purchase
                shares of our common stock at $1.00 as part of a financing agreement
                for
                $25,000. These warrants expire after 5
                years.





·
            In
                November 2006, we issued John Bridle 50,000 warrants to purchase
                shares of
                our common stock at $1.00 as part of a financing agreement for $25,000.
                These warrants expire after 5
                years.





·
            In
                December 2006, we also issued to Cornell Capital an aggregate total
                of
                6,640,602 warrants, exercisable on a cash basis provided we are not
                in
                default with regard to our agreements with Cornell Capital, with
                the
                aggregate exercise price of $5,500,000 in four
                classes:





o
            1,333,333
                A Warrants at $0.75 per share, expiring six months after any effective
                date of the registration statement referenced above;o
            1,205,400
                B Warrants at $0.8296 per share, expiring six months after any effective
                date of the registration statement referenced
                above;


o
            2,343,959
                C Warrants at $0.7466, expiring five years after the agreement date;
                ando
            1,757,901
                D Warrants at $0.9955, expiring five years after the agreement
                date.





The
      A and
      B Warrants carry forced exercise provisions. The C and D Warrants are
      non-callable. The exercise price of the warrants is subject to adjustment as
      provided for in Section 8 of each of the respective four Warrant
      Agreements.





·
            In
                February 2007, we granted 44,744 warrants to purchase shares of our
                common
                stock at $1.00 per share to Anthony Brent as part of our conversion
                of the
                principal and interest due under a financing agreement, wherein we
                also
                issued 127,838 shares of our common stock in settlement of the $50,000
                principal and $13,918.62 interest owing at the time of conversion.
                These
                warrants expire five years from the date of
                grant.





**Other
      Instruments Convertible to Shares of Our Common Stock.**





**Convertible
      Notes Payable.** In September 2003, we sold a $600,000, three-year, 8%
      convertible debenture (the "Convertible Debenture") to Gryphon, as described
      herein, which is convertible into shares of our common stock at the initial
      conversion price of $2.00 per share. This price was subject to adjustment in
      the
      event we issued shares of our common stock at a price less than $1.75 per share.
      The Convertible Debenture was sold with detachable three-year warrants to
      purchase 90,000 shares of our common stock at $2.90 per share. The warrant
      exercise price is also subject to adjustment based on sales of our common stock
      below the current fair market value on the contract date. Repayment of these
      instruments is subject to the settlement agreement entered into with Gryphon,
      as
      described herein.





On
      March
      31, 2006, we reached a settlement with Gryphon related to two investments by
      Gryphon in September 2003 totaling $1,600,000. The settlement agreement required
      us to pay a maximum of $1,600,000 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 us 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 then held
      by
      Gryphon.  During the year ended March 31, 2007, Gryphon did a cashless
      exercise of these warrants and received a total of 192,997 shares of the
      Company’s common stock and converted a total of $885,000 worth of preferred
      stock into 416,667 shares of the Company’s common stock.  Subsequent
      to the year end, we and Gryphon have been litigating these issues, which
      include, but are not limited to, Gryphon pursuing various collections methods
      against us (refer to “Legal Proceedings” above).





On
      June
      13, 2005, we entered into a loan agreement with Tejeda and Tejeda, Inc. in
      the
      amount of $100,000. The loan was 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, our Chairman, and by Mr. Chaslav Radovich, our President.
      On the 12-month anniversary, the holder of the note was eligible to elect to
      convert the loan into shares of our 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 were to be elected, the loan shall be considered
      paid in full. In July 2006, Tejeda and Tejeda, Inc. elected to convert the
      note
      plus accrued interest into 200,000 shares of our common stock. We recognized
      an
      additional expense of $91,583 related to the conversion of this note and accrued
      interest into shares of common stock.





20


**Convertible
      Bridge Debentures.**In July 2006, we issued debentures payable in the
      aggregate amount of $250,000 to three investors. The debentures bear interest
      at
      5% per month and were due on September 14, 2006. The debentures and any accrued
      interest were convertible to shares of our common stock at the rate of $1.00
      per
      share, or the price at which shares of our common stock were sold in a minimum
      equity financing, provided the minimum equity financing was completed within
      60
      days from the execution of the debentures, or 90 days if we elected to extend
      the debentures to October 14, 2006. We exercised our option to extend the due
      date to October 14, 2006, issued the investors an aggregate total of 25,000
      warrants as compensation for the extension, and did not complete the minimum
      equity financing within the 90 day optional conversion period. As of March
      6,
      2007, these debentures have been repaid.




**Convertible
      Preferred Stock/Preferred Dividend.** In September 2003, we sold 1,000
      shares of our 7.5% convertible preferred stock (the "Convertible Preferred
      Stock") 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 our common stock
      at the initial conversion price of $2.40 per share. This price is subject to
      change should we issue shares of our 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 our common stock at the price of $2.88
      per share. The warrant exercise price is also subject to adjustment based on
      sales of our common stock below the current fair market value on the contract
      date.





On
      March
      31, 2006, we reached a settlement with Gryphon Master Lund LP (“Gryphon”)
      related to the convertible note and the convertible preferred stock investments
      by Gryphon in September 2003 which total $1,600,000 (See Notes to our financial
      statements). The settlement agreement requires us to pay a maximum of $1,600,000
      which would have been reduced to $1,400,000 if we had paid 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) totaling $1,600,000 into 716,667 shares of our common stock as per the
      terms of the original investment agreements. In addition the settlement
      agreement provides for a reduction of the exercise price to $0.01 for the
      194,167 warrants currently held by Gryphon.





During
      the year ended March 31, 2007, Gryphon did a cashless exercise of these warrants
      and received a total of 192,997 shares of our common stock and converted a
      total
      of $885,000 worth of preferred stock into 416,667 shares of our common
      stock.




**Senior
      Debenture.**On October 26, 2005, we 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, we also issued to the Brad
      Chisick Trust a warrant to purchase 500,000 shares of our common stock for
      $1.75
      per shares. In addition, on October 26, 2005, we issued to the Brad Chisick
      Trust 125,000 shares of our common stock valued at $72,500 as pre-payment of
      the
      accrued interest on this senior debenture.




**Senior
      Secured Convertible Debentures.** In December 2006, we entered into a
      Securities Purchase Agreement with Cornell Capital pursuant to which we agreed
      to issue up to an aggregate principal amount of $3,850,000 of convertible
      debentures, of which $2,500,000 was funded on December 20, 2006. Two additional
      closings of $675,000 occurred as follows: the first upon our filing of a
      registration statement with the SEC, and the second upon that registration
      statement being declared effective by the SEC.  The two additional
      closing took place on February 22, 2007 and March 16, 2007,
      respectively.




The
      convertible debenture is convertible into shares of our common stock determined
      by dividing the dollar amount being converted by the lower of the fixed
      conversion price of $0.9955 or the market conversion price, defined as 90%
      of
      the average of the lowest three daily volume weighted average trading prices
      per
      share of our common stock for the fifteen trading days immediately preceding
      the
      conversion date. The convertible debenture is secured by our assets and shares
      of common stock pledged by certain founding shareholders. We may, at our option,
      redeem the convertible debenture beginning four months after the registration
      statement has been declared effective by the SEC.





21


Issuance
      of the securities sold was exempt from registration pursuant to Rule 506 of
      Regulation D promulgated under Section 4(2) of the Securities Act. The
      securities were sold to an accredited investor in a private transaction without
      the use of any form of general solicitation or advertising. The underlying
      securities are “restricted securities” subject to applicable limitations on
      resale.





We
      made
      no purchases of shares or other units of any other class of our registered
      equity securities during the period covered by this report.





**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.**





22


**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.**





**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 consolidated 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. In 2003 we changed
      our name to BioGentech Corp. and in 2004, changed our name to Cobalis 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 in 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 of newly issued common stock of Cobalis Corp. 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. In 2005, BioGentec was
      dissolved after we adopted its operations and assets.





**Going
      Concern.**The accompanying consolidated financial statements have been
      prepared in conformity with GAAP, which contemplate continuation as a going
      concern. We incurred a net loss of $15,710,602 for the year ended March 31,
      2007
      and as of that date we had a working capital deficit of $15,975,556 and a
      stockholder deficit of $40,519,382. In addition, as of March 31, 2007, we have
      not developed a 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.





In
      December 2006, we entered into a financing agreement with Cornell Capital
      pursuant to which we issued $3,800,000 in secured convertible debentures. This
      agreement also includes the issuance of warrants to purchase up to approximately
      6,600,000 shares of our common stock for $5,500,000.  In late April
      2007, Cornell Capital exercised  its A Warrants for
      1,333,333  shares of our common stock  on a cash basis of
      $0.75 per share. Unless Cornell Capital exercises a significant portion of
      their
      remaining warrants on a cash basis, we will likely have to raise additional
      debt
      and equity financing for operating purposes.  We are currently
      attempting to raise additional financing for operating purposes.





23


We
      require substantial capital to pursue our operating strategy, which includes
      commercialization of our product candidate, and we currently have limited cash
      for operations. Until we can obtain revenues sufficient to fund working capital
      needs or additional research and development costs necessary to obtain the
      regulatory approvals for commercialization, we will be dependent upon external
      sources of financing. 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 and cease product
      development efforts, which could have an adverse effect on our financial
      condition and results of operations.




**Critical
      Accounting Policy and Estimates.**





**Patent
      Cost Valuation.**The determination of the fair value of certain acquired
      assets and liabilities is subjective in nature and often involves the use of
      significant estimates and assumptions. Determining the fair values and useful
      lives of intangible assets requires the exercise of judgment. While there are
      a
      number of different generally accepted valuation methods to estimate the value
      of intangible assets acquired, we primarily use the weighted-average probability
      method outlined in SFAS 144, “Accounting for the Impairment or Disposal of
      Long-Lived Assets.” This method requires significant management judgment to
      forecast the future operating results used in the analysis. In addition, other
      significant estimates are required such as residual growth rates and discount
      factors. The estimates we have used are consistent with the plans and estimates
      that we use to manage our business, based on available historical information
      and industry averages. The judgments made in determining the estimated useful
      lives assigned to each class of assets acquired can also significantly affect
      our net operating results.





**Stock-based
      Compensation.**We adopted SFAS No. 123 (Revised 2004), *Share
      Based Payment*(“SFAS No. 123R”), under the modified-prospective
      transition method on January 1, 2006. SFAS No. 123R requires companies
      to measure and recognize the cost of employee services received in exchange
      for
      an award of equity instruments based on the grant-date fair value. Share-based
      compensation recognized under the modified-prospective transition method of
      SFAS
      No. 123R includes share-based compensation based on the grant-date fair
      value determined in accordance with the original provisions of SFAS
      No. 123, *Accounting for Stock-Based Compensation,*for all
      share-based payments granted prior to and not yet vested as of January 1,
      2006 and share-based compensation based on the grant-date fair-value determined
      in accordance with SFAS No. 123R for all share-based payments granted after
      January 1, 2006. SFAS No. 123R eliminates the ability to account for
      the award of these instruments under the intrinsic value method prescribed
      by
      Accounting Principles Board (“APB”) Opinion No. 25, *Accounting for
      Stock Issued to Employees*, and allowed under the original provisions of
      SFAS No. 123. Prior to the adoption of SFAS No. 123R, we accounted for
      our stock option plans using the intrinsic value method in accordance with
      the
      provisions of APB Opinion No. 25 and related interpretations.





**Estimate
      of Litigation-based Liability.**We are a defendant in certain claims and
      litigation in the ordinary course of business. We accrue liabilities relating
      to
      these lawsuits on a case-by-case basis. We generally accrue attorney fees and
      interest in addition to the liability being sought. Liabilities are adjusted
      on
      a regular basis as new information becomes available. We consult with our
      attorneys to determine the viability of an expected outcome. The actual amount
      paid to settle a case could differ materially from the amount
      accrued.





**Liquidity
      and Capital Resources**





We
      had
      cash and cash equivalents of $389,263 and prepaid expenses and other current
      assets of $24,585 as of March 31, 2007. Our total current assets at March 31,
      2007 were $413,848. We also had the following long term assets: $2,679 in
      property and equipment, net; $885 in net website development costs; $619,029
      represented by net value of our patents; and debt issue cost of $368,878. Our
      total assets as of March 31, 2007 were $1,405,319.





Our
      total
      current liabilities were $16,389,404 at March 31, 2007, which was represented
      by
      accounts payable of $612,366; accrued expenses of $729,928; accrued clinical
      trials costs of $1,244,731; accrued legal settlements of $1,600,000; accrued
      salaries of $265,792; warrant liability of $7,676,190; accrued derivative
      liability of $3,251,194; promissory notes of $46,813; notes payable of $150,000;
      convertible notes payable of $600,000 and senior debenture, net of
      $212,390.





24


In
      June
      2005, we converted a total of $205,174 of amounts due for clinical trials into
      nine promissory notes that accrued interest at a rate of 10% per annum and
      were
      due on December 27, 2005. During the three months ended March 31, 2006 and
      June
      30, 2006, respectively, we converted $131,042 and $27,319 of these promissory
      notes plus accrued interest into 105,250 and 27,200 shares of our common stock,
      respectively. At March 31, 2007, $46,813 of these notes was still
      outstanding.





We
      also
      had $501,563 represented by a convertible debenture, making our total
      liabilities $16,890,967.  We had no other long term commitments or
      contingencies. Our liabilities exceeded our assets by $15,485,648.





On
      July
      18, 2006, we entered into an Accord and Satisfaction Agreement (“Agreement”)
      with several related party creditors, arranging to settle debt of $5,194,553
      including interest accrued through June 30, 2006, in exchange for the issuance
      of 3,995,809 shares of our $.001 par value common stock. This debt was incurred
      in the form of related party advances and services rendered to the company
      over
      recent months. The conversion rate was $1.30 per share, representing a premium
      on the market price of our closing share price on Monday, July 17, 2006 of
      $1.00
      per share.





The
      related parties that were owed funds include Radul Radovich, our Chairman of
      the
      Board of Directors, and several entities owned and controlled by Mr. Radovich.
      The amounts owed were as follows: Mr. Radovich was owed $952,611 principal
      along
      with interest of $127,509, for a total of $1,084,120, which was converted to
      833,938 restricted shares of our common stock; St. Petka Trust, a majority
      shareholder of the company, and of which Mr. Radovich is the beneficiary and
      trustor, was owed $1,585,500 principal, along with interest of $211,335, for
      a
      total of $1,796,835, which was converted to 1,382,180 restricted shares of
      our
      common stock; R and R Holdings, Inc. a Nevada corporation owned by Mr. Radovich,
      was owed $471,507 principal, along with interest of $62,848, for a total of
      $534,355, which was converted to 411,042 restricted shares of our common stock;
      Silver Mountain Promotions, Inc., a Nevada corporation, owned by Mr. Radovich,
      was owed $922,103 principal, along with interest of $122,909, for a total of
      $1,045,012, which was converted to 803,855 restricted shares of our common
      stock; R R Development, Inc., a California corporation, owned by Mr. Radovich,
      was owed $170,000 principal, along with interest of $51,838, for a total of
      $221,838, which was converted to restricted 170,644 shares of our common stock.
      In addition, Mr. Radovich was owed $512,392 for consulting fees, pursuant to
      a
      consulting contract with the company. This amount was converted to 394,147
      restricted shares of our common stock.





We
      have
      financed our operations primarily through cash generated from related party
      debt
      financing as well as issuing a convertible debenture.





Our
      net
      cash used by investing activities was $48,124 for the year ended March 31,
      2007
      compared to $1,703 for the year ended March 31, 2006. The increase is primarily
      due to a payment for our patent.





Our
      net
      cash provided by financing activities was $4,367,500 for the year ended March
      31, 2007 compared to net cash provided by financing activities of $2,600,730
      for
      the year ended March 31, 2006. The increase is primarily due to the issuance
      of
      the convertible debenture and the sale of our common stock offset by a reduction
      in related party advances.





In
      June
      2005, we entered into a loan agreement with Tejeda and Tejeda, Inc. in the
      amount of $100,000. The loan was due in one year. The note was personally
      guaranteed by Mr. Radul Radovich, the chairman of our board of directors, and
      Mr. Chas Radovich, our President, Secretary and formerly one of our directors.
      When the loan was to come due, the holder of the note had the option to convert
      the loan into shares of our common stock at $0.50 per share or at a price equal
      to a 25% discount to the closing bid price on the day of conversion at maturity.
      In July 2006, the holder of the note elected to convert the note to 200,000
      shares of our common stock. We recognized an additional expense of $91,583
      related to the conversion of this note and accrued interest into shares of
      common stock.





In
      October 2005, we issued a senior debenture to the Brad Chisick Trust for
      $250,000 that accrues interest at 10% per annum, and is due in two years. We
      also issued the holder of this debenture a warrant to purchase 500,000 shares
      of
      our common stock at $1.75 per share.




25


During
      the three months ended June 30, 2006, we issued 111,416 shares of our common
      stock that were registered on or about May 11, 2006 on Form S-8 as payment
      for
      certain accounts payable, past due salaries to certain related parties and
      amounts due to consultants.





In
      July
      2006, we issued notes payable in the aggregate amount of $250,000 to three
      investors. The notes bear interest at 5% per month and were due on September
      14,
      2006. We exercised our option to extend the due date to October 14, 2006 and
      issued to the investors a total of 25,000 warrants. These notes were repaid
      subsequent to the quarter ended December 31, 2006.





In
      August
      2006, we issued a note payable to MDC Enterprises Ltd. in the amount of $250,000
      that accrues interest at 40% per annum and is due on December 29, 2006. In
      addition, we also issued to MDC Enterprises Ltd. a warrant to purchase 150,000
      shares of our common stock for $0.75 per shares.





In
      September 2006, we issued a note payable in the amount of $50,000 to an
      investor. The note bears interest at 10% per annum and is payable upon
      demand.





On
      December 20, 2006, we entered into a Securities Purchase Agreement with Cornell
      Capital Partners, L.P. ("Cornell Capital") pursuant to which we agreed to issue
      up to an aggregate principal amount of $3,850,000 of convertible debentures.
      Of
      that amount, $2,500,000 was funded on December 20, 2006. Two additional closings
      of $675,000 occurred as follows: the first upon the Company’s filing of a
      registration statement with the Securities and Exchange Commission (“SEC”), and
      the second upon that registration statement being declared effective by the
      SEC
      and Shareholder approval of additional authorized shares.




The
      convertible debenture is convertible into shares of our common stock determined
      by dividing the dollar amount being converted by the lower of the fixed
      conversion price of $0.99 or the market conversion price, defined as 90% of
      the
      average of the lowest three daily volume weighted average trading prices per
      share of our common stock for the fifteen trading days immediately preceding
      the
      conversion date. The convertible debenture is secured by our assets and shares
      of common stock pledged by certain founding shareholders. At our option, we
      may
      redeem the convertible debenture beginning four months after the registration
      statement has been declared effective by the SEC.




As
      part
      of the funding commitment, we issued four classes of warrants exercisable on
      a
      cash basis that enable Cornell Capital to purchase up to 6,640,602 shares of
      common stock for an additional $5,500,000: an A Warrant to purchase 1,333,333
      shares at $0.75 per share; B Warrant to purchase 1,205,400 shares at $0.8296
      per
      share; C Warrant to purchase 2,343,959 shares at $0.7466 per share; and D
      Warrant to purchase 1,757,910 shares at $0.9955 per share. The A and B Warrants
      expire six months following the effective date of the registration and carry
      forced exercise provisions. The C and D Warrants are non-callable and have
      a
      five-year term. The warrants and convertible debenture are subject to certain
      anti-dilution rights.




Per
      EITF
      00-19, paragraph 4, these convertible debentures do not meet the definition
      of a
“conventional convertible debt instrument” since the debt is not convertible
      into a fixed number of shares.  The debt can be converted into common stock
      at a conversions price that is a percentage of the market price; therefore
      the
      number of shares that could be required to be delivered upon “net-share
      settlement” is essentially indeterminate.  Therefore, the convertible
      debenture is considered “non-conventional,” which means that the conversion
      feature must be bifurcated from the debt and shown as a separate derivative
      liability.  This beneficial conversion liability has been calculated to be
      $1,897,735 on December 20, 2006.  In addition, since the convertible
      debenture is convertible into an indeterminate number of shares of common stock,
      it is assumed that the Company could never have enough authorized and unissued
      shares to settle the conversion of the warrants into common stock.
 Therefore, the warrants issued in connection with this transaction have a
      fair value of $3,667,558 at December 20, 2006.  The value of the warrant
      was calculated using the Black-Scholes model using the following assumptions:
      Discount rate of 4.5%, volatility of 137% and expected term of 1 to 5 years.
       The fair value of the beneficial conversion feature and the warrant
      liability will be adjusted to fair value each balance sheet date with the change
      being shown as a component of net loss.





The
      fair
      value of the beneficial conversion feature and the warrants at the inception
      of
      these convertible debentures were $1,897,735 and $3,667,558, respectively.
       The first $2,500,000 of these discounts has been shown as a discount to
      the convertible debentures which will be amortized over the term of the
      convertible debenture and the excess of $3,065,293 has been shown as financing
      costs in the accompanying statement of operations.





26


As
      a
      result of the issuance of the convertible debenture to Cornell Capital the
      fair
      value of all warrant issued to non-employees have been removed from
      stockholders’ equity and shown as a liability. On December 20, 2006, the fair
      value of such warrants was $3,545,880. The fair value of these warrants and
      those issued to Cornell Capital will be adjusted to fair value at each balance
      sheet date.





The
      fair
      value of the derivative liability and the warrants at the inception of these
      convertible debentures were shown as a debt discount with any discount greater
      than the face amount of the debt being as financing costs in the accompanying
      statement of operations as follows.





Funding
                Date
            
            Amount
                of Debt
            
            
            Fair
                Value of Warrants
            
            
            Fair
                Value of Derivative Liability
            
            
            Amount
                Applied to Debt Discount
            
            
            Recorded
                as Financing CostDecember
                20, 2006
            
            
            $2,500,000
            
            
            
            $3,667,558
            
            
            
            $1,897,735
            
            
            
            $2,500,000
            
            
            
            3,065,293February
                22, 2007
            
            
            675,000
            
            
            
            -
            
            
            
            745,921
            
            
            
            675,000
            
            
            
            70,921March
                16, 2007
            
            
            675,000
            
            
            
            -
            
            
            
            561,774
            
            
            
            561,774
            
            
            
            -$3,850,000
            
            
            
            $3,667,558
            
            
            
            $3,205,430
            
            
            
            $3,736,774
            
            
            
            $3,136,214





At
      March
      31, 2007, the fair value of the warrant and derivative liabilities were
      $7,676,190 and $3,251,194, respectively.  During the year ended March
      31, 2007, we took a charge to earnings of $461,221 as a result of adjusting
      the
      warrant and derivative liabilities to fair value.





**Results
      of Operations for the Year Ended March 31, 2007 as Compared to the Year Ended
      March 31, 2006.**





**Revenues
      and Cost of Sales.**We had no significant revenues for the years ended
      March 31, 2007  or March 31, 2006, as we  were
      undertaking  Phase III clinical trials in order to obtain FDA approval
      of PreHistinTM
      as an over the counter drug. The twin Phase III ragweed trials were completed
      during the year ended March 31, 2007 and the data analyzed subsequent to the
      year end. After completing an independent review of electronic diary entry
      system, on July 6, 2007 we reported the preliminary top-line results which
      showed that PreHistinTM has not
      yet been
      able to demonstrate a statistically significance versus placebo.  This
      was attributed to the low levels of symptomology observed in patients receiving
      placebo, which rendered the studies inconclusive.  As of the date of
      this report, we are determining our next steps in light of those
      results.   As of the date of this report, we are continuing to
      evaluate and audit the Phase III trial data in light of these results. Our
      net
      sales were $0, as were our cost of sales and gross loss for both the year ended
      March 31, 2007 and the year ended March 31, 2006.





**Operating
      Expenses.**Our operating expenses for the year ended March 31, 2007 were
      $10,957,374 as compared to  $5,890,255 for the year ended March 31,
      2006. For both periods, we incurred expenses for two major purposes: i) ongoing
      development of our PreHistinTM product
      and
      related product management and ii) general management and fund raising efforts.
      For the year ended March 31, 2007, this amount was represented by $62,141 in
      depreciation and amortization; $2,785,332 in professional fees; $1,936,800
      in
      salary and wages; $173,185 in rent expense; $3,634,081 in marketing and
      research; $1,567,579 in stock option expense; $691,256 in other operating
      expenses; and $107,000 in legal settlements. This is compared to the year ended
      March 31, 2006, this amount was represented by the following: $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. Our operating expenses increased during the year ended March 31,
      2007 as compared to the year ended March 31, 2006 principally as a result of
      the
      increase in salary and wages, marketing and research from our Phase III clinical
      trials and an expense for stock option grants, offset by a decrease in
      professional fees and legal settlements. 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.




27


Interest
      expense and financing costs for the year ended March 31, 2007 were $1,066,954
      compared to $697,139 for the year ended March 31, 2006. The increase 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 twelve months, our strategy will include moving forward with the completion
      of Phase III clinical trials of our planned allergy prevention product,
      PreHistinTM.  Alternatively,
      we also may elect to pursue development of PreHistinTM for other
      atopic
      and allergic conditions; or to pursue a national and global marketing and
      licensing strategy for PreHistinTM.  We
      anticipate generating revenues from product sales in the next twelve
      months.  We estimate the cost to complete the Phase III clinical
      trials and the submission of an NDA to the FDA for marketing approval will
      be
      significant. We are determining the costs for alternative strategies as of
      the
      date of this filing.  However, we will need to raise funds to execute
      studies for the further development of our proposed PreHistinTM product line, to
      complete the development of additional products, or to pursue alternative
      strategies.  We are in the process of raising additional funds to
      execute further studies.  We also plan to raise funds through the
      exercise of Cornell Capital’s warrants, entering into a partnership agreement or
      private or other equity offerings. We may attempt to secure loans from lending
      institutions or other sources. There is no guarantee we will be able to raise
      additional funds through offerings or other sources. If we are unable to raise
      funds, our ability to continue with product development will be
      hindered.




**Cornell
      Capital Funding.**  As detailed above, on December 20, 2006, we
      entered into a Securities Purchase Agreement with Cornell Capital pursuant
      to
      which we agreed to issue an aggregate principal amount of $3,850,000 of
      convertible secured debentures, which was fully funded by March 17, 2007. We
      used the proceeds for general corporate purposes and for working
      capital.




Also
      as
      described herein, we issued to Cornell Capital an aggregate total of 6,640,602
      warrants, exercisable on a cash basis provided we are not in default, with
      the
      aggregate exercise price of $5,500,000 in four classes. If these warrants are
      exercised on a cashless basis, we would receive no proceeds from their exercise
      by Cornell Capital.





On
      April
      23, 2007 Cornell Capital exercised all of its A warrants on a cash basis for
      1,333,333 shares of our common stock at $0.75. Additionally, on March 23, 2007
      and April 10, 2007, Cornell Capital converted $25,000 of its debentures into
      33,025 and 33,539 common stock shares, respectively. On April 12, 2007, Cornell
      Capital converted $500,000 of its debentures into 730,780 shares of our common
      stock.





At
      March
      31, 2007, the fair value of the warrant and derivative liabilities were
      $7,676,190 and $3,251,194, respectively.  During the year ended March
      31, 2007, we took a charge to earnings of $461,221 as a result of adjusting
      the
      warrant and derivative liabilities to fair value.





As
      of
      March 31, 2007, we had cash and equivalents of $ 389,263. To fully execute
      our
      business plan for the next twelve months, we will need to raise additional
      funds
      in order to continue our operations. There is no assurance that these funds
      will
      be raised. Other than the funds already received from Cornell Capital, we have
      no ongoing source of working capital.





Other
      than the research and development related to our PreHistinTM product,
      we are
      currently evaluating research for other molecules.  For that activity
      we will need to raise additional funds; we do or not plan to engage in any
      other
      research and development unless we are able to raise additional
      funds.  However, in the event that we are able to move forward with
      these plans, we would anticipate additional hiring over the next twelve
      months.





28


**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:






**Cobalis
        Corp. and Subsidiary**
 **Consolidated
        Financial Statements**
 **Years
        Ended March 31, 2007 and 2006**
 **And
        from November 21, 2000 (inception) to March 31, 2007**
   **Contents**
 Page**Report
                    of Independent Registered Public Accounting Firm**
                F-1**Financial
                    Statements:**Consolidated
                    Balance Sheet as of March 31, 2007
                F-2Consolidated
                    Statements of Operations for the years ended March 31, 2007 and
                    2006,and
                    from November 21, 2000 (inception) to March 31, 2007
                F-3Consolidated
                    Statement of Stockholders' Deficit for the period from November
                    21,2000
                    (Inception) to March 31, 2007.
                F-4Consolidated
                    Statements of Cash Flows for the years ended March 31, 2007 and
                    2006,and
                    from November 21, 2000 (inception) to March 31, 2007
                F-5Notes
                    to Consolidated Financial Statements
                F-9
 
 
 29
  **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. and
        subsidiary as of March 31, 2007, and the related consolidated statements
        of
        operations, stockholders' deficit, and cash flows for the years ended March
        31,
        2007 and 2006. 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, 2007, and the results of its operations and its cash flows for
        the
        years ended March 31, 2007 and 2006, 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.
Also,
        a
        judgement has been entered against the Company for a debt on which the
        Company defaulted.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
 July
        10,
        2007
 
 F-1
 **Cobalis
        Corp. and Subsidiary**
 **(formerly
        Biogentech Corp.)**
 **(A
        Development Stage Company)**
 **Consolidated
        Balance Sheet**
 **March
                    31,****2007****ASSETS**CURRENT
                    ASSETSCash
                    and cash equivalents
                
                $
                389,263Prepaid
                    expenses and other current assets
                
                
                24,585TOTAL
                    CURRENT ASSETS
                
                
                413,848PROPERTY
                    AND EQUIPMENT, net of accumulated depreciation of $112,644
                
                
                2,679WEBSITE
                    DEVELOPMENT COSTS, net of accumulated amortization of
                    $33,722
                
                
                885PATENTS,
                    net of accumulated amortization of $334,410
                
                
                619,029DEBT
                    ISSUANCE COSTS
                
                
                368,878TOTAL
                    ASSETS
                
                $
                1,405,319**LIABILITIES
                    AND STOCKHOLDERS' DEFICIT**CURRENT
                    LIABILITIESAccounts
                    payable
                
                $
                612,366Accrued
                    expenses
                
                
                729,928Accrued
                    clinical trial costs
                
                
                1,244,731Accrued
                    legal settlements
                
                
                1,600,000Accrued
                    salaries
                
                
                265,792Warrant
                    liability
                
                
                7,676,190Accrued
                    derivative liabililty
                
                
                3,251,194Promissory
                    notes
                
                
                46,813Notes
                    payable
                
                
                150,000Convertible
                    notes payable
                
                
                600,000Senior
                    Debenture, net of discount of $37,610
                
                
                212,390TOTAL
                    CURRENT LIABILITIES
                
                
                16,389,404CONVERTIBLE
                    DEBENTURE, net of discounts of $3,323,437
                
                
                501,563TOTAL
                    LIABILITIES
                
                
                16,890,967COMMITMENTS
                    AND CONTINGENCIES
                
                
                -STOCKHOLDERS'
                    DEFICITCommon
                    stock; $0.001 par value; 100,000,000 sharesauthorized;
                    36,291,031 shares issued and outstanding
                
                
                36,291Additional
                    paid-in capital
                
                
                25,018,200Prepaid
                    expenses
                
                
                (20,757
                )Deficit
                    accumulated during the development stage
                
                
                (40,519,382
                )TOTAL
                    STOCKHOLDERS' DEFICIT
                
                
                (15,485,648
                )TOTAL
                    LIABILITIES AND STOCKHOLDERS' DEFICIT
                
                $
                1,405,319
 
 
 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****2007**
                
                
                **2006**
                
                
                **March
                    31,2007**NET
                    SALES
                
                $
                -
                
                
                $
                -
                
                
                $
                5,589COST
                    OF SALES
                
                
                -
                
                
                
                -
                
                
                
                31,342GROSS
                    LOSS
                
                
                -
                
                
                
                -
                
                
                
                (25,753
                )OPERATING
                    EXPENSES:Professional
                    fees
                
                
                2,785,332
                
                
                
                3,590,741
                
                
                
                11,960,859Salary
                    and wages
                
                
                1,936,800
                
                
                
                1,061,520
                
                
                
                4,974,098Rent
                    expense
                
                
                173,185
                
                
                
                152,696
                
                
                
                742,244Marketing
                    and research
                
                
                3,634,081
                
                
                
                (325,937
                )
                
                
                5,553,516Depreciation
                    and amortization
                
                
                62,141
                
                
                
                92,899
                
                
                
                589,405Impairment
                    expense
                
                
                -
                
                
                
                -
                
                
                
                2,331,522Stock
                    option expense
                
                
                1,567,579
                
                
                
                -
                
                
                
                1,567,579Other
                    operating expenses
                
                
                691,256
                
                
                
                505,618
                
                
                
                2,318,186Legal
                    settlements
                
                
                107,000
                
                
                
                812,718
                
                
                
                919,718TOTAL
                    OPERATING EXPENSES
                
                
                10,957,374
                
                
                
                5,890,255
                
                
                
                30,957,127LOSS
                    FROM OPERATIONS
                
                
                (10,957,374
                )
                
                
                (5,890,255
                )
                
                
                (30,982,880
                )OTHER
                    EXPENSEInterest
                    expense and financing costs
                
                
                (1,066,954
                )
                
                
                (697,139
                )
                
                
                (5,268,928
                )Convertible
                    debenture financing cost
                
                
                (3,136,214
                )
                
                
                -
                
                
                
                (3,136,214
                )Loss
                    on conversion of debt
                
                
                (88,839
                )
                
                
                
                
                
                
                (88,839
                )Change
                    in fair value of warrant and accrued derivative
                    liabilities
                
                
                (461,221
                )
                
                
                (16,060
                )
                
                
                (157,521
                )TOTAL
                    OTHER EXPENSE
                
                
                (4,753,228
                )
                
                
                (713,199
                )
                
                
                (8,651,502
                )NET
                    LOSS
                
                
                (15,710,602
                )
                
                
                (6,603,454
                )
                
                
                (39,634,382
                )PREFERRED
                    STOCK DIVIDENDS
                
                
                37,500
                
                
                
                75,000
                
                
                
                1,110,000NET
                    LOSS ATTRIBUTED TO COMMON STOCKHOLDERS
                
                $
                (15,748,102
                )
                
                $
                (6,678,454
                )
                
                $
                (40,744,382
                )NET
                    LOSS PER SHARE:BASIC
                    AND DILUTED
                
                $
                (0.48
                )
                
                $
                (0.26
                )
                
                $
                (1.83
                )WEIGHTED
                    AVERAGE SHARES OUTSTANDING:BASIC
                    AND DILUTED
                
                
                32,508,089
                
                
                
                25,816,344
                
                
                
                22,299,461
 
 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**
 
 Deficitaccumulated
                
                
                TotalAdditional
                
                
                
                
                
                during
                    the
                
                
                stockholders'Common
                    stock
                
                
                paid-in
                
                
                Prepaid
                
                
                development
                
                
                equityShares
                
                
                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
                
                
                
                
                
                
                
                
                
                
                
                1,541,628-Net
                    loss
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                (6,603,454
                )
                
                
                (6,603,454
                )Balance
                    at March 31, 2006
                
                
                27,366,387
                
                
                
                27,366
                
                
                
                16,377,254
                
                
                
                (165,425
                )
                
                
                (24,808,780
                )
                
                
                (8,569,585
                )Issuance
                    of common stock for converstion of note payable andaccrued
                    interest  April 2006
                
                
                27,200
                
                
                
                27
                
                
                
                51,109
                
                
                
                
                
                
                
                
                
                
                
                51,136Issuance
                    of common stock for services April 2006 @ $1.46
                
                
                115,000
                
                
                
                115
                
                
                
                167,835
                
                
                
                
                
                
                
                
                
                
                
                167,950Issuance
                    of common stock for cashless exercise of warrants
                
                
                192,997
                
                
                
                193
                
                
                
                (193
                )
                
                
                
                
                
                
                
                
                
                
                -Issuance
                    of common stock for services May 2006 @ $1.37
                
                
                150,000
                
                
                
                150
                
                
                
                204,450
                
                
                
                (165,600
                )
                
                
                
                
                
                
                39,000Issuance
                    of common stock for conversion of accounts payable May 2006 @
                    $1.28
                
                
                111,416
                
                
                
                112
                
                
                
                142,501
                
                
                
                
                
                
                
                
                
                
                
                142,613Issuance
                    of common stock for conversion of preferred stock July 2006 @
                    $2.12
                
                
                208,333
                
                
                
                208
                
                
                
                442,292
                
                
                
                
                
                
                
                
                
                
                
                442,500Issuance
                    of common stock for conversion of related party debt July 2006
                    @
                    $1.30
                
                
                3,995,806
                
                
                
                3,996
                
                
                
                5,190,558
                
                
                
                
                
                
                
                
                
                
                
                5,194,554Issuance
                    of common stock for services July 2006 @ $0.99
                
                
                30,000
                
                
                
                30
                
                
                
                29,820
                
                
                
                (14,850
                )
                
                
                
                
                
                
                15,000Issuance
                    of common stock for conversion of convertible note debt July
                    2006 @
                    $1.01
                
                
                200,000
                
                
                
                200
                
                
                
                201,800
                
                
                
                
                
                
                
                
                
                
                
                202,000Issuance
                    of common stock for services August 2006 @ $0.97
                
                
                20,000
                
                
                
                20
                
                
                
                19,380
                
                
                
                
                
                
                
                
                
                
                
                19,400Issuance
                    of common stock for services September 2006 @ $0.92
                
                
                156,000
                
                
                
                156
                
                
                
                143,684
                
                
                
                (94,000
                )
                
                
                
                
                
                
                49,840Issuance
                    of common stock for cash September 2006 @ $0.50
                
                
                400,000
                
                
                
                400
                
                
                
                199,600
                
                
                
                
                
                
                
                
                
                
                
                200,000Issuance
                    of common stock for services October 2006 @ $0.99
                
                
                360,000
                
                
                
                360
                
                
                
                356,440
                
                
                
                
                
                
                
                
                
                
                
                356,800Issuance
                    of common stock for cash October 2006 @ $0.50
                
                
                1,150,000
                
                
                
                1,150
                
                
                
                573,850
                
                
                
                
                
                
                
                
                
                
                
                575,000Issuance
                    of common stock for services November 2006 @ $0.93
                
                
                1,163,695
                
                
                
                1,164
                
                
                
                1,081,846
                
                
                
                
                
                
                
                
                
                
                
                1,083,010Issuance
                    of common stock for cash December 2006 @ $0.50
                
                
                50,000
                
                
                
                50
                
                
                
                24,950
                
                
                
                
                
                
                
                
                
                
                
                25,000Issuance
                    of common stock for converion of note payableand
                    accrued interest February 2007 @ $0.85
                
                
                127,838
                
                
                
                128
                
                
                
                108,534
                
                
                
                
                
                
                
                
                
                
                
                108,662Issuance
                    of common stock for conversion of preferred stock March 2007
                    @
                    $2.12
                
                
                208,334
                
                
                
                208
                
                
                
                442,292
                
                
                
                
                
                
                
                
                
                
                
                442,500Issuance
                    of common stock for conversion of convertible debenture March
                    2007 @
                    $0.76
                
                
                33,025
                
                
                
                33
                
                
                
                24,967
                
                
                
                
                
                
                
                
                
                
                
                25,000Issuance
                    of common stock for services March 2007 @ $0.80
                
                
                225,000
                
                
                
                225
                
                
                
                179,775
                
                
                
                
                
                
                
                
                
                
                
                180,000Payment
                    of equity offering costs
                
                
                
                
                
                
                
                
                
                
                (57,500
                )
                
                
                
                
                
                
                
                
                
                
                (57,500
                )Amortization
                    of prepaid expenses
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                419,118
                
                
                
                
                
                
                
                419,118Value
                    of warrants issued with debt
                
                
                
                
                
                
                
                
                
                
                112,533
                
                
                
                
                
                
                
                
                
                
                
                112,533Fair
                    value of vested stock options issued to employees
                
                
                
                
                
                
                
                
                
                
                1,567,579
                
                
                
                
                
                
                
                
                
                
                
                1,567,579Fair
                    value of warrants issued for extension of debt
                
                
                
                
                
                
                
                
                
                
                15,307
                
                
                
                
                
                
                
                
                
                
                
                15,307Amortization
                    of fair value of warrants issued to consultants
                
                
                
                
                
                
                
                
                
                
                961,818
                
                
                
                
                
                
                
                
                
                
                
                961,818Value
                    of re-priced warrants
                
                
                
                
                
                
                
                
                
                
                1,599
                
                
                
                
                
                
                
                
                
                
                
                1,599Value
                    of warrants transferred to liability
                
                
                
                
                
                
                
                
                
                
                (3,545,880
                )
                
                
                
                
                
                
                
                
                
                
                (3,545,880
                )-Net
                    loss
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                (15,710,602
                )
                
                
                (15,710,602
                )**Balance
                    at March 31,2007**
                
                ****
                **36,291,031**
                
                
                **$**
                **36,291**
                
                
                **$**
                **25,018,200**
                
                
                **$**
                **(20,757**
                **)**
                
                **$**
                **(40,519,382**
                **)**
                
                **$**
                **(15,485,648**
                **)**
 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**
  **Cumulative
                    from****Year
                    Ended**
                
                
                **November
                    21,****March
                    31,**
                
                
                **March
                    31,**
                
                
                **2000
                    (inception) to****2007**
                
                
                **2006**
                
                
                **March
                    31, 2007**CASH
                    FLOWS FROM OPERATING ACTIVITIES:Net
                    loss
                
                $
                (15,710,602
                )
                
                $
                (6,603,454
                )
                
                $
                (39,634,382
                )Adjustment
                    to reconcile net loss to net cashused
                    in operating activities:Depreciation
                    and amortization expense
                
                
                62,141
                
                
                
                92,899
                
                
                
                589,405Common
                    stock issued for services
                
                
                1,911,000
                
                
                
                1,637,979
                
                
                
                6,757,323Common
                    stock issued for penalty
                
                
                -
                
                
                
                -
                
                
                
                692,500Common
                    stock issued for financing costs
                
                
                44,743
                
                
                
                30,500
                
                
                
                115,743Change
                    in value of warrant and accrued derivative liabilities
                
                
                461,221
                
                
                
                16,060
                
                
                
                157,521Amortization
                    of debt issue costs
                
                
                46,122
                
                
                
                28,072
                
                
                
                157,694Exercise
                    of stock options for services
                
                
                
                
                
                
                -
                
                
                
                26,960Amortization
                    of discounts on notes
                
                
                479,020
                
                
                
                -
                
                
                
                1,269,148Issuance
                    of stock options/warrants for services/debt extension
                
                
                1,136,953
                
                
                
                1,541,628
                
                
                
                3,639,296Capital
                    contribution - bonus (related party)
                
                
                
                
                
                
                -
                
                
                
                50,000Amortization
                    of prepaid expenses
                
                
                419,118
                
                
                
                112,025
                
                
                
                546,743Amortization
                    of deferred compensation
                
                
                -
                
                
                
                -
                
                
                
                250,000Discount
                    on common stock issued for settlement of debt
                
                
                -
                
                
                
                -
                
                
                
                50,000Impairment
                    expense
                
                
                -
                
                
                
                -
                
                
                
                2,331,522Re-pricing
                    of warrants
                
                
                1,599
                
                
                
                301,155
                
                
                
                302,754Value
                    of vested stock options issued to employees
                
                
                1,567,579
                
                
                
                -
                
                
                
                1,567,579Non-cash
                    financing costs
                
                
                3,136,214
                
                
                
                -
                
                
                
                3,136,214Changes
                    in assets and liabilities:
                
                
                
                
                
                
                
                
                
                
                -Prepaid
                    expenses and other assets
                
                
                (7,359
                )
                
                
                (4,680
                )
                
                
                (12,039
                )Inventory
                
                
                -
                
                
                
                -
                
                
                
                6,250Deposits
                
                
                -
                
                
                
                27,454
                
                
                
                27,454Accounts
                    payable
                
                
                315,230
                
                
                
                112,930
                
                
                
                1,163,369Accrued
                    expenses
                
                
                345,235
                
                
                
                (1,421,140
                )
                
                
                1,760,036Accrued
                    clinical trial costs
                
                
                1,244,731
                
                
                
                -
                
                
                
                1,244,731Accrued
                    legal settlement
                
                
                (125,000
                )
                
                
                1,665,000
                
                
                
                1,600,000Accrued
                    salaries
                
                
                (323
                )
                
                
                -
                
                
                
                (323
                )Amounts
                    due to related parties
                
                
                215,574
                
                
                
                390,067
                
                
                
                2,043,481Net
                    cash used in operating activities
                
                
                (4,456,804
                )
                
                
                (2,073,505
                )
                
                
                (10,161,021
                )CASH
                    FLOWS FROM INVESTING ACTIVITIES:Purchase
                    of property and equipment
                
                
                -
                
                
                
                (1,703
                )
                
                
                (89,272
                )Increase
                    in patent costs
                
                
                (48,124
                )
                
                
                -
                
                
                
                (72,835
                )Increase
                    in acquisition deposits
                
                
                -
                
                
                
                -
                
                
                
                (2,220,000
                )Increase
                    in other deposits
                
                
                -
                
                
                
                -
                
                
                
                (40,000
                )Increase
                    in capitalized website
                
                
                -
                
                
                
                -
                
                
                
                (18,097
                )Net
                    cash used in investing activities
                
                
                (48,124
                )
                
                
                (1,703
                )
                
                
                (2,440,204
                )CASH
                    FLOWS FROM FINANCING ACTIVITIES:Change
                    in cash overdraft
                
                
                -
                
                
                
                (11,941
                )
                
                
                -Payment
                    on contract
                
                
                -
                
                
                
                -
                
                
                
                (161,000
                )Proceeds
                    from advances - related party
                
                
                -
                
                
                
                2,256,500
                
                
                
                4,581,449Proceeds
                    from advances from stockholders
                
                
                -
                
                
                
                310,000
                
                
                
                310,000Proceeds
                    from issuance of notes payable
                
                
                550,000
                
                
                
                250,000
                
                
                
                2,015,000Proceeds
                    from sale of common stock
                
                
                800,000
                
                
                
                -
                
                
                
                1,606,500Payment
                    of equity offering costs
                
                
                (57,500
                )
                
                
                -
                
                
                
                (57,500
                )Proceeds
                    from sale of preferred stock
                
                
                -
                
                
                
                -
                
                
                
                885,000Proceeds
                    from convertible debenture
                
                
                3,850,000
                
                
                
                100,000
                
                
                
                4,550,000Capital
                    contribution
                
                
                -
                
                
                
                -
                
                
                
                571,668Payment
                    of debt issue costs
                
                
                (415,000
                )
                
                
                -
                
                
                
                (498,500
                )Payments
                    on advances from stockholders
                
                
                (10,000
                )
                
                
                (50,000
                )
                
                
                (60,000
                )Payments
                    on notes payable
                
                
                (350,000
                )
                
                
                -
                
                
                
                (350,000
                )Payments
                    on advances - related party
                
                
                -
                
                
                
                (253,829
                )
                
                
                (402,129
                )Net
                    cash provided by financing activities
                
                
                4,367,500
                
                
                
                2,600,730
                
                
                
                12,990,488NET
                    INCREASE (DECREASE) IN CASH ANDCASH
                    EQUIVALENTS
                
                
                (137,428
                )
                
                
                525,522
                
                
                
                389,263CASH
                    AND CASH EQUIVALENTS, Beginning of year
                
                
                526,691
                
                
                
                1,169
                
                
                
                -CASH
                    AND CASH EQUIVALENTS, End of year
                
                $
                389,263
                
                
                $
                526,691
                
                
                $
                389,263SUPPLEMENTAL
                    DISCLOSURES OF CASH FLOW INFORMATION:Interest
                    paid
                
                $
                71,617
                
                
                $
                -
                
                
                $
                71,617Income
                    taxes paid
                
                $
                -
                
                
                $
                -
                
                
                $
                -SUPPLEMENTAL
                    DISCLOSURE OF NON-CASH INVESTING ANDFINANCING
                    ACTIVITIES:Common
                    shares issued for conversion of debt
                
                $
                5,581,352
                
                
                $
                -
                
                
                $
                5,581,352
 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,
        2005**
 
 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)**
 
 
 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.
 
 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
          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)**
 
 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.
 
 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 2,455,509 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.
 
 **For
        the Year Ended March 31, 2007**
 
 The
        Company issued 2,169,695 shares of its common stock valued at $2,160,450
        for
        consulting services and employee salary and bonuses.
 
 The
        Company issued 192,997 shares of its common stock upon the cashless exercise
        of
        warrant.
 
 The
        Company issued 27,200 shares of its common stock valued at $51,136 for notes
        payable and accrued interest due to clinical doctors.
 
 The
        Company issued 111,416 shares of its common stock valued at $142,612 as payment
        for certain accounts payable.
 
 The
        Company issued 3,995,806 shares of its common stock valued at $5,194,554
        for
        related party debt.
 
 The
        Company issued 416,667 shares of its common stock upon the conversion of
        1,000
        shares of preferred stock.






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, 2007 and 2006 and the Period**
 **From
        November 21, 2000 (inception) to March 31, 2007**





**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, 2007 and 2006 and the Period**
 **From
          November 21, 2000 (inception) to March 31, 2007**








Basis
      of Presentation & Going concern





The
      accompanying consolidated financial statements have been prepared in conformity
      with 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 $15,710,602 for the year ended
      March 31, 2007 and as of March 31, 2007, the Company had a working capital
      deficiency of $15,975,556 and a stockholder deficit of $40,519,382. In addition,
      as of March 31, 2007, the Company has not developed a substantial source of
      revenue.




On
        March
        31, 2006, the Company reached a settlement with Gryphon Master Lund LP related
        to two investments (See Notes 7 and 9) in the Company by Gryphon in September
        2003 totaling $1,600,000. Full repayment is due under the settlement agreement
        on or before April 1, 2007. The
        Company did not make the payment by April 1, 2007; therefore, the stipulated
        judgment into which the Company entered with Gryphon provides that Gryphon
        has
        the right to enter a judgment of $1.6 million against the Company with the
        court
        upon the Company’s default.
 
 On
        April
        2, 2007, the Company filed a motion to vacate an agreed judgment based on
        several grounds including that allegation that Gryphon breached the “no
        shorting” provision contained in the settlement agreement. The Company believes,
        and so allege in the Motion to Vacate, that despite Gryphon’s agreement, Gryphon
        engaged in shorting of the Company’s stock.
 
 On
        April
        23, 2007, Gryphon sued the Company for breach of contract. This new lawsuit
        alleges that the Company breached a settlement agreement with Gryphon. Gryphon
        is also seeking a declaratory judgment that it did not breach the same
        settlement agreement. Gryphon’s alleged breach of the settlement agreement is
        the subject of the Company’s Motion to Vacate. In addition to the declaratory
        relief, Gryphon’s complaint seeks unspecified damages and attorneys’
fees.  On April 23, 2007, Gryphon also filed an opposition to the
        Company’s Motion to Vacate repeating the same allegations.
 
 Since
        June 2007, Gryphon has aggressively been moving forward with judgment collection
        activities, including, but not limited to, conducting a debtor’s exam, levying
        the Company’s bank accounts and attaching the Company’s assets to the extent
        such assets are not already encumbered.
 
 There
        is
        no guarantee that the Company will be successful in vacating the judgment
        or in
        defending the new lawsuit. If the Company is unsuccessful in vacating the
        judgment or in defending the subsequent lawsuit, and, if the Company is unable
        to subsequently timely resolve the Gryphon matter or raise capital to satisfy
        the judgment, the Company’s ability to move its business forward could be
        adversely affected.


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 has recently raised $3,800,000 by issuing a convertible debenture and
      has sold shares of its common stock for gross proceeds of $800,000 and 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, including
      paying for its phase III clinical trials 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.





F-10


**Cobalis
          Corp. and Subsidiary**
 **(A
          Development Stage Company)**
 **Notes
          to Consolidated Financial Statements**
 **For
          the Years Ended March 31, 2007 and 2006 and the Period**
 **From
          November 21, 2000 (inception) to March 31, 2007**





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.





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, 2007 and 2006 and the Period**
 **From
            November 21, 2000 (inception) to March 31, 2007**






Debt
      Issuance Costs





The
      Company has capitalized fees and expenses of $415,000 associated with the
      issuance of its convertible debentures as debt issuance costs, which are being
      amortized over the term of the convertible debentures.  During the
      year ended March 31, 2007, the Company amortized $46,122 in debt issuance costs
      leaving
      a
      balance of $368,878 as at March 31, 2007.





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, 2007 and 2006 and the period form November 21, 2000 (inception) to March
      31,
      2007, the Company incurred $3,634,081, $(325,937), and $5,553,516, 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.





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, $707, and $33,722,
      respectively, for the years ended March 31, 2007 and 2006 and the period from
      November 21, 2000 (inception) to March 31, 2007.





Patent
      Costs





Patent
      costs are carried at cost less accumulated amortization, which is calculated
      on
      a straight-line basis, over the estimated economic life of the patent. In
      accordance with SFAS No. 142, "Goodwill and Other Intangible Assets," the
      Company evaluates intangible assets and other long-lived assets (including
      patent costs) for impairment, at least on an annual basis and whenever events
      or
      changes in circumstances indicate that the carrying value may not be recoverable
      from its estimated future cash flows. Recoverability of intangible assets and
      other long-lived assets is measured by comparing their net book value to the
      related projected undiscounted cash flows from these assets, considering a
      number of factors including past operating results, budgets, economic
      projections, market trends and product development cycles. If the net book
      value
      of the asset exceeds the related undiscounted cash flows, the asset is
      considered impaired, and a second test is performed to measure the amount of
      impairment loss. During the year 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, 2007 and 2006 and the period from November 21, 2000
      (inception) to March 31, 2007 was $55,694, $53,865, and $443,039, respectively.
      Projected amortization expense approximates $56,000, $56,000, $56,000, $56,000
      and $56,000, respectively, for each of the five years ended March 31, 2011.
      The
      weighted-average life of the remaining patents is approximately 14.7
      years.




F-12


**Cobalis
          Corp. and Subsidiary**
 **(A
          Development Stage Company)**
 **Notes
          to Consolidated Financial Statements**
 **For
          the Years Ended March 31, 2007 and 2006 and the Period**
 **From
          November 21, 2000 (inception) to March 31, 2007**


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, 2007 and 2006, the Company had not
      generated any significant revenue.





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.




F-13


**Cobalis
          Corp. and Subsidiary**
 **(A
          Development Stage Company)**
 **Notes
          to Consolidated Financial Statements**
 **For
          the Years Ended March 31, 2007 and 2006 and the Period**
 **From
          November 21, 2000 (inception) to March 31, 2007**


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).





Net
                loss attributed to common stockholders:As
                reported
            
            $
            (6,678,454
            )Compensation
                recognized under APB 25
            
            
            —Compensation
                recognized under SFAS 123
            
            
            (1,603,482
            )Pro
                forma
            
            $
            (8,281,936
            )Basic
                and diluted loss per common share:As
                reported
            
            $
            (0.26
            )Pro
                forma
            
            $
            (0.32
            )





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.





Advertising
      and Marketing Costs





Advertising
      costs are expensed as incurred and included in operating expenses. For the
      years
      ended March 31, 2007 and 2006 and for the period from November 21, 2000
      (inception) to March 31, 2007, advertising costs were $3,866, $1,995 and
      $339,179, 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, 2007 and 2006 and the Period**
 **From
            November 21, 2000 (inception) to March 31, 2007**





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, 2007 and 2006, the Company has approximately
      19,097,113 and 8,261,767 common stock equivalents, respectively. In addition,
      as
      of March 31, 2007, 5,991,864 shares of common stock are issuable upon the
      conversion of the convertible note payable and convertible
      debentures.





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, 2007 and 2006 and the period from
      November 21, 2000 (inception) to March 31, 2007, 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.





Recently
      Issued Accounting Pronouncements




In
      September 2006, the FASB issued SFAS No. 157, “Fair Value
      Measurements.” This statement clarifies the definition of fair value,
      establishes a framework for measuring fair value and expands the disclosures
      on
      fair value measurements. SFAS No. 157 is effective for fiscal years
      beginning after November 15, 2007. Management has not determined the
      effect, if any, the adoption of this statement will have on the financial
      statements.




F-15
 
 **Cobalis
            Corp. and Subsidiary**
 **(A
            Development Stage Company)**
 **Notes
            to Consolidated Financial Statements**
 **For
            the Years Ended March 31, 2007 and 2006 and the Period**
 **From
            November 21, 2000 (inception) to March 31, 2007**





In
      September 2006, the FASB issued SFAS No. 158, "Employers' Accounting for Defined
      Benefit Pension and Other Postretirement Plans−−an amendment of FASB Statements
      No. 87, 88, 106, and 132(R)". One objective of this standard is to make it
      easier for investors, employees, retirees and other parties to understand and
      assess an employer's financial position and its ability to fulfill the
      obligations under its benefit plans. SFAS No. 158 requires employers to fully
      recognize in their financial statements the obligations associated with
      single−employer defined benefit pension plans, retiree healthcare plans, and
      other postretirement plans. SFAS No. 158 requires an employer to fully recognize
      in its statement of financial position the overfunded or underfunded status
      of a
      defined benefit postretirement plan (other than a multiemployer plan) as an
      asset or liability and to recognize changes in that funded status in the year
      in
      which the changes occur through comprehensive income. This Statement also
      requires an employer to measure the funded status of a plan as of the date
      of
      its year end statement of financial position, with limited exceptions. SFAS
      No.
      158 requires an entity to recognize as a component of other comprehensive
      income, net of tax, the gains or losses and prior service costs or credits
      that
      arise during the period but are not recognized as components of net periodic
      benefit cost pursuant to SFAS No. 87. This Statement requires an entity to
      disclose in the notes to financial statements additional information about
      certain effects on net periodic benefit cost for the next fiscal year that
      arise
      from delayed recognition of the gains or losses, prior service costs or credits,
      and transition asset or obligation. The Company is required to initially
      recognize the funded status of a defined benefit postretirement plan and to
      provide the required disclosures for fiscal years ending after December 15,
      2006. Management believes that this statement will not have a significant impact
      on the financial statements.




In
      February of 2007 the FASB issued SFAS 159, “The Fair Value Option for Financial
      Assets and Financial Liabilities—Including an amendment of FASB Statement No.
      115.”  The statement permits entities to choose to measure many
      financial instruments and certain other items at fair value. The objective
      is to
      improve financial reporting by providing entities with the opportunity to
      mitigate volatility in reported earnings caused by measuring related assets
      and
      liabilities differently without having to apply complex hedge accounting
      provisions.  The statement is effective as of the beginning of an
      entity’s first fiscal year that begins after November 15, 2007.  The
      company is analyzing the potential accounting treatment.




FASB
      Staff Position on FAS No. 115-1 and FAS No. 124-1 (“the FSP”), “The Meaning of
      Other-Than-Temporary Impairment and Its Application to Certain Investments,” was
      issued in November 2005 and addresses the determination of when an investment
      is
      considered impaired, whether the impairment on an investment is
      other-than-temporary and how to measure an impairment loss. The FSP also
      addresses accounting considerations subsequent to the recognition of
      other-than-temporary impairments on a debt security, and requires certain
      disclosures about unrealized losses that have not been recognized as
      other-than-temporary impairments. The FSP replaces the impairment guidance
      on
      Emerging Issues Task Force (EITF) Issue No. 03-1 with references to
      existing authoritative literature concerning other-than-temporary
      determinations. Under the FSP, losses arising from impairment deemed to be
      other-than-temporary, must be recognized in earnings at an amount equal to
      the
      entire difference between the securities cost and its fair value at the
      financial statement date, without considering partial recoveries subsequent
      to
      that date. The FSP also required that an investor recognize other-than-temporary
      impairment losses when a decision to sell a security has been made and the
      investor does not expect the fair value of the security to fully recover prior
      to the expected time of sale. The FSP is effective for reporting periods
      beginning after December 15, 2005. The adoption of this statement will not
      have
      a material impact on our consolidated financial statements.






F-16


**Cobalis
          Corp. and Subsidiary**
 **(A
          Development Stage Company)**
 **Notes
          to Consolidated Financial Statements**
 **For
          the Years Ended March 31, 2007 and 2006 and the Period**
 **From
          November 21, 2000 (inception) to March 31, 2007**






FASB
      Interpretation 48 prescribes a recognition threshold and a measurement attribute
      for the financial statement recognition and measurement of a tax position taken
      or expected to be taken in a tax return. Benefits from tax positions should
      be
      recognized in the financial statements only when it is more likely than not
      that
      the tax position will be sustained upon examination by the appropriate taxing
      authority that would have full knowledge of all relevant information. The amount
      of tax benefits to be recognized for a tax position that meets the
      more-likely-than-not recognition threshold is measured as the largest amount
      of
      benefit that is greater than fifty percent likely of being realized upon
      ultimate settlement. Tax benefits relating to tax positions that previously
      failed to meet the more-likely-than-not recognition threshold should be
      recognized in the first subsequent financial reporting period in which that
      threshold is met or certain other events have occurred. Previously recognized
      tax benefits relating to tax positions that no longer meet the
      more-likely-than-not recognition threshold should be derecognized in the first
      subsequent financial reporting period in which that threshold is no longer
      met.
      Interpretation 48 also provides guidance on the accounting for and disclosure
      of
      tax reserves for unrecognized tax benefits, interest and penalties and
      accounting in interim periods. Interpretation 48 is effective for fiscal years
      beginning after December 15, 2006. The change in net assets as a result of
      applying this pronouncement will be a change in accounting principle with the
      cumulative effect of the change required to be treated as an adjustment to
      the
      opening balance of retained earnings on January 1, 2007, except in certain
      cases
      involving uncertainties relating to income taxes in purchase business
      combinations. In such instances, the impact of the adoption of Interpretation
      48
      will result in an adjustment to goodwill. The adoption of this standard had
      no
      material impact on the Company’s consolidated financial statements.




In
      September 2006, the Securities and Exchange Commission issued Staff Accounting
      Bulletin No. 108, “Considering the Effects of Prior Year Misstatements when
      Quantifying Misstatements in Current Year Financial Statements,” (“SAB
      108”),which provides interpretive guidance on the consideration of the effects
      of prior year misstatements in quantifying current year misstatements for the
      purpose of a materiality assessment. The Company adopted SAB 108 in the fourth
      quarter of 2006 with no impact on its consolidated financial
      statements.





**NOTE
      2 - PROPERTY AND EQUIPMENT**





The
      cost
      of property and equipment at March 31, 2006 consisted of the
      following:




Furniture
                  and fixtures
              
              $
              73,203Office
                  equipment
              
              
              42,120115,323Less
                  accumulated depreciation and amortization
              
              
              (112,644
              )$
              2,679







F-17
 
 **Cobalis
            Corp. and Subsidiary**
 **(A
            Development Stage Company)**
 **Notes
            to Consolidated Financial Statements**
 **For
            the Years Ended March 31, 2007 and 2006 and the Period**
 **From
            November 21, 2000 (inception) to March 31, 2007**


Depreciation
      expense for the years ended March 31, 2007 and 2006 and the period from November
      21, 2000 (inception) to March 31, 2007 was $5,740, $38,328 and $112,644,
      respectively.





**NOTE
      3 – 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. During the quarter ended December 31, 2006,
      the
      Company increased the settlement amount by $60,000 bring the balance due at
      December 31, 2006 to $185,000, which was paid in January 2007.





Gryphon
      Master Fund LP





On
      March
      31, 2006, the Company reached a settlement with Gryphon Master Lund LP related
      to two investments (See Notes 7 and 9) in the Company by Gryphon in September
      2003 totaling $1,600,000. The settlement agreement requires the Company to
      pay a
      maximum of $1,600,000 which will be reduced to $1,400,000 if the Company is
      able
      to pay the judgment on or 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.  During the year ended March 31, 2007, Gryphon did a cashless
      exercise of these warrants and received a total of 192,997 shares of the
      Company’s common stock and converted a total of $885,000 worth of preferred
      stock into 416,667 shares of the Company’s common stock.





As
      of
      March 31, 2007, the full $1,600,000 was still due under the settlement
      agreement. (Refer
      to
      Note 1).





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, 2007 and 2006 and the Period**
 **From
            November 21, 2000 (inception) to March 31, 2007**


**NOTE
      4 – DUE TO RELATED PARTIES**





On
      July
      18, 2006, the Company entered into an Accord and Satisfaction Agreement
      (“Agreement”) with several related party creditors, arranging to settle debt of
      $5,194,553 including interest accrued through June 30, 2006, in exchange for
      the
      issuance of 3,995,809 shares of the Company’s $.001 par value common stock. This
      debt was incurred in the form of related party advances and services rendered
      to
      the Company over recent months. The conversion rate was $1.30 per share,
      representing a premium on the market price of the Company’s closing share price
      on Monday, July 17, 2006 of $1.00 per share.




The
      related parties that are owed funds include Radul Radovich, the Company’s
      Chairman of the Board of Directors, and several entities owned and controlled
      by
      Mr. Radovich. The amounts owed were as follows: Mr. Radovich was owed $952,611
      principal along with interest of $127,509, for a total of $1,084,120, which
      is
      to be converted to 833,938 restricted shares of the Company’s common stock; St.
      Petka Trust, a majority shareholder of the Company, and of which Mr. Radovich
      is
      the beneficiary and trustor, was owed $1,585,500 principal, along with interest
      of $211,335, for a total of $1,796,835, which is to be converted to 1,382,180
      restricted shares of the Company’s common stock; R and R Holdings, Inc. a Nevada
      corporation owned by Mr. Radovich, was owed $471,507 principal, along with
      interest of $62,848, for a total of $534,355, which is to be converted to
      411,042 restricted shares of the Company’s common stock; Silver Mountain
      Promotions, Inc., a Nevada corporation, owned by Mr. Radovich, was owed $922,103
      principal, along with interest of $122,909, for a total of $1,045,012, which
      is
      to be converted to 803,855 restricted shares of the Company’s common stock; R R
      Development, Inc., a California corporation, owned by Mr. Radovich, was owed
      $170,000 principal, along with interest of $51,838, for a total of $221,838,
      which is to be converted to restricted 170,644 shares of the Company’s common
      stock. In addition, Mr. Radovich was owed $512,392 for consulting fees, pursuant
      to a consulting contract with the Company. This amount is to be converted to
      394,147 restricted shares of the Company’s common stock.





**NOTE
      5 – PROMISSORY NOTES**





In
      June
      2005, the Company converted a total of $205,174 of amounts due for clinical
      trials into nine promissory notes that accrued interest at a rate of 10% per
      annum and were due on December 27, 2005. During the three months ended March
      31,
      2006 and June 30, 2006, respectively, the Company converted $131,042 and $27,319
      of these promissory notes plus accrued interest into 105,250 and 27,200 shares
      of the Company’s common stock. At March 31, 2007, $46,813 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, 2007 and 2006 and the Period**
 **From
          November 21, 2000 (inception) to March 31, 2007**


**NOTE
      6 – NOTES PAYABLE**





In
      July
      2006, the Company issued notes payable in the aggregate amount of $250,000
      to
      three investors.  The notes bear interest at 5% per month and were due
      on September 14, 2006.  The Company exercised its option to extend the
      due date to October 14, 2006 and issued to the investors a total of 25,000
      warrants.  The warrants have an exercise price of $1.50 per shares and
      expire in September 2011.  The value of these warrants of $15,307 has
      been expensed as financing costs.  The fair value of these warrants of
      $15,307 was computed using the Black-Scholes model under the following
      assumptions: (1) expected life of 5 years; (2) volatility of 199%, (3) risk
      free
      interest of 4.50% and (4) dividend rate of $0%.  These notes were
      either converted to equity or repaid in January 2007.  During the year
      ended March 31, 2007, the Company repaid these notes payable and accrued
      interest thereon by paying $244,950 in cash and converting $66,919 into 127,838
      shares of common stock and recorded $44,744 as loss on conversion.





In
      August
      2006, the Company issued a note payable to MDC Enterprises Ltd. in the amount
      of
      $250,000 that accrues interest at 40% per annum and is due on December 29,
      2006.
      In addition, the Company also issued to MDC Enterprises Ltd. a warrant to
      purchase 150,000 shares of the Company’s common stock for $0.75 per
      shares.  In January 2007, the Company repaid $150,000 of this note
      leaving a balance due at March 31, 2007 of $100,000.





The
      fair
      value of these warrants totaling $102,464 was computed using the Black-Scholes
      model under the following assumptions: (1) expected life of 5 years; (2)
      volatility of 199%, (3) risk free interest of 4.50% and (4) dividend rate of
      $0%. The face amount of the note payable of $250,000 was proportionately
      allocated to the note payable and the warrants in the amount of $177,323 and
      $72,677, respectively. The amount allocated to the warrants of $72,677 was
      recorded as a discount on the note payable and is being amortized over the
      term
      of the debenture. During the year ended March 31, 2007, the Company fully
      amortized the $72,677 of the discount to interest expense.





In
      September 2006, the Company issued a note payable in the amount of $50,000
      to an
      investor.  The note bears interest at 10% per annum and is payable
      upon demand.  This note is outstanding at March 31, 2007.





**NOTE
      7 - CONVERTIBLE NOTE PAYABLE**





Gryphon
      Master Fund, LP (See Note 3)





In
      September 2003, the Company sold a $600,000, six-year, 8% convertible note
      payable to Gryphon Master Fund, LP, which is convertible into shares of the
      Company's common stock at the initial conversion price of $2.00 per share.
      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 six-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.




F-20


**Cobalis
          Corp. and Subsidiary**
 **(A
          Development Stage Company)**
 **Notes
          to Consolidated Financial Statements**
 **For
          the Years Ended March 31, 2007 and 2006 and the Period**
 **From
          November 21, 2000 (inception) to March 31, 2007**


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 3 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.





During
      the year ended March 31, 2007, Gryphon did a cashless exercise of these warrants
      and received a total of 192,997 shares of the Company’s common stock and
      converted a total of $885,000 worth of preferred stock into 416,667 shares
      of
      the Company’s common stock.





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. In July 2006, Tejeda and Tejeda, Inc. elected to
      convert the note plus accrued interest into 200,000 shares of the Company’s
      common stock.  The Company recognized an additional expense of $91,583
      related to the conversion of this note and accrued interest into shares of
      common stock.





Cornell
      Capital Partners, L.P.





On
      December 20, 2006, the Company entered into a Securities Purchase Agreement
      with
      Cornell Capital Partners, L.P. ("Cornell Capital") pursuant to which the Company
      agreed to issue up to an aggregate principal amount of $3,850,000 of convertible
      debentures. Of that amount, $2,500,000 was funded on December 20, 2006. Two
      additional closings of $675,000 each are scheduled to occur as follows: the
      first upon the Company’s filing of a registration statement with the Securities
      and Exchange Commission (“SEC”), and the second upon that registration statement
      being declared effective by the SEC.  The two additional closing took
      place on February 22, 2007 and March 16, 2007.




F-21
 
 **Cobalis
            Corp. and Subsidiary**
 **(A
            Development Stage Company)**
 **Notes
            to Consolidated Financial Statements**
 **For
            the Years Ended March 31, 2007 and 2006 and the Period**
 **From
            November 21, 2000 (inception) to March 31, 2007**


The
      convertible debenture is convertible into shares of the Company common stock
      determined by dividing the dollar amount being converted by the lower of the
      fixed conversion price of $0.99 or the market conversion price, defined as
      90%
      of the average of the lowest three daily volume weighted average trading prices
      per share of the Company’s common stock for the fifteen trading days immediately
      preceding the conversion date. The convertible debenture is secured by the
      assets of the Company and shares of common stock pledged by certain founding
      shareholders of the Company. The Company, at its option, may redeem the
      convertible debenture beginning four months after the registration statement
      has
      been declared effective by the SEC.




As
      part
      of the funding commitment, the Company issued four classes of warrants
      exercisable on a cash basis that enable Cornell Capital to purchase up to
      6,640,602 shares of common stock for an additional $5,500,000: an A Warrant
      to
      purchase 1,333,333 shares at $0.75 per share; B Warrant to purchase 1,205,400
      shares at $0.8296 per share; C Warrant to purchase 2,343,959 shares at $0.7466
      per share; and D Warrant to purchase 1,757,910 shares at $0.9955 per share.
      The
      A and B Warrants expire six months following the effective date of the
      registration and carry forced exercise provisions. The C & D Warrants are
      non-callable and have a five-year term. The warrants and convertible debenture
      are subject to certain anti-dilution rights.




Per
      EITF
      00-19, paragraph 4, these convertible debentures do not meet the definition
      of a
“conventional convertible debt instrument” since the debt is not convertible
      into a fixed number of shares.  The debt can be converted into common stock
      at a conversions price that is a percentage of the market price; therefore
      the
      number of shares that could be required to be delivered upon “net-share
      settlement” is essentially indeterminate.  Therefore, the convertible
      debenture is considered “non-conventional,” which means that the conversion
      feature must be bifurcated from the debt and shown as a separate derivative
      liability.  This derivative liability conversion liability is as
      follows:





Funding
                Date
            
            AmountDecember
                20, 2006
            
            $
            1,897,735February
                22, 2007
            
            
            745,921March
                16, 2007
            
            
            561,774$
            3,205,430




F-22


**Cobalis
          Corp. and Subsidiary**
 **(A
          Development Stage Company)**
 **Notes
          to Consolidated Financial Statements**
 **For
          the Years Ended March 31, 2007 and 2006 and the Period**
 **From
          November 21, 2000 (inception) to March 31, 2007**


In
      addition, since the convertible debenture is convertible into an indeterminate
      number of shares of common stock, it is assumed that the Company could never
      have enough authorized and unissued shares to settle the conversion of the
      warrants into common stock.  Therefore, the warrants issued in connection
      with this transaction have a fair value of $3,667,558 at December 20, 2006
      are
      shown as a liability.  The value of the warrant was calculated using the
      Black-Scholes model using the following assumptions: Discount rate of 4.5%,
      volatility of 137% and expected term of 1 to 5 years.   The fair
      value of the derivative liability and the warrant liability will be adjusted
      to
      fair value each balance sheet date with the change being shown as a component
      of
      net loss.





The
      fair
      value of the derivative liability and the warrants at the inception of these
      convertible debentures were shown as a debt discount with any discount greater
      than the face amount of the debt being as financing costs in the accompanying
      statement of operations as follows.





Funding
                Date
            
            Amount
                of Debt
            
            
            Fair
                Value of Warrants
            
            
            Fair
                Value of Derivative Liability
            
            
            Amount
                Applied to Debt Discount
            
            
            Recorded
                as Financing CostDecember
                20, 2006
            
            
            $2,500,000
            
            
            
            $3,667,558
            
            
            
            $1,897,735
            
            
            
            $2,500,000
            
            
            
            3,065,293February
                22, 2007
            
            
            675,000
            
            
            
            -
            
            
            
            745,921
            
            
            
            675,000
            
            
            
            70,921March
                16, 2007
            
            
            675,000
            
            
            
            -
            
            
            
            561,774
            
            
            
            561,774
            
            
            
            -$3,800,000
            
            
            
            $3,667,558
            
            
            
            $3,205,430
            
            
            
            $3,736,774
            
            
            
            $3,136,214





At
      March
      31, 2007, the fair value of the warrant and derivative liabilities were
      $7,676,190 and $3,251,194, respectively.  During the year ended March
      31, 2007, the Company took a charge to earnings of $461,221 as a result of
      adjusting the warrant and derivative liabilities to fair value.





The
      convertible debenture as at March 31, 2007 is as follows :-





Face
                value of the convertible debenture
            
            $
            3,825,000Less
                : Unamortized Discounts
            
            
            3,323,437Balance
            
            
            501,563Less
                : current portionLong
                term convertible debenture
            
            $
            501,563








F-23
 
 **Cobalis
            Corp. and Subsidiary**
 **(A
            Development Stage Company)**
 **Notes
            to Consolidated Financial Statements**
 **For
            the Years Ended March 31, 2007 and 2006 and the Period**
 **From
            November 21, 2000 (inception) to March 31, 2007**





**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, 2007, the Company
      amortized $65,683 of the discount to interest expense. At March 31, 2007, the
      balance of the debenture is shown as $212,390 net of unamortized discount of
      $37,610 in the consolidated 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.





During
      the year ended March 31, 2007, the Company issued an additional 20,000 warrants
      to the Brad Chisick Trust as additional consideration for this senior
      convertible debentures.  The fair value of these warrants totaling
      $17,840 was computed using the Black-Scholes model under the following
      assumptions: (1) expected life of 5 years; (2) volatility of 139%, (3) risk
      free
      interest of 4.50% and (4) dividend rate of 0%.





**NOTE
      9 – CONVERTIBLE PREFERRED STOCK (SEE NOTE 3)**





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.





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.




F-24
 
 **Cobalis
            Corp. and Subsidiary**
 **(A
            Development Stage Company)**
 **Notes
            to Consolidated Financial Statements**
 **For
            the Years Ended March 31, 2007 and 2006 and the Period**
 **From
            November 21, 2000 (inception) to March 31, 2007**




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 3 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.





During
      the year ended March 31, 2007, Gryphon did a cashless exercise of these warrants
      and received a total of 192,997 shares of the Company’s common stock and
      converted a total of $885,000 worth of preferred stock into 416,667 shares
      of
      the Company’s common stock.




**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 100,000,000 shares of $0.001 par value common
      stock.





Stock
      Options





In
      2002,
      the Company adopted a Stock Option Plan (the "Plan") initially reserving an
      aggregate of 1,250,000 shares of the Company's common stock (the "Available
      Shares") for issuance pursuant to the exercise of stock options, which may
      be
      granted to employees and consultants to the Company. The Plan options were
      subsequently increased to 2,000,000 shares.





The
      Plan
      provides for the granting at the discretion of the Board of Directors of both
      qualified incentive stock options and non-qualified stock options. Consultants
      may receive only non-qualified stock options. The maximum term of the stock
      options are three to five years and generally vest proportionately throughout
      the term of the option.





F-25
 
 **Cobalis
            Corp. and Subsidiary**
 **(A
            Development Stage Company)**
 **Notes
            to Consolidated Financial Statements**
 **For
            the Years Ended March 31, 2007 and 2006 and the Period**
 **From
            November 21, 2000 (inception) to March 31, 2007**


Transactions
      under the Plans during the years ended March 31, 2007 are summarized as
      follows:





The
      following table summarizes the options outstanding:





Options
              outstanding
            
            
            Weighted
                Average Exercise Price
            
            
            Aggregate
                Intrinsic ValueOutstanding,
                March 31, 2006
            
            
            1,625,000
            
            
            
            $1.74
            
            
            
            $
                374,000Reclassified
                from warrants
            
            
            2,000,000
            
            
            
            $1.75Granted
            
            
            2,950,000
            
            
            
            $1.38Forfeited/Canceled
            
            
            (433,333
            )
            
            
            $1.58Outstanding,
                March 31, 2007
            
            
            6,141,667
            
            
            
            $1.58
            
            
            
            $ -





The
      weighted average remaining contractual life of options outstanding is 6.90
      years
      at March 31, 2007. The number of vested options at March 31, 2007 is
      3,390,442.  The exercise prices for the options outstanding at March
      31, 2007 are as follows:





**Number
                of**
              **Options**
            
            
            **Exercise**
              **Price**475,000
            
            
            
            $1.002,800,000
            
            
            
            $1.401,666,667
            
            
            
            $1.751,200,000
            
            
            
            $2.006,141,667





The
      fair
      value for the options issued during the year ended March 31, 2007 was estimated
      at the date of grant using a Black-Scholes option pricing model with the
      following weighted-average assumptions: risk-free interest rate of 4.50%;
      dividend yields of 0%; volatility factors of the expected market price of the
      Company’s common shares ranging from 142% to 188%; and a weighted average
      expected life of the option of 3 to 5 years.





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.





F-26
 
 **Cobalis
            Corp. and Subsidiary**
 **(A
            Development Stage Company)**
 **Notes
            to Consolidated Financial Statements**
 **For
            the Years Ended March 31, 2007 and 2006 and the Period**
 **From
            November 21, 2000 (inception) to March 31, 2007**


Warrants





As
      a
      result of the issuance of the convertible debenture to Cornell Capital (See
      Note
      7) the fair value of all warrant issued to non-employees have been removed
      from
      stockholders’ equity and shown as a liability.  On December 20, 2006,
      the fair value of such warrants was $3,545,880.  The fair value of
      these warrants and those issued to Cornell Capital will be adjusted to fair
      value at each balance sheet date.





The
      following table summarizes the warrants outstanding:





Warrants
                outstanding
            
            
            Weighted
                Average Exercise Price
            
            
            Aggregate
                Intrinsic ValueOutstanding,
                March 31, 2006
            
            
            6,636,767
            
            
            
            $1.67
            
            
            
            $1,435,630Transferred
                to options
            
            
            (2,000,000
            )
            
            
            $1.75Granted
            
            
            8,762,846
            
            
            
            $0.86Forfeited/Canceled
            
            
            (250,000
            )
            
            
            $1.75Exercised
            
            
            (194,167
            )
            
            
            $0.01Outstanding,
                March 31, 2007
            
            
            12,955,446
            
            
            
            $1.13
            
            
            
            $356,334





The
      weighted average remaining contractual life of warrants outstanding is 3.38
      years at March 31, 2007.  The number of vested warrants at March 31,
      2007 is 12,955,446.  The exercise prices for the warrants outstanding
      at March 31, 2007 are as follows:





**Number
                of**
              **Warrants**
            
            
            **Exercise**
              **Price**150,000
            
            
            
            $0.014,597,292
            
            
            
            $0.751,205,400
            
            
            
            $0.832,860,154
            
            
            
            $1.003,942,600
            
            
            
            $1.75200,000
            
            
            
            $2.0012,955,446








F-27


**Cobalis
          Corp. and Subsidiary**
 **(A
          Development Stage Company)**
 **Notes
          to Consolidated Financial Statements**
 **For
          the Years Ended March 31, 2007 and 2006 and the Period**
 **From
          November 21, 2000 (inception) to March 31, 2007**





**NOTE
      11 - 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, 2007 are as
      follows:




Deferred
                  tax assets:Federal
                  net operating loss
              
              $
              6,580,000State
                  net operating loss
              
              
              905,000Equity
                  instruments issued for compensation/services
              
              
              4,736,000Accrued
                  compensation
              
              
              89,000Accrued
                  legal settlements
              
              
              640,000Impairment
                  expense
              
              
              888,00013,838,000Total
                  deferred tax assetsLess
                  valuation allowance
              
              
              (13,838,000
              )$
              --




During
      the years ended March 31, 2007 and 2006, the valuation allowance increased
      by
      $4,702,000 and $2,638,000, respectively.





At
      March
      31, 2007, the Company had federal and state net operating loss ("NOL")
      carryforwards of approximately $19,414,000 and $13,844,000, 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 through 2021. State NOLs, if unused, could expire in varying
      amounts through 2016.





The
      reconciliation of the effective income tax rate to the federal statutory rate
      for the years ended March 31, 2007 and 2006 is as follows:




2007
              
              
              2006Federal
                  income tax rate
              
              
              (34.0
              %)
              
              
              (34.0
              %)State
                  tax, net of federal benefit
              
              
              (6.0
              %)
              
              
              (6.0
              %)Charge
                  for financing costs
              
              
              7.9
              %
              
              
              -Change
                  in value of liabilities
              
              
              1.2
              %
              
              
              -Equity
                  instruments issued forCompensation/services
              
              
              11.8
              %
              
              
              23.47
              %Accrued
                  compensation
              
              
              (1.1
              %)
              
              
              0.6
              %Accrued
                  legal settlements
              
              
              (1.1
              %)
              
              
              12.2
              %Increase
                  in valuation allowance
              
              
              21.3
              %
              
              
              3.5
              %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-28
 
 **Cobalis
            Corp. and Subsidiary**
 **(A
            Development Stage Company)**
 **Notes
            to Consolidated Financial Statements**
 **For
            the Years Ended March 31, 2007 and 2006 and the Period**
 **From
            November 21, 2000 (inception) to March 31, 2007**


**NOTE
      12 - COMMITMENTS AND CONTINGENCIES**





Litigation





*Former
      Leased Office Space:*The Company was 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 No. 03CC02904. This lawsuit
      was settled in January 2007 pursuant to a settlement agreement and a payment
      of
      $185,000.





*InnoFood/Modofood:*
      On July 28, 2003, the Company entered into a Stock Exchange Agreement ("InnoFood
      Agreement") with InnoFood Inc. ("InnoFood") wherein the Company agreed, among
      other things, to provide InnoFood with funding totaling $5,000,000 in exchange
      for, among other things, 100% interest in InnoFood. The completed purchase
      of
      InnoFood was not to occur until the $5,000,000 funding was delivered. Under
      the
      InnoFood Agreement, the Company was obligated to provide InnoFood with the
      funding on or before December 31, 2003. The Company did provide InnoFood with
      $2,220,000. The Company has confirmation that $1,850,000 of the funds provided
      to InnoFood was sent to Modofood S.P.A., an Italian company ("Modofood").
      InnoFood originally entered into a licensing agreement with Modofood to market
      and distribute Modofood's food processing technology. On October 17, 2003,
      the
      Company entered into a Letter of Understanding ("LOU") with InnoFood to
      restructure the relationship between ourselves and InnoFood. The Company
      believes that InnoFood and certain related individuals may have intentionally
      misled our management regarding certain material matters.





On
      January 8, 2004, InnoFood sent us a letter attempting to terminate the original
      InnoFood Agreement and the October 17, 2003 LOU. InnoFood claimed that the
      Company breached both the InnoFood Agreement and the LOU by failing to provide
      the funding called for under those agreements. With the letter of termination,
      InnoFood delivered a signed promissory note agreeing to pay back $2,160,000
      (net
      of $60,000 interest InnoFood charged to the Company for non-payments). The
      promissory note accrues interest at 10% and is due and payable on or before
      January 15, 2009. Though the Company did not accept that note, the Company
      believes that this promissory note represents an acknowledgment of InnoFood's
      debt to the Company.





In
      late
      2006, the Company filed a complaint entitled Cobalis Corp. v. InnoFood, Reynato
      Giordano, James Luce, Robert Dietrich, Randal Lanham, in Orange County Superior
      Court, California, Case No. 06CC10355, to attempt to recapture the funds
      transferred to InnoFood and acquire any intellectual property related to the
      food preservation process at issue.  On March 3, 2007 Randal Lanham
      filed a cross complaint which was amended on May 28, 2007.  Cobalis
      and cross-defendant Chaslov Radovich filed a Demurrer to the Lanham cross
      complaint for which a hearing date has been set for August 17,
      2007.  The Company intends to vigorously prosecute this matter, though
      as with any litigation, there is no guarantee of a favorable
      outcome.





*Gryphon
      Master Fund, LP.*On November 8, 2004, Gryphon Master Fund, LP, (“Gryphon”)
      filed a lawsuit against the Company in United States District Court, Northern
      District of Texas, Dallas Division, Case No. 3:04-CV-2405-L. The lawsuit sought
      repayment of a $600,000 convertible note payable, accrued interest on the
      convertible note payable within the prescribed period, penalties for failing
      to
      register shares underlying the conversion of the convertible note payable,
      attorneys fees and court costs. In March 2006, the Company entered into
      settlement agreement with Gryphon where both parties agreed to dismiss any
      and
      all current and future claims, legal proceedings and litigation upon full
      satisfaction of the settlement agreement.





F-29
 
 **Cobalis
            Corp. and Subsidiary**
 **(A
            Development Stage Company)**
 **Notes
            to Consolidated Financial Statements**
 **For
            the Years Ended March 31, 2007 and 2006 and the Period**
 **From
            November 21, 2000 (inception) to March 31, 2007**


The
      settlement, which relates to two investments in the Company totaling $1.6
      million made by Gryphon in September 2003, includes an agreed judgment totaling
      $1.6 million. Of the remaining unconverted instruments, Gryphon is also eligible
      to convert its convertible note and convertible preferred stock it holds to
      508,334 shares of the Company’s common stock. Under the settlement agreement,
      full repayment of the $1.6 million was due on or before April 1, 2007. The
      Company did not make the payment by April 1, 2007; therefore, the stipulated
      judgment into which the Company entered with Gryphon provides that Gryphon
      has
      the right to enter a judgment of $1.6 million against the Company with the
      court
      upon the Company’s default.





On
      April
      2, 2007, the Company filed a motion to vacate an agreed judgment (the “Motion to
      Vacate”) in the U.S. District Court for the Northern District of Texas, Dallas
      Division with regard to case #3:04-CV- 2405 between Gryphon Master Fund, L.P.
      (“Gryphon”) and the Company. The Company based the Motion to Vacate on several
      grounds including that allegation that Gryphon breached the “no shorting”
provision contained in the settlement agreement. The Company believes, and
      so
      allege in the Motion to Vacate, that despite Gryphon’s agreement, Gryphon
      engaged in shorting of the Company’s stock. Since June 2007, Gryphon has
      aggressively been moving forward with judgment collection activities, including,
      but not limited to, conducting a debtor’s exam, levying the Company’s bank
      accounts and attaching the Company’s assets to the extent such assets are not
      already encumbered.





On
      April
      23, 2007, Gryphon sued the Company for breach of contract in the same U.S.
      District Court as above, Case #3:07-cv-00701B. This new lawsuit alleges that
      the
      Company breached a settlement agreement with Gryphon. Gryphon is also seeking
      a
      declaratory judgment that it did not breach the same settlement agreement.
      Gryphon’s alleged breach of the settlement agreement is the subject of the
      Company’s Motion to Vacate. In addition to the declaratory relief, Gryphon’s
      complaint seeks unspecified damages and attorneys’ fees.  On April 23,
      2007, Gryphon also filed an opposition to the Company’s Motion to Vacate
      repeating the same allegations.  A trial date is scheduled for the
      September 2007 docket.





There
      is
      no guarantee that the Company will be successful in vacating the judgment or
      in
      defending the new lawsuit. If the Company is unsuccessful in vacating the
      judgment or in defending the subsequent lawsuit, and, if the Company is unable
      to subsequently timely resolve the Gryphon matter or raise capital to satisfy
      the judgment, the Company’s ability to move its business forward could be
      adversely affected.





*Marinko
      Vekovic:*****On March 9, 2006, Marinko Vekovic, a former
      consultant, filed a complaint against the Comapny alleging a  breach
      of a written consulting agreement, specific performance of common stock warrants
      and the “reasonable value of work and labor performed,” seeking damages in
      excess of $700,000, and specific performance of an alleged obligation to issue
      600,000 free trading warrants at a $1.75 share price. The lawsuit, entitled
      Vekovic vs. Cobalis, is pending in Orange County Superior Court, Central Justice
      Center, Case No. 06CC03923.




On
      April
      18, 2006, the Company filed an answer to the complaint, denying the allegations
      by Mr. Vekovic. On the same date, the Company also filed a cross-complaint
      for
      rescission of the consulting agreement, on grounds that Mr. Vekovic made
      numerous material misrepresentations intended to fraudulently induce the Company
      to enter the consulting agreement and to issue to Vekovic 112,500 shares of
      its
      S-8 common stock. Through the Company’s cross-complaint, it sought to rescind
      the consulting agreement and seek restitution from Mr. Vekovic in an amount
      no
      less than the price for which Mr. Vekovic sold the 112,500 shares of its S-8
      common stock, plus all or some portion of the compensation paid to Mr. Vekovic,
      given that the Company believes Mr. Vekovic substantially failed to perform
      the
      consulting services which were the subject of the consulting agreement. The
      Company also sought to recover attorneys’ fees incurred in the defense of the
      complaint and the prosecution of its cross-complaint, pursuant to the attorneys’
fee provision in the consulting agreement. On March 5, 2007, the Company entered
      into a settlement agreement with Mr. Vekovic with regard to this case, whereby
      the Company agreed to register on a future Form S-8 and issue 50,000 shares
      to
      Mr. Vekovic in addition to a grant of 25,000 warrants to purchase shares of
      our
      common stock at $1.75 per share, expiring December 31, 2009.




F-30
 
 **Cobalis
            Corp. and Subsidiary**
 **(A
            Development Stage Company)**
 **Notes
            to Consolidated Financial Statements**
 **For
            the Years Ended March 31, 2007 and 2006 and the Period**
 **From
            November 21, 2000 (inception) to March 31, 2007**


*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. 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 the
      Company, including introductions to potential board members, qualified investors
      and strategic alliances for our product line. The Company issued 20,000 shares
      to Europacific in January 2005, and canceled those shares in May 2005. In
      October 2006, the Company settled this case by rescinding our stop order on
      those 20,000 shares.




*Cappello
      Capital Corp.*In March 2005, the Company entered into an agreement with
      Cappello Capital Corp. (“Cappello”) for investment banking and related financial
      services. Pursuant to a financing agreement, the Company issued 100,000 shares
      as an initial retainer. The Company believes that Cappello did not perform
      per
      the agreement, but  no settlement can be
      guaranteed.****




*Noel
      Marshall.* On March 1, 2007, the Company became aware for the first
      time of the complaint for damages, Case # 07CC03208 filed in
      Superior Court Orange County California, entitled Noel Marshall v. Cobalis
      Corp. Chas Radovich, Radul Radovich, Drsgica Radovich, R.R. Holdings, Biogentec,
      Silver Mountain Productions and St. Petka Trust, alleging breach of contract,
      fraud, constructive trust, money had and received, and account stated (the
      "Marshall Action"). In the Marshall Action, plaintiff
      is alleging, among other things, that certain misrepresentations were
      made with the intent of inducing plaintiff to purchase shares of
      the Company’s common stock.  The Company believes this lawsuit is frivolous
      and without merit. The Company intends to vigorously defend this
      matter. As with any litigation, there is no guarantee of a favorable
      outcome.





In
      the
      ordinary course of business, the Company is generally subject to claims,
      complaints, and legal actions. At March 31, 2007, management believes that
      the
      Company is not a party to any action which would have a material impact on
      its
      financial condition, operations, or cash flows.





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, 2007 and 2006 and for the period from
      November 22, 2000 (inception) to March 31, 2007, was $173,185, $152,696 and
      $742,244, respectively.





Future
      minimum lease payments applicable to non-cancelable operating leases as of
      March
      31, 2007, are as follows:




OperatingLeasesYear
                  ending March 31,2008
              
              
              150,558Net
                  Minimum Lease Payments
              
              $
              150,558





F-31
 
 **Cobalis
            Corp. and Subsidiary**
 **(A
            Development Stage Company)**
 **Notes
            to Consolidated Financial Statements**
 **For
            the Years Ended March 31, 2007 and 2006 and the Period**
 **From
            November 21, 2000 (inception) to March 31, 2007**





**NOTE
      13 – SUBSEQUENT EVENTS**





The
      following events occurred subsequent to March 31, 2007:





·
            The
                Company issued 767,319 shares of common stock to Cornell Capital
                in
                connection with the conversion of $525,000 of their convertible
                debenture.





·
            The
                Company issued 411,080 S-8 shares for payment of account payable
                and
                services rendered.





·
            The
                Company issued 300,000 shares of common stock to Gryphon Master Fund
                in
                connection with the conversion of their $600,000 convertible
                note.





·
            The
                Company issued 750,000 shares of common stock to four individuals/entities
                for services rendered.





·
            The
                Company issued 1,333,333 shares upon the exercise of warrants that
                resulted in gross proceeds to the Company of
                $1,000,000.















F-32


**Item
      8.  Changes in and Disagreements with Accountants on Accounting and
      Financial Disclosure.**





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 during the last two
      fiscal years except for the following:





The
      circumstances requiring disclosure stem from December 1, 2004, the date on
      which
      our independent auditor at the time, 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.





30


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.





**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.





(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, Control Persons and
      Corporate Governance; Compliance with Section 16(a) of the Exchange
      Act.**





**Executive
      Officers and Directors.**As of July 13, 2007 our directors and principal
      executive officers are as specified on the following table:




**Name**
            **Age**
            **Position**Gerald
                Yakatan
            65
            Chief
                Executive Officer, DirectorChaslav
                Radovich
            47
            President,
                SecretaryRadul
                Radovich
            84
            Chairman
                of the Board, DirectorErnest
                Armstrong
            47
            Chief
                Scientific OfficerKevin
                Prendiville
            52
            DirectorThomas
                Stankovich
            46
            DirectorKevin
                Pickard
            43
            Interim
                Chief Financial Officer and TreasurerThomas
                H. Silberg
            60
            DirectorEllen
                McDonald
            45
            DirectorS.
                Wayne Kay
            56
            Director





31


**Gerald
      Yakatan, Chief Executive Officer and a 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 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.
      From
      1987 to 1990, Dr. Yakatan served as executive vice president for research and
      development for Immunetech Pharmaceuticals. In 1980, he joined Warner-Lambert
      Company, Pharmaceutical Research Division, as director of pharmacokinetics
      and
      drug metabolism, and in 1983 was later appointed vice president for worldwide
      product development. From 1971 to 1980, 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, biopharmaceutics, 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.





**Chaslav
      Radovich, President, Secretary**. Mr. Radovich served as our sole officer
      from July 2003 until the appointment of additional officers in 2005, and as
      our
      sole director until the appointment of additional directors in 2004, as
      described herein. He resigned as a director in February 2007. Mr. Radovich
      was
      founder and chief executive officer 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. 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, the chairman of our Board of Directors. He is not an officer or
      director of any other reporting company.





**Radul
      Radovich, Chairman of the Board of Directors.**Mr. Radovich was
      appointed as one of our directors in 2004. 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, our president, corporate secretary and a member of our board
      of directors. He is not an officer or director of any other reporting
      company.




**Ernest
      Armstrong, Chief Scientific Officer.** Mr. Armstrong was appointed as our
      vice president for business development in 2001 and as our chief scientific
      officer in 2005, and served as one of our directors from 2004 to 2007. Mr.
      Armstrong has overseen clinical research on allergic rhinitis products and
      out-licensed medical technology for us. Mr. Armstrong took responsibility for
      overall clinical development (phases 2 and 3), developed clinical and laboratory
      protocols and interfaced with the FDA on approval and regulatory
      matters. From 1991 through 2001, 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
      directed clinical research and wrote patents for pharmaceutical products. 
He was an Associate Professor of International Business at Dai-Ichi Economics
      College, Fukuoka, Japan from 1988 to 1991. Mr. 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.





32


**Kevin
      J. Prendiville, M.D., F.A.C.S. Director.** Dr. Prendiville was appointed
      as one of our directors in 2004. 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.





**Thomas
      Stankovich, Director.**Mr. Stankovich was appointed as one of our
      directors as of January 1, 2007. He served as our treasurer and chief financial
      officer from December 2005 to December 2006. In December 2006, Mr. Stankovich
      was appointed as the vice president, chief financial officer and secretary
      of
      Response Genetics, Inc. (NASDAQ: RGDX), a public company. 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.





**Kevin
      Pickard, Interim Chief Financial Officer and Treasurer.**On December 19,
      2006, our Board of Directors agreed to appoint Kevin Pickard as interim chief
      financial officer and treasurer. Mr. Pickard is a certified public
      accountant with experience providing management consulting services for small
      to
      medium sized companies, including due diligence on potential acquisitions,
      preparing projections and business plans, positioning companies for initial
      public offerings and preparing required SEC filings for public companies.
      Mr. Pickard has practiced as a CPA for over 19 years, and has been involved
      in a number of public offerings and private placements. He has served as a
      financial consultant to us since late 2004. He has been owner of
      Pickard & Company, CPAs, APC since 1998. From 1996 to 1998, he was with
      Singer Lewak Greenbaum & Goldstein, LLP, where he became a partner and
      co-managed the firm’s securities practice group. From 1987 to 1996, he was with
      Coopers & Lybrand, LLP, currently Pricewaterhouse Coopers, LLP, where
      he focused on auditing companies in the insurance, high-tech and manufacturing
      industries. Mr. Pickard received a B.S. degree in Accounting and Master of
      Accountancy from Brigham Young University in 1987. Until December 2006, Mr.
      Pickard previously served as CFO of Triton Distribution Systems, Inc., a
      Colorado corporation, and a reporting company. Since November 2006, Mr. Pickard
      has also served as the interim CFO for Signalife, Inc., a reporting company
      listed on AMEX. Mr. Pickard was also appointed as interim CFO for Universal
      Guardian Holdings, Inc., an OTCBB company in December 2006.




**S.
      Wayne Kay, Director.**From 2005 to the present, Mr. Kay has served as an
      executive advisor to the management and boards of several early-stage companies
      as a self employed consultant, including a life sciences tool company, a company
      developing a non-invasive cardiac output measurement device, a clinical
      chemistry reagent medical device company and similar enterprises.  From
      2001 to 2004, Mr. Kay was the president, chief executive officer and director
      of
      Quidel Corporation in San Diego, California, initially serving as chief
      operating officer in 2001.




Prior
      to
      that, from 1999 through 2000, Mr. Kay was the senior vice president and officer
      of Neoforma.com, with offices in Santa Clara, California and Washington
      D.C.  From 1994 to 1999, he was the president, chief executive officer and
      director of Health Industry Distributors Association, (HIDA) in Alexandria,
      Virginia.  Prior to that, he was president, chief executive officer and
      director of Enzymatics, Inc. from 1989 to 1994, and president of SmithKline
      Diagnostics, Inc. in San Jose, California, a division of SmithKline Beecham
      Corporation, from 1982 to 1989.  Mr. Kay earned his bachelor of science in
      business administration in 1978 from the University of San Francisco, and his
      masters of business administration from Pepperdine University in
      1982.    Mr. Kay also serves on the board of directors of HIDA,
      in Alexandria, Virginia, and of iMedical Devices, Inc., in Los Altos, California
      and Cyntellect, Inc., in San Diego, California.





33


**Ellen
      McDonald, Director.** From 2005 to the present, Ms. McDonald has served
      as the senior vice president business operations for Chugai Pharma USA, LLC,
      which is a foreign issuer listed on the Over-the-Counter Pink Sheets as
      CHGCF.PK. From 2004 to 2005, she was self-employed as a strategic
      commercialization consultant for small to mid-sized biotechnology,
      pharmaceutical and medical device companies. From 2001 to 2004, Ms. McDonald
      was
      the senior vice president for cardiovascular marketing and medical with
      Bristol-Myers Squibb. From 1989 to 2001, she held positions of increasing
      responsibility with Johnson & Johnson, Inc. In 1999, she assumed the role of
      vice president, oncology franchise for Ortho Biotech Inc., which at the time
      was
      Johnson & Johnson’s largest pharmaceutical franchise. Ms. McDonald served on
      active duty with the U.S. Army Military Police Corps from 1984 to 1989,
      achieving the rank of captain. Ms. McDonald earned her bachelor’s of science
      degree in general engineering from the U.S. Military Academy at West Point
      in
      1984, and her masters of business administration from Columbia University in
      1996. Ms. McDonald is not an officer or director of any other reporting
      company.





**Thomas
      H. Silberg, Director.**In May 2006, Mr. Silberg became the executive
      vice president for operations for Abraxis Bioscience, Inc. a company listed
      on
      NASDAQ under the symbol ABBI, and in September 2006, was appointed as the
      president of Abraxis Pharmaceutical Products, with offices in Chicago and Los
      Angeles. From 2004 to 2005, Mr. Silberg has served as the chief operating
      officer of Tercica Inc., located in South San Francisco, which is a
      biopharmaceutical company listed on NASDAQ under the symbol TRCA. From 2001
      to
      2003, Mr. Silberg was the executive vice president and chief operating officer
      for Ligand Pharmaceuticals, Inc., and from 2000 to 2001, its senior vice
      president for commercial operations. From 1972 to 2000, he was with Hoffmann
      La-Roche Inc. in increasingly responsible positions, finally serving as its
      vice
      president for business operations from 1994 to 1999. Mr. Silberg earned his
      bachelor’s degree in marketing and advertising from the University of Minnesota
      in 1972. He also attended programs in Management at Harvard in 1992 and in
      Finance at Wharton in 1986. In the past, he also served as a member of the
      Licensing Executive Society, the Biotechnology Industry Organization, a member
      of the Medi-Promotions Board of directors, the American Society of
      Health-Systems Pharmacists Commission on Goals, the University of Southern
      California, Center of Excellence in Health Management Executive Board and
      several Hoffman-LaRoche organizations. He is not an officer or director of
      any
      other reporting company.





**Family
      Relationships.** Chaslav Radovich is the son of Radul Radovich. There are
      no other family relationships between our officers and 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.





**Terms
      of Service of Officers and Directors.**Our directors serve
      until the next annual meeting of shareholders.  Our executive officers
      are appointed by our Board of Directors and serve at the discretion of the
      Board
      of Directors.





**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.
      These physicians and medical research scientists are associated with top
      healthcare institutions throughout the country and have long term experience
      in
      allergy and immunology as well as managing and conducting clinical trials.
      Several of the advisory board members have previously contributed their
      scientific and medical expertise to the research and development of our
      foundation product, PreHistinTM. The members
      of
      our advisory board are:




**James
      M. Brodsky, RPh, ND, HMD*****,*****Chief
      Researcher***.*Dr. Brodsky**is a facilitating
      professor at the University of Southern California School of Pharmacy. He has
      been on the teaching staff at the University of the Pacific Pharmacology
      Department and at Santa Ana College where he taught Pharmacy Terminology. He
      has
      published numerous articles on Natural Medicine and is a recognized speaker
      on
      Natural Medicine. Dr. Brodsky has been the owner/pharmacist of Villa Park
      Pharmacy for over 25 years. Dr. Brodsky has been a member of the American
      Pharmaceutical Association, the California Pharmaceutical Association, the
      Orange County Pharmaceutical Association and the American Naturopathic Medical
      Association.




34


**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 PreHistinTM 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.




**Alvin
      J. Aubry, MD.** Education: Tulane University School of Public Health -
      Master of Public Health, Tulane University School of Medicine - Doctor of
      Medicine, Straight Pediatrics at Brooke Army Medical Center - Internship.
      Residency: Pediatrics - Madigan Army Medical Center. Fellowship: Allergy &
Immunology, Fitzsimmons Army Medical Center. Board Certifications: American
      Board of Pediatrics, American Board of Allergy & Immunology.




**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.




**Anita
      M. Kirkpatrick, Ph.D.** Education: University of San Diego School of Law
      - Juris Doctor Degree, Massachusetts Institute of Technology Sloan School of
      Management - Master’s Degree in Management of Technology, University of New
      Mexico School of Medicine - Ph.D. in the Medical Sciences (Biochemistry), New
      Mexico Highlands University M.S. in Chemistry, Mount St. Mary’s College/San
      Diego State College - B.S. in Chemistry. Certification and Licensure: California
      State License in Clinical Chemistry, Certified Specialist in Immunology,
      American Society of Clinical Pathologists. Professional Societies: American
      Association for Clinical Chemistry, American Chemical Society; San Diego
      Section, American Society of Clinical Pathology, American Society for
      Microbiology, American Intellectual Property Law Association, California
      Association for Medical Laboratory Technology, San Diego County Bar Association,
      San Diego Intellectual Property Law Association, Licensing Executives Society.
      Joseph T. Morgan, M.D. Education: University of Colorado School of Medicine,
      M.D. Internship: Good Samaritan Hospital - General Rotating Internship,
      Pediatric Residency: St. Joseph’s Hospital, University of Colorado Medical
      Center, University of Colorado Medical Center - Chief Resident in Pediatrics.
      Board Certification: The American Board of Pediatrics.




35


**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.




**Charles
      Jay Siegel, M.D.** Education: University of Wisconsin-Madison, Medical
      College of Wisconsin - M.D. Internship: Children’s Mercy Hospital - Pediatrics.
      Residency: Children’s Mercy Hospital - Pediatrics. Fellowship: Children’s Mercy
      Hospital, University of Kansas Medical Center. Board Certifications: National
      Board of Medical Examiners, American Board of Pediatrics, and American Board
      of
      Allergy & Immunology. Honors: Board of Regents, American College of Allergy,
      Asthma, & Immunology - 1993-1995, Executive Committee American College of
      Allergy, Asthma, & Immunology - 1994-1995, Chairman CME Committee of The
      American College of Allergy Asthma & Immunology - 1997-2001, Chairman
      Re-certification Committee of The American College of Allergy Asthma &
Immunology, Chairman Pharmaceutical Symposia Committee American College of
      Allergy Asthma & Immunology, and Program committee 1997-2000 The American
      College of Allergy Asthma & Immunology. -Publications: Author of numerous
      articles.




**Audit
      Committee and Financial Expert.**  We have not yet determined
      whether we have a financial expert on our Board of Directors as that term is
      defined by Item 401(e)2.  Our Audit Committee consists of directors
      Thomas Stankovich, chair, Thomas H. Silberg, Ellen McDonald, and Kevin
      Prendiville; our Nominating and Corporate Governance committee consists of
      Ellen
      McDonald, chair, Kevin Prendiville, and S. Wayne Kay; and our Executive
      Compensation Committee consists of S. Wayne Kay, chair, Thomas H. Silberg,
      and
      Thomas Stankovich. Radul Radovich, the chair of our Board of Directors, is
      an ex
      officio member of all committees.





**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, 2007 our executive officers,
      directors, and greater than 10% stockholders complied with all applicable filing
      requirements, with the exception of the following:




Mr.
        Kay,
        Mr. Silberg and Ms. McDonald were appointed directors on February 14, 2007
        and
        were granted options on March 14, 2007.  To date, Mr. Kay has not
        filed any report on Form 3 with regard to either his status or the option
        grant,
        and Mr. Silberg’s report on Form 3 was filed on April 13, 2007 and Ms.
        McDonald’s report on Form 3 was filed on April 20, 2007.
 
 Mr.
        Radul
        Radovich and St. Petka Trust, for which Mr. Radovich is the trustor and a
        beneficiary, have six late reports as follows:  St. Petka Trust gifted
        and sold shares on April 17, 2006, which were not reported until May 15,
        2006;
        St. Petka gifted and sold shares; an entity owned and controlled by Mr. Radul
        Radovich gifted shares on May 16, which was not reported until May 26, 2006;
        St.
        Petka Trust transferred shares to a creditor of the company on July 11, 2006,
        which was not reported until October 20, 2006; Mr. Radul Radovich and his
        affiliated entities including St. Petka Trust, RR Holdings, R&R Development
        and Silver Mountain Promotions were each granted shares in settlement of
        a debt
        by the company on October 17, 2007, which was not reported until October
        20,
        2007; St. Petka Trust gifted shares on December 11, 2006, which was not reported
        until April 13, 2007.  Mr. Radul Radovich’s and his entities’
transactions are attributable to Mr. Chaslav Radovich below as a beneficial
        owner, since the two are immediate family members and share a
        household.
 
 Mr.
        Chaslav Radovich was awarded shares of stock and options as compensation
        on May
        15, 2006, which were not reported until August 1, 2006; Mr. Chaslav Radovich
        was
        granted shares on October 17, 2006.  Mr. Chas Radovich’s transactions
        are attributable to Mr. Radul Radovich above as a beneficial owner, since
        the
        two are immediate family members and share a household.
 
 Dr.
        Gerald Yakatan was awarded options as compensation on May 15, 2006, which
        was
        not reported until July 26, 2006.  Dr. Yakatan was granted shares as
        compensation on October 17, 2006, which was not reported until October 24,
        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.





**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.





36


**Summary
      Compensation Table.**The compensation of the named executive officers
      for the last two completed fiscal years ended March 31, 2007 and March 31,
      2006
      is shown below:




**Name
                and Principal**
              **Position**
            **Year
                Ended 3/31**
            **Salary**
              **$**
            **Bonus**
              **$**
            **Stock
                Awards**
              **$**
            **Option
                Awards**
              **$**
            **Non-Equity**
              **Incentive
                Plan Compensation**
              **$**
            **Nonqualified
                Deferred Compensation Earnings**
              **$**
            **All
                Other Compensation**
              **$**
            **Total**
              **$**Gerald
                Yakatan, CEO
            2006
            n/a
            n/a
            n/a
            n/a
            n/a
            n/a
            n/a
            n/a2007
            300,000
                (1)
            0
            360,942
              (2)
            0
            0
            0
            20,700
              (5)
            681,642Thomas
                Stankovich
              Former
                CFO, Treasurer
            2006
            200,000
              (3)
            None
            422,000
            None
            1,603,482
              (4)
            0
            4,234
              (5)
            2,229,719
              (6)2007
            200,000
              (3)
            n/a
            n/a
            n/a
            n/a
            0
            4,234
              (5)
            204,234
              (6)Chaslav
                Radovich
              President,
                CEO
            2006
            125,000
              (8)
            None
            204,500
            None
            None
            0
            10,290
              (5)
              54,000
              (7)
            393,790
              (6)2007
            250,000
              (1)
            None
            None
            541,413
            None
            0
            12,834
              (5)
              54,000
              (7)
            858,247
              (6)Ernest
                Armstrong Chief Scientific Officer
            2006
            100,000
              (6)
                (9)
            None
            32,750
            None
            None
            0
            9,762
              (5)
            142,5122007
            175,000
              (6)
            None
            None
            None
            None
            0
            15,942
              (5)
            190,942Kevin
                Pickard, Interim CFO, Treasurer
            2007
            50,000
              (6)
            None
            200,000
                shares
              (10)
            None
            None
            0
            0
            50,000
                plus value of shares


_________________


(1)
            Annual
                salary rate shown; paid monthly from inception of employment as an
                officer
                beginning May 15, 2006(2)
            Represents
                grant of 200,000 shares of stock as a signing bonus(3)
            Annual
                salary rate shown; received salary through December 19, 2006, resignation
                date as officer(4)
            These
                1,000,000 warrants were to vest over a term of three years; during
                the
                year ended March 31, 2007, these 1,000,000 warrants were cancelled
                and
                replaced with an equivalent grant of options; however, upon Mr.
                Stankovich’s departure as our employee in December 2006, he was only
                entitled to the 666,667 options that had vested through the date
                of his
                departure.(5)
            Approximate
                value of group health insurance benefits paid on employee’s behalf (annual
                rate shown)(6)
            Assumes
                12 month employment term, not necessarily actual amounts received
                for
                partial years of payment or service(7)
            Value
                of annual cost of housing expenses paid by company through May 31, 2007;
                house also shared with family member and director Radul
                Radovich(8)
            A
                portion of the $125,000 salary was paid with 125,000 shares in lieu
                of
                cash salary.(9)
            A
                portion of the $100,000 salary was paid with 32,000 shares in lieu
                of cash
                salary.(10)
            Shares
                payable at the rate of 50,000 shares
                quarterly





**Employment
      Contracts.**





**Chaslav
      Radovich.**Chaslav Radovich, our President, executed a new employment
      agreement as of May 15, 2006, the terms of which are summarized below. His
      original employment agreement with us was dated November 22, 2000 and was
      amended on December 31, 2001, paid an annual salary of up to $125,000 with
      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 an
      additional issuance of 93,750 shares of S-8 stock issued in February 2005,
      Mr.
      Radovich’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. As of May
      31, 2007 Mr. Radovich has been paid all salary amounts due him, but has not
      been
      paid anything since that date.





37


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
                options at an exercise price of $1.40 vested over 3 years; 5 year
                term





In
      addition, on May 1, 2006 we began the lease of a single-family residential
      property as corporate housing for the benefit of Mr. Chaslav Radovich, as our
      president, as well as for guests of the company visiting the local area while
      attending to our business. The monthly rent for the premises is $4,500, paid
      by
      issuing 20,000 shares of our common stock to the landlord. The lease extended
      until January 31, 2007, and on September 28, 2006, was extended until May 31,
      2007, with the payment of an additional 20,000 shares of our common stock paid
      to the landlord at that time.  We did not renew the lease after May
      31, 2007.





**Ernest
      Armstrong.** In February 2004, Ernest Armstrong agreed to serve as our
      vice president of business development in conjunction with our purchase of
      the
      patent underlying our principal product (formerly known as "Immun-Eeze") in
      2000
      from Gene Pharmaceuticals, LLP, of which Mr. Armstrong was the managing member
      until January 2007. Mr. Armstrong previously received a salary of $100,000
      annually and is eligible for annual bonuses as well. Mr. Armstrong’s employment
      agreement is being prepared. In November 2005, we issued 32,000 shares of our
      common stock registered on Form S-8 as payment of wages due Mr. Armstrong under
      his employment contract, and additional 16,000 shares of common stock as a
      bonus.  Mr. Armstrong’s salary was increased to $175,000 on an annual
      basis on August 1, 2006.  Mr. Armstrong was last paid monthly salary
      amounts due on May 31, 2007.





**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
      contract, executed in December 2005, are summarized below:





**Executive**
            **Thomas
                Stankovich**Position
            CFOStart
                Date
            12/05/05Term
            3
                yearsBase
                Salary
            $200,000
                per yearSigning
                Bonus
            100,000
                registered shares on the start date and 150,000 restricted shares
                after 30
                daysStock
                Options*
            1,000,000
                options to purchase shares of our common stock at $1.75 vested over
                3
                years; 5 year term


*Mr.
      Stankovich was originally granted an equal number of warrants with equivalent
      terms; in November 2006, these warrants were canceled and replaced with options.
      As of the date of his departure from our employment, 666,667 of his options
      had
      vested.





Mr.
      Stankovich resigned his positions as chief financial officer and treasurer
      effective December 18, 2006. However, he was appointed as one of our directors
      effective January 1, 2007. As such, he is no longer due a salary from us, and
      is
      entitled to only to shares already granted and the 666,667 options that have
      already vested and any compensation due by virtue of his position as a
      director.





**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
                restricted shares on the start date and 100,000 restricted shares
                after 90
                daysStock
                Options
            1,000,000
                options to purchase shares of our common stock at $1.40 vested over
                3
                years; 5 year term




38


**Kevin
      Pickard.**The material terms of Mr. Pickard’s contract, effective
      December 19, 2006, are summarized below.  A formal written agreement
      was executed on March 20, 2007.





**Executive**
            **Kevin
                Picard**Position
            Interim
                CFO and TreasurerStart
                Date
            12/16/06Term
            One
                year renewableBase
                Salary
            $50,000
                per yearSigning
                Bonus
            50,000
                restricted shares to be granted at the beginning of each quarter
                for
                calendar 2007





Mr.
      Pickard has been paid his salary through April 30, 2007 only; of the shares
      scheduled to be issued, 100,000 shares have been issued per the terms of his
      contract.





**Outstanding
      Equity Awards at Fiscal Year-end.**As of the year ended March 31, 2007,
      each named executive officer had these unexercised options, stock that has
      not
      vested, and equity incentive plan awards:





**Option
                Awards**
            **Stock
                Awards****Name**
            **Number
                of Securities Underlying Unexercised Options**
              **#
                Exercisable**
            **#
                Un-**
              **exercisable**
            **Equity
                Incentive Plan Awards: Number of Securities Underlying Unexercised
                Options**
            **Option
                Exercise Price**
            **Option
                Expiration**
              **Date**
            **Number
                of**
              **Shares
                or**
              **Units
                of**
              **Stock
                Not**
              **Vested**
            **Market**
              **Value
                of**
              **Shares
                or**
              **Units
                Not**
              **Vested**
            **Equity
                Incentive Plan Awards: Number of Unearned**
              **Shares,
                Units**
              **or
                Other Rights Not Nested**
            **Value
                of Unearned Shares,**
              **Units
                or**
              **Other
                Rights**
              **Not
                Vested**Thomas
                Stankovich
            666,667
                options(1)
            333,333
                options (1)
            None
            $1.75
            December
                2016
            0
            n/a
            n/a
            n/aErnest
                Armstrong
            1,200,000
                options
            0
            0
            $2.00
            February
                2011(2)
            0
            n/a
            n/a
            n/aChaslav
                Radovich
            1,000,000
                options
            500,000
              options
            None
            $1.40
            May
              2011
            0
            n/a
            n/a
            n/aGerald
                Yakatan
            666,667
              options
            333,333
              options
            0
            $1.40
            May
              2011
            0
            n/a
            n/a
            n/aKevin
                Pickard
            100,000
              warrants
              (3)
            0
            None
            $1.75
            Sept
                2009
              July
                2010
              (4)
            50,000
            n/a
            n/a
            n/a


___________________


(1)
            Originally
                warrants later converted to options as described
                herein.(2)
            Or
                seven years from the date of the underlying agreement, pending
                finalization of that agreement.(3)
            Awarded
                prior to engagement as our interim CFO and treasurer.(4)
            Of
                this total, 50,000 warrants expire in Sept. 2009 and 50,000 expire
                in July
                2010.




**Director
      Compensation.**The following concerns the compensation of our directors
      for their service as directors during the fiscal year ended March 31,
      2007:





**Name**
            **Fees
                Earned or**
              **Paid
                in Cash**
            **Stock
                Awards**
              **$**
            **Option**
              **Awards**
              **$**
            **Non-Equity**
              **Incentive
                Plan Compensation**
              **$**
            **Non-Qualified**
              **Deferred**
              **Compensation
                Earnings**
              **$**
            **All
                Other**
              **Compensation**
              **$**
            **Total**
              **$**Gerald
                Yakatan
            0
            70,000
            360,942
            0
            0
            0
            430,942Radul
                Radovich
            0
            0
            0
            0
            0
            2,496
              (1)
              54,000
              (2)
            56,496Kevin
                Prendiville
            0
            10,000
            0
            0
            0
            0
            10,000Thomas
                Stankovich
            0
            0
            565,935
            0
            0
            0
            565,935Ellen
                McDonald
            0
            0
            12,799
            0
            0
            1,556
              (3)
            12,799Thomas
                H. Silberg
            0
            0
            12,799
            0
            0
            0
            12,799S.
                Wayne Kay
            0
            10
            12,799
            0
            0
            0
            12,799




39


_________________________


(1)
            Health
                insurance premium paid on behalf of director.(2)
            Value
                of housing provided by company(3)
            Travel
                expenses to attend board meetings paid on behalf of
                director


(4)
              Value
                  of annual cost of housing expenses paid by company through May
                  31, 2007;
                  house also shared with family member and corporate officer Chaslav
                  Radovich




**Item
      11. Security Ownership of Certain Beneficial Owners and Management and Related
      Stockholder Matters.**





**Equity
      Compensation Plans.**Refer to the table included in Item 5,
      above.





**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 June 26, 2007, 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 40,372,555 shares of our common stock outstanding as of June 26,
      2007.





**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
            612,500
                shares (1)
              Chief
                Executive Officer and Director
            1.5%Common
                Stock
            Thomas
                Stankovich
              2445
                McCabe Way, Suite 150
              Irvine,
                CA, 92614
            428,070
                shares (2)
              Director
            1.2%Common
                Stock
            Chaslav
                Radovich
              2445
                McCabe Way, Suite 150
              Irvine,
                CA, 92614
            1,184,934
                shares (3)
              President,
                Secretary
            2.9%Common
                Stock
            Radul
                Radovich
              46
                Calle Fresno
              San
                Clemente, CA, 92672
            10,076,528
                shares (4)
              Chairman
                of the Board of Directors
            25.0%Common
                Stock
            Ernest
                Armstrong
              2445
                McCabe Way, Suite 150
              Irvine,
                CA, 92614
            251,967
                shares (5)****
              Chief
                Scientific Officer
            0.6%Common
                Stock
            Kevin
                Prendiville
              2445
                McCabe Way, Suite 150
              Irvine,
                CA, 92614
            506,480
                shares (6)
              Director
            1.3%Common
                Stock
            Kevin
                Pickard
              445
                McCabe Way, Suite 150
              Irvine,
                CA, 92614
            130,000
                shares (7)
              Interim
                Chief Financial Officer and Treasurer
            0.3%Common
                Stock
            St.
                Petka Trust
              46
                Calle Fresno
              San
                Clemente, CA 92672
            7,417,736
                shares (4)
            18.4%Common
                Stock
            Silver
                Mountain Promotions
              6446
                Silver Dawn Lane
              Las
                Vegas, NV, 89118
            848,688
                shares (4)
            2.1%Common
                Stock
            R
                and R Holdings
              46
                Calle Fresno
              San
                Clemente, CA, 92672
            411,375
                shares (4)
            1.0%Common
                Stock
            R
                & R Development
              46
                Calle Fresno
              San
                Clemente, CA, 92672
            170,644
                shares (4)
            0.4%Common
                Stock
            Gene
                Pharmaceuticals
              2445
                McCabe Way, Suite 180
              Irvine,
                CA, 92614
            1,449,087
                shares (8)
            3.6%Common
                Stock
            James
                Hammer
              2537
                Red Arrow Drive
              Las
                Vegas, NV 89135
            3,774,643
                shares (9)
            9.3%Common
                Stock
            Thomas
                H. Silberg
              2445
                McCabe Way, Suite 150
              Irvine,
                CA, 92614
            No
                shares (10)
            0%Common
                Stock
            Ellen
                McDonald
              2445
                McCabe Way, Suite 150
              Irvine,
                CA, 92614
            No
                shares (10)
            0%Common
                Stock
            S.
                Wayne Kay
              2445
                McCabe Way, Suite 150
              Irvine,
                CA, 92614
            No
                shares (10)
            0%Common
                Stock
            Officers
                and directors as a group
            14,361,496
                shares
            35.6%






40


_________________________


(1)
            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, 2016.(2)
            Thomas
                Stankovich was granted 1,000,000 options to purchase shares of our
                common
                stock at $1.75 per share, which were granted in November 2006 to
                replace
                warrants he was granted while serving as one of our officers. Of
                those
                options, 666,667 vested by the date of his resignation in December
                2006.
                He was to receive a total of 1,000,000 options pursuant to his employment
                agreement, though he is no not entitled to the unvested options after
                he
                left his employment with us. These options expire in November
                2016.





(3)
            Chaslav
                Radovich owns 1,140,934 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, 2016.





(4)
            Radul
                Radovich and his spouse are the beneficiaries of the St. Petka Trust,
                which owns 7,417,736 shares. Radul Radovich is also the Trustor of
                St.
                Petka Trust. Radul Radovich also owns R and R Holdings, which holds
                411,375 shares of our common stock. Radul Radovich also owns R&R
                Development, which holds 170,644 shares. Radul Radovich also owns
                Silver
                Mountain Promotions, which holds 848,688 shares of our common
                stock.





(5)
            Ernest
                Armstrong owns 245,063 shares individually, 550 shares owned jointly
                with
                his parent, has beneficial ownership of 3,000 shares owned jointly
                by Mr.
                Armstrong’s spouse and Mr. Armstrong’s parent, and 3,354 shares owned
                jointly with his spouse. Mr. Armstrong is also anticipated to receive
                2,200,000 options to purchase shares of our common stock at $2.00
                per
                share expiring seven years from the dates of grants, including 1,200,000
                options from us and 1,000,000 options to purchase shares owned by
                St.
                Petka Trust.





(6)
            Kevin
                Prendiville owns 100,000 shares directly and is a trustee of the
                Prendiville Revocable Trust which owns 390,000 shares Kevin J. Prendiville
                MD Profit Sharing owns 12,840; 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)
            Kevin
                Pickard was appointed as our interim CFO and treasurer in December
                2006.
                He holds 100,000 warrants to purchase shares of our common stock
                for $1.75
                per share; of those, 50,000 warrants expire on September 7, 2009
                and
                50,000 warrants expire on July 29, 2010. Those warrants were issued
                while
                Mr. Pickard served as our
                consultant.





(8)
            Until
                January 2007, Mr. Armstrong was managing member of Gene
                Pharmaceuticals, LLC, which owns 1,449,087
                shares.





(9)
            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
                his spouse and 1,650,000 shares owned by the Hammer Family
                Trust.





(10)
            Thomas
                H. Silberg, Ellen McDonald and S. Wayne Kay were appointed as directors
                in
                February 2007. Each was granted 50,000 options to purchase shares
                of our
                common stock with an exercise price of $1.00 per share. Those options
                vest
                over three years and expire after five
                years.




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.





41


**Lock
      Up Agreements and Forbearance Agreements.**Our officers and directors
      have entered into certain agreements as a requirement of the funding agreements
      with Cornell Capital. These include lock-up agreements limiting the sale of
      all
      the shares of our common stock that they own to the guidelines provided by
      rule
      144 for a period extending for 30 days after all amounts due under the
      convertible debentures have been paid. These shares are listed in the table
      “Security Ownership of Certain Beneficial Owners and Management” above.
      Additionally, our officers and directors have executed forbearance agreements
      by
      which they agreed not to exercise any rights they may have pursuant to the
      respective warrants or options they hold to purchase shares of our common stock,
      until after such time as we have adequate authorized common stock to accommodate
      such exercises. These warrants and options are listed in the “Security Ownership
      of Certain Beneficial Owners and Management” table above.




**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, except for the agreements
      referenced herein with Cornell Capital. Specifically, Mr. Radul Radovich has
      pledged 8,400,000 of shares owned or beneficially owned by him to secure the
      Cornell Capital debentures mentioned herein.




These
      8,400,000 shares comprise approximately  20.8% of our currently issued
      and outstanding common stock, and are a large percentage of the 10,076,528
      shares of our common stock that are owned by Mr. Radovich, chairman of our
      board
      of directors, and his affiliated entities. The pledged shares include the
      following:





·
            1,228,085
                shares held by Mr. Radovich individually;·
            5,893,018
                of the7,417,736 shares held d by St. Petka Trust, of which Mr. Radovich
                is
                the trustor and a beneficiary;


·
            411,042
                shares held by R and R Holdings, owned by Mr. Radovich;
                and·
            803,855
                shares held by Silver Mountain Promotions, Inc., owned by Mr.
                Radovich.





If
      we
      default on the agreements with Cornell Capital, these pledged shares would
      be
      transferable to Cornell Capital, thus resulting in a change in control. In
      the
      event that Cornell Capital is issued the full 7,024,085 shares registered by
      means of our recent registration statement on Form SB-2, such issuance would
      result in approximately 16.5% of the new total. In the event that Cornell
      Capital obtains the 8,400,000 shares of pledged stock, described above, then
      in
      conjunction with the 7,024,085 shares, Cornell Capital could potentially own
      up
      to 15,424,085 shares, or approximately 38.2% of that new total. Either of these
      scenarios would result in Cornell Capital exercising significant influence
      over
      our affairs as a shareholder of a large percentage of our issued and outstanding
      common stock.





**Item
      12.  Certain Relationships and Related Transactions, and Director
      Independence.**





**Related
      Party Transactions.**





**Consulting
      Contract.** We have a consulting contract with R and R Holdings, Inc.,
      one of our shareholders ("R and R"), whereby R and R provides managerial
      consulting services to us at the rate of $125,000 per year. R and R is also
      one
      of our shareholders. Until October 2006, we had accrued a payable to R and
      R
      under the contract for consulting fees totaling $512,392 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, our president, secretary and until February 2007,
      a
      member of our board of directors. This amount owed was later converted to
      shares, as described below.





**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 have also advanced
      us
      cash from time to time. On July 18, 2006 we entered into an accord and
      satisfaction agreement to settle the aggregate debt of $5,194,553 including
      interest accrued through June 30, 2006, in exchange for the issuance of
      3,995,809 shares of our common stock.





42


The
      related parties that were owed funds include Radul Radovich, our chairman of
      the
      board of directors, and several entities owned and controlled by Mr.
      Radovich.





The
      amounts owed as of September 30, 2006 were as follows:





·
            Mr.
                Radovich was owed $952,611 principal along with interest of $127,509,
                for
                a total of $1,084,120;·
            St.
                Petka Trust, a principal shareholder, and of which Mr. Radovich is
                the
                beneficiary and trustor, was owed $1,585,500 principal, along with
                interest of $211,335, for a total of
                $1,796,835;


·
            R
                and R Holdings, Inc. a Nevada corporation owned by Mr. Radovich,
                was owed
                $471,507 principal, along with interest of $62,848, for a total of
                $534,355;·
            Silver
                Mountain Promotions, Inc., a Nevada corporation, owned by Mr. Radovich,
                was owed $922,103 principal, along with interest of $122,909, for
                a total
                of $1,045,012;


·
            R
                R
                Development, Inc., a California corporation, owned by Mr. Radovich,
                was
                owed $170,000 principal, along with interest of $51,838, for a total
                of
                $221,838; and


·
            Mr.
                Radovich was owed $512,392 for consulting fees, pursuant to a consulting
                contract with us.





To
      settle
      these amounts owed, on October 17, 2006, we issued an aggregate 3,995,809 shares
      of our common stock to Radul Radovich individually, and to entities owned and
      controlled by Mr. Radovich. The entities owned by Mr. Radul Radovich that were
      issued shares were the following: the St. Petka Trust, organized in Delaware;
      R
      and R Holdings, Inc., a Nevada corporation, R and R Development, a California
      corporation, and Silver Mountain Promotions, Inc., a Nevada corporation. The
      shares were issued with respect to the these entities' request for conversion
      of
      amounts owed to them by us pursuant to certain promissory notes and to Mr.
      Radovich pursuant to the consulting contract between us and R and R Holdings,
      Inc. As reported, the agreement by which these obligations were settled was
      executed in July 2006, and the parties agreed that the amounts owed were to
      be
      converted at the rate of $1.30 per share, a premium over the market price at
      the
      time. The conversion amounts as of the settlement date were as
      follows:





·
            The
                note with Radul Radovich had a principal amount of $956,611, interest
                accrued of $127,509 for a total of $1,084,120, which was converted
                to
                833,938 shares.·
            The
                note with St. Petka Trust had a principal amount of $1,585,500, interest
                accrued of $211,335 for a total of $1,796,835, which was converted
                to
                1,382,180 shares.


·
            The
                note with R and R Holdings, Inc. had a principal amount of $471,507,
                interest accrued of $62,848 for a total of $534,355, which was converted
                to 411,042 shares.


·
            The
                note by Silver Mountain Promotions, Inc. had a principal amount of
                $922,103, interest accrued of $122,909 for a total of $1,045,012,
                which
                was converted to 803,855 shares.


·
            The
                note by RR Development had a principal amount of $170,000, interest
                accrued of $51,838 for a total of $221,838, which was converted to
                170,644
                shares.


·
            Radul
                Radovich was owed $512,392 in consulting fees for his services to
                the
                Registrant, which was converted to 394,147
                shares.




The
      3,995,809 shares were issued to Mr. Radovich, one of our directors, and to
      his
      owned entities, pursuant to the Securities Act Section 4(2) registration
      exemption.





**Employment
      Contracts.** Refer to “Executive Compensation” section below for a
      summary of employment agreements we have in place with our
      officers.





**Amounts
      Owed Pursuant to Employment Contracts.** As of March 31, 2006, we owed
      Mr. Chas Radovich $52,083 in past due compensation. He served as our chief
      executive officer through May 18, 2006, and is our current president and
      corporate secretary. 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 Ernest Armstrong, a current officer, and $113,125
      to James Luce, a former officer and employee in past due compensation. We have
      reserved this amount owed merely for accounting purposes, but believe that
      since
      Mr. Luce was dismissed for cause, he is not entitled to this amount and are
      currently contesting the matter with Mr. Luce. Otherwise, we believe all amounts
      payable under employment agreements in force are currently paid through May
      31,
      2007.





43


**Corporate
      Housing.** On May 1, 2006 we began the lease of a single-family
      residential property as corporate housing for the benefit of Mr. Chaslav
      Radovich, as our president, and other guests of the company visiting to attend
      to our business. The monthly rent for the premises is $4,500, paid by issuing
      20,000 shares of our common stock to the landlord. The lease extended until
      January 31, 2007, and on September 28, 2006, was extended until May 31, 2007,
      with the payment of an additional 20,000 shares of our common stock paid to
      the
      landlord at that time. We made no lease payments after May 31,
      2007.





**Patent
      Royalty Agreement and Asset Pledge.** 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 (“operating assets”) were purchased
      from Gene Pharmaceuticals, LLC (“Gene Pharmaceuticals”) for $150,000 plus
      royalties, including royalties tied to future sales. Ernest Armstrong, our
      chief
      scientific officer and formerly one of our directors, was the managing member
      of
      Gene Pharmaceuticals until January 2007.





In
      August
      2002, the parties agreed to postpone the payment of royalties in exchange for
      250,000 options to purchase shares of our 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 issuance
      of
      2,000,000 shares of our common stock 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.





In
      February 2004, the parties agreed that a “Revised Asset Purchase Agreement”
would provide for the following: we would grant Mr. Armstrong the option to
      purchase 1,200,000 shares of our common stock at $2.00 per share, expiring
      seven
      years from the date of the revised agreement; St. Petka Trust would grant to
      Mr.
      Armstrong the option to purchase 1,000,000 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’ agreement to remove the anti-dilution 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. However, in the event
      that
      royalties become payable and we do not make those royalty payments, the patents
      could revert to Gene Pharmaceuticals.





In
      November 2006, Gene Pharmaceuticals executed an asset pledge statement. Pursuant
      to the requirements of our funding arrangement with Cornell Capital, as
      described herein, and pursuant to that asset pledge statement, Gene
      Pharmaceuticals agreed to give us the right to assign our operating assets
      to
      Cornell Capital to secure our agreements with Cornell Capital. In the event
      that
      we default on the agreements with Cornell Capital, those assets may revert
      to
      Cornell Capital.





**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 at the time. 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;


·
            81,516
                shares to James Luce, our chief operating officer and chief marketing
                officer at the time; 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).





44


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, at the time, our chief financial officer
                and
                treasurer, as a part of his signing
                bonus;


·
            48,000
                shares to Ernest Armstrong in lieu of employee wages (32,000 shares)
                and
                as an employee bonus (16,000
                shares).





In
      January 2006, we issued an additional 150,000 shares to Thomas Stankovich,
      our
      chief financial officer and treasurer at the time, as the final part of his
      signing bonus.





In
      May
      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.





In
      October 2006, in addition to the shares issued to the Radovich entities
      described above, we issued 1,113,695 shares of our common stock which we
      registered on Form S-8. Of that total, we issued the following to related
      parties:





·
            362,500
                shares to Gerald Yakatan, our chief executive officer in lieu of
                employee
                wages (190,789 shares) and as an employee bonus (171,711
                shares);·
            302,083
                shares to Chaslav Radovich, our president, in lieu of employee wages
                (158,991 shares) and as an employee bonus (143,092
                shares);


·
            178,070
                shares to Thomas Stankovich, our chief financial officer and treasurer
                at
                the time, in lieu of employee wages (63,596 shares) and as an employee
                bonus (114,474 shares); and


·
            95,563
                shares to Ernest Armstrong in lieu of employee wages (43,691 shares)
                and
                as an employee bonus (51,872
                shares).





**Options.**
      We granted the following related-party options:





In
      February 2004, pursuant to our patent purchase agreement with Gene
      Pharmaceuticals, we agreed to grant Mr. Ernest Armstrong 1,200,000 options
      to
      purchase shares of our common stock at $2.00 per share, and expiring 7 years
      from the date of the revised underlying agreement.





During
      our fiscal years ending March 31, 2005 and 2006, we did not grant any options
      to
      any related parties.





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 ten years from the date of grant.




In
      November 2006, we granted Thomas Stankovich, our chief financial officer at
      the
      time, 1,000,000 options to purchase shares of our common stock at $1.75 per
      share and which expire in ten years; these options were granted in place of
      equivalent warrants granted in December 2005. As of his departure from our
      employment in December 2006, a total of 666,667 of those options had
      vested.





In
      February 2007, we appointed Thomas H. Silberg, Ellen McDonald and S. Wayne
      Kay
      to our board of directors. Each is slated to receive 50,000 options to purchase
      shares of our common stock with an exercise price of $1.00 per share. Those
      options will vest over three years and expire after five years.





**Warrants.**We granted the following related-party warrants:




45


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 from 2004 to February
      2007, and which expire in January 2007, but which have been extended to expire
      after our authorized common stock is increased.




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 at the time, to purchase shares of our common stock at $1.75
      per share and which expire in ten years. These were replaced with equivalent
      options in December 2006, as described herein.







**Stock
      Option and Award Plan.** On October 17, 2006, our board of directors
      adopted our 2006 Stock Option and Award Plan (“2006 Plan). The 2006 Plan will be
      administered by the Board. The 2006 Plan will allow us to continue to grant
      stock options and other equity awards at levels determined appropriate by the
      Board. The 2006 Plan will also provide us with continued flexibility in
      designing equity incentives in an environment where a number of companies have
      moved from traditional option grants to other stock or stock-based awards,
      including stock appreciation rights, restricted stock awards, restricted stock
      unit awards, performance stock awards, and performance cash awards. Accordingly,
      the 2006 Plan will allow us to utilize a broad array of equity incentives in
      order to secure and retain the services of our employees, consultants and
      directors, and to provide incentives for such persons to exert maximum efforts
      for our success and the success of our affiliates.





**Cornell
      Capital Funding Pledge and Lock Up Agreements.**The Cornell Capital
      debentures described herein are also secured by a pledge of 8,400,000 of the
      10,076,528 shares of our common stock which are owned by Radul Radovich,
      chairman of our board of directors, and his affiliated entities. This includes
      the following:





·
            1,228,085
                shares held by Mr. Radovich individually;·
            5,893,018
                of the 7,417,736 shares owned by St. Petka Trust, of which Mr. Radovich
                is
                the trustor and one of the
                beneficiaries;


·
            411,042
                shares held by R and R Holdings, owned by Mr. Radovich;
                and


·
            803,855
                shares held by Silver Mountain Promotions, Inc., which is owned by
                Mr.
                Radovich.




These
      8,400,000 shares comprise approximately 20.8% of our currently issued and
      outstanding common stock. If we default on the agreements with Cornell Capital,
      these pledged shares would be transferable to Cornell Capital, thus resulting
      in
      a change in control.





Additionally,
      our officers and directors have executed lock-up agreements restricting the
      sale
      of all the shares of our common stock that they own for a period extending
      for
      30 days after all amounts due under the convertible debentures have been paid.
      These shares are listed in the table “Security Ownership of Certain Beneficial
      Owners and Management” above.





**Director
      Independence.**The members of our Board of Directors
      that are  independent as that term is defined by defined in
      Rule 4200(a)(15) of the Nasdaq Marketplace Rules are Ellen McDonald,
      S.Wayne Kay, and Thomas H. Silberg.





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.





46


**Item
      13.  Exhibits and Reports on Form 8-K**





(a)
      Exhibit No.





3.1
            Articles
                of Incorporation (1)


3.1.1
            Certificate
                of Amendment to Articles of Incorporation
                (1)


3.1.2
            Certificate
                of Amendment to Articles of Incorporation
                (2)


3.1.2
                (II)
            Certificate
                of Amendment to Articles of Incorporation
                (3)


3.1.3
            Certificate
                of Amendment to Articles of Incorporation
                (4)


3.2
            Bylaws
                (1)


4
            Certificate
                of Designations on Preferred stock
                (5)


4.1
            Convertible
                Note with Gryphon Master Fund LP
                (4A)


4.2
            (reserved)


4.3
            2006
                Stock Option and Award Plan (8)


10.1
            Asset
                Purchase Agreement between BioGentec Inc., (fka St. Petka, Inc.)
                and Gene
                Pharmaceuticals, LLC,(fka
                Allergy Limited, LLC,) as amended
                (6)


10.2
            Executive
                Employment Agreement with Thomas Stankovich
                (6)


10.2.1
            Amendment
                No. 1 to Employment Agreement with Thomas Stankovich
                (8)


10.3
                (II)
            Settlement
                Agreement with Gryphon Master Fund, L.P.
                (6A)


10.3
            Executive
                Employment Agreement with Chaslav Radovich
                (7)


10.4
            Executive
                Employment Agreement with Gerald Yakatan
                (7)


10.4.1
            (reserved)


10.4.2
            Asset
                Pledge Statement by Gene Pharmaceuticals, LLC
                (9)


10.5
            Securities
                Purchase Agreement between Cobalis Corp. and Cornell Capital Partners
                LP(9)


10.6
            Secured
                Convertible Debenture for $2,500,000 (“Closing
                Debenture”)(9)


10.6.1
            Secured
                Convertible Debenture for $675,000 (“Filing Debenture”)
                (10)


10.6.2
            Secured
                Convertible Debenture (“Final Debenture”) for
                $675,000


10.7
            Registration
                Rights Agreement between Cobalis Corp. and Cornell Capital Partners
                LP
                (9)


10.8
            Security
                Agreement between Cobalis Corp. and Cornell Capital Partners LP
                (9)


10.9
            Pledge
                and Escrow Agreement (9)


10.10
            Transfer
                Agent Instructions (9)


10.11
            Form
                of Lock Up Agreement (9)


10.12
            “A
                Warrant” Agreement between Cobalis Corp. and Cornell Capital Partners
                LP(9)


10.13
            “B
                Warrant” Agreement between Cobalis Corp. and Cornell Capital Partners
                LP(9)


10.14
            “C
                Warrant” Agreement between Cobalis Corp. and Cornell Capital Partners
                LP(9)


10.15
            “D
                Warrant” Agreement between Cobalis Corp. and Cornell Capital Partners
                LP(9)


10.16
            Consulting
                Agreement with Kevin Pickard, interim CFO and Treasurer
                (10)


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


_______________________




(1)
            Included
                in the registration statement on Form 10-SB filed on February 8,
                2002


(2)
            Included
                in Information Statement on Schedule 14C filed June 10,
                2003


(3)
                Included
                    on Information Statement on Schedule 14C filed June10,
                    2004
 (4)
                Included
                    in Report on Form 8-K filed July 8,
                    2004


(4A)
              Included
                  in Report on Form 8-K filed on September 16,
                  2003


(5)
            Included
                in Report on Form 8-K filed on October 1,
                2003


(6)
            Included
                in Quarterly Report on Form 10-QSB on February 14,
                2006


(6A)
            Included
                in Report on Form 8-K filed on April 5,
                2006


(7)
            Included
                in Annual Report on Form 10-KSB filed on July 14,
                2006


(8)
            Included
                in Quarterly Report on Form 10-QSB filed on November 20,
                2006


(9)
            Included
                in Report on Form 8-K filed on December 27,
                2006


(10)
            Included
                in Report on Form 8-K filed on February 23,
                2007


(11)
            Included
                in Report on Form 8-K filed on March 1,
                2007





47





**Item
      14.  Principal Accountant Fees and Services.**





**Audit
      Fees.**The aggregate fees billed in each of the fiscal years
      ended March 31, 2007 and March 31, 2006 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 $30,000 and
      $61,500, 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, 2007
      and March 31, 2006





**Tax
      Fees.**For the fiscal years ended March 31, 2007 and March 31, 2006, 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.






48


**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 16, 2007.





Cobalis
      Corp.,


a
      Nevada
      corporation




/s/
      Gerald Yakatan


Gerald
      Yakatan


Principal
      Executive Officer, Director





/s/
      Kevin
      Pickard


Kevin
        Pickard


Principal
      Financial Officer, Treasurer





/s/
        Chaslav Radovich
 Chaslav
        Radovich


President,
      Secretary




/s/
      Ernest Armstrong





Ernest
      Armstrong


Chief
      Scientific Officer





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




/s/
                    Gerald Yakatan
              
              July
                  16, 2007Gerald
                  YakatanDirector/s/
                    Radul Radovich
              
              July
                  16, 2007Radul
                  RadovichDirector/s/
                    Kevin Prendiville
              
              July
                  16, 2007Kevin
                  PrendivilleDirector/s/
                    Thomas Stankovich
              
              July
                  16, 2007Thomas
                  StankovichDirectorThomas
                  H. SilbergDirectorEllen
                  McDonaldDirector/s/
                    S. Wayne Kay
              
              July
                  16, 2007S.
                  Wayne KayDirector




49